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Superior Energy Services Inc  (NYSE:SPN)
Q3 2018 Earnings Conference Call
Oct. 23, 2018, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Superior Energy Services Third Quarter Conference Call. Today's conference is being recorded and at this time, I'd like to turn the conference over to Mr. Paul Vincent, Vice President of Investor Relations. Please go ahead, sir.

Paul Vincent -- Vice President of Investor Relations

Good morning and thank you for joining Superior Energy's Third Quarter 2018 Conference Call. With me today are Superior's President and CEO, Dave Dunlap; our CFO, Westy Ballard; and our CAO, Jamie Spexarth. During this conference 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. Management will refer to non-GAAP financial measures during this call. In accordance with Regulation G, the Company provides a reconciliation of these measures on its website. With that, I'll turn the call over to Dave Dunlap.

David D. Dunlap -- President, Chief Executive Officer and Director

Thank you, Paul and good morning to everyone listening to our call today. We'll begin with a brief review of our third quarter activity. Westy will discuss segment results and I'll offer thoughts on strategy and outlook before turning the call over for Q&A.

For the third quarter of 2018, Superior Energy generated revenue of $573 million, EBITDA of $100 million, and a net loss from continuing operations of $22 million or $0.14 per share. A critical difference between Superior Energy and many of our small and mid-cap peers is the exposure that we have to opportunities in global offshore and land markets with multiple product lines. Geographic and product line diversification are essential components of our strategy, the value of which can be seen in third quarter results. Our organization's commitment to this strategy and our efforts to expand the presence of our global cornerstone franchises deserves to be recognized and has us in an excellent position to benefit from continued global recovery.

Third quarter results continue to indicate a gradual improvement in the Gulf of Mexico. All three of our operating segments with exposure to the Gulf showed revenue growth and improved margins. The greatest contribution was from our completion tools business. An expected increase in activity occurred during the quarter causing sales and profitability to improve. Drilling related activity also grew during the quarter continuing a trend, albeit modest, which we have observed throughout the year. Premium drill pipe rentals increased and although we aren't seeing large scale projects commence just yet, there is a noticeable change in activity and customer sentiment as it relates to the Gulf of Mexico today versus a year ago.

Within our production related product lines, activity was also improved. It may seem obvious, but in a world in which our customers are increasingly return and cash flow focused, it should come as no surprise that they seek out their highest return opportunities which can often be workover and production maintenance related projects. Results internationally were improved in our drilling and production related product lines. The international rig count continues to grow and markets where we've expanded our Production Service offerings such as Argentina, Colombia and India, all continue to see increasing levels of spending and activity.

In US land markets where revenue was up approximately 20% from the third quarter of last year, we observed a flattening of activity growth in West Texas after two years of relentless rig count and completion growth. During this period of increased demand, the oilfield service industry also expanded its capacity, most notably in hydraulic fracturing. As activity levels during the quarter and additional capacity arrived in the field, it was evident that the completion market was softening from a supply and demand perspective. This has limited opportunities to secure higher pricing and increased risk to fleet utilization over the near term. We believe that the pause in completion activity growth which occurred during the third quarter and may extend for several quarters is just that, a pause.

Strengthening oil prices and the anticipation of elevated future cash flows as well as the expected resolution of potential midstream bottlenecks should result in a resumption of activity growth at some point in 2019. Although it appears there will be pressure on US land completion oriented margins during this period, the fact remains that our pressure pumping margins have improved more than 70% from year ago levels. Total US land margins have increased in excess of 45% and our consolidated EBITDA margin of 17% is up almost 60% from the third quarter of 2017.

By no means are these targets for us, we will do better and continue to expand margins, but in the meantime, our results are improving in what can only be considered an extremely competitive US land market. Market recovery is taking longer than we would like. After a series of starts and stops our industry has encountered along the road to recovery, it is worth highlighting that many of the inefficiencies which delayed margin expansion in prior quarters are less problematic today and we believe we are on steady footing for the next leg of activity growth when it occurs.

Market dynamics affecting hydraulic fracturing margins didn't seem to impact the number of other product and service lines in US land markets that demonstrated growth during the quarter including premium drill pipe, bottom hole assemblies, fluid management, and a number of our production related services. All in all, I'm proud of the work we did this quarter. Despite the market we're in today, some competitors continue to operate and price work at levels we simply don't understand. We have remained committed to partnering with customers who have become accustomed to the high quality and reliable service we offer. We're also pleased to see the commitment we made to International and offshore markets throughout the downturn resulting in growth and strong market position in the early stages of global recovery. As activity continues to improve, our competitively advantaged capital efficient global cornerstone franchises will drive Superior's financial performance. I'll now turn the call over to Westy for our third quarter financial review.

Westervelt T. Ballard -- Executive Vice President, Chief Financial Officer and Treasurer

Thank you, Dave. In discussing our operating segments, all sequential comparisons will be made to our second quarter results. Drilling Products and Services total segment revenue increased 6% to $99 million resulting in income from operations of $20 million compared to income from operations of $15 million in the second quarter. US land revenue increased 5% to $46 million. Gulf of Mexico revenue increased 12% to $26 million and international revenue was unchanged at $27 million. Onshore Completion and Workover Services, which is comprised of product lines that exclusively serve US land markets, revenue increased 7% to $295 million. Income from operations for this segment decreased to $3 million compared to income from operations of $8 million in the second quarter. A greater than anticipated percentage of our hydraulic fracturing work is now being conducted as multi-well pad or zipper operations. This increases the volume of sand that we can pump and also increases the horsepower requirements to operate efficiently.

In addition greater horsepower requirements, the near perpetual nature of these operations requires us to increase the amount of ancillary equipment such as zipper manifolds and treating iron (ph) on each job as we pump against greater pressures at higher rates for longer periods of time. Often times, we're also encountering exceedingly poor quality water quality in many areas where our customers operate, which has an adverse impact on our equipment. These factors caused increased repair and maintenance expenses during the quarter. While we believe these types of operations help differentiate service quality among providers, ultimately, higher prices will be required to reflect the increased repair and maintenance demands placed our equipment from higher levels of service intensity.

