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Newpark Resources Inc (NR -0.95%)
Q4Â 2019 Earnings Call
Feb 7, 2020, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Greetings and welcome to the Newpark Resources Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Ken Dennard. Thank you. Mr. Dennard, you may begin.
Ken Dennard -- Chief Executive Officer and Managing Partner
Thank you, operator. And good morning, everyone. We appreciate you joining us for the Newpark Resources Conference Call and Webcast to review fourth quarter and full year 2019 results. With me today are Paul Howes, Newpark's President and Chief Executive Officer; Gregg Piontek; Chief Financial Officer; Matthew Lanigan, President of the Mats Business and David Paterson, President of the Fluids Business.
Following my remarks, management will provide a high-level commentary on the financial details of the fourth quarter and full year results and near-term outlook, before opening the call for Q&A.
Before I turn the call over, I have the normal housekeeping details to run through. There'll be a replay of today's call. It will be available by webcast on the Company's website at newpark.com. There will also be a recorded telephonic replay available until February 21st, 2020 and that information on how to access that is in yesterday's release.Please note that the information reported on this call speaks only as of today, February 7, 2020 and therefore, you're advised that time-sensitive information may no longer be accurate as in the time of any replay listening or transcript reading.
In addition, the comments made by management during this conference call may contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of Newpark's management. However, various risks, uncertainties, and contingencies could cause Newpark's actual results, performance or achievements to differ materially from those expressed in the statements made by management. The listener is encouraged to read the annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K to understand certain of those risks, uncertainties, and contingencies.
The comments today may also include certain non-GAAP financial measures. Additional details and reconciliation to the most directly comparable GAAP financial measures are included in the quarterly press release, which can be found on Newpark's website.
And now that behind me, I'd like to turn the call over to Newpark's President and CEO, Mr. Paul Howes. Paul?
Paul L. Howes -- President and Chief Executive Officer
Thanks, Ken and good morning, everyone. Before covering the specifics of the fourth quarter financial results, I'd like to begin by reflecting on our safety performance for the full year 2019.For both Newpark and our customers, employee safety is paramount and our most important core value. Although, we saw a slight increase in our total recordable incident rate, which came in at 0.65 for the year, we believe this result compares favorably within the industries that we operate. I would like to thank all of our employees for their unwavering commitment to working safely and the pursuit of a zero harm workplace.
Now turning to the fourth quarter operating results. Although the slowdown in the North American land market proved to be even more challenging than we anticipated, I'm pleased with the swift actions taken in the fourth quarter. In our Mats business, we remain focused on accelerating the growth within the energy infrastructure and other non-E&P markets. Consistent with our historical experience, the fourth quarter benefited from strong seasonal demand for product sales, which led to a 9% sequential increase in segment revenues and an improvement in operating margin to 27%. The strength in product sales during the quarter was somewhat offset by weaknesses in the US E&P market, which led to softer rental and service revenues, particularly in gas focused basin in the Northeast.
In contrast with the E&P market, energy infrastructure rental activities have remained relatively stable, contributing to the continued shift in our revenue mix away from the E&P market. For the fourth quarter 75% of our total segment revenues are derived from non-E&P markets, including 55% of rental and service and nearly all of our product sales.
In fluids, the volatile E&P market in the North American land continues to validate the key components of our long-term strategy that was recently approved by our Board. The fourth quarter results reflect a clear distinction between markets with the challenging North American land environment overshadowing the strong results we experienced internationally and in the deepwater Gulf of Mexico.
Our international revenues improved nicely, up 12% sequentially, as revenues in the EMEA region benefit from higher activities on IOC contracts, along with elevated downhole fluids losses. Meanwhile, we also continued to gain traction in the deepwater Gulf of Mexico where revenues improved 13% sequentially. This growth reflects a stark contrast, however, to the challenges that we and other service companies faced in the North American land market.
Despite the improvement in the Gulf of Mexico and our first US stimulation chemical revenues on land in the fourth quarter, our overall North American revenues declined 22% sequentially, reflecting the impact of the declining rig count, budget exhaustion by several of our customers and extended downtime through the holidays.
