Expro Group Holdings N.V. (XPRO) Q2 2016 Earnings Report, Transcript and Summary

Welcome to the Q2 2016 Frank’s International N.V. Earnings Conference Call. My name is Ashley and I will be your operator for today’s call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Blake Holcomb, Director of Investor Relations. Blake, you may begin.

Thanks, Ashley. Good morning, everyone and welcome to the Frank’s International conference call to discuss the second quarter 2016 earnings. I am Blake Holcomb, Director of Investor Relations. Joining me today on the call are Gary Luquette, President and Chief Executive Officer; Jeff Bird, Executive Vice President and Chief Financial Officer; and John Walker, Executive Vice President of Operations. We have posted a presentation on our website that we will refer to throughout this call. If you would like to view this presentation, please go to the Investors section of our website at franksinternational.com. Gary will begin today’s call with operational highlights and an overview of the quarter. Jeff will then provide additional detail on our operation’s financial results. Gary will conclude with his closing remarks. Everyone will be available for questions after prepared comments. [Operator Instructions] Before we begin on commenting on the second quarter results, there are a few legal items that we’d like to beginning on Page 3. First, remarks and answers to questions by company representatives on today’s call may refer to or contain forward-looking statements. Such remarks or answers are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such statements speak only as of today’s date or, if different, as of the date specified. The company assumes no responsibility to update any forward-looking statements as of any future date. The company has included in its SEC filings cautionary language identifying important factors that could cause actual results to materially differ from those set forth in any forward-looking statements. A more complete discussion of these risks is included in the company’s SEC filings, which may be accessed on the SEC’s website or Frank’s website at www.franksinternational.com. There you may also access both the second quarter earnings press release and a replay of the call. Please note that any non-GAAP financial measures discussed during this call are defined and reconciled to the most directly comparable GAAP financial measure in the second quarter 2016 earnings release, which was issued by the company earlier today. I will now turn the call over to Gary for his comments.

Thank you, Blake and good morning to everyone on the call. During the first half of 2016, we saw market conditions continue to deteriorate in almost every part of our operations. Although commodity prices have risen above the lows we have seen in the first quarter, the next move upward appears to be facing headwinds as the market remains oversupplied. And correspondingly, demand for our services remains soft, particularly offshore. Rig activity has declined in all areas year-to-date with the exception of a few pockets where customer investment has been more resilient. As we enter into the second half of ‘16, we are beginning to see some green shoots in key unconventional plays in the U.S. onshore business suggesting that the worst maybe behind us in this area. However, despite these early signs of recovery, further weakness everywhere else tells us that we still have significant challenges ahead. The offshore and the international work that remains is less complex and thus will be at lower rates, resulting in pressure on margins below those we have seen historically. Nonetheless, a U.S. onshore market bottom can indicate that other areas may soon be set to recover even if the lag in the rate of recovery extends over a period of several quarters. On Page 5, we lay out a very simplistic view of what a recovery could look like if things continue to progress in lines with customer feedback, which shapes our ultimate view of the market. It begins with a slow and steady second half recovery in the U.S. onshore, where we have seen a 10% increase in rig count from the last week of Q2. Next, we will most likely see some recovery in rates as the demand for services increases with the addition of rigs. We expect to see an increase in the international activity by mid 2017 as governments look to replenish some of the lost revenues with lower risk projects. Similarly, we would expect shelf and shallow water activity to follow suit in mid to second half of 2017. Finally, barring any significant breakthrough in the cost of development that would substantially improve project economics or a significant increase in the current strip, we would expect growth in the complex deep and ultra-deepwater to be delayed until 2018 at the earliest. While a recovery in the deepwater ultimately means a recovery for Frank’s core offshore business, we plan to bridge some of the gap with increased sales in markets where we are underweight, further reductions in operating costs and through product and service diversification. With respect to increasing share in underrepresented markets, we have seen some early success with contract wins in the Middle East, an active area where our previous market share was below 10%. With respect to diversification, we have identified some targets for acquisition and are in active discussions. As we have stated before, although we have the financial capacity to acquire, we will be selective and focused on value plays that align well with our long-term growth objectives. Moving on to Page 6, I will provide some highlights for the second quarter. The steady declines in revenues from our tubular running service business that began in the first quarter of 2015 eroded well beyond our expectations in the second quarter of ‘16. Across all of our regions, we saw double-digit revenue declines sequentially. Regional declines range from 13% to 50% quarter-over-quarter, and total company adjusted EBITDA dropped below breakeven on a consolidated basis for the first time since the downturn began. Rig roll-offs associated with completed projects, combined with unexpected cancellations or deferrals in our two largest markets of West Africa and the Gulf of Mexico, represented 80% of the revenue decline and 45% of the EBITDA decline from the first quarter. Also during the quarter, we took a $9.7 million reserve related to receivables in Venezuela. The troubles related to collections of receivables in Venezuela, has been well documented across our industry. In response, we have taken the appropriate step to curtail our operations to be more in line with collections. However, we felt the prudent course of action was to take a reserve as we continue to work towards an agreeable solution for both parties going forward. Finally, in our continued efforts to lessen the impact of the activity and price declines, we took further cost reduction actions in the second quarter. These actions now increase our total estimated cost savings to over $100 million annualized from 2014 levels. This is up from the previously estimated $75 million with roughly two-thirds of the savings considered sustainable. With that, I will turn the call over to Jeff to expand on the financial and operational results during the quarter. Jeff?