Our Production Services total segment revenue increased 4% to $106 million. The loss from operations for this segment decreased to $6 million compared to a loss from operations of $7 million in the second quarter. US land revenue remained unchanged at $48 million. Gulf of Mexico revenue increased 24% to $17 million and international revenue increased 2% to $41 million.

In our Technical Solutions segment, total revenue increased 15% to $73 million. This segment generated income from operations of $9 million compared to income from operations of $6 million in the second quarter. US land revenue increased 6% to in $9 million. Gulf of Mexico revenue increased 34% to $47 million due to increased completion tool activity. International revenue decreased 13% to $17 million as well control activity continue to ebb lower.

And turning to the balance sheet, our debt to capital ratio at the end of the quarter was approximately 56% and our total debt at quarter-end remained $1.3 billion. We ended the quarter with $105 million of cash and capital expenditures during the quarter were $66 million. Before I turn the call back over to Dave, here are a few modeling related items. G&A for the quarter was $69 million and we expect fourth quarter G&A to be in the range of $70 million to $74 million. DD&A is expected to be between $98 million and $103 million. Fourth quarter interest expense is expected to be in the range of $24 million to $26 million. Our effective tax rate for the third quarter was 13.9% and for modeling purposes, we would suggest that effective rate between 13% and 16%. Thank you and I'll now turn the call back over to Dave for closing comments.

David D. Dunlap -- President, Chief Executive Officer and Director

Thanks, Westy. There's definitely a higher degree of uncertainty surrounding US land markets over the coming quarters primarily as it relates to completions activity. Current fracturing supply and demand dynamics have caused spot market pricing to erode rapidly. For some time, we have used the spot market as an outlet to secure utilization when one of our primary customers reduced activity for short periods of time. It is increasingly unlikely that when we do have brief periods of availability on our calendar that we will participate in the spot market until pricing and competitor behavior improves opting instead not to run our equipment at sub-optimal pricing. Combined with the likelihood that our customers will reduce activity levels during the coming holiday season, it is likely that fourth quarter utilization results in fracturing are below third quarter levels.

Looking ahead to next year, our customers who are espousing at capital discipline and return orientation have yet to disclose 2019 operating plans. There also remains a range of potential operational, logistical, and supply chain inefficiencies that could limit activity growth over the near term. As a result, we can't know when to expect the next leg of activity growth, but are confident that substantial activity growth can occur in US land markets at some point during 2019. For example, we are fielding an increasing amount of request for our completion services relating to 2019 work programs. These requests are coming from high quality operators and despite the reported demise of the Permian Basin and our desire to maintain geographic diversification in frac, much of the new incoming demand we are seeing is for work in the Permian. We will always deploy our assets where the best opportunities exist and as a result, it is likely that we have more horsepower working in the Permian during 2019 than we do today.

Regardless of one's convictions, the service opportunity in the Permian Basin is extremely nuanced and I would caution anyone from using wide generalizations to characterize the market over the coming quarters. Our customers who have investment opportunities outside of the Permian Basin may be inspired to allocate portions of their budgets to other US basins, offshore markets or international projects where competitive forces are more favorable for oilfield service companies like Superior Energy.

There has been a growing chorus from industry stakeholders and investors expressing a desire for the service industry to follow the path of our customers toward greater capital discipline although I'd submit that the oilfield service industry has demonstrated the ability to generate compelling returns in the past. From what we can observe, the industry has begun to take this message to heart. A slower pace of service company capital equipment investment in US land markets should cause supply and demand of fracturing equipment to balance quickly when activity levels do ramp back up.

We have a return oriented mindset at Superior. As the recovery began, we took steps to activate equipment we already owned and we are now at a point where our US land capital expenditures are primarily targeted to maintaining the capacity we have out in the field. It would take an exceptional amount of market improvement and near certainty of cycle duration for us to commit to significant levels of growth capital in US land markets. As a result, we should be able to improve our returns through the cycle even if the current environment persists. Commercially, our emphasis is on dedicated partnerships with well-capitalized operators who run large scale shale development programs. As these customers continue to improve their operational efficiency, many have adopted multi-well pad drilling and zipper frac completion operations. This presents an opportunity for us to pump increased levels of sand, but also presents new operational challenges for us.

As Westy mentioned, while performing zipper frac services, there is greater horsepower and support requirements per job. For us, this will result in our total horsepower remaining the same, but operating as fewer fleets. There should be no doubt that these customers and these types of operations present an opportunity for more reliable, consistent utilization over time. Another primary capital expenditure we anticipate during this cycle in US land market is in our rental businesses, which include premium drill pipe and bottom hole assemblies. The opportunity for these product lines is a function of lateral length and both have demonstrated continually improving performance. We have every reason to believe that these product lines will remain resilient as long as US operators continue to favor extended reach horizontal wells.

Outside of US land markets, we expect high quality, high return opportunities to present themselves as we head into 2019. In offshore markets, we are seeing a level of tendering activity and work commitments that cause us to feel confident that premium drill pipe rentals and bottom hole assembly should strengthen. Although timing is still a bit uncertain, I'm hard pressed to think we don't see improvement in 2019 with the potential for escalated opportunities in 2020.

In international end markets, I would expect our opportunity set to be improved as well. We know there will be opportunities for increased coiled tubing activity in Argentina where we've had good results this year and all indications point to continued activity growth next year. We could have some opportunities in Colombia and India as these markets have shown improvement during 2018.

