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Patterson-UTI Energy (NASDAQ:PTEN)
Q1 2019 Earnings Call
April 25, 2019 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, my name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Patterson-UTI Energy first-quarter 2019 earnings conference call. [Operator instructions] Mr. Mike Drickamer, vice president, investor relations, you may begin your conference.

Mike Drickamer -- Vice President, Investor Relations

Thank you, Melissa. Good morning. And on behalf of Patterson-UTI Energy, I'd like to welcome you today's call -- conference call to discuss results of the first quarter ended March 31, 2019. Participating in today's call will be Mark Siegel, chairman; Andy Hendricks, chief executive officer; and Andy Smith, chief financial officer.

A quick reminder that statements made in this conference call that state the company's or management's plans, intentions, beliefs, expectations or predictions for the future are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, the Securities Act of 1933 and the Securities and Exchange Act of 1934. These forward-looking statements are subject to risks and uncertainties as disclosed in the company's annual report on Form 10-K and other filings with the SEC. These risks and uncertainties could cause the company's actual results to differ materially from those suggested in such forward-looking statements for -- what the company expects.

The company undertakes no obligation to publicly update or revise any forward-looking statements. The company's SEC filings may be obtained by contacting the company or the SEC and are available through the company's website and through the SEC EDGAR system. Statements made in the conference call include non-GAAP financial measures. The required reconciliations to GAAP financial measures are included in our website, www.patenergy.com, and in the company's press release issued prior to this conference call.

And now it's my pleasure to turn the call over to Mark Siegel for some opening remarks. Mark?

Mark Siegel -- Chairman

Thanks, Mike. Good morning, and welcome to Patterson-UTI's conference call for the first quarter of 2019. We are pleased you could join us today. This morning, I will turn the call over to Andy Smith, who will review the financial results for the quarter ended March 31.

He will then turn the call over to Andy Hendricks, who will share some comments on our operational highlights, as well as our outlook. After Andy's comments, I will provide some closing remarks before turning the call over to questions. Andy?

Andy Smith -- Chief Financial Officer

Thanks, Mark. As set forth in our earnings press release issued this morning, for the first quarter, we reported a net loss of $28.6 million or $0.14 per share on revenues of $704 million. Consolidated adjusted EBITDA for the first quarter was $191 million. Given market conditions during the first quarter, we opportunistically accelerated share repurchases and invested $75 million to buy back 5.4 million shares of our common stock, which represents 2.5% of our shares outstanding at the beginning of the year.

In total, since the beginning of 2018, we have spent $226 million on the repurchase of 14.7 million shares in the open market or 6.6% of the shares that were outstanding at the end of 2017. We will continue to evaluate opportunities to repurchase our shares, particularly when we feel our stock is significantly undervalued. At March 31, we had approximately $175 million remaining under our share repurchase authorization. In addition to the share buybacks we also paid dividends of $8.5 million in the quarter.

Our balance sheet remains strong. Even after more than $80 million of combined share buybacks and dividends in the first quarter, our cash balance at March 31 improved to $249 million, our $600 million revolver remains undrawn, and we remain modestly levered with a net debt to capital ratio of 20.5%. Cash capital expenditures for the first quarter totaled $118 million, down from $161 million in the fourth quarter. We completed two major rig upgrades during the first quarter and have no additional major rig upgrades planned at this time.

We are maintaining our forecast for 2019 capex of $465 million as we laid out on our fourth-quarter call. Partially offsetting our expected capital expenditures are the fairly regular receipt of proceeds from disposal of older assets. I suspect that many of you do not include this cash flow source in your estimates. Last year, we generated $47 million of cash from asset sales, and during the first quarter, we generated $9 million of cash from asset sales.

Given our focus on new technology, some of the older assets have limited utility to our fleet of super-spec rigs and pressure pumping equipment. As we continue to review our facility and equipment needs, the sale of these assets continues to be an efficient way to partially offset the capital expenditures needed to operate our business. For the second quarter, depreciation expense is expected to be approximately $216 million. SG&A is expected to be $32 million, and our effective tax rate is expected to be approximately 20%.

With that I'll now turn the call over to Andy Hendricks.

Andy Hendricks -- Chief Executive Officer

Thanks, Andy. In contract drilling, our rig count during the first quarter averaged 175 rigs, a decrease of eight rigs from the fourth quarter as customers slowed activity in reaction to the sharp drop in oil prices late last year. During the first quarter, average rig revenue per day increased $620 to $23,590, more than offsetting a $310 increase in average rig operating costs per day. As a result, average rig margin per day increased $310 to $9,700, our highest average rig margin per day since early 2016.

At March 31, we had term contracts for drilling rigs providing for approximately $650 million of future dayrate drilling revenue. Based on contracts currently in place, we expect an average of 104 rigs operating under term contracts during the second quarter and an average of 59 rigs operating under term contracts during the 12 months ending March 31, 2020. Turning now to our contract drilling outlook, higher oil prices have not yet translated to higher rig demand, which remains subdued as customers have been delaying plans to pick up incremental high-spec rigs. While I fully recognize that it is counterintuitive with WTI in the mid-60s, in the near term, we expect our rig count will decline further bottoming this quarter in the mid-150s.

Therefore, for the second quarter, we expect our rig count will average approximately 160 rigs with some potential upside for private operators. With super-spec utilization over 90%, we expect our average rig margin per day for the second quarter to be similar to first quarter levels. Turning now to pressure pumping, as expected, completion activity slowed in the first quarter. We ended the first quarter with 16 active spreads compared to 20 at the end of the fourth quarter as we chose to reduce active spreads to lower costs and improved cash flow.

