UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
______________________________________________
FORM 10-Q
______________________________________________
(Mark one)
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| |
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20192020
or
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 1-8182
PIONEER ENERGY SERVICES CORP.
(Exact name of registrant as specified in its charter)
____________________________________________
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| | |
TEXASDELAWARE | | 74-2088619 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
| | |
1250 N.E. Loop 410, Suite 1000 San Antonio, Texas | | 78209 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (855) 884-0575
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Securities registered pursuant to Section 12(b) of the Act |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | PES | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| | | |
Large accelerated filer | o | Accelerated filer | x |
| | | o |
Non-accelerated filer | ox | Smaller reporting company | ox |
| | |
Emerging Growth Company | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No ¨
As of AprilJune 15, 2019,2020, there were 78,466,2601,048,185 shares of common stock, par value $0.10$0.001 per share, of the registrant outstanding.
EXPLANATORY NOTE
As previously disclosed in the Current Report on Form 8-K filed by Pioneer Energy Services Corp. (the “Company”) on March 2, 2020, the Company commenced a voluntary restructuring under Chapter 11 of the U.S. Bankruptcy Code on March 1, 2020. The Company has had to devote a significant amount of time, resources and administrative support to simultaneously support managing the Company and managing its restructuring, while also monitoring how these ongoing processes may affect the disclosures to be included in this Form 10-Q and other reports; all of which were made more difficult due to the coronavirus (“COVID-19”) pandemic and disruptions associated with the COVID-19 pandemic. The Company was unable to file this Form 10-Q by the original deadline due to the outbreak of, and local, state and federal governmental responses to, the COVID-19 pandemic. Office closures limited access to the Company’s facilities by the Company’s financial reporting and accounting staff, as well as other advisors involved in the preparation of this Form 10-Q, led to communications and similar delays among such persons, and impacted our ability to fulfill required preparation and review processes and procedures with respect to this Form 10-Q, thus additional time was required to complete this Form 10-Q. As previously disclosed in the Current Report on Form 8-K filed by the Company on May 15, 2020, the Company announced that it was delaying the filing of its Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 for the foregoing reasons in reliance on an order (Release No. 34-88465) issued by the Securities and Exchange Commission that provides conditional relief to public companies that are unable to timely comply with a filing deadline due to circumstances related to the COVID-19 pandemic.
As previously disclosed in the Current Report on Form 8-K filed by the Company on June 2, 2020, the Company announced that it had emerged from Chapter 11 (the “Emergence 8-K”). As more fully described in the Emergence 8-K, pursuant to the Chapter 11 plan of reorganization approved by the Bankruptcy Court, on May 29, 2020, among other things:
the Company converted from a Texas corporation to a Delaware corporation;
all the outstanding common stock was canceled, and holders thereof received an aggregate of 5.75% of the proforma common equity (subject to dilution from the convertible notes and new management incentive plan), at a conversion rate of 0.0006849838 new shares for each old share;
the $300 million principal amount of the Company’s Senior Notes due 2022 was canceled in exchange for 94.25% of the proforma common equity (subject to dilution from the convertible notes and new management incentive plan);
the amounts outstanding under the Company’s debtor-in-possession credit facility were repaid and the existing term loan was repaid with proceeds from the issuance of the senior secured notes and convertible notes referenced below;
the Company entered into a $75 millionsenior secured asset-based revolving credit agreement;
the Company issued $78,125,000 of its floating rate senior secured notes due 2025; and
the Company issued $129,771,000 aggregate principal amount of its 5% convertible senior unsecured pay-in-kind notes due 2025, which are convertible into 75 shares of Common Stock per $1,000 principal amount of the convertible notes, subject to customary anti-dilution adjustments, which notes have the right to vote together with the common stock on an “as-converted” basis on all matters to be voted on by the Company’s stockholders.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
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ITEM 1. | FINANCIAL STATEMENTS |
PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES (DEBTOR IN POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | March 31, 2019 | | December 31, 2018 | March 31, 2020 | | December 31, 2019 |
| (unaudited) | | (audited) | (unaudited) | | (audited) |