Finally, we expect to begin production service work in Middle Eastern markets where we have an existing presence with well control and snubbing, but haven't had much exposure to potential growth opportunities such as coiled tubing and cementing (ph) in the past. We're excited about the improvement we've demonstrated over the last 12 months. Our capital requirements are very well understood and we don't require expansionary investment for us to succeed. We have a meaningfully improved cost structure and continue to focus on improving our return profile. With that operator, please open the lines for Q&A.

Questions and Answers:

Operator

(Operator Instructions) We'll go first to Byron Pope with Tudor, Pickering, Holt & Company.

Byron Pope -- Tudor, Pickering, Holt & Company -- Analyst

Good morning guys. Dave, just wanted to get your thoughts on the Gulf and you mentioned a sentiment shift there that you detect over the last year or so and realize that the progression tends to be choppy from quarter to quarter, but as you think about the outlook for the Gulf in your three business segments that have exposure to it, how would you frame it just in terms of the opportunity set you see based on customer conversations at this point?

David D. Dunlap -- President, Chief Executive Officer and Director

Yes, I mean I think as it pertains to segments, our best opportunities are in the Drilling Products and Services segment with premium drill pipe and bottom hole assemblies and every shelf rig that gets picked up is a drill pipe and completion string opportunity for us. If it's a deepwater rig, it also involves the landing strings. So lots of good opportunities for us there and the second area would be in the completion tools, which -- completion tools has been performing extremely well from a technical standpoint on some very high technology type completions in the deepwater Gulf of Mexico and as we see more Gulf of Mexico rigs go to work which I'm biased to believe we'll initially see with jackups, but as 2019 progresses, I'm sure that we'll see some more deepwater activity as well. So it does tend to be a bit choppy, you're right from quarter to quarter, but I think over, you know, over the next couple of years, we can expect to see greater Gulf of Mexico activity.

Byron Pope -- Tudor, Pickering, Holt & Company -- Analyst

Okay, that's helpful and then just one unrelated follow-up on the onshore completion and workover services, could you just frame at a high level where the frac business stands maybe as a percentage of the overall segment, just trying to calibrate as we see completions activity slow into year-end, just the exposure there to fracturing services?

David D. Dunlap -- President, Chief Executive Officer and Director

Yes, so I mean overall fracturing is the biggest part of that segment.

Westervelt T. Ballard -- Executive Vice President, Chief Financial Officer and Treasurer

32% of revenue.

David D. Dunlap -- President, Chief Executive Officer and Director

It's 32% of revenue in total is where we are today, Byron.

Byron Pope -- Tudor, Pickering, Holt & Company -- Analyst

Okay, thanks Dave.

Operator

We'll go next to Marshall Adkins with Raymond James.

J. Marshall Adkins -- Raymond James -- Analyst

Good morning guys, good to see the offshore and international part paying off. I want to delve into the part that's been a little bit iffy here recently, the pressure pumping side. Dave, you have just about as much experience in pressure pumping as anyone I think in the industry right now. So I'm going to ask a multifaceted question on the pressure pumping side. The key thing I want to get to is just your best guess. I understand it is a guess of timing of recovery at today's oil prices, but within that, could you comment also on how big of a problem is labor going to be, where do you stand on maintenance of your fleet and should we see industry equipment attrition given how hard we're working on this and how that plays into the timing of recovery. So I know it's a lot, but bear with me and do your best.

David D. Dunlap -- President, Chief Executive Officer and Director

Okay, thanks, Marshall, I'll certainly do my best. So timing to start with, you know, listen, clearly our operators are going to be working with increased budgets in 2019. We've got a higher oil price, higher oil prices, higher realized oil prices, a differential in the Permian Basin that should be diminishing as we get some pipeline capacity in the Permian Basin, all of that points to increased E&P spend for US operators and I think it is going to be largely geared toward the Permian Basin. A couple of things, it's certainly not happening in Q4 and as we said in our prepared remarks, we believe that Q4 will be pressured by some of the normal things that we see in the marketplace during Q4 like holidays, like weather and the onset of winter, but I think as well, operators in the Permian Basin that smaller operators in particular, they aren't particularly rushed to get completions done because they don't have takeaway capacity.

So you start thinking about when in 2019 do we begin to see a turn. I will not be surprised if there are operators that desire in early 2019 to be out with higher levels of spending, but I know this, every year in the first quarter we have January and February, which historically are burdened weather months and so I'm going to be a bit surprised if we see a right angle change in activity levels during the first quarter. I'm biased to think it happens more likely at some point during the second quarter, a little bit closer to where we begin to see pipeline capacity improve, it maybe toward the end of the second quarter. It's all a bit uncertain at this point, but if you got operators who are looking to spend more money and their budgets are up, then in all likelihood, they are going to be trying to do it as soon as they can. I'm just hard pressed to believe that we see that result in the first quarter.

Labor, so in the area of labor, we've been successful from a fracturing labor standpoint. Our attrition has been relatively low. We're not planning to expand our fracturing capacity beyond where we are today and so we're not going to be in the market to add a lot of labor from a fracturing standpoint. Our labor challenges have been more related to the Production Services segment where we've really not activated a lot more of our service rigs, our coiled tubing units because the labor market does remain tight and I would expect that those service lines are probably more challenged from a labor standpoint than they are in frac. Frac is a good job. Frac tends to come with better certainty of hours for hourly workers and we've not seen, I mean, it'll sound when (ph) I say labor is not of challenge in fracturing but our attrition has been very low.

The next leg of your multi-phase question was about maintenance. So maintenance costs have certainly been a challenge I think across the board particularly in the Delaware Basin. Water quality in the Delaware Basin is to say it in the best way, it's horrible. It's not predictable from one pond to the next. We continue to work with water in the Delaware Basin that is -- and in the Permian Basin in total, that is of very poor quality and as we talked about in our prepared remarks quite frankly, the pricing levels are not supporting what we're having to do in replacement of iron as a result of the water quality issues. We continue to work on solutions for our customers along these lines and I do believe over time we'll find solutions that are better from an equipment maintenance standpoint than the solutions that exist today, which are primarily over-treatment with chemicals.