The combination of reduced activity and lower pricing in the first quarter affected revenues, which decreased to $248 million. However, efforts to reduce costs and improve internal efficiencies helped in the first quarter as our gross profit margin of $44.9 million exceeded our expectations. In terms of internal efficiency, for the first quarter, the active number of spreads decreased by three spreads sequentially or 14%, while our total stage count decreased by only 10% as the average stage count per spread increased by 5%. Early in the second quarter, we chose to idle an additional spread leaving us with 15 spreads that are currently active.

We remain disciplined and have been selective in the work we are pursuing as we believe that incurring the wear and tear on our equipment at low pricing levels is not a good use of our capital. With less white space expected in the second quarter, we expect to generate total pressure pumping revenue and gross profit margin similar to first-quarter levels. While pressure pumping pricing remains challenged, we remain focused on improving profitability through a combination of greater internal efficiencies and cost reductions. Turning now to directional drilling, we focused on improving margins despite decreasing activity levels during the first quarter.

Directional drilling revenues of $53 million exceeded our expectations. Gross profit margin increased to $7.4 million in the first quarter from $6.7 million in the fourth quarter, as we reduced expenses for repairs and maintenance, as well as for third-party rentals. I would like to take a minute to highlight Superior QC, which is included in our directional drilling segment. Superior QC is a drilling data analytics service based on the team's extensive experience, designing automated guidance, navigation and control algorithms.

In horizontal drilling, this service improves the accuracy of well bore placement and improves well-to-well spacing by recalculating the well's position using an automated, enhanced improving downhole data error correction system. With an increasing industry focus on the parent-child well communications, we are seeing increased interest in this service, where operators prefer more accurate understanding of the relative position of their wells within the field compared to standard well surveying techniques. While the financial contribution from Superior QC is still relatively low, it is a fast-growing business. We are encouraged of the prospects for this business as this data analytics service goes beyond just our drilling and directional drilling business, and it's used to help better assign frac jobs in order to minimize frac hits and improve production.

For the second quarter, we expect directional drilling revenues of $51 million with gross profit margins similar to the first-quarter level. This level of revenue and gross profit equates to a gross profit margin as a percentage of revenues in the mid-teens, which demonstrates the positive step in terms of improving the profitability of this segment despite tough market conditions. Turning now to our other operations, which includes our rental business, our technology businesses and our E&P business. Revenues during the first quarter were $31.2 million compared to $32.3 million in the fourth quarter.

Gross margin as a percentage of revenues was 30.3% during the first quarter compared to 33.8% in the prior quarter. In the second quarter, we expect financial results to be similar to the first quarter. With that, I will turn the call back to Mark for his concluding remarks.

Mark Siegel -- Chairman

Thanks, Andy. Last quarter, I commented that the fourth-quarter decrease in oil prices was surprising in terms of both the magnitude and the speed of the decline. In the first quarter, the speed and magnitude of the recovery in oil prices has been almost as surprising. It now appears that the decrease in drilling and completion activity will be much less severe than some had forecast in late 2018.

While we all feel more comfortable with oil prices in the mid-60s, the question many are asking is, how do we attract investors back into the energy sector? We believe the current tightening focus on returns is a positive for the industry, and we share that conviction, which conviction we have held for many years. At Patterson-UTI, we have focused and remain focused on the efficient allocation of capital, and we have restrained capital spending when investment opportunities did not meet our hurdles, while at the same time investing in our drilling and pressure pumping fleets when warranted. For 2019, our expectation for capital expenditures is 27% below the 2018 capital spending levels. This reduction in capital spending is leading to increased cash flow generation, which we have been returning to shareholders.

In the first quarter alone, we returned more than $80 million to shareholders through stock repurchases and dividends. Since the first quarter of 2018, we have returned approximately $265 million to shareholders including $226 million of share returned -- share repurchases. Returning capital to shareholders is not new for us. Since the merger of Patterson and UTI in 2001, we have returned more than $1.6 billion to shareholders, while growing and strengthening the quality of both our drilling and pressure pumping fleets.

We believe that we are well-positioned for the current market. We have always prudently used leverage in that such the strength of our balance sheet has allowed us to respond to market opportunities. I am pleased to announce today the company declared a quarterly cash dividend on its common stock of $0.04 per share to be paid on June 20, 2019 to holders of record as of June 6, 2019. With that, I would like to both commend and thank the hard-working men and women who make up this company.

We appreciate your continuing efforts. Operator, we would now like to open the call for questions. 

Questions and Answers:

Operator

[Operator instructions] Your first question comes from the line of Sasha Sanwal from UBS. Your line is open.

Sasha Sanwal -- UBS -- Analyst

Thank you, and good morning, guys. Yes. Maybe just to start off in drilling, kind of given the typical 30-day notification period, can you give us some more color on the visibility of the guidance of the rig count kind of bottoming in Q2 in the mid-150s? And any early thoughts on the second half '19 rig count given your customer conversations?

Andry Hendricks -- Chief Executive Officer

So we've spent a lot of time really trying to understand our customers' current sentiment, even given the recent run-up in WTI. And the customers are still delaying plans that they may have made toward the end of last year in terms of increasing activity. But what we do see is that our rig count will bottom somewhere in the second quarter, maybe early in the second quarter in the mid-150s. So from our view, today, the second quarter does appear to be the bottom of the rig count.

And as I mentioned earlier, we think we do have some upside on the average of 160 for Q2, especially from private operators who may make some decisions faster than some of the public operators that are out there.