As we touched on our last quarter's call, we recognized that volatility in the North American land market is the new normal. We have taken actions not only to rightsize our US Fluids business, but also to transition to a more variable cost structure with the goal of building a more scalable operating model that reduces the impact of the North American land volatility on an earnings and cash flow. After careful consideration and in addition to exiting several US facilities, we took further actions in the fourth quarter to reduce our presence in the Brazilian market, which has been a headwind for several quarters. Brazil was at one time a strategically important market for Newpark, allowing us to demonstrate our technical capabilities in the deepwater market. Unfortunately, the Brazilian market has declined significantly over the years and based on recent developments, we do not believe the IOCs will return in any meaningful way for the foreseeable future. I'd like to thank the entire Brazilian team for all of the hard work over the years.
And finally, I'd like to note that despite the challenging market conditions, the fourth quarter results demonstrates our continued ability to generate consistent free cash flows through all phases of the industry cycle. Free cash flow for the fourth quarter totaled $17 million, bringing our full year 2019 free cash flow to $41 million.
And with that, I will hand the call over to Gregg to discuss the detailed financials of the quarter. Gregg?
Gregg S. Piontek -- Senior Vice President and Chief Financial Officer
Thanks, Paul and good morning, everyone. I'll begin by covering the specifics of the segment and consolidated operating results for the quarter, followed by an update on our near-term outlook. The Fluids Systems segment generated total revenues of $135 million for the fourth quarter of 2019, reflecting a 12% sequential decrease and a 24% year-over-year decrease.
Revenues in the US declined 21% sequentially to $77 million, which compares to an 11% reduction in US rig count with the softness felt across most land basins.
In addition to lower market activity in general, certain of our customers also laid down rigs at a higher rate than the broader market, which combined with an increasingly competitive pricing environment negatively impacted our market share. Further for those customers that remained active, our fourth quarter results reflected a notable decline in revenue per rig impacted in part by extended downtime through the holidays.
The $22 million decline in US land was slightly offset by a $1 million sequential improvement from deepwater Gulf of Mexico, where revenues improved to $10 million for the fourth quarter. On a year-over-year basis, US revenues declined 28% from Q4 2018, which compares to a 24% reduction in average rig count over the same period.
US land revenues declined $39 million or 37%, primarily reflecting the lower rig count in 2019, as well as lower market share. As Paul touched on, although we've seen our first revenues in the US land stimulation chemical market, this provided only a minor contribution to Q4 results. The softness in US land was partially offset by our expanding market share in the deepwater Gulf of Mexico, which provided a $10 million revenue increase year-over-year.
In Canada, although the market rig count improved modestly on a sequential basis, revenues declined 33% to $5 million driven by budget exhaustion with several key customers leading to extended downtime through the holiday season. On a year-over-year basis Canada revenues declined by 65% compared to a 23% reduction in rig count, due primarily to pronounced budget exhaustion from our active customers.
Outside of North America, as Paul touched on, we are seeing a much more robust market environment. Despite the completion of the Woodside contract in offshore Australia, total international fluids revenues improved to $52 million in the fourth quarter, a 12% sequential increase, reflecting fairly broad-based improvements across several countries in the EMEA region. With the regional shift in activity levels, it's worth noting that the EMEA region contributed 36% of our fourth quarter fluids revenues.
On a year-over-year basis, revenues from our international regions declined by 7%, which includes a $15 million decline associated with contract transitions in Algeria, Brazil and offshore Australia, largely offset by an $11 million increase from other IOC and NOC contracts in the EMEA region.
As discussed on our November call with the dramatic slowdown in activity in certain US markets and the expectation of continued volatility, we've taken actions to rightsize our operational footprint and drive a more variable cost structure. As highlighted in yesterday's release, these actions along with impairments to goodwill and other charges resulted in $17 million of charges in the fourth quarter. Adjusting for these charges, the Fluids segment generated a modest loss in the quarter, which was impacted in part by a weaker sales mix within the fourth quarter as well as the natural lag in operating cost reductions, as we align our structure to match the softer market conditions.
Turning to the Mats business, total segment revenues improved to $55 million in the fourth quarter, representing a 9% sequential improvement driven by a $13 million increase in product sales, which came in at a quarterly record of $27 million. The exceptionally strong activity in product sales was partially offset by an $8 million decline in rental and service revenues, which came in at $27 million for the fourth quarter.