And finally attrition, and so this water quality and maintenance issue is definitely having an impact on attrition, it wears equipment out sooner. I would also say and keep in mind in the Delaware Basin, we see treating pressures that are substantially higher than what we find in the Midland Basin. We find treating pressures in the Delaware Basin as high 12,000 psi. That also has an impact on wear and tear of equipment. So not to create a doomsday scenario for you by any means, but I think what it points to is this is a very, very challenging business, it's a challenging business from an operational standpoint. I think in general, we've done a pretty good job of identifying and understanding the challenges, but they're not all solved at this point.

J. Marshall Adkins -- Raymond James -- Analyst

Outstanding job and that's -- I'm going to leave it right there. Thank you.

David D. Dunlap -- President, Chief Executive Officer and Director

You're welcome.

Operator

We'll go next to Kurt Hallead with RBC.

Kurt Hallead -- RBC Capital Markets -- Analyst

Hey, good morning.

David D. Dunlap -- President, Chief Executive Officer and Director

Good Morning.

Kurt Hallead -- RBC Capital Markets -- Analyst

So Dave, thanks. Appreciate that color specifically on the percentage of business generating in frac. So as we look forward into 2019, right. What could be the next one or two product lines that could have a meaningfully positive impact on your EBITDA generation? I know in the past you kind of talked about drill pipe having significant incremental margins and returns, just not sure if that's going to come to fruition in '19, I was hoping you could shed some light on that.

David D. Dunlap -- President, Chief Executive Officer and Director

Yes, sure. So, I mean you've hit on the one that is probably most meaningful for us. Premium drill pipe in the US for us is for all practical purposes sold out. We have spent more from a capital standpoint on additional assets for the US land premium drill pipe market this year than we intended to begin the year, in fact about twice as much capital has gone into premium drill pipe as what we budgeted for the year. That's not necessarily a cause for total capital spending to increase, but it's really as much as anything what we've done is, we're allocating capital, it's being rationed to those product lines that offer the best and most meaningful earnings improvement and return for us and premium drill pipe is at the top of that list.

So we did have some capital go toward premium drill pipe in the third quarter, would expect some revenue increase in the fourth quarter although it's going into an environment that may be kind of soft I think in 2019 we'll have additional capital going into premium drill pipe. It is -- really, it's been the only area that we've seen growth investment and although with our cash management challenges in total in this industry, we're having to ration capital out in a very cautious way. Premium drill pipe is one in the US land market that I think will continue to attract capital for us.

Some of the other product lines that I believe have opportunity to improve as we see more completions. I expect to get back to a growth pace in coiled tubing and perhaps even some price improvement in 2019 in product lines like coiled tubing and flow back in pump down services, some of those things that are kind of on the ancillary edge with completions activity. So I mean, everything takes a bit of a pause here. Fracturing is most impacted because it's most over supplied. Other areas such as in our Production Services arena, which are completion ancillary product lines, not as much oversupply. So we don't see the same kind of market dynamics that we would see in fracturing. Hopefully that answered your question.

Kurt Hallead -- RBC Capital Markets -- Analyst

Okay, yes. No, that helps. I had one follow-up for you too, you've made it known that use of cash would be very much geared toward paying down debt as well as the growth capex opportunities, high return growth with (ph) capex opportunities you've mentioned. With the pause that you are seeing in US frac business and completion related work, is this kind of slow down your debt reduction trajectory or you think you still going to be on track with where you were before?

David D. Dunlap -- President, Chief Executive Officer and Director

I mean I think that that's still, that's still something we'd like to accomplish inside the Company. I think that this pause in Permian activity is probably setting our free cash flow generation back a bit and so adding cash to the balance sheet is something that is certainly impacted as a result of this pause in activity in the Permian Basin, but as I said, we see this is as a pause and it's something that I believe we have to deal with for the next couple of quarters, but as we get out into 2019, I think it creates a pretty good environment for us and of course, the other side of this, Kurt, is that what the lack of continued activity growth in the Permian Basin I think is ultimately going to drive some cycle duration positive for us and for industry. So I mean that may extend things a bit, but make no mistake about it, we still have a desire to work our debt levels down in Superior.

Kurt Hallead -- RBC Capital Markets -- Analyst

Great, thanks for the insights Dave, appreciate it.

Operator

We'll take our next question from James Wicklund with Credit Suisse.

James Knowlton Wicklund -- Credit Suisse -- Analyst

Good morning, guys. The scale -- scale in your Gulf of Mexico market, what's the difference in revenue generation between shallow water activity and deepwater activity and you mentioned right now that it's mainly shallow water, which it is and so I'm curious to know your revenue opportunity and if you're sold out of premium tubulars now, how much capital will you have to spend to support a deepwater recovery and I what I do, I Marshall (ph) string a little bit together and is your exposure in the offshore limited to the Gulf of Mexico. I mean the concern is if the Gulf of Mexico is the last to recover, do you benefit?

David D. Dunlap -- President, Chief Executive Officer and Director

Let me clarify something first, we're sold out of premium drill pipe in the US land market, not in the Gulf of Mexico or offshore environments and Jim as you well know, the pipe sizes are significantly different in the horizontal wells that we're drilling in US land than most of what we encounter in the offshore deepwater market. In the US land market, that tends to be 4.5 inch and 5.5 inch drill pipe. That would be among the smallest pipe that ever gets used in offshore deepwater. So much more exposure offshore to bigger pipe sizes and we've got plenty to put to work. Now, what I suggested was a comment about growth. I mean I think that the early stages of growth that we'll see in the Gulf of Mexico are predominantly in the shallow water arena with jackup rigs. I do believe that we'll begin to see some deepwater activity as this cycle progresses, but it's not the first move --

James Knowlton Wicklund -- Credit Suisse -- Analyst

Eventually, I agree, it's just when, but OK, go ahead.