Sasha Sanwal -- UBS -- Analyst

All right. Great, that's helpful. And maybe sticking to drilling, can we get your thoughts on margin progression for the remainder of the year, specifically as we kind of think about, kind of, returning closer to normalized costs, as well as maybe kind of given essentially some of the rigs that are being released and presumably lower-spec low-margin rigs, how that can kind of play into rig margins as well?

Andy Hendricks -- Chief Executive Officer

Well, we're especially encouraged and pleased that our current rig margins have set a new high since 2016. And if you look at any progression in the second half, it's very difficult to get any visibility past Q2 right now, but we are encouraged by where WTI is trading today.

Sasha Sanwal -- UBS -- Analyst

Thank you. I'll turn it over.

Operator

Your next question comes from the line of Marshall Adkins from Raymond James. Your line is open.

Marshall Adkins -- Raymond James -- Analyst

First of all, I think we all applaud you on your return of capital and focus on returns, it seems like you guys are leading the pack in that regard. On pressure pumping, you improved efficiencies pretty meaningfully in a deteriorating activity environment. So Andy, could you spend a minute just telling us what you're doing differently or how things have changed to where you were able to do better than I think most of us thought in pressure pumping?

Andy Hendricks -- Chief Executive Officer

Well, I need to give the credit to our pressure pumping teams working in the field out there. Our teams have been working hard. And this is the second quarter that we've been able to improve margins in a very challenging market, but they're doing the right things, they're making the right decisions. They've scaled for the changes in activity that are out there at a faster pace than even the activities changed.

And so we're getting our handle around various costs, we're working those down, we continue to work those down, and there's still some room for improvement. And at the same time we're improving our uptime on the spreads. And as you can see we're producing more stages per month, more stages per quarter per spread.

Marshall Adkins -- Raymond James -- Analyst

So you have a few stacked fleets out there. Help us understand what metrics you're looking at before you activate them? And it looked like your fleet average was seen on annualized basis maybe kind of $9.5 million of EBITDA per fleet, which seems to be better than cash breakeven. What are you going to be looking at to reactivate those other ones?

Andy Hendricks -- Chief Executive Officer

Well, we certainly see that our margins are better than cash breakeven. Everybody knows that we do capitalize fluid-ins. However, so far this quarter and the projections throughout the year show that our capex spend on fluid-ins should be lower this year than it was last year. Our teams have done a great job.

Not just the conversion to stainless over the last year and a half, we started early on that and trying different designs and different materials. But our teams have also found ways, which you're going to understand this, to do some repairs on stainless, which is a bit complex. But we're testing that in the field, and we think we have upside there too on the maintenance capex spend on our side in terms of fluid-ins. So we do feel confident that we're producing free cash flow out of this business.

For us though, it's just the matter of getting to internal hurdle rates where it makes sense. And in today's market, we just don't see changing -- we don't see increasing levels of activity in the second quarter. We see our own activity relatively flat and our financials relatively flat quarter on quarter. But again, similar to drilling, we are encouraged by where WTI is trading and the potential that we might have later in the year, but we don't have that visibility yet.

Marshall Adkins -- Raymond James -- Analyst

Is there a specific hurdle rate though that you're looking at to put them back? Or is it kind of just more depending on the increase in the market and the type of customer, that type of thing?

Andy Hendricks -- Chief Executive Officer

Our internal hurdle rates have been moving a bit with the market, so we kind of have to adjust that quarter on quarter based on how the market's doing. The market is still oversupplied and still has some challenges. But we're pleased with the efforts our teams have been making in this area.

Marshall Adkins -- Raymond James -- Analyst

Thank you, all.

Operator

Your next question comes from the line of Scott Gruber from Citigroup. Your line is open.

Scott Gruber -- Citi -- Analyst

Yes, good morning.

Andy Hendricks -- Chief Executive Officer

Good morning.

Scott Gruber -- Citi -- Analyst

I just wanted to start by touching on where you guys are seeing from a spot rate perspective on super-spec rigs. Are those starting to slip a bit here given that the activity pulled back? Or are crude prices helping with your pricing power?

Andy Hendricks -- Chief Executive Officer

Well, we're seeing our rig count continuing to come down a bit. We think that, that's more driven by the non-super-spec non-high-spec rigs that we still work in the fleet. In terms of super-spec, utilization is still over 90%. We'll still be over 90% in the second quarter based on our current projections.

And so we're still very encouraged by that. And our margin projections for the second quarter essentially flat in drilling give you some indication of what we're seeing in terms of pricing.

Scott Gruber -- Citi -- Analyst

Gotcha. So it sounds like maybe pullback is pretty limited here, but in terms of looking at your rig count versus peers and versus the Baker overall count, it seems like share is slipping a little bit here into 2Q. Are you guys just holding the line a bit more on rates given the expectation that customers will be coming back for more rigs over the next 12 months?

Andy Hendricks -- Chief Executive Officer

Yes. We think very highly of our APEX rig line, and so with the pride we have in that I think, that's reflected in the dayrates that we want to get for those rigs.

Scott Gruber -- Citi -- Analyst

Yes. That's all for me. Thank you.

Operator

Your next question comes from the line of Sean Meakim from JP Morgan. Your line is open.

Sean Meakim -- J.P. Morgan -- Analyst

Thank you. Good morning. Andy, maybe could you give us a sense of what the mix looks like in terms of the operator types that are dropping rigs and the types of rigs that they're dropping during the second quarter, in terms of the visibility that you have? And you mentioned private E&Ps could offer some upside. How do you think about the timing lag between oil prices and those types of operators picking up rigs?