The 23% sequential decline primarily reflects softness in E&P customer activity, while non-E&P markets remained relatively stable. Comparing to our record fourth quarter of 2018, revenues from the Mats segment declined 22% with a $19 million decrease in rental and services, partially offset by a $4 million improvement in product sales.
Substantially, all of the year-over-year rental and service decline was attributable to the weakness in E&P market activity, while revenues from non-E&P markets have remained relatively stable. As Paul touched on, 75% of our total fourth quarter Mats segment revenues were derived outside of E&P.
For the full year 2019, non-E&P end markets accounted for $110 million or 55% of our total Mats segment revenues, including $65 million of rental and service and $45 million from product sales.
Benefiting from the strong product sales activity, the Mats segment operating margin improved sequentially to 27% for the fourth quarter, which compares to 20% in the third quarter and 30% for the fourth quarter of last year. Total corporate office expenses were $9 million in the fourth quarter compared to $9.7 million in the third quarter and $8.5 million in the fourth quarter of last year.
Fourth quarter 2019 result includes $1.1 million of severance charges. Adjusting for this, the sequential decline is largely driven by lower spending related to legal matters, strategic planning and M&A activity while on a year-over-year basis, the decline in spending is primarily attributable to lower performance-based incentives.
Turning to our consolidated results, fourth quarter 2019 revenues were $189 million, representing a 7% decline from the prior quarter and 23% decline year-over-year. SG&A costs were $28 million for the fourth quarter compared to $27 million in the third quarter and $30 million in the fourth quarter of last year. The sequential increase primarily reflects the fourth quarter, severance charges, while the year-over-year decrease primarily reflects lower performance-based incentives in 2019.
The fourth quarter provision for income taxes was $2.6 million, despite reporting a pre-tax loss of $14 million in the period. This result reflects the impact of the $11.4 million non-deductible goodwill impairment recorded during the fourth quarter along with the impact of the geographic composition of our pre-tax losses where the tax expense on our foreign earnings is higher than the tax benefit received on US losses.
Our net loss for the fourth quarter was $0.19 per share, reflecting the $0.19 per share impact of the impairments and other charges highlighted in yesterday's press release. This compares to a net loss of $0.02 in the third quarter and net income of $0.11 per diluted share in the fourth quarter of last year.
Turning to cash flow, fourth quarter cash provided by operating activities was $19 million, which included $3 million of cash from operations along with a $16 million net decrease in working capital. Cash used in investing activities totaled $21 million in the quarter, substantially all of which reflected the $19 million Cleansorb acquisition discussed on last quarter's call.
The fourth quarter results demonstrated our ability to adjust course and managing our net capital investments. For example, in response to the softening E&P market, we were able to increase the sale of Mats from our rental fleet, while reducing the pace of capex, resulting in only $2 million of net capital investment in the quarter and free cash flow generation of $17 million. Financing activities used net cash of $4 million, primarily reflecting a net reduction in debt.
Turning to our full year 2019 cash flow, operating activities provided $72 million cash, which included a $22 million net reduction in working capital. Investing activities utilized $50 million, including $31 million of net capital investments and $19 million for the Cleansorb acquisition.
Financing activities utilized $30 million, including $22 million of share repurchases and an $8 million net reduction in debt [Phonetic]. Our leverage remained modest with a total debt balance of $160 million and a cash balance of $49 million as of year-end, resulting in a total debt-to-capital ratio of 22% and a net debt to capital ratio of 17%.
Our primary debt components include $100 million on convertible notes due December 2021 and $65 million outstanding on our asset-based bank facility. Although we are still nearly two years away from the convertible note maturity, we plan to utilize our free cash flow generation in 2020 primarily to reduce our bank facility balance, helping to position us to fund the 2021 maturity without a need to access public capital markets.
Now, turning to our near-term outlook. In fluids, although US land market activity has stabilized in recent weeks, we are also not expecting a significant improvement in near term as capital discipline remains the overarching theme for most of our E&P customers. Consequently, we are expecting US revenues to remain relatively consistent with fourth quarter levels as an expected improvement in deepwater will likely be offset by the modestly lower US land rig activity.
