Danielle Foley - Joshua E. Comstock - Founder, Chairman and Chief Executive Officer Randall C.

McMullen - President, Chief Financial Officer, Treasurer and Director Donald Jeffrey Gawick - Chief Executive Officer and President

Waqar Syed - Goldman Sachs Group Inc., Research Division John M. Daniel - Simmons & Company International, Research Division Brad Handler - Jefferies LLC, Research Division Marc Gregory Bianchi - Cowen and Company, LLC, Research Division Brandon Burke Dobell - William Blair & Company L.L.C., Research Division B.

Chase Mulvehill - SunTrust Robinson Humphrey, Inc., Research Division Daniel Cruise - Wells Fargo Securities, LLC, Research Division Kenneth I. Sill - Global Hunter Securities, LLC, Research Division

Thank you, operator. Good morning, everyone, and thank you for joining us on this call to discuss C&J Energy Services 2014 fourth quarter and annual results.

Before we get started, I'd like to direct your attention to the forward-looking statements disclaimer contained in the news release that C&J put out yesterday afternoon. A copy of the release is available on the company's website at www.cjenergy.com.

In summary, the cautionary note states that information provided in the news release and on this conference call that speaks to the company's expectations or predictions of the future are considered forward looking statements intended to be covered by the safe harbor provision under the federal securities laws. Although these forward-looking statements reflect management's current views and assumptions regarding future events, future business conditions and outlook, based on current available information, these forward-looking statements are subject to certain risks and uncertainties, some of which are beyond the company's control, that could impact the company's operations and financial results and cause C&J's actual results to differ materially from those expressed or implied by these statements.

I refer you to C&J's disclosures regarding risk factors and forward-looking statements in our filings with the SEC or discussion of the known material factors that could cause our actual results to differ materially from those indicated or implied by such forward-looking statements. Please note that the company undertakes no obligation to publicly update or revise any forward-looking statements.

And as such, these speak only as of the date they were made. As a reminder, today's call is being webcast live and a replay will be available at C&J's website.

Please note that the information relayed on this call speaks only as of today, February 12, 2015, so any time-sensitive information may no longer be accurate at the time of replay. With that, I'd like to turn the call over to Josh Comstock, Founder, CEO and Chairman of C&J Energy Services.

Good morning, everyone. Thank you for joining us today for our fourth quarter and year-end 2014 earnings conference call.

With me today are: Randy McMullen, our President and Chief Financial Officer; and Don Gawick, our Chief Operating Officer. This call will follow our customary format.

First, I will highlight our 2014 achievements and fourth quarter results. I will also provide a brief update on the status of our pending transaction with Nabors.

Following my comments, Randy will discuss our fourth quarter financial results in more detail. 2014 was a year of operation and strategic milestones as we executed our long-term growth strategy and demonstrated our commitment to diversify and expand our company.

We also delivered quarter after quarter of double-digit percentage revenue growth by continuing to deliver superior customer service, execution and efficiency. With a 10% growth in revenue over the prior period, the fourth quarter marked our fourth consecutive quarter to achieve double-digit revenue gain, resulting in a 50% increase in revenue year-over-year.

We also grew adjusted EBITDA by 33% over the prior year with fourth quarter adjusted EBITDA up 10% over the third quarter. These results were driven by a tremendous performance across our core service line as we capitalize on high activity and service intensity levels, as we strategically positioned ourselves for the anticipated upturns and completion activity as we ended 2014.

We subtly grew our business and gained market share in each service line through the deployment of additional equipment, targeted sales and marketing assets and the expansion of our geographic footprint. Through our research and technology and vertical integration in initiatives, we improved and enhanced the quality and efficiency of our hydraulic fracturing fleet, as well as our wireline operations.

In addition to organic growth, we required a leading provider of wireline services on the West Coast in May, establishing C&J's presence in a new market with a solid platform for growth opportunity. Following a multifaceted, integrated approach to developing our directional drilling capability, we efficiently launched this new service line during the second quarter of 2014 using our proprietary drilling motors, which we also started leasing to customers earlier in the year.

Although this business is still in the early stages, we are now offering directional drilling phases to customers in Wyoming, North Dakota and Utah as well as Texas. We plan to commence operations in Oklahoma later this year.

Customer feedback has been very positive, although vertical demand has been negatively impacted by the reduction in drilling and completion that has slowed throughout the industry with the decline in commodity price. However, we will continue to invest in the growth of this business with a differentiated cost-effective directional products.

Over the past 2 years, we have emphasized the importance of our strategic initiatives, especially our Research and Technology division. We believe our research and technology capabilities will be a critical differentiator as our customers continue to look for innovative means for extracting oil and gas in the most economical and efficient way possible.

Our investment in developing innovative products and solutions will enable us to reduce our operating cost, increase completion efficiency, enhance our service capabilities and add value to our customers. During the year, we commenced in-house manufacturing of both our perforating guns used in our wireline operations and our fluid guns utilized by our hydraulic fracturing operations, which we believe will positively impact margins in the near term.