Andy Hendricks -- Chief Executive Officer

Well, with the changes in WTI we saw at the end of last year and resetting of numerous companies' budgets on the E&P side, that's what's driven the decline. And all the statistics show that privates were slowing down at a faster pace than some of the publics in the first quarter. But at the same time, privates can move quickly when oil prices move up. And oil prices have been moving up, up to the mid-60s has been more of a recent event in the last week.

And that's where we think there is some potential upside. So yes, there's operator mix, there is the number of operators that are out there because the actual operator count of operators that had at least 1 rig shrank in the first quarter. But with WTI moving back to the mid-60s, that's where we see some potential upside. The challenge we're having gets back to visibility.

And we're giving you the projections of 160 on average with the best visibility that we have today. But over the last week we had WTI move up to the mid-60s, so that's where we see some potential upside.

Sean Meakim -- J.P. Morgan -- Analyst

Got it. Understood. And then on the pumping side, thinking about the gap between current economics and those that would precipitate reactivations. You've gone through some optimization efforts, well done on the margin for the quarter, to what extent can that gap be narrowed in terms of things within your control? Where things are -- where the economics are today versus where they need to be in order for you to put more equipment into the market?

Andy Hendricks -- Chief Executive Officer

You know it's difficult to have visibility to put more equipment into the market today given the rig count still coming down a little bit more, and the visibility we have on industry activity in the second quarter, and we believe our activity is going to be relatively flat quarter on quarter. Our financials are relatively flat quarter on quarter, but we continue to improve internal efficiencies. We decreased by one spread, and so our internal efficiencies in terms of stages spread continues to move up. So we think internally Patterson-UTI our Universal Pressure Pumping still has some upside even though our visibility on activity is that activity is relatively flat.

I think to get to see that change, we're going to need to see an increase in the rig count, and our visibility on rig count today looks like Q2 is likely a bottom in the rig count given where WTI is trading today.

Andy Smith -- Chief Financial Officer

Right. If I could just make one additional comment, which really applies kind of to what Sasha's question was, to Marshall's comment, to Scott's, and now yours Sean. If you think about it, in fourth quarter when budgets were being set, we saw this incredible downdraft in the price of WTI and budgets being set against that backdrop. And in our mind, it's not entirely surprising that it's taking operators and E&P companies some amount of time to rethink what they want to do with budget, particularly with pressure from shareholders to generate optimal returns on capital.

So in my mind, what we're seeing is kind of a set up for a very positive event, but we're not certain exactly when that event occurs, and that event occurs when -- and in effect 100-plus E&P companies, public E&P companies, decide that low and behold mid-60s oil pricing is something that they can count on and that their activity levels should be calibrated based on it. Right now they don't have perhaps that confidence or that willingness to step out, and we understand that. And we're giving you our numbers based on what we're seeing right now in front of us, but we think that could change quickly.

Sean Meakim -- J.P. Morgan -- Analyst

Got it. Thank you, both. I appreciate it.

Operator

Your next question comes from the line of Jud Bailey from Wells Fargo. Your line is open.

Jud Bailey -- Wells Fargo Securities -- Analyst

Thanks. Good morning. Quick question. Andy, you referenced the expectation of small privates following oil price and the oil prices are up.

But I'm -- just to clarify, are you getting more inquiries or inbounds from customers as of yet? I mean has the dialogue changed at all? Or has it still been pretty quiet on that front? Just trying to differentiate between kind of what you're expecting and what you're starting to hear from customers?

Andy Hendricks -- Chief Executive Officer

Yes. First off, I'd like to clarify one thing, not all privates are small. Some of them are actually very large operators out there, and we're certainly happy to do work for them. I wouldn't say that the tone or the discussions with the customers has changed yet.

And I use that word yet a bit softly. But we do see potential upside because of where WTI is trading. And like I mentioned, we all know that this is kind of recent that WTI's moved to the mid-60s. So given where it's trading, I think there's some potential upside.

And it's the privates that can move quicker. When it comes to the public operators and the sentiment there, our sales and marketing teams deal with the drilling engineers, the drilling managers, completion engineers, completion managers. And they're coming back and saying these guys are under pressure to stay within cash flows, stay within budget. That's an interesting conversation to have with drilling managers and completion managers.

But now in the E&P organization, it's been pushed down to that level. That's a bit of a shift. So we'll have to wait and see how the operators that are publics react to the higher cash flows that they're getting at these oil prices. But in our view, certainly the privates can move faster in this area.

Jud Bailey -- Wells Fargo Securities -- Analyst

OK. Well, I appreciate the color. And my follow-up is on just thinking about dayrates structure. And it was kind of alluded to earlier, but I want to probably ask it a different way.

Is the rate environment that you're seeing today sufficient that if all of -- if rigs don't move and your rig count were to stay, say, flat for a while, would you expect to maintain margin per day above this $11,000 a day? Is that based on where you're seeing leading edge today?

Andy Hendricks -- Chief Executive Officer

Yes. We expect -- we anticipate margins would still stay relatively flat.

Jud Bailey -- Wells Fargo Securities -- Analyst

OK. All right. Great. I'll turn it back.

Operator

Your next question comes from the line of Tommy Moll from Stephens Inc. Your line is open.

Tommy Moll -- Stephens Inc. -- Analyst

Good morning. Thanks for taking my questions. So I wanted to drill down a little bit on your commentary around Superior QC and to make an analogy to the trends we've seen in super-spec rigs. One of the priorities for the industry and your company has been over time to try to capture as much of the value as you're bringing to customers when you invest capital to upgrade a rig and bring a new rig into the market.