Also, it's worth noting that we have the deepwater project scheduled with a second IOC, which we expect to begin in early Q2. In Canada, we should see the typical seasonal improvement as we are currently tracking to a pace consistent with Q1 of last year.
Internationally, while customer activity is showing a general strengthening based on the timing of activities within our key contracts, including a multi-quarter pause in drilling operations with Shell in Albania, we anticipate revenues will pull back to a level more in line with the third quarter, following the strong fourth quarter results.
In terms of operating margin, although our US cost optimization efforts are delivering steady month-over-month improvements in our cost base, it will take a few quarters to drive meaningful improvement to the bottom line. Consequently, we anticipate the Fluids segment will remain near breakeven in the first quarter.
In the Mats segment, we expect product sales to pull back from the record levels achieved in Q4, which should be partially offset by a modest improvement in rental and service revenues. Although the persistently low natural gas prices continue to impact our E&P customer activity, we expect the energy infrastructure market to provide greater stability over time, as we continue to expand our geographic presence.
While it is always a bit challenging to predict, both the timing of rental project start dates, which can be impacted by weather conditions, as well as the timing of product sales, we currently expect total Q1 revenues to pull back to roughly the $40 million level.
Further, although the profitability of our established operations are expected to remain relatively stable, with the decrease in revenues and our increasing investments in geographic expansion and commercial infrastructure necessary to accelerate our growth in non-E&P end markets, we expect our near-term margins to see a headwind with Q1 likely pulling back into the mid-to-high teens.Regarding corporate office spending, we expect Q1 expenses will be in the $7 million to $8 million range. Regarding cash flow, as Paul will cover in more detail, we are carefully balancing the execution of our strategy while taking appropriate actions to navigate the challenging environment in US land, which requires a bifurcated approach to capital deployment.
In Mats, we will continue to adjust our rental fleet size based on our utilization levels and the near-term opportunities, which will impact both our level of capital investment and the sale of assets from our rental fleet. In fluids, although, we are continuing to fund investments required to support IOC and NOC growth, investments into the North American land market will remain very limited.
Overall, we expect our capital expenditures will remain below 2019 levels, until we see revenue driven catalysts that necessitate additional investments. Further, I'd like to highlight that as we've seen historically, periods of market softness provide a tailwind to free cash flow generation driven by reductions in working capital.Regarding taxes, with the continued weakness in US operations, we currently expect our tax rate will remain significantly elevated in the near term.
And with that, I would like to turn the call back over to Paul for his concluding remarks.
Paul L. Howes -- President and Chief Executive Officer
Thanks, Gregg. Although, the North American land environment remains very challenging, it's important to note that we've been through this before, and we have demonstrated our ability to pull the necessary levers to adjust course and deliver consistent free cash flow.
And as we completed our long-term strategy update in 2019, it's worth noting that mitigating the risks associated with North American market volatility was an integral part of the planning process. Our strategy, which was approved by our Board of Directors in November is underpinned by several key elements intended to further diversify our product offering, customer base and geographic scope.
In Mats, we remain focused on being an environmentally and socially responsible partner, specializing in full service site and access solutions that reduce our customer total operating costs and risks. In our Analyst Day presentation a little over a year ago, we laid out the details of our opportunity to expand into this multi-billion dollar energy infrastructure market, where today we still have limited market share.
I'm pleased to report that our extensive strategic review validated both the addressable market size and our competitive advantages. The resilience of our Mats business has been demonstrated over the past decade, generating consistent cash flow and solid returns on invested capital. And with the majority of our Mats segment revenues now derived outside of upstream E&P, we are taking steps to accelerate our growth into this multi-billion dollar energy infrastructure market.
To achieve that goal, we are making investments in several fronts, by expanding our geographical and commercial footprint to align with the key market opportunities, investing in new technology and continuing with a disciplined expansion of our rental fleet based on the near-term outlook and opportunity set.
In Fluids, although we recognize our business will always be tied to the E&P market, there are key actions that can be taken to insulate our business from the market volatility and these actions are embedded in our strategy. We remain committed to bringing environmentally focused solutions that have the ability to lower our customers' total cost of operations and improved well performance. This has been part of our DNA for over a decade.