Thanks, Gary. Turning to Page 8, I will begin with providing additional detail on changes in the global offshore market we saw during the quarter. Overall, market share fell during the quarter from 22% to 19% of total offshore rig count, excluding platform rigs. 25 rigs left the market in the quarter and Frank’s was working on 22 of those rigs. This was in stark contrast to previous quarters when the rigs leaving the market were predominantly competitor serviced rigs and more in line with our regional market share. Despite Latin America seeing little change during the quarter from a share perspective, delays in Brazil and Mexico drove revenues lower. Likewise, Asia-Pacific share held relatively flat, but a steep decline in Sakhalin and deferred work in Malaysia caused revenues to fall during the quarter. In Europe, share was down slightly and we expect to see Europe deteriorate the remainder of 2016 as North Sea rigs are scheduled to finish projects in the coming months. The Middle East saw an increase in share as we continue to make further inroads into that market. We are confident that ramp ups efforts during Q2 in Baku and additional business in the UAE will bear fruit in the back half of 2016 and beyond. We expect this to offset the majority of our declines in Europe. However, the biggest change in our market share during the quarter was in West Africa and the Gulf of Mexico, where we saw the greatest number of rigs exit the market and Frank’s being disproportionately impacted. Frank’s was working on 80% of the rigs that stopped working in these markets during the quarter. These two regions offer some of the most complex wells playing to Frank’s strength. As a result, Frank’s has enjoyed higher than average margins and share in these regions. However, a combination of lower rig day rates and fewer complex wells have driven customers towards our lower and less profitable technology solutions. This has dramatically impacted our revenue per rig and as a result our EBITDA margin from the peak of the margin – of the market in late 2014. Turning to Page 9, we will more closely look at how these markets have been impacted since the peak in the fourth quarter of 2014. At the peak, in West Africa, Frank’s held more than 60% market share and accounted for nearly 45% of our international segment revenue and 50% of segment EBITDA. Rigs in West Africa are down from the peak 46% and our revenue decline is roughly 75%. Revenue declines outpaced rig declines as poor results in complex, pre-salt exploration shifted the market to less complex wells and steep pricing concessions were required to compete for share in the market. We see a similar, but less severe theme in our Gulf of Mexico operations. At the peak in late 2014, we had more than a 60% market share and EBITDA margins above 50%. Floaters in the Gulf of Mexico have since fallen approximately 40% and our revenue has declined roughly 60%. This is largely on shifts in the market to less complex wells and pricing concessions required to sustain business. We continue to be a leader in the U.S. Gulf of Mexico, but more of our customers are stacking rigs and in some cases, on short notice. The competition for operators in the market has intensified and higher margin opportunities are narrowing. Although we do not believe the Gulf of Mexico is as challenged as West Africa, we do expect to see further deterioration in the Gulf of Mexico. Stepping back to summarize, a majority of the global offshore markets remain challenged at current oil prices and we will likely see continued declines for the remainder of 2016. On Page 10 is a comparison of our second quarter 2016 financial results to the previous quarters. Revenue from the International and U.S. Service segments combined fell roughly 28% from the first quarter of 2016 to $94 million, falling materially short of our expectations as revenue declines accelerated in Gulf of Mexico and West Africa. Tubular Sales segment rebounded during the quarter, leading the company to total revenues down 21% compared to first quarter. Adjusted EBITDA for the quarter fell sharply from $32 million to a loss of nearly $14 million. Absent the Venezuela bad debt reserve, the steep sequential decline in earnings can be attributed to mobilization costs in the Middle East and higher corporate costs. Additionally, cost reduction efforts in the international segment are lagging revenue declines as notice periods in these regions tend to be longer. This created a de-leveraging of 140% in the quarter. We expect this trend to reverse in the coming quarters and while we continue to adjust our cost base to match current activity levels, cost actions going forward will require more difficult structural changes. Lastly, despite all the difficulties mentioned, the company was still able to deliver positive free cash flow during the quarter. Turning to Page 11, we see a more detailed look at the international segment. The 31% decline in the segment can primarily be attributed to West Africa where the decline in rig count we anticipated was coupled with additional projects finishing ahead of schedule. 80% of the drop in adjusted EBITDA can be attributed to West Africa and Latin America, where the reserve for bad debt was incurred. Even excluding the reserve, an adjusted EBITDA margin of 10% was well below the margins we had been realizing in this segment. The European and Asia Pacific markets were the most resilient markets during the quarter in terms of rig count, share and revenue. The Middle East continued to be a bright spot in terms of opportunity to gain share and increased activity. Frank’s investments in Q2 to mobilize equipment and ramp up operations should yield benefits in the coming quarters. Latin America continues to feel the impact of drastic budget cuts by national oil companies, putting future projects in doubt for the near-term. Looking at the U.S. Services on Page 12, we saw a 24% decline in the segment for the second consecutive quarter to roughly $37 million. As previously mentioned, the majority of rig declines impacted Frank’s specifically and drove the offshore performance lower. In the onshore segment, we saw share in our addressable market increase above 35% for the first time. In addition, revenue declines of 17% outperformed rig declines of 23% during the quarter. Adjusted EBITDA in this segment was a loss of $11 million. It was overwhelmingly driven by $7 million of higher corporate expenses related to compliance and operational efficiency improvement initiatives. The offshore margins held up in the quarter and the onshore continued to experience a loss of approximately $1 million per month. Finishing the business segment with Tubular Sales on Page 13, we saw revenues rebound almost $27 million. The 22% increase came as a result of steady Gulf of Mexico orders and a slight up-tick in the land and select international markets. Adjusted EBITDA also reversed course in the quarter, turning to approximately $2 million or 6% of revenue. Helping to boost margins in this segment were lower manufacturing costs compared with the first quarter of 2016. In closing on Page 14, I will comment on our second half of 2016. In regards to our outlook for the remainder of 2016, we expect West Africa and the U.S. Gulf of Mexico to be a drag on our financials for the remainder of the year. We also anticipate the European market will be materially lower as 11 mobile rig departures in the North Sea are expected by the first quarter of 2017. Although there are a number of tenders expected during this period, conditions are likely to worsen over the next 12 months and tenders could be deferred or canceled entirely. In Latin America, Asia Pacific and U.S. onshore business, we are not anticipating significant improvement over the next six months. But any upside seen likely will – any upside seen will likely occur in the lower risk onshore business prior to seeing increased activity offshore. The Middle East and Tubular Sales are most likely to see improvement during the second half of the year leading to – leading into 2017. Several key projects are expected to commence activity, both onshore and offshore in the Middle East that would lead to increased revenues in that market. Based on our interactions with customers concerning project and rig plans, we believe that our global TRS business revenues will likely be down 20% to 25% in the second half of 2016 compared to the first half. Although the Tubular Sales business may fluctuate quarter-to-quarter, we believe this segment to generate flat to slightly positive revenues second half ‘16 over first half of ‘16. Given these expectations, it would be reasonable to expect our total company revenues to be down in the mid-20s percent range with a roughly 60% decremental margin in the second half of the year. Most recently, we made the decision to defer capital spending on our new operations facility in Lafayette. This will now bring our total CapEx spend for the year to $60 million, down from $75 million. The majority of the $60 million spend will be towards finalizing our administrative facility and finishing tools and equipment in the completion. Additionally, as we noted in our press release this morning, the Board made a decision, based on management recommendation, to reduce the dividend by 50% to $0.075 per share from $0.15 per share. The challenging environment and the continued uncertainty of revenues and cash flow make this the right decision. We believe this affords us the flexibility to use the company’s strong cash balance in other ways that will lead to long-term value creation for our shareholders. Based on our current assumptions, we are confident that the revised dividend will be sustainable through the trough of the cycle and do not anticipate any further reduction. Finally, we will make the cost changes – we will make changes to our cost structure, global footprint and go-to-market capabilities that will significantly enhance our cost structure to better align with activity over the medium-term. With that, I will now turn the call back over to Gary for some final comments.