We also made substantial advancement on a number of other technologies and innovations purposed to enhance the quality and breadth of our service offerings while capturing cost savings. We will continue to make further investments to enhance our technological capabilities, providing us with a competitive advantage which allows us to continue to widen the gap between our efficiency levels and that of our peers.

This is a key driver to our operational success. Other highlights from the year include the expansion of our specialty chemicals business, including the addition of guar slurry running capabilities and the official launch of operations in Saudi Arabia and our first international contract, which we entered into earlier in the year.

The Middle East is an attractive high priority market for C&J, and the first opportunity represents a meaningful step in our endeavor to become a significant, long-term provider of multiple services throughout the region. During 2014, we continue to work diligently to improve our technical qualifications with potential customers and establish a presence in targeted countries.

We are excited about the significant potential we see in this emerging market and our prospects as we move into 2015. We believe that our international expansion efforts will benefit from the greater scale, capabilities and resources that we will gain upon closing of the pending transaction with Nabors' Completion and Production Services business as well as the Global Alliance Agreement to be entered into with Nabors drilling at closing.

On that point, as I am sure you are all well aware, in June 2014, we entered into an agreement to combine with Nabors' Completion and Production Service business, and we continue to work towards closing. As announced earlier this week, Nabors, who will be our largest stockholder post-closing, has demonstrated its alignment with all C&J stockholders by agreeing to reduce our $250 million, the cash portion of the purchase price placing the total consideration at $1.4 billion based on yesterday's closing price for C&J's common stock.

By reducing C&J's cash obligation and therefore the required debt financing, our company will have a stronger financial position with more liquidity, lower leverage and a stronger balance sheet, which are critical, especially during a challenging time for our industry. We continue to believe that this strategic combination and the immediate increase in scale, capabilities, resources, geographic footprint and customer base that it provides will better position us to manage through any downturn and enable us to capitalize on future market opportunities, while C&J and Nabors remain committed to successfully closing this transaction, integrating our operations and realizing the benefits of the strategic combination.

Our integration [indiscernible] efforts have progressed very well. We are continuing to work through the SEC review process with the expectation of closing in March following approval by C&J stockholders.

We look forward to updating you in this regard over the next few weeks. With that, I will turn the call over to Randy to provide more detail on our fourth quarter and year-end results.

Thanks, Josh. Good morning, everyone.

As Josh noted, we are pleased to post -- we are pleased to post another quarter of record revenue, coming in at $483.5 million for the fourth quarter of 2014 and $1.6 billion for the year, representing a 10% increase over the prior quarter and a 50% increase over the prior year. Fourth quarter adjusted net income grew 15% sequentially to $30.5 million and adjusted net income was $84.2 million for 2014, up 26% from 2013.

Adjusted EBITDA rose 10% quarter-over-quarter to $82.3 million in the fourth quarter and 33% year-over-year to $253.5 million. Adjusted EBITDA margin was flat quarter-over-quarter at 17%.

Our fourth quarter and full year results were driven by high activity and service intensity levels, strong operational execution and the deployment of additional equipment across our service lines. A robust performance throughout the year met some softness in late December as a result of the combined impact of seasonal slowdown and inclement weather.

The end of the fourth quarter also saw a pullback in completion activity in response to commodity price declines and the slowdown has intensified in 2015. We are currently experiencing a decrease in activity across our customer base, which in turn, has increased competition and put pressure on pricing for our services.

Absent our significant recovery commodity prices, we expect that activity and pricing levels will continue to decline. The reaction to the decline in activity and pricing, we have put a sharp focus on cost management, particularly input cost and labor.

Our priority is now maintaining utilization and market share and we are targeting operators who believe we have some insulation to current market challenges due to our attractive acreage, size and hedging profiles, among other factors. Revenue from our hydraulic fracturing operations increased 11% quarter-over-quarter to $303.4 million, accounting for approximately 63% of our overall fourth quarter revenue.

This growth was primarily due to high activity levels in our core operating areas and our service intensive job mix. We have also benefited from the full quarter impact of the 40,000 hydraulic horsepower deployed in September, together with the 40,000 hydraulic horsepower added in July.

This performance was partially offset by a weaker December due to traditional seasonal declines. Our wireline operations grew revenue 5% quarter-over-quarter to $118.5 million, contributing approximately 25% of our overall fourth quarter revenue.

These results include revenue of $27.4 million from our pumpdown operations, which has continued to generate strong revenue growth and EBITDA margins. Revenue increased primarily due to the addition of new equipment that was immediately put to work at strong utilization levels.

The successful integration of Tiger Cased Hole Services, which gave us a presence in California, and affirming of our position in newer operating areas such as Wyoming, also benefited our fourth quarter results. However, we experienced lower activity towards the end of the quarter due to the seasonal slowdown and inclement weather as well as lower operator activity.