We've long been known as the industry leader in providing water-based technology to the oil and gas industry, including our evolution family of drilling fluids systems. And with the ESG spotlight currently on our industry, we are confident that we will continue to provide operators with the solutions that align with their ESG goals.
In addition to our continued commitment to environmentally sensitive innovations, our Fluids strategy is supportive of several key initiatives which are intended to help insulate us from market volatility. We plan to further leverage our growing IOC and NOC customer relationships around the world, which will provide a greater stability and stronger financial returns through the industry cycle.
We've made meaningful progress on that front with one-third of our 2019 revenues derived from this customer base. In the Gulf of Mexico, our expansion into completion fluids has been very successful, delivering proven performance demonstrated by our technical and logistical capabilities that now positions us for continued growth with this new product line.Our relationship with Shell has expanded over the past year with the recent award that will both extend and expand our scope of work through 2020, where we are poised to again deliver meaningful year-over-year growth.
We're also expanding our presence in the Eastern Hemisphere, winning several long-term contracts in 2019. Those recent successes in the near-term market tailwinds, we expect our IOCs and NOC business to grow in 2020. IOC and NOC expansion remains a high priority.
In North America, we are continuing our efforts to build out our total fluids solution portfolio to expand our addressable market opportunity in a low rig count environment. We have already discussed the notable success we achieved in 2019 with the completion fluids pillar of this strategy. But in parallel, approximately one year ago, we formally launched our stimulation chemical offering in the US, an organic product line expansion that required limited capital investment. While leveraging our existing infrastructure, capabilities and relationships, admittedly 2019 was a challenging time to launch this effort and with the headwinds of declining customer spend, this translated into prolonged product qualification timeline.
Despite not hitting the challenging targets that we set out for this business in its first year, I'm pleased with the significant progress made with a number of key customers both in the US and the Middle East. Our momentum is continuing to build in early 2020 with the award of our first chemical supply contract for a frac fleet with a large US independent. This contract will provide a platform to showcase our unique technical capabilities and prove our superior products and services to the wider market.
Although the total fluids solution initiative will take time to develop, we remain highly confident in our ability to capture a meaningful share of the roughly $3 billion addressable market. Overall, I am proud of what the Newpark team has accomplished, particularly in light of the challenging North American landscape.
I'm also confident, we are on the right path and our long-term goals remain unchanged, to improve our returns on invested capital by leveraging our existing infrastructure and maintaining a capital-light model, to maintain a strong balance sheet, which allows us to weather the market volatility on US land and to provide increased stability in our free cash flow through further growth in more stable markets across both segments.
With that, I'd like to close the call as I always do by thanking our shareholders for investing in us and thanking our employees for their hard work and dedication to Newpark as well as their continued focus on safety.
With that, we'll now take your questions. Operator?
Questions and Answers:
Operator
Thank you. [Operator Instructions] Our first set of questions come from the line of Praveen Nara of Raymond James. Please proceed with your question.
Praveen Narra -- Raymond James & Associates -- Analyst
Hi. Good morning, guys.
Paul L. Howes -- President and Chief Executive Officer
Good morning.
Praveen Narra -- Raymond James & Associates -- Analyst
I guess if you could -- I guess if you could start on the Fluids side, so just breakeven for Q1. We've done some more variabilizing of the cost structure as well as reducing the footprint. So, I guess, as we think about that as we move through the rest of the year, have we aligned the cost structure to today's activity level enough or we've variabilized it enough such that we can get to kind of a mid-single digit margin for that business by year-end, given the tailwinds that we're still seeing in Gulf of Mexico and stimulation benefits?
Gregg S. Piontek -- Senior Vice President and Chief Financial Officer
Sure. It's Gregg. I'll take that. As we've seen in the past, when you do see a meaningful shift in the top line, it does take a little bit of time. And so we did take a number of actions in Q4. Those actions have continued in Q1. So, I think it's going to take a few quarters for that to work its way through. And part of what you're doing is evaluating the region-by-region activity levels and trying to evaluate short-term weakness versus long-term expectations. And that's why it takes a few quarters to work through.
