Superior Well Services CEO sees increased demand
Superior Well Services, Inc. (Nasdaq: SWSI) CEO David Wallace said the provider of well-site solutions to oil and natural gas companies believes long-term industry fundamentals are in the firm’s favor. Wallace made the comments during a midday conference call.
“We’re excited about the opportunities ahead,” Wallace said. “Declining well productivity requires our customers to increase their drilling and completion activity just to maintain and grow production.”
Going forward, he said the Indiana, Penn.-based firm sees increased demand and rebounding bid activity since the end of 2007.
“Although we expect improvements in business activity, we do expect continued pricing pressure in certain markets and will act to improve profitability even if it requires reallocating assets between basins,” Wallace said.
The chief executive said softness experienced during the fourth quarter may carry over and impact first-quarter results. Superior expects revenue growth in 2008 to be driven by higher utilization across a larger fleet for the entire year as the firm expands its customer list, he said.
“We expect profit improvement by working diligently to obtain the permits required for installing cost-saving bulk handling facilities as well as moving the mix of services up to more profitable super-high tech work and operating a high-performance fleet preferred by customers regardless of the business cycle,” Wallace said.
Before Tuesday’s opening, Superior Well posted fourth-quarter earnings of $7 million, or $0.30 per share, down 29% from earnings of $9.8 million, or $0.49 per share, a year earlier. Analysts expected earnings of $0.52 per share.
“Unexpected delays in the startup of our new service centers, longer-than-anticipated holiday shutdown and greater pricing discounts in certain markets all resulted in lower-than-expected profitability,” Wallace said.
Quarterly revenue increased 26% to $94.9 million from $75.1 million during the same period of 2006. Wall Street analysts, on average, anticipated $98.6 million in revenue.
The firm opened three new service quarters during the fourth quarter. Historically, the company has opened service centers during the first and second quarters, but Wallace said delays in receiving and commissioning equipment caused delays.
“It has been our experience that service centers take 12 to 24 months to become profitable,” Wallace said. “However, these delays pushed back the time when these centers can commence operations.”
Other delays hurt Superior’s quarterly results. Holdups in obtaining regulatory permits prevented the firm from constructing bulk material handling facilities at new service centers. The lack of bulk handling at Superior’s Artesia, New Mexico center forced the company to truck in blended cement from 470 miles away.
A longer-than-expected holiday shutdown also negatively impacted Superior’s results.
“Many customers shut down from the Friday before Christmas until after New Year’s Day,” Wallace said. “This type of drop-off in activity usually indicates that our customers were close to spending close to all of their 2007 [capital expenditures] budget or that they wanted to avoid the extra cost associated with working in bad weather.”
Wallace said Superior’s capital expenditures budget for 2008 does not include funds for a new service center, but said the firm would still look for opportunities to grow its operations.
In midday trading, SWSI shares are down 22.10%, or $5.01, at $19.92.