Thanks Jeff. To summarize, even amid a very challenging environment for all in the oilfield services sector, we have been through market cycles before and know a recovery is in the future. As a result, we are positioning the company to resume its sector leading financial performance when the recovery occurs. In the interim, we have at our disposal several levers that will enable us to make significant progress towards this objective. The first lever is market expansion. Opportunity still exists to grow our share in underrepresented markets. As previously mentioned, we currently represent 35% of the addressable U.S. onshore market and are well positioned to participate in what we believe will be the first market to recover. We have also made meaningful inroads in the Middle East through new contracts and we are well positioned to capture additional business in other international land and shelf markets. The second lever involves further reducing our cost of delivering our services and we plan to provide more details in the third quarter as these new plans are firmed up. With significant changes in the market landscape over the last 21 months, we must reevaluate our global footprint and the supporting structure with an aim to lower costs without compromising quality and reliability. Finally, the third lever involves augmenting revenues through diversifying our product and service offering and extending our time on the rig. Evaluating acquisition opportunities has been a regular topic of discussion over the past 12 months given our strong balance sheet. Obviously, in a market that continues to soften, picking the right time to make an acquisition is critical in obtaining the right value. Some of our actions taken this quarter will help us to preserve our balance sheet strength and will enable us to capture the opportunity when it presents itself. We have suggested in previous quarters that we will not waste this downturn and will focus on controlling the things that we can control. At Frank’s, taking the steps necessary to lower our cost, improve our efficiency and increase our market position in anticipation of the eventual market recovery will enable us to deliver superior returns to our investors for years to come. Before opening the line to questions, I want to advise you that this will be the last call that John Walker will be participating in with Frank’s. After nearly 30 years of distinguished service at Frank’s, John is leaving the company to pursue other interests. John will depart the company in August and we wish John much success in his future endeavors. Upon John’s departure, all of his areas of responsibility will report directly into me. With that, I would now like to open the call up for questions.