Looking at our coiled tubing operations, revenue increased 9% quarter-over-quarter to $48.6 million, making up 10% of our total revenue for the fourth quarter. As Josh mentioned, we exited the year with record quarterly and monthly revenue from the service line.

Our coiled tubing performance was driven by improved activity with new customers in certain regions as well as the addition of new equipment. Our equipment manufacturing business contributed $4.6 million of third-party revenue for the fourth quarter, and our results also benefited from growing third-party sales by our chemical business.

However, as we have repeatedly emphasized, the vertical integration of our in-house manufacturing and specialty chemical supply capabilities enable us to drive significant cost savings from intercompany purchases and provides a strong competitive advantage, particularly in the current market. Our manufacturing capabilities also enables us to quickly and economically incorporate technological enhancements from our Research and Technology division and provides us with control over our equipment delivery, refurbishment and repair needs.

Shifting to gross margin. We delivered fourth quarter gross margin of 27.9%, decreasing 40 basis points over the prior quarter.

Gross margin was negatively impacted by the decrease in activity towards the end of the year as a result of the combined impact of seasonal slowdowns and inclement weather, as well as commodity price declines. In line with our expectations, SG&A costs increased slightly quarter-over-quarter to $47.9 million, excluding $8.3 million of pretax transaction cost and $0.9 million pretax one-time charge related to an insurance claim.

R&D expense also increased to $4.5 million for the fourth quarter. Excluding these onetime items, we realized a 60-basis-point improvement quarter over quarter and a 400-basis-point improvement year-over-year in SG&A leverage, with SG&A as a percentage of revenue decreasing to 9.9% for the fourth quarter of 2014, down from 10.5% for the third quarter of 2014 and 13.9% for the fourth quarter of 2013.

Quarter-over-quarter rise in SG&A primarily resulted from higher cost associated with supporting the company's scalable growth, including an expanded employee base and continued investments in vertical integration, technological advancement and other ongoing strategic initiatives. Inclusive of both SG&A and R&D, our strategic initiatives contributed with approximately $12.2 million of additional cost for the fourth quarter of 2014 compared to $9.9 million of additional cost for the third quarter.

We currently anticipate that SG&A and R&D will total approximately $49 million to $50 million for the first quarter of 2015, excluding transaction costs. We also expect to incur significant cost over the near-term associated with completing the pending transaction with Nabors and integrating our combined companies.

Now let's move on to the balance sheet. At the end of the fourth quarter, we had a cash balance of approximately $10 million, $315 million in borrowings under our credit facility and $34.9 million in long-term capital lease obligations.

We currently have $337.5 million outstanding under our credit facility. Borrowings have increased from the third quarter due to a number of factors, including higher working capital, significant capital expenditures and costs associated with the pending transaction with Nabors.

Looking at our cash flow statement. We generated $69.1 million of cash from operations during the fourth quarter of 2014 compared to $41 million for the third quarter.

The sequential increase was primarily related to an increase in deferred taxes from the election of bonus depreciation with the recently passed Tax Increase Prevention Act, which included a 1-year reinstatement of bonus depreciation and a research tax credit. Capital expenditures totaled $79.9 million during the fourth quarter of 2014, with $32.4 million of depreciation and amortization expense.

Fourth quarter capital expenditures primarily consisted of construction of new equipment for our core service lines. Capital expenditures totaled $315.7 million for the full year.

Given current market conditions and exclusive of the pending transaction, our 2015 capital expenditures are currently expected to range from $110 million to $135 million. Given the large asset base that we will acquire upon closing of the pending transaction with Nabors, coupled with current market conditions, we currently expect that most of our 2015 capital expenditure plan will be directed to maintenance CapEx.

We also expect depreciation and amortization for the first quarter of 2015 to range between $33 million to $34 million. Lastly, our effective tax rate came in at 39.9% for the year.

During the fourth quarter of 2014, the U.S. Congress passed the Tax Increase Prevention Act, which, as I mentioned, included a 1-year reinstatement of bonus depreciation and a research tax credit.

We plan to recognize both bonus depreciation and a research tax credit in our 2014 tax return and our year-end tax provision as reflective of both of these items. While these items will result in a significant temporary cash tax savings of approximately $40 million, the combined impact increased our effective tax rate by approximately 240 basis points.

Additionally, net income was reduced by $2.7 million and diluted earnings per share decreased by $0.05 as a result of reflecting these items in our tax provision. I will now turn the call back to Josh for closing remarks.

Thanks, Randy. To conclude, I am extremely proud of the tremendous growth we achieved over 2014.

As we move through 2015, we recognize the uncertain market conditions will be challenging to our industry and critical for C&J. When we close the pending transaction with Nabors, C&J will be among the largest domestic completion and well servicing companies and bearing, potentially, one of the most difficult times our industry has seen in the past several decades.