David D. Dunlap -- President, Chief Executive Officer and Director

But yes, let me go ahead. Today, our revenue leans very much toward deepwater and so if you look at the overall rig count although deepwater rig count has not grown during the course of the last year, although we have seen some tension-leg platforms with one of our clients activate here over the last several quarters. Deepwater activity remains at a solid level for us and our market share with premium drill pipe on those rigs is very high, I think close to 80%. So it's still a very important component of our overall revenue and a more significant component than the shelf revenue.

Now, the (multiple speakers) last question you asked was about capital related to offshore activity. So we do believe that what we have in store for us over the next couple of years is not just a recovery in Gulf of Mexico, it's a global offshore recovery and as that global offshore recovery occurs and we're seeing tenders in many different international geographic areas today, over time, there will be some rigs that require capital, but keep in mind, we have a tremendous fleet, we believe the largest fleet of premium drill pipe and landing strings available from any company to address that increase in activity. So I don't want to make it sound like we're not going to have any capital that is related to drill pipe offshore. There will be some, but we've got a lot of inventory to (ph) put to work.

James Knowlton Wicklund -- Credit Suisse -- Analyst

Okay, that's very helpful. I appreciate it and the recovery will require working capital and Kurt mentioned debt reduction and your debt to cap is still at 56%. Can you tell us what market you kind of have to see to start making some meaningful inroads on debt reduction and I mean your (inaudible) is trading at par. So nobody is worried about the debt, but I'm just curious to know what it will take in terms of the market to have you start making meaningful inroads on net debt reduction?

David D. Dunlap -- President, Chief Executive Officer and Director

Well, I mean I think that -- I think listen, clearly, the US market is an important component of that and I think I would be biased to tell you that at some point in 2019, we start seeing growth again in our earnings from the US market, but the best operating leverage that exists in Superior is really in those global offshore markets and as we begin to see global offshore markets improve, free cash flow generation from our product lines that have exposure to those markets has historically been very high and I would expect it to be very high once again. I think the other element of that that is important is that when we talk about particularly premium drill pipe and bottom hole assemblies in these global offshore markets, the competitive level is very favorable to us and so I think that those are going to be by far the best opportunities we have to generate free cash flow over the course of the next few years and you're right, our next debt retirement event would be on the 2021 maturity. So we've got a little bit of time before we need to address those, but I've been real clear about this, I mean, we would like to pay down some of that debt as opposed to refinancing the full amount.

James Knowlton Wicklund -- Credit Suisse -- Analyst

Got you. Okay, David, thank you very much sir.

Operator

We'll take our next question from Sean Meakim with JP Morgan.

Sean Meakim -- JP Morgan -- Analyst

Hey, good morning.

David D. Dunlap -- President, Chief Executive Officer and Director

Sean.

Sean Meakim -- JP Morgan -- Analyst

Thinking it would be good to stay on the drill pipe discussion. I'm curious about the results in the third quarter for DPS. Top line was solid progression and the incremental of 100% was pretty strong. It's around the level you've talked about in the past as being an achievable outcome. Just how much did Gulf of Mexico sales or wire diameter pipe help the margin mix. And just thinking about how that influences your thoughts on the fourth quarter considering some of the seasonal impacts we see into year end.

David D. Dunlap -- President, Chief Executive Officer and Director

Yes, Gulf of Mexico was up nicely and performed very well for us in the third quarter. We had a -- and you will recall, we've talked about this before, there are points in time where we get a real favorable mix from a completion string standpoint, we had good completions activity with our drill pipe business in the third quarter. That ebbs and flows a bit as rigs go from drilling to completion and then back to drilling again. Don't be surprised if Gulf of Mexico premium drill pipe is not as strong in the fourth quarter as is in the third quarter. That's just normal ebb and flow although we do expect to see some growth in US land in the fourth quarter with premium drill pipe. As I mentioned, we had some additional capex go to US land pipe during the third quarter and expect some revenue generation there. So it's certainly a, you know, premium drill pipe for us is certainly a fantastic business, one that historically has generated a lot of free cash flow. It's not without its ebbs and flows from one quarter to the next but the best indicator you can look at for that business is rig count and so as you begin to see more international rigs go to work, as you begin to see more offshore rigs go to work and ultimately see more rigs go to work in the US land business, the premium drill pipe business is going to be levered to that rig.

Sean Meakim -- JP Morgan -- Analyst

Got it, OK, thank you for that. And then just thinking about the free cash flow profile going forward. You mentioned you're going to be disciplined around deploying growth capital. Are you able to kind of put a range around capex and working capital needs for next year. Just trying to think about that portion of the equation as we think about free cash next year.

David D. Dunlap -- President, Chief Executive Officer and Director

Yes, so I mean I think that we'll give you guys a better indication when we've completed our budget for 2019 as to what to expect from a capital spend standpoint, but I don't think you should expect anything that is significantly different than where our spending levels are in 2018. A bit differently directed, so we had capex in the first half of this year in order to reactivate the remaining hydraulic horsepower that we put to work. We won't have that same reactivation capital in 2019. Instead, we are likely to have a bit more capital that goes to our premium drill pipe and bottom hole assembly businesses, which we expect to see this expansion in international and global offshore during 2019. So, not significantly different levels of capex, but a bit redirected. As far as working capital goes, our receivable levels were up during the third quarter at a point that is at a high point for the year. We did see some good collections in the early part of the fourth quarter and I would expect our working capital from a receivable standpoint to more normalize as we get out into 2019. Inventory levels in this Company are generally not very high. So when we talk about working capital, it is generally a receivable issue and where we stand today, we're working for customers that we certainly aren't concerned about them paying their bills.

Sean Meakim -- JP Morgan -- Analyst

Got it. Very helpful, thanks Dave.

David D. Dunlap -- President, Chief Executive Officer and Director

Just wish they them pay faster.