Thank you. [Operator Instructions] And from JPMorgan, we have Sean Meakim.

Hi, good morning.

Good morning.

Well, first is that I want to say to John congrats on your career and certainly best of luck going forward.

Thank you. I appreciate that.

So, just to start off on the Gulf of Mexico, during this earnings season, we have been hearing some conflicting feedback, I think on what activity could look like going forward. I mean, you pointed out you are expecting more challenges in the second half. Just curious when do you think deepwater activity reductions in the Gulf of Mexico finally abate? So, is it a timing issue at this stage or really it’s still tied to the oil price?

Sean, I would say it’s still tied to the oil price. But in the second half of this year, the visibility that we have is further contraction in the Gulf. And I would say that our current contracts or projects are – that we have firm contracts for are just continuing to roll off. In the Q1, Q2 event, we had a significant amount of unscheduled contracts that had just come to an end. And talking with our customers, this is continuing right through to the end of ‘16 so that’s about as much visibility as we have.

Okay, fair enough. And then maybe for Gary or Jeff just to touch on the dividend cut, how do we think about today’s decision informing uses of cash going forward? It sounds like from what you said liquidity is the priority at the moment, but also the language and tone seems to indicate maybe a shift in your confidence in terms of the M&A pipeline. Is that a fair assessment?