However, we believe that by diversifying our service offerings and increasing our scale, customer base and geographic footprint, C&J will be stronger and much better positioned to manage through the current environment and to capitalize on future market opportunities. In response to this environment, we will aggressively focus on maintaining utilization, reserving our competitive position and protecting market share by continuing to review pricing and delivering differentiated value to our customers.

We are also working with our vendors to offset reduced pricing with lower input cost. To date, our strategy is working as we have maintained utilization in a challenging market.

We believe that the strategic investments and vertical integration that we have made and our efforts to lower our cost base and improve our operational capabilities and efficiencies will help us manage through this down cycle. As the year unfolds, and we progress through this industry downturn, we will take the necessary steps to best position the company to maximize value for all shareholders.

In closing, I want to thank our employees for their tireless work to achieve our goals over the past year as we continue to build on the foundation laid by our past accomplishments. The company's success is a direct result of their dedication to excellence.

Now operator, with that, we'll open it up for questions.

I -- you talked about input cost. Could you, Josh, maybe highlight that, what are you seeing in terms of cost reductions for fracs and for chemical, the chemicals?

What magnitude are we talking about?

Well, I'll start on the chemical side. Obviously, we are vertically integrated and we are providing more of our chemicals in-house.

I mean, in the fourth quarter, we provided all of our gel slurry and our SU-15, [ph] 100% of that means, we're bringing more of that in-house. As we do that, we see about a 20% savings.

On the [indiscernible] side, [indiscernible] costs are moving down and we believe will continue to move down. It depends on the situation and it depends on the vendor.

But I would say, just from a peak price, say fourth quarter, third to fourth quarter of last year, that where we think fair cost to be, we think that, that could be 25% to 30% off of those peak prices.

Great, and then on your -- beyond pressure pumping and the other service lines, coiled tubing and wireline, what are the pricing trends there? I mean what kind of pressures are you seeing there?

Well, as I said before, unlike 2013 when we had a situation where we oversupply at pressure pumping only, and pressure pumping was the one service that got -- had pressure on it, no pun intended, around pricing, all services will be impacted with the lower commodity price. That said, our coiled tubing and wireline, they are a smaller portion of the overall completion cost.

And as such, we have seen less pressure on those services around pricing and utilization. However, we expect to follow the same strategy as with our frac, and that's to maintain utilization and keep our market share.

And so as we -- as our customers review pressure, we will respond accordingly. The other thing that I'll note about those 2 services, unlike frac, their margins are quite a bit higher.

And there are -- more room, there is more room within those services to adjust if needed.

Okay. And are you seeing any stress amongst your competitors, the smaller companies, has that started to develop yet?

Or when do you think that starts to develop in the industry?

Well, I don't like to speak to others. I can tell you that what we have seen -- just over the past few weeks, there's definitely been smaller companies that are in stressful situations.

We are starting to see horsepower, some on the market for sale. We are starting to see customer, excuse me, competitors file for protection.

And we're starting to see some coiled tubing equipment come on the market to sell. Others shutting down coiled tubing operations.

So we are definitely seeing competitors, small and large, depending on how strong they are in a particular service, react and react swiftly.

Josh, I just want to make sure I heard something correctly. I think you said in the -- sorry, towards the conclusion of the prepared remarks that you've maintained utilization with the frac fleet.

Just want to confirm that's what you said, and should we take that to mean that the current utilization today is exactly as say, what you were running in Q4?

Yes. I said we maintained utilization.

And with that, you can take that to mean as our -- the beginning of Q4 was extremely well. We ended Q4, utilization was obviously lighter.

If you looked at the blended average of that, the utilization levels are similar. Saying that, obviously, to maintain that utilization, we had to do that with the pricing.

And with leveraging some of our other services, and we think we're uniquely positioned, especially when it comes to small caps, to be able to do that. We're running a few that have the whole suite of completion services.

I mean, so [indiscernible] we've been able to leverage additional services to keep that utilization up. It's a moving target.

I can tell you that 1 week is much -- is better than the next, and it moves along. But from a utilization perspective, we've been able to keep utilization steady.

That's great, that's great. Any indication at this point that frac fleet that might go idle in the next several weeks?

We have absolutely no plans at this moment to idle the frac fleet. That could change quickly if we saw work fall off.

The customers that we have always been clear that we've targeted, the customers that we believe have the activity levels even in a depressed market, to work equipment and keep it working. And folks need to realize, those types of customers may have 5 frac fleets working in the Eagle Ford, for example, and then they reduce that 5 to 3.

Well, C&J was only 1 of the 5. So for us, to achieve 1 out of the 3, given the quality of service we provide, is not difficult.

And it's definitely a challenge. But it's not, in our phase, not difficult.

It's not something that's out of the question. And so when we say we can stay utilized, we've tried to partner ourselves with customers that don't have one big easy job.

They have an entire year to work, plan and more work, than just what C&J's doing and so the effort is to make sure we're the last one to be let go. And so far, that's -- we're working on that being the case.

