Around a quarter of our international legacy revenue is yielding moderately accretive incremental margins impacted by lower base pricing, and so far, less scale and efficiency benefits, while the last quarter of our international legacy revenue is at present highly dilutive to both current and incremental operating margins, due to low pricing on favorable contractual terms and lack of critical mass. At present, this remains the most noticeable headwind to our international financial performance. Granted, we have, over the past few years, knowingly decided to enter into these contracts in order to protect our geographical footprint and provide future business opportunities and optionality. Still, most of these low-return contracts are callout-based, which means there is no firm scope offered from our customers, and we are, hence, free to respond to their callout request based on our available capacity, which today is already stretched.
As for capital deployment, we maintain our capex guidance of $1.5 billion to $1.7 billion for 2019 with our capex deployment being entirely focused on the half of our international revenue that is already yielding the required incremental margins.
For the other half of our international business, our near-term priority is to engage with our customers to establish pricing, contractual terms, and a work scope that will provide us with the opportunity to quickly establish the needed financial returns. As part of this process, we will look to high-grade our contract base as needed and potentially redeploy existing capacity to contracts and customers who offers higher profitability until operating and incremental margins also have reached the required levels. Only at that stage will we consider deploying fresh capital into this part of our international business.
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E&P investments in North America land. As we go forward into the full year, visibility for the second half of the year is still fairly limited. For Q2, we are expecting the number of frac stages to go up, but a fair bit of that activity increase is going to be offset by the full impacts of the pricing concessions that we gave in the fourth quarter and the first quarter. We do expect hydraulic fracturing pricing to stabilize in terms of the bid pricing in the second quarter. Now how this is going to evolve for the second half of the year, lack of visibility, I think, is still the case. I don't think though at this stage, that if we have a further run up of the oil price we're going to see the same, a rapid increase in spending as we've seen in previous years. There might be some increase but probably not as much as we saw, for instance, in 2018. So I think that calls for another challenging year on hydraulic fracturing. |