Operator

We go next to Chase Mulvehill with Bank of America Merrill Lynch.

Chase Mulvehill -- Bank of America Merrill Lynch -- Analyst

Hey, Dave. Good morning. Yes, so I guess, first, maybe if we can kind of touch on 4Q a little bit. I don't know if you will come from a high level perspective, if you kind of walk through kind of US land, Gulf of Mexico and international and kind of how you think things progress into the fourth quarter for each of these segments?

David D. Dunlap -- President, Chief Executive Officer and Director

So US land, some of the commentary that we made, I would expect us to have a bit less activity in the US land market during the fourth quarter. We don't think that we should expect to see rig count go up. I think that as I pointed out this pause in the Permian Basin from a growth standpoint is probably going to hold the rig count in check for maybe the next couple of quarters, but certainly during the fourth quarter. We think that utilization in fracturing will be down during the fourth quarter as a result of holidays and you know I've heard some of our peers talk about less urgency from customers toward the end of the year. I don't know that we've necessarily witnessed less urgency, but I think typically what you see in November and then (ph) December is a bit less activity in the US land market and I don't think this year will be an exception to that. Gulf of Mexico, we aren't (ph) expecting any dramatic changes in drilling activity. We had a strong quarter in Q3 with completion tools. That will revert back to kind of more normal levels in the fourth quarter. The one thing I'd caution you about in Gulf of Mexico is Gulf of Mexico in Production Services does tend to experience weather issues in the fourth quarter and first quarter and a lot of optional work will be delayed as a result of not being able to load boats out. Listen, I think international continues to grow in the fourth quarter and although that growth kind of stalled from Q2 to Q3, we're up significantly in international over 2017 and I would not be surprised to see a good strong finish to the year in international.

Chase Mulvehill -- Bank of America Merrill Lynch -- Analyst

Okay, all right, that's helpful. In fact, on US land, if we think about your drilling services business versus kind of your more completion oriented businesses, do you think your drilling service business significantly outperforms the completion business in 4Q?

Westervelt T. Ballard -- Executive Vice President, Chief Financial Officer and Treasurer

What metric?

David D. Dunlap -- President, Chief Executive Officer and Director

Yes, what metric are you talking about Chase?

Chase Mulvehill -- Bank of America Merrill Lynch -- Analyst

For the top line perspective.

David D. Dunlap -- President, Chief Executive Officer and Director

Yes, I mean I think that in the Drilling Products and Services area, I would expect revenue to hold up better. I don't -- typically when we see slowdowns around the holidays, it doesn't necessarily mean that we're causing rigs to be idle. More frequently, it's related to completions activity. So I mean on a relative basis, I would expect drilling-related services to outperform completion.

Westervelt T. Ballard -- Executive Vice President, Chief Financial Officer and Treasurer

It obviously carries a higher margin also.

Chase Mulvehill -- Bank of America Merrill Lynch -- Analyst

Yes, OK. And then I guess kind of turning over to international and offshore, what are the pricing dynamics like today in the market and then where do you see the best opportunities as we get into 2019 for activity accelerating and pricing getting some traction?

David D. Dunlap -- President, Chief Executive Officer and Director

So I'm going to go back to our Drilling Products and Services segment once again, which as offshore rigs go to work, that's clearly the part of our business that exhibits the greatest operating leverage. Chase, we don't, we are really not seeing very strong levels of competition for tenders that we are submitting internationally for offshore and that is giving us the opportunity to push on price relatively early. Now, I'm going to make that comment and I want to be cautious about it because when we see these offshore rigs actually going to work, it tends to be more in Q2 and Q3 of 2019, you guys are reading about the contracts that are being awarded, they're not rigs that are going to work in November. And so those tenders that we are submitting it, what I would say are good prices relative even to where we were in 2014. That's revenue that we're not going to see until we get well into 2019, but very encouraging at this point. I think as well as we think about some of those tenders that we have submitted for international, part of what's driving that ability to be aggressive on price is the fact that competition is not there and you guys well know that one of the things that's most important in that Drilling Products and Services segment for us is it's not a polluted competitive landscape like we see in much of the US land markets. We anticipate that and I think you'll see that incremental margins in that business, which are always strong, top line has the ability to grow a bit more when you increase price.

Chase Mulvehill -- Bank of America Merrill Lynch -- Analyst

Nice to hear some good news and war eagle (ph).

Operator

Next question comes from Tommy Moll with Stephens.

Tommy Moll -- Stephens Inc. -- Analyst

Good morning, thanks for taking my question.

David D. Dunlap -- President, Chief Executive Officer and Director

Tommy.

Tommy Moll -- Stephens Inc. -- Analyst

So I wanted to follow up on the international side. Can you give us any anecdotes just from customer conversations and maybe that pertains more to the Gulf of Mexico where it sounds like you're detecting some increased urgency there and on a related point, one of your larger players -- one of the larger players in the market internationally has been talking pretty vocally about the potential for double-digit capex and revenue growth into '19. Is that something that you're seeing as well and what kind of -- if that were to be the case, what kind of incrementals do you think are possible for some of your top five businesses? Thanks.

David D. Dunlap -- President, Chief Executive Officer and Director

Yes, sure. I mean double-digit revenue growth in 2019 internationally is something that we have also talked about and I'm comfortable in saying that would probably would be an expectation for us in 2019. I mean, we're double-digit revenue growth in 2018 versus '17. So I don't think I'm stepping out on much of a limb to say that. A lot of our international growth will be in the area of Drilling Products and Services which is going to come with very, very high incremental margins. Some of the growth will be in Production Services and so we mentioned in our prepared remarks, anticipated growth in Latin America, in Argentina, possibly Colombia as well as in India and our start-up of production services operations in the Middle East. All top line related growth in 2019, clearly not at the same incremental margin that we get with Drilling Products and Services, but we would expect nice incremental margins and you want to think about more normal service incrementals in those types of product lines and those markets being in the mid-20s, that's probably a good proxy, but overall, international margins are going to be driven by Drilling Products and Services, which is very high margin.