Okay, just one more for me, then I'll jump back in the queue, but -- the coil tubing market continue -- is changing quickly. And you guys continue to do better than pretty much all your peers.

Can you first comment on the current competitive landscape? We know there's the one small company that's filed for bankruptcy.

There's purportedly another very large player that shut down their U.S. operations.

At this point, can you -- first talk about the utilization trends and pricing dynamics, but also, do you see tangible signs to capture that work on those companies that are lower performers, if you will?

Yes. I mean, our coil -- obviously, I started getting coil in 2000.

We've been in coil for a long time, and we've been the best phases of coil. And we've had really good customers for coil.

And our guys have done a tremendous job, and we've had customer loyalty, much like with our wireline and our frac. Our coiled tubing has continuously outperformed and the peer group still does today.

We are not seeing softness in that service. We have added units in that service.

And as we see softness from others, I know the 2 that you're referring to, one of which, the large one, has 49 units that got shut down this week. That worked.

We are using our best efforts for that work to come to us, and as much of that work as we can, and that's what we'll continuing to do. And we are going to be extremely opportunistic as others struggle, as long as we are in a financial position to do so, to take market share.

And we'd also think that the combination of 3, of the big 3, is also opening up opportunities for us around certain services. And so we're-- we feel like we're in a position that's ours to lose.

So we're going to make sure we do -- everyone here is extremely focused, especially with the Nabors transaction, to make sure that we capitalize on all the benefits of the services we offer, and the increased scale that we're going to have and then the struggles that our competitors are having.

Could -- I guess I'll pick up the same sort of flow of conversation around utilization, please. Are you seeing any notable changes in the behavior of your customers, which might have an eye on saving money?

For example, is there less 24-hour work for the fleets utilized but it's not going to be utilized by as much of the week? Or are there some other changes in the nature of the work?

All customers are focused on cost savings. That's first and foremost.

As far as changes, we just think about -- from industry perspective, vertical work is definitely customers that are in a word doing vertical work. That is taking the brunt of the hit.

That's the work that seems to be stopping first. Fortunately for us, that's not the type of work that we did, but we have not seen 24-hour work go to 12 hours.

The 24-hour work is more efficient, not only for us but for the customers. So the customers that we're working for have continued to stay 24 hours.

In fact, all of our fleets, 24-hour fleets except for 1 out in West Texas, that bounces back-and-back and forth in 24 hours a day. So there's not been a change in behavior there.

There has been changes in behavior, like customers looking for better frac designs. When I say better, better from a cost perspective, asking us what is it, they think that we can lower their cost around their frac designs on certain chemicals or certain sand volumes.

So yes, there's definitely been a change in behavior, and the behavior is around cost. And one of the consistent themes that we're hearing is folks are -- E&P companies are studying their budgets based on $60 to $65 oil.

And that's the target since they're working around, and that's where they're trying to get their input cost to levels that make sense at $60 to $65 oil.

Okay, okay. Maybe I could ask a couple of questions relative to '15 and the outlook.

So maybe, Randy, maybe the first one, what do you expect the combined R&D and SG&A related to initiatives cost for 2015 will be?

Well, '15, I mean, that number was, I believe, $40 million and $45 million for '14. Obviously, we move forward throughout '15, we're going to start to net those costs against the benefits that we're getting through -- whether it's the new revenue lines or lowering of our input cost on a few of our service lines.

I would say we previously expected those initiative costs to effectively go to 0 for '15, I would think, given what's going on in the market and the fact that utilization will be lower year-over-year and that some of these costs -- these import costs, some of them have come down. We're not expecting that to get to 0 here today.

But we do expect to, obviously, get some benefit. But instead of it being going down from a 40 to 44 level to 0, we expect that to be in the $15 million to $20 million range cost for '15.

Okay. Well then just, I want to clarify the gross and the net.

So $15 million to $20 million net cost, right, is sort of your best outlook right now for '15? Would it be comparable to the $45 million level on a gross basis?

Well on a gross, it would be a little bit higher because we're obviously having to ramp up on some of those initiatives as far as like on a -- the perforating guns on the output and the production of those. We're obviously going to be doing that in '15 and we were not doing that in '14.

So there's some costs associated with those as well. I mean, obviously, internationally we're looking to grow our operation with additional cost associated with that.

So it will be higher. But we're going to be focused on where and how we're going to be communicating this, is the net number, not the gross.

Right. But we'll see -- presumably we'll see that in the R&D and the SG&A lines as is, right?

That's right.

With regard to the margin progression here, as we think about first quarter and you're giving up some price but not necessarily seeing the activity declines that maybe some others are. Can you give us a sense of maybe the decrementals that you're likely to experience in the first quarter?

Marc, yes, we're not going to quantify that at this point. It's obviously highly fluid.

I'll be honest with you, there's, like in any environment, the client environment, the price reductions are hitting before the relief on the cost side, so there's a little bit of lag there. And so you'll see that impact during the quarter.