Those rigs being much more efficient than the alternatives. And so now as we're shifting more to a technology focus and this is tying back to your comments on Superior QC, what's the commercial strategy to make sure that over time as you can offer customers more technology-driven capability, that you capture the full -- that you demonstrate the value to them and then capture it?

Andy Hendricks -- Chief Executive Officer

We all recognize that in the heavy capital business of drilling rigs, the operators have had the benefit of the increased efficiency from the latest rig technology that we brought out over the years. And especially, during this downturn that we went through, 2015, '16, and we're just now getting our margins up to a new high from 2016. But there's been a value capture on the operator side for the last few years. Now our rig margins have been moving up and that's certainly going to help that and that's moving in the right direction, but what you see as well that we're doing is we're starting to layer on technology and while drilling rigs are high capital investments, layering on technologies such as Superior QC or as we talked about on last quarter's call, our Cortex operating system and some of the software applications that we're writing for Cortex, these are low-capital investments, but they bring significant value to operators.

And so it's our intent to price in that value where we can, on top of the rig cost. And we're not saying this is done in a dayrate fashion, but we're finding new mechanisms to capture our share if the value of the performance, and we'll continue to work on that. But the good news is on our side these are low capital investments that have the potential to bring value down the road.

Tommy Moll -- Stephens Inc. -- Analyst

Makes sense. As a follow-up, I wanted to ask if you have any thoughts within pressure pumping on some of the commentary bubbling up around electric fleets? Is that something that you guys have looked at, have interest in, have a view on that you'd be willing to share?

Andy Hendricks -- Chief Executive Officer

I think electric fleets are interesting. They're driven by gas turbines, so you have to have a source of natural gas to drive them. So they fit certain select markets in certain select fields where you have access to natural gas. Right now we're trying to maintain discipline around our capital spend.

And adding another frac spread into the mix just doesn't seem to be the right thing for us to do.

Tommy Moll -- Stephens Inc. -- Analyst

Great. Thank you. That's all for me.

Operator

Your next question comes from the line of Marc Bianchi from Cowen. Your line is open.

Marc Bianchi -- Cowen and Company -- Analyst

Thank you. I suppose this is somewhat related with the idea of capital allocation to the pumping business. You guys have done a good job to improve the performance in that business from where it was a couple of quarters ago. And I think if we go back to a few quarters ago, there were some questions from investors about, is this business really the right business to have, when you've also got a very strong drilling business.

So I guess, interested to hear any updated thoughts on how pumping fits in strategically for Patterson. We noticed that you added pumping margin to the annual comps so certainly, focused on turning performance there. But just curious if you could give us a high-level view of how you see it strategically going forward.

Andy Hendricks -- Chief Executive Officer

So we certainly recognize that we're not getting full value in the share price for the investments that we've had in the pressure pumping, but we've been in this business for a long time, we've been in pressure pumping. Universal started in 1980. It's a solid franchise with a solid name. We've got two good quarters in improving the margins in tough market, and we think we can continue to improve the margins going forward.

So right now, we're just staying focused on continuing to improve the performance and the efficiencies of our business.

Mark Siegel -- Chairman

I guess, I would just want to add one additional thought that if you think about the two core businesses that have driven the revolution in U.S. production of oil and natural gas, it is longer horizontal wells controlled by sophisticated drilling equipment and sophisticated frac equipment doing the multi-staged purpose and simulations. We're industry leaders in both of those fields and proud of that kind of exposure. We recognize that the investment community today is not giving us credit for it, but our approach right this minute is to show the community that we're really great operators in both businesses.

Marc Bianchi -- Cowen and Company -- Analyst

OK. And then just a question more near term on the guidance for cost per day for drilling. I would've anticipated that to be lower sequentially just based on the absence of payroll that -- seasonal in first quarter. Is there something offsetting that on the increase side? Or can you kind of talk to how cost is progressing from first quarter and maybe in the back half of the year?

Andy Smith -- Chief Financial Officer

Yes, and this is Andy Smith. With the rig count forecast obviously coming down, you have some fixed costs that are now being spread across that lower rig count, which offsets what you rightly point out, which is the seasonal effect in the first quarter of some higher payroll taxes.

Marc Bianchi -- Cowen and Company -- Analyst

Got it. OK. Well, thanks for that. I'll turn it back.

Operator

Your next question comes from the line of Kurt Hallead from RBC. Your line is open.

Andy Hendricks -- Chief Executive Officer

Good morning, Kurt.

Kurt Hallead -- RBC Capital Markets -- Analyst

Hey, thanks. Thanks for the updates and the perspective you're kind of providing on some of the near-term dynamics in the marketplace. So maybe I could just start on the land drilling front and the context of the backdrop, what kind of indications, Andy, are you getting or any change in indications from your customer base regarding upgrading of assets and the kind of the demand pull for some more higher-spec assets for rig that are not currently in the market? Any updates on thoughts on how that may play out in the back half of the year?

Andy Hendricks -- Chief Executive Officer

We did two major upgrades that we delivered early in the year. We'll do some smaller upgrades on existing working rigs over the next couple of quarters, but in general, as Andy mentioned earlier, we just don't have any plans to do any more major upgrades. In today's market we just don't believe it makes sense, and it's just not a good use of our capital. So the super-spec market is tight, it's over 90%, there's no reason for us to do a major upgrade and take a high-spec to a super-spec right now. 