Tommy Moll -- Stephens Inc. -- Analyst

Great, thank you. And then just one follow-up on the US land side. You mentioned that you've seen a pretty rapid deterioration in spot pricing for frac. Are you seeing similar pricing pressure on the dedicated fleet size or there is it more just a utilization response and that you would dial that back in line with the pace of completions particularly as we get into the holiday season?

David D. Dunlap -- President, Chief Executive Officer and Director

So listen, I would tell you that in the third quarter, our pricing on the dedicated fleets was overall fairly similar to what we saw in the second quarter, but I'm not going to bury my head in the sand on this issue. I mean the longer that we have low spot market prices, the more pressure it puts on dedicated pricing and I'm not going to be surprised if we have some price renegotiations in the short term with some of our dedicated customers because they see what spot prices are and they understand it, they also understand that they are contracting with us from a quality standpoint and reliability standpoint, but at the end of the day, when you've got a market that's oversupplied, I think to believe that your prices are going to hold up when everyone else's are dropping would be a bit of fool's gold. So at this -- a lot of this has to do with duration. If we do begin to see some activity increases earlier in 2019, then in all likelihood, we've got a price with our dedicated customers, it's held up better. If we don't see activity increases until the end of the second quarter, then that's going to be a bit more challenged to hold pricing levels with those dedicated customers.

Tommy Moll -- Stephens Inc. -- Analyst

Good, makes sense. Thank you, gentlemen. That's all from me.

Operator

We'll go next to Mike Urban with Seaport Global.

Mike Urban -- Seaport Global -- Analyst

Thanks, good morning.

David D. Dunlap -- President, Chief Executive Officer and Director

Good morning.

Mike Urban -- Seaport Global -- Analyst

Really like the focus on the global five core businesses and maybe the answer to this is obvious just given the market backdrop, I think you used to include pressure pumping in kind of that core group and I think you felt like maybe the -- it's a commodity business in general, maybe you in particular could bring something else to the table or differentiate. What again, other than the obvious or maybe it is the obvious, what's changed in that business either when you view internally or again is it just the market dynamic that you see out there?

David D. Dunlap -- President, Chief Executive Officer and Director

I don't know if anything's changed Mike, I mean you're referencing the presentation that we launched back in September that kind of represented those five global cornerstone businesses in a bit of a highlighted way. Fracturing for us has never been a global business. I mean it's a US land business, it's been our intention to keep it as a US land business and those five other business lines including premium drill pipe, bottom hole assemblies, our completion tools business, our well control business and our hydraulic workover and snubbing business, they are all global businesses and in fact, their revenue today and historically has been more weighted to outside of the US land market than within the US land market. So I don't know that there's really a change there. I mean, listen, clearly the fracturing business is a tough one, it's a competitive one, you pointed out some of the challenges that we see in the field today with different operating environments and water quality and repair and maintenance and higher pressure, but that's a business, that's the game, that's the environment that we're fracturing in today. I'm proud of the job that our people do in hydraulic fracturing. I think we execute very well, we've got a very, very high quality blue chip customer base that we work for that would not accept anything other than very high quality service. So it is not -- it is certainly not a global business for us though.

Mike Urban -- Seaport Global -- Analyst

Got you and on the capex budget for this year, you've referenced obviously the higher spend on premium drill pipe and you also talked about some higher R&M expense in the pressure pumping business. Any change to the full year budget for '18 based on that spend?

David D. Dunlap -- President, Chief Executive Officer and Director

I don't think so. I mean it's, you know, we've been kind of guiding toward 225, 230 for a period of time, I mean I won't be surprised if because of premium drill pipe we're slightly higher than that, but it's definitely in that range.

Mike Urban -- Seaport Global -- Analyst

Okay, great. That's all from me. Thank you.

David D. Dunlap -- President, Chief Executive Officer and Director

Just to clarify, I mean the comments that I made about spending more in premium drill pipe and we spent twice as much in premium drill pipe in 2018 as we intended to when we did the budget. That wasn't just additive to capital. I mean, we've moved capital from other parts of the business primarily US land oriented businesses in order to fund that premium drill pipe capital.

Mike Urban -- Seaport Global -- Analyst

Thank you.

Operator

Our next question comes from J.B. Lowe with Citi.

J.B. Lowe -- Citi Research -- Analyst

Hey, good morning guys. Dave, you mentioned returns focused customers are targeting more workover in Production Services. Wondering how that translates into 2019 results in your production segment specifically. Could we see double-digit revenue growth there next year kind of similar to the international comment (multiple speakers).

David D. Dunlap -- President, Chief Executive Officer and Director

Double-digit growth in Production Services would not surprise me at all. I mean we do in that Production Services segment, we do have a number of our US land completion oriented businesses like coiled tubing and flowback and some of the other things that we do and ancillary completion services that are in that production segment, but you know, just to follow along, if we have increase in US land spending next year, then I would expect US production services to increase. I certainly expect international Production Services to be higher and I would expect Gulf of Mexico production services to be higher. I hadn't done a budget yet to tell you whether or not that's double-digit growth but that would not surprise me at all.

J.B. Lowe -- Citi Research -- Analyst

Okay and is labor -- you kind of mentioned the labor issue there in that specific business, is labor a gating factor there. Is higher activity what it would take to kind of attract more labor to those businesses?

David D. Dunlap -- President, Chief Executive Officer and Director

Yeah, it's labor and margins and so, the things that we will tend to focus on from a labor standpoint are those things where we can generate the best margin and the best return and if we see pricing improve in some of those production services, it probably inspires us a bit more to go get very, very active in bringing on labor. When margins aren't real high and margins in those businesses are still at what I would describe as below normalized levels, you're not as inspired to add the labor.