No, I wouldn’t say our confidence has shifted. I would say that bid/ask spreads continue to narrow and we are at a point now where we are in discussions with multiple parties and our confidence is increased in our ability to be able to do something that is value accretive to Frank’s. And I think this is just a prudent action to take. And I think the board agrees that keeping our powder dry in a market where you are seeing the bid/ask spreads start to converge and with our ability to be able to accomplish some of our longer term growth objectives, it’s just the right thing to do and not be short in a time where opportunities are going to be abundant and opportunities to move maybe upon us.

Got it. And just to maybe not parse it too thin, but if you were to rank the drivers of, one kind of being more defensive as the business is deteriorating more than you thought versus becoming more optimistic given where we are in the cycle, kind of which would you rank as having a higher priority in terms of driving that decision today?

Well, I don’t think our priorities have changed any, so we continue to want to fund the dividend albeit at a lower level now, but at an appropriate level, we want to take care of any organic capital requirements we have internal and we want to have the capacity to move in the market in the M&A space. And I would say those three in rank have always been kind of our priorities and continue to be.

Thank you. And our next question comes from Ian MacPherson from Simmons.

Thanks. Good morning. John, I would also like to offer my congratulations and thanks for all your help over the past few years.

Thank you.

Jeff, is the guidance you gave for 60% decrementals just to clarify that 60% decrementals companywide EBITDA second half over first half?

That’s correct. Obviously, for the first half, you would need to add back the Venezuela bad debt reserve and then it would be 60% decrementals off that with top line down 20% to 25%.

Okay. Do you envision that your cost reductions kicking in such that your margins could be better in the fourth quarter than the third quarter or is that going after too much detail at this point? I am trying to think about your path towards EBITDA breakeven and how and when that might occur?

Yes. It probably is a little more detailed than we have right now. But as I mentioned, the significant drop-off we saw in our international segment means that some of the cost actions that we took in the international segment are clearly going to lag. So, we will start to see the benefit of some of those in Q3 and Q4. The more structural changes that I talked about and Gary talked about are likely to be executed sometime in Q4 with real benefit kicking in more Q1 next year.

Okay. One of the helpful elements that you provided last quarter was the allocation of corporate overhead that burdened your U.S. services margins. If I missed it, could you repeat that for the second quarter or is that something you could give?

Yes, yes, that’s $19 million for the second quarter and that was up Q-on-Q, up primarily because of compliance-related activity as well as we do have a couple of improvement initiatives that we are working on as well that we think will have long-term benefit for the company, but a little bit of cost now for us.

Thank you. And next from KeyBanc Capital Markets, we have Robin Shoemaker.

Yes, thanks for your candid outlook on the market. And I wonder if in – as this downturn progresses, if there is any kind of changes you would cite in the competitive landscape, I mean, with your primary competitor or others either in the land or offshore market. I think what you explained was that in this last quarter, you were just particularly affected because a lot of rigs that went down were Frank’s rigs versus competitors. But would you have any comments on changes in the competitive landscape through this downturn and particularly this year?

So in the land market, clearly we are seeing a change in the landscape just because more and more players are dropping out. And so the competitive base is shrinking. Although I would say the commercial behavior from our customers as well as our competitors seems to be rather consistent and we really don’t see any signs in the short-term that we are going to see rate recovery because what tenders are out there, fewer players are bidding against them, but at very aggressive rates in order to keep equipment and keep people busy. For the offshore, we haven’t seen a significant change in behaviors or the competitor base. As we mentioned in our remarks, it’s unfortunate that we had the lion’s share of the contraction just because of the rigs that rolled off were completed and the fact that we were on those rigs. So nothing that you could point to there that would say competitor behavior is shifting, competitor mix is shifting. It’s just in previous quarters we might have benefited from being slightly advantaged in contraction. This is a quarter where we have been more disadvantaged due to contraction.

Right, that’s what I kind of surmised. But you also mentioned a – sort of that job complexity is somewhat less and so that revenue per job or – is declining, is that coming under the heading of a cyclical phenomenon or is there something more long-term related to that?