David A. Paterson -- Corporate Vice President and President of Fluids Systems
Praveen, good morning. This is David Paterson. Just to add to Gregg's point, I think Q4 was a sort of transition. As US land dropped, we started to see the meaningful growth in the Gulf of Mexico. What I'm super excited about was now that we've really driven our performance with completion fluids we're staying on the rig much longer than anywhere in the Gulf of Mexico. With the recent Shell award, we're going to have full service on two or three of the Shell rigs that's drilling fluids on completion fluids and we're working toward getting full service on three rigs.
So, I think as the year moves forward, we will reach that critical mass level in the Gulf of Mexico, which I think will bolster the overall financial performance of the segment. And also looking out to sort of late Q2, Q3, we're seeing some of the recent wins starting to manifest themselves in the Eastern Hemisphere, right. So the deepwater project in Cyprus, some of the recent wins in Algeria and we're seeing some other healthy, I would say dynamics in the market in the Middle East that I think is going to position us to reach that -- the financial levels that you indicated by late Q3, Q4.
Gregg S. Piontek -- Senior Vice President and Chief Financial Officer
Yeah. And so just bringing it back to your question, I mean that kind of points to a Q1 of, like I said, breakeven, then improving from there the exact trajectory of that is a little bit dependent on how the North American market behaves from this point forward as well.
Praveen Narra -- Raymond James & Associates -- Analyst
Sure, sure. But I guess given the flow through on the P&L of the initiatives that are taking place in Q4, it sounds like a little bit more in Q1, North America should always be less of a drag even if activity doesn't improve significantly from here. Is that fair or does it continue to be as much of a drag as it had been?
Gregg S. Piontek -- Senior Vice President and Chief Financial Officer
No, I think that's a fair point, because again back to those cost initiatives, we are seeing the steady month-over-month cost improvements as we take these actions. It's just -- it's a gradual affair.
Praveen Narra -- Raymond James & Associates -- Analyst
Right. Okay. On the Mats side, just quickly, obviously, non-E&P significant portion of your revenue now. So I guess I'm curious in terms of the breadth of your non-E&P Mats customer base, can you talk about how that's increased over the last year or what that's done over the last year and kind of where we stand in terms of product awareness and just adoption by multiple parties?
Matthew S. Lanigan -- Corporate Vice President and President of Mats and Integrated Services
Yeah. Praveen, it's Matthew. I'll take that one and I'll address it in two parts. Firstly, on the direct sales side, I think if you look at our Q4 result, which was dominated by C&D [Phonetic] customers, we had over two dozen [Phonetic] customers purchasing Mats from us. Pleasingly a number of them were repeat customers in this space, which sort of speaks to the value they see in the product on an ongoing basis.
So we're getting more breadth in that space.
On the rental and service side, we're also seeing similar expansion. If you look at our strategy, it's been really to prove our capability with these end users and make sure we have the necessary skill set to service them in a credible, safe and environmentally sensitive way, which we've done largely around our existing E&P -- infrastructure in E&P basins. Now, we are at a stage where we're going to start to expand that to where these customers want us to be and things are looking good on that front.
Praveen Narra -- Raymond James & Associates -- Analyst
Okay. Thank you very much, guys.
Matthew S. Lanigan -- Corporate Vice President and President of Mats and Integrated Services
Thanks.
Operator
Our next set of questions comes from the line of George O'Leary of Tudor, Pickering, Holt & Company. Please proceed with your questions.
George O'Leary -- Tudor Pickering -- Analyst
Good morning, guys.
Gregg S. Piontek -- Senior Vice President and Chief Financial Officer
Good morning.
Paul L. Howes -- President and Chief Executive Officer
Good morning.
George O'Leary -- Tudor Pickering -- Analyst
Clearly, a lot of work done on the cost savings plan and variabilizing those costs. So, I just wondered if you could frame for us the impact from a fixed cost perspective to the business kind of quantify that a little bit further. And then also the impact on maintenance capex going forward, if there are any notable changes to those two buckets that's would be super helpful.