Kurt Hallead -- RBC Capital Markets -- Analyst

My general understanding is that you guys generally work on the demand pull dynamic any way, and you weren't going to do any updates unless you have some sort of contractual commitments. So I guess that kind of answered the question. You don't really have any E&Ps asking for incremental rigs and looking for upgrades at this point in time?

Andy Hendricks -- Chief Executive Officer

Not yet.

Kurt Hallead -- RBC Capital Markets -- Analyst

OK. Gotcha. So Mark -- and Andy, I appreciate the color and the commentary you provided to Mark's question prior, knowing that you guys could think things very -- in a long-term perspective and/or not kind of sway to kind of alter your viewpoints on the dynamics of being involved in the frac business. So what -- at some point, right? If the value is not being recognized there might have to be a decision that's being made, and would you guys think of it more in a context of being consolidators of a fragmented market? Or would you be sellers into a fragmented market? Any thoughts on that?

Mark Siegel -- Chairman

Kurt, my answer to that is that we have spent the past 20-plus years looking for opportunities in every regard. And so as a company that seeks opportunities, we're always looking for things which will enhance the company's value to the shareholders. As you know virtually all the people on this call are large shareholders and care a lot about the value of the stock, and so we're always looking at it and trying to make a decision as to should you be an acquirer and a consolidator in this business or should you do something different. And we're thinking about all of those kind of things all the time in every business that we're in.

Andy Hendricks -- Chief Executive Officer

Kurt, we believe strongly that this sector needs consolidation. My view is that the best groups to do this are the pure plays that can sit across the table from each other and come to relative valuations quicker than a company like ourselves that has multiple services, but we think there's lots of room for consolidation with pure plays and we think that we're all beneficiaries if this happens.

Kurt Hallead -- RBC Capital Markets -- Analyst

Gotcha. And when you guys think about the commercialization and the revenue model or business model around the automation and the drilling apps and algorithms and that dynamic, some of your competitors have kind of given some framework around that, maybe, incremental $250 a day to $500 a day for the apps and hosting of the apps potentially up to $1,500 a day for the automation and operating system dynamics. How do you see the market shaking out yourselves? And how do you see the adoption of this technology evolving?

Andy Hendricks -- Chief Executive Officer

We're really excited about the potential of this technology, not just for instance the Cortex operating system or the software applications that we can run on top of that along with Superior QC. But when you combine that with our central performance center here in Houston that's collecting and analyzing and data and helping operations out in the field 24 hours a day, we think there's a lot of potential upside. What we don't want to do is roll this into a dayrate. We think this has more value than just adding it into a dayrate, and we'll look for opportunities to find ways in commercial models to extract value beyond dayrate.

Mark Siegel -- Chairman

Kurt, I just have additional thought, which goes as follows, we were early into thinking about in regard to our pressure pumping business, sand logistics and how to in effect take advantage of the new logistics, thinking that in effect the Uber for sand analysis that we talked about a number of quarters ago, we've been thinking about how software improvements could potentially, and will potentially, have this dramatic impact on the whole drilling business and pressure pumping business as they will make it possible for our customers to be more accurate, more precise, more efficient, etc. And so we've been quietly investing in those areas and working on those areas, but we believe that we're going to be second to no one in developing the technology for the future of the industry. We see the disruption, we understand the disruption, and we're preparing for the disruption.

Kurt Hallead -- RBC Capital Markets -- Analyst

Got it. That's great color. Thank you so much.

Operator

Your next question comes from the line of Chase Mulvehill from Bank of America. Your line is open.

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

Hey, good morning. I guess I kind of want to hit the rig side. When we think about how many super-spec rigs you have, I think you said you've got about 150 today. How many of those are actually idle?

Andy Hendricks -- Chief Executive Officer

Today, we have 10 super-spec rigs idle. And I'll remind you, utilization is still over 90%.

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

Yes. And then the 10 rigs that you expect to kind of go down over the next few weeks, how many of those are super-spec? And then what basins do you expect to kind of see most of those rig decline to take place in?

Andy Hendricks -- Chief Executive Officer

Yes. We don't get into those levels of detail in the projections, but it'll be a mix of high-spec super-spec, and some our SER rigs as well in various basins.

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

OK. All right. Are you seeing any pricing pressure from some competition on the super-spec rigs? And you're just kind of avoiding taking dayrates down?

Andy Hendricks -- Chief Executive Officer

You know with utilization on super-specs still over 90%, we see that there's still some relative discipline out there in the market between the major players.

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

OK. Last one, when I look at your dividend and think about how much you're spending on buybacks versus dividend, how do you think about balancing dividend and buybacks and what -- more meaningfully increase the dividends at such a low level? Especially because investors might look at this, and if you increase the dividend, it kind of implies that you maybe have a bit stronger commitment to capital discipline.

Andy Smith -- Chief Financial Officer

Boy, you know, I think given the amount of stock that we've bought back over the period of time that we bought it back since the first quarter of 2018, having bought back $226 million worth of stock, I would hope that they wouldn't question our commitment and our sincerity or our conviction. So I think that quite frankly, we have demonstrated in an incredibly clear and appropriate way the determination to return capital to shareholders. As between dividends and share repurchases, I think that our management team has been thoughtful about trying to have a steadily increasing dividend that we can support forever, at the same time, take advantage of low stock prices to have an opportunity to in effect shrink the capital base. And so I think we've both demonstrated the commitment to returning capital as well as the nimbleness to think about how to do it in the most attractive way for the benefit of all of our shareholders. 