No, I think it’s more cyclical. Obviously, project economics in the deep and ultra-deep were more challenged than the shelf or even some of the deepwater wells that are less complex require less complex completions and thus the follow-on to that is it requires less technology from a company like Frank’s, which is where we enjoy our advantage. So I think well complexity, by and large with some exceptions, is driven by project economics that’s tied directly to commodity prices. So as prices recover, eventually our customers will go towards the more complex, higher risk wells that represent bigger return. But in a time where capital is constrained, they are trying to minimize risk and targeting less complex, less expensive wells.

Thank you. From Credit Suisse, we have Jim Wicklund.

Good morning guys, John, too congrats. Anybody who gets to retire and still keep working is a hero in my book. So congratulations.

Thanks Jim.

Guys, do you need to change like the scope and the size and the capability of your tools in the current and expected markets, I mean, we are drilling wells faster where the completions are given higher production and recoveries, rigs of the future are being promised by many. And this is mainly for onshore, but the offshore market is still more automated and more computer controlled than ever, I mean we are making it simpler, but more productive, do you have to change your CapEx over the next few years to accommodate a different market that’s simpler, but more productive like everything else we are seeing in the business?

Jim, it’s a great question. And I will say that I am going to qualify my answer by saying I – Frank’s has for a number of years been locked in on where the seventh generation and ultimately, the eighth generation drillship is going. We have a very good relationship with our customers. There is good information exchange as to what well requirements of the future are going to be and that is one area where I would say we are all over it. However, what has changed quickly has been the dynamics and the requirements in the onshore market. And we have talked about this before, but one of Frank’s challenges, when you have a company that professes to have more technology than the competition and can ultimately offer a lower cost of ownership for the wellbore in the U.S. onshore because of the manufacturing process that’s happening in the leaning of the drilling process, time and money is everything. And so we are now investigating is there a way that we can reshape our footprint on a U.S. land rig and make it more compact, more streamlined and more cost effective in addition to having some superior aspects to it that might help with overall cost of ownership. So I know that’s a long winded answer to say, I think in the U.S. onshore in the next couple of years we are probably going to have to invest to retool to be a superior player in a market that’s become very commoditized, but I think for the shelf and the offshore markets, we are in great position.

Thank you. From Howard Weil, our next question comes from Blake Hutchinson.

Good morning guys.

Good morning.

Just I wanted to start, I mean certainly the notion that well complexity and your ability to provide kind of Frank’s proprietary or premium content was certainly under pressure as the year has proceeded, is there any way to help us understand maybe as a portion of the revenue stream or a portion of your share in major markets like West Africa and the Gulf of Mexico, how that’s kind of waned here, is it – again, is it maybe a percentage of those jobs or percentage of the revenue streams, so we can understand what we are seeing in terms of that shift?

Sure. So if you go back and look at the peak at the end of 2014 to the second quarter now, you can really divide it into really kind of three buckets if you will, of revenue decline. One of those is purely activity related and about 50% of that overall revenue decline is just purely activity related. About 25% of that decline is well complexity related and the last 25% is price concession related. So the way to think about it is 50% just purely activity related with the other 50% being a combination of lower revenue per rig due to complexity and lower revenue per rig due to price concession.

Okay. And that would be your kind of assessment of the franchise overall rather than any particular basin?

Yes. That’s just the overall offshore. When you look at offshore, that’s the overall mix that you see.

Okay. Thank you. And then understanding that the next step in the cost containment processes is structural, I am not asking for anything hard and fast, but just understanding what you are grappling with, I mean should we be thinking around the fact that major markets like West Africa, the Gulf of Mexico, perhaps even Europe, you do have more of a fixed cost structure that needs to be addressed and that’s what takes a little more time and assessment of how to – I don’t want to say dismantle, but make it a little bit on a leaner structure?

Yes. That’s exactly right. So you look today and we are in 60 countries. So we are going through a country-by-country analysis of where do we need to be and how are we properly positioned in those countries. And in some cases, it might mean a smaller, leaner operation. In some cases, it might mean shared services. In some cases, it might mean we are not in a certain country because we just don’t see the future there. So we are going through that exercise now. As you can imagine, it’s not a one week or two week exercise, it’s a multi-month exercise, which is why as Gary commented, we will be talking about it on the third quarter call.

Thank you. Next from Barclays, we have David Anderson.