Gregg S. Piontek -- Senior Vice President and Chief Financial Officer
Sure. It is Gregg. In terms of the fixed cost structure, it is a bit tough to frame up because as volumes change dramatically all fixed cost become variable. And so what we are going through, as we have described, is evaluating our footprint first and foremost. And so we have a handful of locations that we have either now shut down or are in the process of shutting down and that's your step change of taking some of the cost out of it.
On the capital side of things, the maintenance capital for this business both -- it's roughly $20 million is our maintenance capex fairly evenly balanced between the two businesses is how you should think about that. Obviously in times like we are in in North America, we're being extremely prudent on all of our spend. So that may pull that back a little bit.
David A. Paterson -- Corporate Vice President and President of Fluids Systems
Yeah. George, David Paterson. Just to add to what Gregg said, we are actually taking a very deep look at our fixed cost structure mainly in US land, we've been in multiple basins and multiple locations. So we're doing a lot of work, really streamlining our roofline and how that looks to support the business in 2020. So, we've taken already some action to get out of some facilities, there are some more earmarked for Q -- sort of late one, Q2 and we'll start to see the benefit of that really in the second half of 2020.
George O'Leary -- Tudor Pickering -- Analyst
Okay. That's super helpful. And then kind of piling onto one of Praveen's questions for the Mats side of the business, as you think about non-upstream non-E&P opportunities, could you just frame that opportunity set? And I'm not looking for revenue guidance, just more the size of that opportunity set year-over-year as you guys go out from the sales and marketing perspective? And where -- which pieces of the pie, whether it's more utility work or midstream work or construction, where are you guys most acutely focused on marketing and selling those Mats in 2020?
Matthew S. Lanigan -- Corporate Vice President and President of Mats and Integrated Services
Yeah, it's Matthew. I'll take that one again. Look, our focus is clearly on primarily around the southern market regions in the T&D space. That's where we have a natural footprint to service that and capabilities and where we see ongoing activity. I think when we think about it, we're not needing significant ramps up in activity. The activity is there. We have just got to capture the share that we've been focusing on moving forward.
Gregg S. Piontek -- Senior Vice President and Chief Financial Officer
Yeah, I mean as you look at your utility infrastructure within the US, there is a large concentration in the eastern corridor there, the East Coast of the US. And obviously, we've had a limited presence more so around our E&P activities in the Northeast. But beyond that our footprint is largely about -- has been around the oil basins.
George O'Leary -- Tudor Pickering -- Analyst
Yeah, that makes perfect sense. I appreciate the color, guys. I will turn it back over.
Operator
[Operator Instructions] Our next set of questions come from the line of Bill Dezellem of Tieton Capital Management. Please proceed with your questions.
Bill Dezellem -- Tieton Capital Management -- Analyst
Thank you. Group of questions here. First of all, relative to the US land and your efforts to make the cost structure more variable, would you talk to how you are looking to do that or what you are doing to increase the variability of that -- of the cost structure?
And then secondarily, would you also discuss in the Gulf of Mexico, your second customer there, the number of wells that you're expecting to be on and revenue levels relative to what you're expecting from Shell here in 2020?
David A. Paterson -- Corporate Vice President and President of Fluids Systems
Hey, Bill. David Paterson. Good morning. So in terms of building the variable structure in US land, we're kind of -- we're attacking on multiple fronts, right. I think facilities, as I've said, I think with the proliferation of and unconventional business [Indecipherable] our roofline did expand, right. So we're basically pulling that and really looking at facilities and looking at the mud plants and crew they're located to service the work.
So, we're trying to move to more of a hub-and-spoke model, where we can more efficiently service all the rigs that we have and I think the concentrated geographies of activity but without compromising our service quality and our deliverability. Also we continue to develop technologies that I think will drive automation. We probably won't see that benefit in 2020. But there is ongoing efforts to look at how we can streamline really the service delivery associated with, especially with power drilling in the US and increased proliferation of power drilling.
So switching gears to the Gulf of Mexico [Indecipherable] Shell both with extending the scope through 2020 and expanding our scope now to include completion fluids and reservoir drilling fluids been a huge step forward for us.
The second, you'll see customer that Gregg talked to on the call there was the C&I.
This is actually a one-off grassroots well, we had -- we originally have that sort of principle for starting in late Q1. We will see that now slipped to Q2. They're going to drill an extra well on the campaign with the rig. So that's really the dynamics. I hope that answers both the scalability and really some of the high-level dynamics in the Gulf of Mexico.