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

OK. Is there a certain metric or anything that we should look at about -- thinking about how much capital you will return to shareholders? Is it all a free cash flow? Is it a certain percent of operating cash flow? Internally, how do you think about how much cash flow to return to shareholders?

Andy Smith -- Chief Financial Officer

It's always the conversation that occurs with management, several times per quarter and with our board at least at our board meetings on a quarterly basis, and often in between additional board meetings. So we're thinking about that topic always. In my mind that's the flip side of how do you act in a capital disciplined manner. And so we're trying to think about well how much do you want to reinvest in our business, what do you think is appropriate levels of reinvestment, and what are appropriate and if there's excess cash over and above that reinvestment level, how to best return it to shareholders.

We're not against paying dividends, we've been paying dividends for a very, very long time. We're just trying to make the most opportunistic use of our capital every given moment.

Andy Hendricks -- Chief Executive Officer

Yes. And I'm just adding to that, we have considerations for capital, we have a tranche of debt that comes due in 2020, so that's part of the discussion as well.

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

That's really helpful color. Appreciate it. I'll turn it back over.

Operator

Your next question comes from the line of Vebs Vaishnav from Howard Weil. Your line is open.

Vebs Vaishnav -- Howard Weil -- Analyst

Hey, good morning, gentlemen. I guess, just if I think about pressure pumping and if I'm doing my math correctly, it seems like you guys did about $10 million of EBITDA per fleet for first quarter, it's increasing to 10 -- $11 million in the second quarter, that's before the fluid expensing. When you guys think about being the top operator, is the thinking that you can get to, call it, $15 million, $16 million EBITDA per fleet after fluid expensing? Is that how you think about it? Or if just you can help about -- when you talk about being top operator or top profitability, how you -- how do you think about it?

Andy Hendricks -- Chief Executive Officer

Well, what I've been saying for over a year, it's our objective to be in the top quartile. We continue to improve as you pointed out. The pace at which we get there will vary quarter to quarter, but our teams are doing a great job. And I think we'll continue to improve our margins whether you look at itat the gross margin or in terms of EBITDA per spread.

Vebs Vaishnav -- Howard Weil -- Analyst

OK. And do you need any pricing help to get there? Or is it just going to be more coming from operational efficiencies? And if you can expand on what kind of operational efficiency are you looking for? Is it more reduction of some maintenance facility? Some leases that get over? That would be helpful.

Andy Hendricks -- Chief Executive Officer

We're looking at all of the above. Of course, any upside in pricing would drive margins faster than anything you can do on the cost side. But in today's market that's a little bit challenging. If the rig count reverses there may be some upside on the pricing after that with any improvements in activity.

But we continue to stay focused on not just cost, but improving the internal efficiencies, where we're generating more stages per month -- more stages per quarter, and that will increase revenue and margin as well.

Vebs Vaishnav -- Howard Weil -- Analyst

And last question, I'm going to try my luck with this. Can we get there over the next 12 to 18 months without pricing?

Andy Hendricks -- Chief Executive Officer

We'll continue to work in that direction, and we'll see how it goes.

Vebs Vaishnav -- Howard Weil -- Analyst

Thanks so much.

Operator

Your next question comes from the line of John Watson from Simmons Energy. Your line is open.

John Watson -- Simmons Energy -- Analyst

Hi, good morning. In the first quarter, you had some contracts rolled, can you speak to what benefit that might have had to margins if there's a way that you could quantify for us?

Andy Hendricks -- Chief Executive Officer

It's been a bit of a mix that's -- I would say at best it's neutral, some have rolled up, some have rolled down, but on balance it's been about neutral.

John Watson -- Simmons Energy -- Analyst

OK. And, would you expect a similarly -- a neutral net in Q2?

Andy Hendricks -- Chief Executive Officer

Yes. Especially, based on our projections and margins are flat.

John Watson -- Simmons Energy -- Analyst

OK. Understood. Andy Smith mentioned potential for asset sales and asset sales that you've done over the previous quarters. Can you give us any idea of what that number could be over the next 6 to 12 months?

Andy Smith -- Chief Financial Officer

It's hard to predict. Look we're looking at any place where we think we have a bit of excess or lazy capital on the balance sheet. I mean last year we did $47 million. If you go back historically that looks pretty consistent.

That's probably a relatively good number to use. But it can vary up and down from that just kind of depending upon what it is, and what the market looks like for those older excess assets.

John Watson -- Simmons Energy -- Analyst

Sure. OK. That's helpful. And lastly, when your customers are dropping rigs, do you have any impression of what they're doing on the completion side? Are they keeping their completions activity level? Or are they also dropping frac crews when they drop drilling rigs?

Andy Hendricks -- Chief Executive Officer

You know, at the end of the day, the rig count's going to drive overall activity. And our teams on the pressure pumping side have been improving our internal efficiencies, where we would expect our activity to actually be roughly flat quarter on quarter, especially, in terms of our internal protection on stage count. So we're benefiting from our improvements in internal efficiencies. But overall, it's the rig count that's going to drive activity across the industry.

And again, it appears today that, that bottom is likely in the second quarter.

John Watson -- Simmons Energy -- Analyst

OK. Great. Thanks for the color, guys. I'll turn it back.

Operator

[Operator instructions] Your next question comes from the line of Brad Handler from Jefferies. Your line is open.

Brad Handler -- Jefferies -- Analyst

Thanks, guys. Good morning. I recognize that what I'm going to ask has some sensitivities around it. So let's just say I sort of recognize since I asked that, but I'd appreciate any thoughts that you can share.