Thanks. Gary, can you talk a little bit about the shallow water business, you have talked about getting into that business previously a couple of quarters ago, I am just wondering if that started to bear fruit yet. And also if you could expand on some of the – on how you are progressing moving into some of the other new markets, you mentioned the Middle East and that’s been picking up, but if you could provide a little color on those two subjects?

I am actually going to tap into John’s experience. He has been front center in this space. So John, why don’t you handle that one?

Sure. So first I would say that Azerbaijan, although we had a little bit of delay in Q2, we see the Azerbaijan picking up in the second half of this year with known contract, multi-year contract. And that moves us into the – some of the semis, but the jackup side of the business. Specifically in the Middle East, we have had success thus far entering into additional market share around the land opportunities. But a lot of these national oil companies, as you are aware have a multitude of offshore jackups and we have actually proven to-date that once they see our service quality, the – it all becomes around rig allocations at that point. And we have been allocated more recently this quarter to begin in the second half of the year the offshore jackup side. So there is definitely opportunity there. We feel confident that the asset is well positioned with the workforce as well as the asset base. It’s just going to take to get the comfort with the NOCs. And then at that point, we also have an opportunity and this is unique to our company is that we have proprietary equipment that we can show the NOCs what the total cost of ownership really looks like and how we can actually minimize the cost. So there is definitely opportunities in the Middle East for us going forward.

And maybe a different question on the U.S. land business, obviously it’s a much smaller business here. We don’t have a great – we don’t have great visibility on what tubular running services looks like. You mentioned 35% share in that market. Can you give us a sense as to like what utilization looks like? Obviously, we talked about pressure mounting all the time. But in terms of that business, where is utilization right now in maybe the cold stacked equipment? I am just trying to get a sense as to how we should think about utilization versus pricing over the next 12 months?

Yes, that one is a tough one, because some of the capacity that you could consider idle has actually gone away, because some of the smaller regional players or local players have dropped out. But I have always looked at it as when you look at it the other way and say well, what is the opportunity to grow, you look at rig count, you look at well count and that’s a great proxy for tubular running services’ opportunity space. And I would say we have all tracked the U.S. onshore rig count and we are probably down 60% relative to the peak. Now, I would assume that not all of that upside is going to be idle capacity, but there is a significant amount that is out there that at some point is going to be a competitor. What we are hopeful in Frank’s and what we have planned in terms of the recovery is to keep as much of our asset base and as much of our capability busy and on the warm ready to run when the market improves. And we are pretty convinced that a lot of our competitors certainly the regional and local guys are not going to be in that shape and it will take a while for them to rehire and retrain and recertify before they can go to work.

Thank you. [Operator Instructions] And now we have Brad Handler from Jefferies.

Thanks. Hi, guys. I guess just a couple of cost questions from me, please. I just want to make sure I am clear on your message. You made reference – maybe it was Jeff, I can’t remember, but you made reference to having a sort of upped your cost cutting to more like the $100 million a year level. And I guess of that, $75 million is sustainable. So, please correct me if I didn’t hear that right? But that’s already additional steps you have identified, is that right?

Those are additional steps that we have identified. Now, as I said those were done throughout the course of Q2 and some of those are literally being executed in early Q3 as well just because of notice periods. So, those are steps already identified. So, the structural changes that we talked about would be on top of that $100 million.

Okay, right. And that’s where you are still in – and you are still in that sort of process of realizing and discovering what you can do?

Exactly.

Okay, okay. Understood that. Maybe, Jeff, we – you mentioned the corporate overhead, and thanks for the detail. It sounded like those were plausibly kind of expenses that are now past you. Does – should we expect corporate overhead to go back down to, say, $10 million in Q3?

Yes, I don’t think it will go down quite that quickly. I think we will see that kind of go down as we – by the end of the year probably to more of a $15 million – $13 million to $15 million range, but it’s not going to go down to a $10 million until probably sometime next year we would be on that type of run-rate.

Okay. I think that’s all for me. I will turn it back. Thank you.

Thank you. And we have no further questions. I will now turn the call back over to Gary Luquette, CEO for closing remarks.

Okay. Thank you for your time and your interest in Frank’s today and ongoing. We will conclude today’s call then and again thanks for your interest.