Bill Dezellem -- Tieton Capital Management -- Analyst
Great. Thank you. And the follow-up, would you please just take a step back and tell us what you're hearing from your customers about 2020 activity plans as we go through the year from this activity level forward?
Paul L. Howes -- President and Chief Executive Officer
Yeah. Hi, Bill. Yeah, certainly what we're hearing from our customers in the E&P, it's all around capital discipline, free cash flow back to their investors and so, we're cautiously optimistic that we'll start to see a ramp-up in activity in the second and third quarter. But again, as they look to the fourth quarter and they looked at their free cash flow, they could manage year-end activity as well.
So again, I think it's going to be pretty flat for the year. But we'll see.
Gregg S. Piontek -- Senior Vice President and Chief Financial Officer
Yeah. I think the biggest thing to watch is as we entered into this year, the one theme that we heard fairly consistently was the importance of maintaining a commodity price that was at least north of 50 [Phonetic]. And obviously, very recently we've seen that dip down with some demand concerns. That's the one thing that puts -- could change the dynamics for customers.
Bill Dezellem -- Tieton Capital Management -- Analyst
Okay. Thank you all.
Paul L. Howes -- President and Chief Executive Officer
Thanks, Bill.
Operator
Our next set of questions come from the line of George O'Leary of Tudor, Pickering, Holt & Company. Please proceed with your question.
George O'Leary -- Tudor Pickering -- Analyst
Hey, guys. Just had one follow-up question. Thanks for letting me back in. On the Mats side of the business, just want to make sure I am thinking about 2020 correctly. We see US drilling and completion spend down year-over-year, call it, in the 10% to 15% ballpark. But there are clearly opportunities on the T&D and non-upstream side of the business as you guys framed answering to one of my previous questions.
I realize you're not giving guidance for the full year, but given those two kind of conflicting revenue trends, can that business grow in 2020? And again not looking for exact guidance here, but can you have a year-over-year growth in -- from a top line perspective in that Mats business and what are kind of the puts and takes there?
Gregg S. Piontek -- Senior Vice President and Chief Financial Officer
Yeah. Sure. This is Gregg. I'll start and then either Matthew or Paul can add on. But I mean -- I think the important thing to note is the pullback that we've seen and as we described the 2019 result, a lot of that was -- it was all the headwind of the oilfield activity coming down. I guess the good news and that bad news is that it's now down to a fairly modest contribution even when you look at the rental and service here in Q4 it only made up roughly $12 million of revenue. So, that's a much smaller base. We do continue to be concerned about that piece of it, but it's now down to a much smaller piece.
The majority, now being non-E&P and as Matthew had described what we're doing here to expand geographically, that's really our plan to now grow the revenues in this business.
Paul L. Howes -- President and Chief Executive Officer
Yeah. And if you look at the addressable market that we framed up a year ago at our Analyst Meeting, we're roughly -- that T&D market we estimated to be about $3 billion. And so, what we've been doing in Matthew's build business is building out those core competencies and capabilities and now, we need to expand geographically. But our expectation, certainly, is that business will grow year-over-year.
George O'Leary -- Tudor Pickering -- Analyst
Great. Thanks very much.
Operator
We have reached the end of the question-and-answer session. I would like to turn the floor back over to management for any closing comments.
Paul L. Howes -- President and Chief Executive Officer
All right. Thank you once again for joining the call and for your interest in Newpark and we look forward to talking to you again next quarter.
Operator
[Operator Closing Remarks]
Duration: 44 minutes
Call participants:
Ken Dennard -- Chief Executive Officer and Managing Partner
Paul L. Howes -- President and Chief Executive Officer
Gregg S. Piontek -- Senior Vice President and Chief Financial Officer
David A. Paterson -- Corporate Vice President and President of Fluids Systems
Matthew S. Lanigan -- Corporate Vice President and President of Mats and Integrated Services
Praveen Narra -- Raymond James & Associates -- Analyst
George O'Leary -- Tudor Pickering -- Analyst
Bill Dezellem -- Tieton Capital Management -- Analyst