If activity in pumping stays where it is today, give or take, can you consolidate crews further? Could we wake up three months from now, and you're actually running 13 -- 12 or 13 crews?

Andy Hendricks -- Chief Executive Officer

I think today that's hard to predict, and I think it's actually difficult at the same time. We've been working white space out of the calendar. And there's going to be limitations on how efficient the industry can become. I think when you're looking at overall industry efficiencies, in West Texas with that being one of the last major basins in the U.S.

to move to multiwell pads, that's driven industry efficiency increases, but the rate of change of moving to multiwell pads is kind of slow at the same time. So I think we've seen a lot of improvements in efficiency as an industry overall over the last year. But I think that rate of change starts to slow on the completion side because of that.

Brad Handler -- Jefferies -- Analyst

Sure. Yes, I was trying to calibrate your own -- you're obviously looking hard to try and to do more per fleet every day. And I just didn't know how much more room there was for you specifically. Maybe onboard --

Andy Hendricks -- Chief Executive Officer

Not, that one. That's just to improve efficiency.

Brad Handler -- Jefferies -- Analyst

OK. And again, my introductory comment about being sensitive to the question notwithstanding if I -- if you guys think about that. So we have a pretty good conversation going broadly in our space, right? In the space around too much capacity, part of that is a function of efficiencies. There's an attrition conversation and there are signs where individual actors are saying, yes, we'll be, certainly for now, we're going be part of that attrition conversation.

Where are you in that first of all? And then if you -- obviously demand scenarios vary in that, that's going to affect the answer, but is it plausible that maybe you say hey, even in much better demand scenarios we're going to sit tight with 15. We probably let the good equipment that's sitting idle help limit our capex, so we're going to be able to run a fleet of 15, and maybe you consolidate regions. But maybe it was kind of build to a smaller business over the medium term. Is that a scenario that you all think about that's obviously very capital disciplined? It would seem to be that you would be acting in the spirit of being a good actor, being a leader in that respect.

Is that one of the scenarios that you all think about?

Andy Hendricks -- Chief Executive Officer

Well, we're certainly focused on capital discipline and I think we're demonstrating that by not working spreads where it doesn't make sense for us just to consume equipment at cash margins that are below our internal hurdle rate. In a scenario at increasing rig count, increasing activity count in pressure pumping that would drive demand to activate more spreads, I suspect we're not the first ones out to activate spreads. We would also want to wait to see the pricing move up as well. And so we're very focused on trying to improve the margin of the pressure pumping business, and I suspect others may move activity quicker than we do.

But we're not necessarily going to take the lowest price that's out there just to activate spreads at the same time. And that's just part of our internal capital discipline discussion.

Brad Handler -- Jefferies -- Analyst

Sure. Sure. But I guess another way of asking that is you feel like you can figure out a way to have an overhead structure and a regional support structure that supports 20-plus fleets again? Like that certainly is part of how you envision your going forward as long as the demand is there, but there's been no change to say maybe we are going to be very strong in fewer regions for example or fewer parts of a basin or something, which could in essence constrain your business but drive more profitability and more efficiency?

Andy Smith -- Chief Financial Officer

Yes, Brad, this is Andy Smith. We're always focused on ways to lean down the business, but we're not really interested in sort of limiting what we feel is the earnings power. As we look at this business and while we can variabilize costs and be able to scale it for whatever market we're in, we think that's the way to look at it. And should there be more demand out there and pricing return, we want to be able to put equipment back to work, right? We just don't want to do it at levels like Andy said, where we're running the equipment into the ground for something which is an inadequate return, that doesn't make any sense to us.

So we're trying to scale the business appropriately for whatever the market conditions are. So that we can react in whatever time frame that is.

Mark Siegel -- Chairman

I guess, I would say I had one additional thought, Brad which was that if you went back to sort of middle of last summer, people were pretty optimistic that there was going to be a shortage of frac crews and that demand for frac activity would way outstrip the availability of frac equipment. And that has certainly not come to pass in the last six months, but we're not -- we haven't put aside that opportunity as being a possibility that we want to be in a position to enjoy when, and if, it does occur.

Brad Handler -- Jefferies -- Analyst

That makes sense. Certainly, our collective ability to forecast the supply demand imbalance is pretty challenging. OK. Thank you for the thoughts.

I appreciate it. I'll turn it back.

Operator

There are no further questions at this time. Mr. Siegel, I turn the call back over to you.

Mark Siegel -- Chairman

I'd just like to thank everybody for joining us for our earnings call following the first quarter and tell everybody we look forward to speaking with you again after our second quarter. Thank you.

Operator

[Operator signoff]

Duration: 61 minutes

Call Participants:

Mike Drickamer -- Vice President, Investor Relations

Mark Siegel -- Chairman

Andy Smith -- Chief Financial Officer

Andy Hendricks -- Chief Executive Officer

Sasha Sanwal -- UBS -- Analyst

Andry Hendricks -- Chief Executive Officer

Marshall Adkins -- Raymond James -- Analyst

Scott Gruber -- Citi -- Analyst

Sean Meakim -- J.P. Morgan -- Analyst

Jud Bailey -- Wells Fargo Securities -- Analyst

Tommy Moll -- Stephens Inc. -- Analyst

Marc Bianchi -- Cowen and Company -- Analyst

Kurt Hallead -- RBC Capital Markets -- Analyst

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

Vebs Vaishnav -- Howard Weil -- Analyst

John Watson -- Simmons Energy -- Analyst

Brad Handler -- Jefferies -- Analyst

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