But as far specifically pointing to the margin expectations, we're just not going to give that at this time.

Yes, just a follow-up on that, as Randy said, it's just, it's real fluid. And it depends on customer, the basin, the type of work that we're doing in each additional basin.

And we've -- the pricing that's needed to get that work. An example, you'll give a much bigger discount on pricing if you get work that is extremely efficient, like a different frac-type work that's going to keep you on location for a month.

You'll do that more than you would a discount or a one-off job. And so that fluidity is a situation that's still happening, I would say, less so in February than it was in January.

There has -- seemed to be a little less panic, and the market is settling down. But we -- as Randy said, we're just going to refrain from giving that guidance for now.

Sure. Randy, could you give the EBITDA margin and the segments?

Sure. For stimulation and well intervention, the adjusted EBITDA margin was 16.3%, up from 15.7% in Q3.

Wireline services, adjusted EBITDA margin in the fourth quarter was 33.8%, down from 35.1% in the third quarter. The equipment manufacturing adjusted EBITDA margin was 20.7% in Q4, down from 25.8% in Q3.

And then the corporate and other eliminations total adjusted EBITDA number was the negative 23.605%.

Maybe you can compare where the fleets are now versus where they were in Q4, and how much movement do you anticipate having to take on, looking out Q1, Q2, based on where you think the work's going to be? I guess, mostly focused on the frac fleets, but maybe a comment on the coiled tubing market as well.

How much moving around do you have to do to keep the utilization high?

Yes, this is Don Gawick. In terms of where the fleets are currently positioned, they remain essentially where they were.

There is a tendency though for us to need to roll some of the fleets into West Texas, which has remained extremely busy. In fact, beyond the capacity of the fleets that we've had out there to cover.

So we have been supporting West Texas with some of the equipment out of South Texas and Oklahoma at times. But again, the -- currently, the physical deployment of the fleets remained as it was in Q4, tending more towards a West Texas bias.

On the coil side, essentially just added of few new fleets to the fourth quarter to some of the markets that when we were particularly busy. And that really varies around the country.

There is no one particular area. I will say that again, West Texas is showing a lot of strength, relative to the market overall.

Okay. Any early signs that there's recompletion opportunities for you guys?

And I guess that's kind of a current question. But also thinking about the combined entities down the line, people shifting from new completions to going back and fixing older wells.

And then I guess, within that question also, how -- what's your disposition on the drill with uncompleted inventory? And what kind of opportunity that may or may not be this year?

Yes, well, that means -- just a follow on here on your -- the second part of that question [indiscernible] I think the growth of uncompleted scenario is one that has been so far, overzealous? It may be happening or not happening.

And it is happening in Bakken, which is a scenario that we're strong with wireline, but clearly our other services. We're not seeing many, if any at all, uncompleted for our customers.

Customers that are drilling on the Eagle Ford and Permian, and then deciding not to complete. We're not experiencing that, that I'm aware of.

Not in any material amount, right? As it happens obviously, if it were to happen, it creates a backlog of work for work that [indiscernible] does, some things do turn.

And so, we saw that, we've experienced that in the past, when hydraulic fracturing pricing was getting pressured in 2013, folks held off on completions, they wait on pricing to come down, and it definitely, fourth quarter of '14 -- excuse me, fourth quarter of '13, we were seeing a lot of the work we were [indiscernible] off of that was just wells that have already been drilled and not completed. So it definitely helps on the recovery side.

Back to your original question, and I'll let Don fill in [indiscernible] we have always worked over real [indiscernible] production it's a huge opportunity for us. Because we have felt like, in any oil commodity price environment, that any of these wells, [indiscernible] development in general, is reaching [indiscernible] and we complete, we're going to have to start to happen.

And as drilling rigs get laid down in order to maintain production and to maintain the necessary levels [indiscernible] it makes sense to do so, [indiscernible] over and recomplete has led to, it's going to take off. And so, if we see a prolonged period of the drilling rig, the drilling decline, it is our belief that we are going to see, [indiscernible] that we complete and [indiscernible] some of that is coiled tubing and frac, and we [indiscernible] I'll let Don, if he wants to add any...

Yes. I certainly [indiscernible] caution comments in terms of severity on the work over side.

And net of commodity price downturn. It tends to be significantly lower, and generally, you will see a swing in the market in order to keep production up.

[indiscernible] they're already within the service [indiscernible] on the coil side. There's a market [indiscernible] and going into [indiscernible] like being worked so that we're in sort of the work we did, on the type of work pattern [indiscernible] the horizontal completions [indiscernible] and working over wells, [indiscernible] so that tendency is out there.

Quick question on a leverage. Can you guys talk about the board's comfort level around leverage ratios?

And I guess maybe talk about under a V-shaped recovery scenario, and then also under a prolonged downturn scenario?

Well, just to clarify your question, leveraging which scenario, is it standalone or leverage around then Nabors transaction?