J.B. Lowe -- Citi Research -- Analyst

Okay, just last one for me. Just wanted to get your take on maybe some potential consolidation in the well servicing market. I know we've seen some hostile bids out there. I don't know if you guys would want to participate or not, but just kind of your general thoughts on how that could change that business?

David D. Dunlap -- President, Chief Executive Officer and Director

Don't expect us to be a buyer from a consolidation standpoint. Listen, I've been pretty clear that we are open to other alternatives with -- well, with anything in the portfolio. Look, I'll give you the very general answer that you would expect to hear, we are interested in improving our share price and if improving our share price means that we divest certain businesses, then we will, but don't look for us to be a consolidator in well services.

J.B. Lowe -- Citi Research -- Analyst

All right, thanks guys very much.

Operator

We'll go next to Dave Anderson with Barclays.

J. David Anderson -- Barclays -- Analyst

Hey, thanks. Good morning, Dave. Quick question just on the profitability periphery (ph) on your pressure pumping, a comment you had previously talked about $15 million in EBITDA per fleet in the second half. Obviously a lot has changed since then. Can you just kind of give us an update as to where that shook out in the third quarter and how you see that evolving over the next couple of quarters?

David D. Dunlap -- President, Chief Executive Officer and Director

Yes, for the active fleets that we had during the quarter, it was relatively flat from Q2 to Q3, but as we mentioned, we're doing more zipper fracs and so we've got some consolidation of horsepower on fleets. Clearly that goal for us is one that we're not achieving in 2018. We did believe earlier in the year that getting to actually on average is what we first stated of $15 million per fleet was achievable as we saw the market evolving during the first quarter. I think this pause in the Permian Basin has caused that target to be pushed out a bit, but I still think that that's something that is achievable for us as we get maybe toward the end of 2019. I don't know, we'll see. I need to see a budget and understand what we think overall activity improvements and changes are going to be in 2019 before I could tell you whether or not that's going to be a target of ours next year, but you're right, I mean it's pushed that target out for us. When I say it, I mean this pause in Permian activity.

J. David Anderson -- Barclays -- Analyst

Yes, Dave, I think we'd all like to see what those budgets look like. Westy, you talked about the higher maintenance and equipment costs during the quarter, can you just give us a sense as to what that went up to, I think you were talking something like $5 million or $6 million a (ph) fleet. Is that bumped up? Is that just a one-time bump up or is that sort of more your new run rate of kind of what you were just alluding to in your comments?

Westervelt T. Ballard -- Executive Vice President, Chief Financial Officer and Treasurer

I mean overall maintenance cost in fracturing was up about $3 million from what we expected it to be. And is it one-time? Well, I mean, I'd like to tell you it's one-time. I think that the challenge with this is that a lot of it is related to water quality and so as we go forward, I'm not going to be surprised to see periods of time where our maintenance costs are a bit higher, but as I said, it's about $3 million. If you look at our overall incrementals in fracturing during the course of the quarter, we had about $20 million more in sand sales from Q2 to Q3 which that's saying that we are sourcing and we get a margin on that sand, but it's certainly at a lower incremental margin than our service revenue would.

J. David Anderson -- Barclays -- Analyst

And Dave, I don't want to nail you down too much on the fourth quarter, I'm just trying to figure out kind of where the starting point is for '19, but if you look at kind of EBITDA and the run rates and kind of taking the all this difference you're talking about. Do you think you can keep EBITDA flat in the fourth quarter or is that going to be too much of a stretch based upon kind of the way the winds are blowing in North America right now?

David D. Dunlap -- President, Chief Executive Officer and Director

If you're talking about US land, it would, I'd be hard pressed to say that you could keep margins flat with Q3. You're going to have fewer days that you are working. I don't believe that there is any significant uplift in completions demand during the quarter. So with fewer days working, you're going to see lower EBITDA and revenue.

J. David Anderson -- Barclays -- Analyst

But does the other parts of the business offset, I was trying to get to like a companywide EBITDA number. Is the companywide EBITDA, can that stay flat in the fourth quarter or is that neg -- or is the headwinds you mentioned in North America probably too strong to pull that off?

David D. Dunlap -- President, Chief Executive Officer and Director

Yes, I think it's too strong to pull it up. I mean I think international and Gulf of Mexico. International, particularly has a potential to be higher. Gulf of Mexico has got its own seasonal challenges in Q4 and we talked about product mix being favorable (ph) for us in the third quarter as well. So I'd be hard pressed to see that we could generate the same level of EBITDA in Q4 that we have in Q3.

J. David Anderson -- Barclays -- Analyst

Great. Thanks Dave.

Operator

And ladies and gentlemen, this does conclude the question-and-answer session portion of the call. I'd like to turn it back to David Dunlap for any additional or closing remarks.

David D. Dunlap -- President, Chief Executive Officer and Director

No, I don't think we have anything specific. Thanks for joining us today and we'll talk to you next quarter.

Operator

Ladies and gentlemen, this does conclude today's conference. We thank you for your participation, you may now disconnect.

Duration: 57 minutes

Call participants:

Paul Vincent -- Vice President of Investor Relations

David D. Dunlap -- President, Chief Executive Officer and Director

Westervelt T. Ballard -- Executive Vice President, Chief Financial Officer and Treasurer

Byron Pope -- Tudor, Pickering, Holt & Company -- Analyst

J. Marshall Adkins -- Raymond James -- Analyst

Kurt Hallead -- RBC Capital Markets -- Analyst

James Knowlton Wicklund -- Credit Suisse -- Analyst

Sean Meakim -- JP Morgan -- Analyst

Chase Mulvehill -- Bank of America Merrill Lynch -- Analyst

Tommy Moll -- Stephens Inc. -- Analyst

Mike Urban -- Seaport Global -- Analyst

J.B. Lowe -- Citi Research -- Analyst

J. David Anderson -- Barclays -- Analyst

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