Around the Nabors transaction, thinking about net debt-to-EBITDA.

Well, given the purchase structure on the cash portion, when we look at the balance sheet and look at performance on a pro forma basis, versus a standalone basis, the leverage dollar amount obviously is high on a pro forma basis. But when you look at them from a leverage perspective, and then layer in the downside performance, either standalone or downside performance on the combination, your -- the balance sheets and the strengths marry each other and in fact, on a pro forma balance sheet, we have more liquidity and more free cash flow and leverage is right at the same, as what standalone C&J would be in a down market with a down EBITDA.

Now to comment on the board's position, I'm not going to comment on each board member's position, other than to say that board members voted for the transaction. At a time when the oil prices were up, they reaffirmed that vote, recently with the amendment, and approved the amendment, the purchase price reduction.

And so that's -- I'll let that speak for itself. I'm not going to speak to culpability, or I'm certainly not going to speak for them.

And, Chase, it's is Randy McMullen. Obviously, with the reduction on the cash piece of the transaction, that obviously helps the leverage ratios.

We're looking at a pro forma ratio of just over 2x when we close. That's based on tradewind EBITDA, and we feel what the coverage levels are with our debt agreements that we have a lot of flexibility to -- we continue to manage the business and as Josh said, have plenty of liquidity.

Okay, that's very helpful. And so one follow-up.

Some of the large-cap service companies have been talking about -- one of them have been talking about their frac of the future, and how it decreases completion times by 50%. So why can't smaller pressure pumpers rollout similar initiatives?

And then maybe they are, but you guys just aren't talking about it as much as some of the large cap guys.

Well, I want to just tell you, I would tell you that smaller companies can come out with new initiatives. We've talked about our R&D and the things that we're doing.

We have been rather silent around our frac pressuring initiatives. Although on the last quarterly call, we talked about one that we're excited about.

We are continuing to work on that one. And we think we are going to have something in the near future that will not only compete with a frac of the future, or any other frag [indiscernible, certainly the big guys want to know more about what it is that we all do.

But we watch, we have something that's differentiator. I would tell you that, well, obviously there's that.

But, we are definitely doing it. Smaller companies can do it, and look for ways, you got to have the capital to spend on the research side.

And then you've got to have the services and the data, the data and the ability to collect the data to be able to really develop something. And so that takes a little bit of scale and size, and we are in a position to do just that, and we are doing it.

Okay, and looking at the industry as a whole, if you were to guess, what kind of efficiency gains do you think that we would see this year, and then we could see.

Yes well, efficiency comes in many ways, right? If you ask me, "Josh, do you think that we could frac wells, gain a lot of efficiency on the sea that we frac wells?"

I mean in other words, increase the stages per day materially as an industry as a whole, I would say no. We've gotten pretty good at it from an operational standpoint.

And the stages per day are -- although it can be increased, the amount, the amount that they would increase, to me is not a material impact to efficiency. So the word is efficiency around simulation come from -- efficiency has to come from your production.

And initial production you get from the frac, making the most out of each of those fracs, making the most out of each stage that you frac and giving the most production out of each stage that you frac. And that's an area where the industry, quite frankly, has done a poor job.

All we've been doing is fracking and focusing on the operational piece of how much can you get done in a day. And now, we will take, especially given the downturn, the focus will be less on an extra stage per day, and more on maximizing the stages and the value out of each of the stages.

And C&J is extremely well-positioned to do that. And we are currently working on technology that does just that.

And we've done that -- practiced that technology on several wells, and it's working really well. And so the efficiency gains are going to come from an increased production per stage, in my view.

And obviously, that's only one man's opinion. But I think that's what everybody knows.

Don, you have any...

Yes, I would -- I agree with Josh completely. On a pure execution perspective, the industry has done a good job of physically executing the fracs on location.

Many studies have been done over the years and continue to be done showing that the effectiveness of the various stages, in terms of adding to the production of the well, is anywhere from poor to at best, moderate. Meaning that you have a number of stages that are contributing little or even nothing to the total production.

And again, we've come up with a proprietary approach that we're excited with the initial results, and we feel like it's going to really impact our ability to maximize the effectiveness in each stage as we frac the wells. And again, at the end of the day, it's all about maximizing the production and the essentially, the cost effectiveness of the jobs that we're doing out there, and there's lots of upside, and we feel like we can deliver on that front.

I wanted to ask as a follow-up to an earlier question, just in terms of your discussions you are having with the E&Ps and your customers. Have any of the folks talked about maybe doing a little bit smaller wells, maybe less proppant or shorter laterals or anything like that?

Yes. I mean, they're not -- we're not hearing necessarily smaller laterals.

We are hearing less proppant per stage, which is consistent with how they frac in 2013. And it's not across the board on customers.

With some customers, some customers are happy with the increased proppant that we saw. We saw a significant increase in '14 of proppant per stage.

Some customers want to try to live within that, as long as it's financially feasible to do so. Others see that the return versus the dollar spend in their field, or their wellbores, it doesn't make sense to keep pumping additional sand, and so they scaled sand back.

I wouldn't say that we can guide to drill shorter laterals. I will say that we have not -- it was a stretch, 6, 8 months ago to hear people talking about building a 10,000-foot lateral.

You're not hearing that anymore. I mean, I think the average lateral length is about 6,000 feet.

And we don't see folks really pushing the limit, trying to push beyond that further as they were 6, 8 months ago.

Okay. That's good color, appreciate it.

And then lastly, with the -- in terms of Nabors, have you guys looked at any, in terms of the positioning of those assets? And is there any opportunity to move those assets around after the deal closes?

Yes. I mean we've definitely looked at it.

We're going to be all over the U.S. We're beginning in the most active basins.

The great thing about the equipment is, it all has wheels and it all moves, and we had identified areas. Obviously, Don spoke earlier about West Texas.

Nabors has a large presence there. We identified areas that -- where we need equipment and need fleets and to the extent that Nabors has fleets part.

They're so -- not adequate demand for all the -- we move those fleets to -- with the demand. And so the one good thing about this transaction taking so long to, from the time we announced it to get it closed is, it has given us a huge leg up on integration and on identifying the key strategy and where we can make the strategic moves at the beginning of the combination and make the most -- and get the most benefit out of the combination.

And so the short answer to your question is, yes, we've identified those places and we're going to be doing that. And we're just antsy to get our hands on their equipment.

He's apparently dropped.

Thanks for letting me in. I had a question on -- kind of work-over business.

Nabors has got a big business that you're going to be picking up, and some of the work-over guys have not really seen much of an improvement in this cycle. Is there some cannibalization of the work over business happening because of the capability of the coiled tubing rigs?

And how do you guys see that going forward, in terms of mix, with what you see new C&J doing?

Yes, I mean, well, look, there's no doubt that over a period of time, just based on mid-90s for now, coiled tubing has displaced work-over in a lot of agreements. That said, the majority of the works that coiled tubing is doing today is new well, high-pressured drilling.

And that has been a leg up on the work-over as far as that goes. And so when we think about the work-over business, we see tons of opportunity around our wireline, around our frac, on the recomplete side.

Around the work-over business itself, and the customer base, geographic footprint, they're really strong out west on the West Coast, which is a huge contingent for us in our own services and we just think that our commodity price remains low, we will see the work-over business, the impact of the work-over business move much more positively. And then such that, if you just look over -- looked at it over a period of time, that is in a phrase, steady business, out of a fairly steady revenue and EBITDA stream, and so it's a business we're excited about, and one that we're ready to be in.

Okay. And then follow-up question on the efficiency gains.

I understand on pressure pumping, you're not going to really be able to do much. So I'm just -- what kind of efficiency gains do you see out there from actually executing on the better placement and more efficiency in each stage?

I mean, we're hearing some of the operators talking about 20%, 25% improvements in IP rates and EURs per well in some of the plays in West Texas. Is that something you think you can see in 2015 and beyond?

Well, what I would tell you is, it's different from operator to operator. It has to do with well design.

It has to do with placement. Some operators have done better than others.

It's not an exact replication, wellbore to wellbore. But to my comments earlier, I think all -- it's a very natural thing to be that all that E&P companies will be looking to maximize each stage.

And as I said earlier most have not done that. And so if to the extent that they focus on that, to the extent that they are not cost prohibited from doing it, you could see 10% to 20% IP rates and more than the IP rate, longer life or less of a decline curve.

Those types of things around design. I think this is the year, and going into '16, these will be the times that we'll really start to focus and maximize the effect of the stimulation and the other services around that.

I might just add that specific to West Texas, which you were referencing, on a relative basis, West Texas is sort of a late coverage of the whole horizontal approach. I mean, until fairly recently, in fact, I mean, the rig count in West Texas was still more than half vertical.

I mean, it swung pretty rapidly towards that horizontal market in the last 12 to 18 months. But there's numerous horizons in West Texas.

There's a lot of drilling that goes on out there that's not actually shale related. It tends to be working in conventional reservoirs.

And so there are still some upside in that particular market for optimizing how the horizontal completions are being [indiscernible]. It's somewhat immature in terms of having optimized zippers, multiwell pads, et cetera, to stay relative with some of the more mature horizontal plays, like the Eagle Ford and the Bakken.

So again, if you're referencing West Texas, I think that's an environment where there is still some good upside in terms of just operational efficiencies.

Yes, I think we've seen some pretty dramatic gains in the gas market over the last couple of years, in the Marcellus and Utica. And I agree that West Texas, so it's got a lot of opportunity.

Probably better for you guys as it is for the rig guys. But we'll see.

All right, guys. We appreciate everyone joining us for the call, and we'll be speaking to you soon, hopefully, over the -- around the Nabors transaction.

And if not then, we'll be speaking on the first quarter call. Thank you.