| (in thousands, except share data) | (in thousands, except share data) |
ASSETS | | |
Current assets: | | | | | | |
Cash and cash equivalents | $ | 26,855 |
| | $ | 53,566 |
| $ | 15,457 |
| | $ | 24,619 |
|
Restricted cash | 998 |
| | 998 |
| 998 |
| | 998 |
|
Receivables: | | | | | | |
Trade, net of allowance for doubtful accounts | 90,816 |
| | 76,924 |
| 64,836 |
| | 79,135 |
|
Unbilled receivables | 27,535 |
| | 24,822 |
| 12,015 |
| | 12,590 |
|
Insurance recoveries | 23,427 |
| | 23,656 |
| 22,379 |
| | 22,873 |
|
Other receivables | 6,307 |
| | 5,479 |
| 3,693 |
| | 8,928 |
|
Inventory | 20,229 |
| | 18,898 |
| 21,619 |
| | 22,453 |
|
Assets held for sale | 4,794 |
| | 3,582 |
| 1,825 |
| | 3,447 |
|
Prepaid expenses and other current assets | 7,307 |
| | 7,109 |
| 8,129 |
| | 7,869 |
|
Total current assets | 208,268 |
| | 215,034 |
| 150,951 |
| | 182,912 |
|
Property and equipment, at cost | 1,125,170 |
| | 1,118,215 |
| 1,083,512 |
| | 1,119,546 |
|
Less accumulated depreciation | 607,403 |
| | 593,357 |
| 643,558 |
| | 648,376 |
|
Net property and equipment | 517,767 |
| | 524,858 |
| 439,954 |
| | 471,170 |
|
Deferred income taxes | | 9,264 |
| | 11,540 |
|
Operating lease assets | 9,423 |
| | — |
| 7,972 |
| | 7,264 |
|
Other noncurrent assets | 1,633 |
| | 1,658 |
| 7,593 |
| | 1,068 |
|
Total assets | $ | 737,091 |
| | $ | 741,550 |
| $ | 615,734 |
| | $ | 673,954 |
|
| | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | |
Current liabilities: | | | | | | |
Accounts payable | $ | 38,163 |
| | $ | 34,134 |
| $ | 28,774 |
| | $ | 32,551 |
|
Deferred revenues | 1,659 |
| | 1,722 |
| 997 |
| | 1,339 |
|
Commitment premium | | 9,584 |
| | — |
|
Debtor in possession financing | | 4,000 |
| | — |
|
Accrued expenses: | | | | | | |
Payroll and related employee costs | 24,699 |
| | 24,598 |
| |
Employee compensation and related costs | | 10,300 |
| | 13,781 |
|
Insurance claims and settlements | 22,819 |
| | 23,593 |
| 22,239 |
| | 22,873 |
|
Insurance premiums and deductibles | 5,543 |
| | 5,482 |
| 5,831 |
| | 5,940 |
|
Interest | 1,460 |
| | 6,148 |
| 107 |
| | 5,452 |
|
Other | 10,233 |
| | 9,091 |
| 11,196 |
| | 9,645 |
|
Total current liabilities | 104,576 |
| | 104,768 |
| 93,028 |
| | 91,581 |
|
Long-term debt, less unamortized discount and debt issuance costs | 465,315 |
| | 464,552 |
| 170,921 |
| | 467,699 |
|
Noncurrent operating lease liabilities | 6,929 |
| | — |
| 6,434 |
| | 5,700 |
|
Deferred income taxes | 4,844 |
| | 3,688 |
| 3,256 |
| | 4,417 |
|
Other noncurrent liabilities | 4,460 |
| | 3,484 |
| 383 |
| | 481 |
|
Total liabilities | 586,124 |
| | 576,492 |
| |
Commitments and contingencies (Note 11) |
| |
| |
Shareholders’ equity: | | | | |
Total liabilities not subject to compromise | | 274,022 |
| | 569,878 |
|
Commitments and contingencies (Note 12) | | | | |
Liabilities subject to compromise | | 306,419 |
| | — |
|
Stockholders’ equity: | | | | |
Preferred stock, 10,000,000 shares authorized; none issued and outstanding | — |
| | — |
| — |
| | — |
|
Common stock $.10 par value; 200,000,000 shares authorized; 78,456,260 and 78,214,550 shares outstanding at March 31, 2019 and December 31, 2018, respectively | 7,933 |
| | 7,900 |
| |
Common stock $.10 par value; 200,000,000 shares authorized; 79,579,571 and 79,202,216 shares outstanding at March 31, 2020 and December 31, 2019, respectively | | 8,062 |
| | 8,008 |
|
Additional paid-in capital | 551,382 |
| | 550,548 |
| 553,484 |
| | 553,210 |
|
Treasury stock, at cost; 874,391 and 789,532 shares at March 31, 2019 and December 31, 2018, respectively | (5,085 | ) | | (4,965 | ) | |
Treasury stock, at cost; 1,041,565 and 877,047 shares at March 31, 2020 and December 31, 2019, respectively | | (5,097 | ) | | (5,090 | ) |
Accumulated deficit | (403,263 | ) | | (388,425 | ) | (521,156 | ) | | (452,052 | ) |
Total shareholders’ equity | 150,967 |
| | 165,058 |
| |
Total liabilities and shareholders’ equity | $ | 737,091 |
| | $ | 741,550 |
| |
Total stockholders’ equity | | 35,293 |
| | 104,076 |
|
Total liabilities and stockholders’ equity | | $ | 615,734 |
| | $ | 673,954 |
|
See accompanying notes to condensed consolidated financial statements.
PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES (DEBTOR IN POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| | | Three months ended March 31, | Three months ended March 31, |
| 2019 | | 2018 | 2020 | | 2019 |
| (in thousands, except per share data) | (in thousands, except per share data) |
| | | | | | |
Revenues | $ | 146,568 |
| | $ | 144,478 |
| $ | 114,322 |
| | $ | 146,568 |
|
| | | | | | |
Costs and expenses: | | | | | | |
Operating costs | 108,585 |
| | 102,766 |
| 92,022 |
| | 108,585 |
|
Depreciation | 22,653 |
| | 23,747 |
| 21,984 |
| | 22,653 |
|
General and administrative | 19,758 |
| | 19,194 |
| 14,655 |
| | 19,758 |
|
Bad debt expense (recovery), net | 62 |
| | (52 | ) | |
Pre-petition restructuring charges | | 17,074 |
| | — |
|
Impairment | 1,046 |
| | — |
| 17,853 |
| | 1,046 |
|
Bad debt expense, net | | 727 |
| | 62 |
|
Gain on dispositions of property and equipment, net | (1,075 | ) | | (335 | ) | (717 | ) | | (1,075 | ) |
Total costs and expenses | 151,029 |
| | 145,320 |
| 163,598 |
| | 151,029 |
|
Loss from operations | (4,461 | ) | | (842 | ) | (49,276 | ) | | (4,461 | ) |
| | | | | | |
Other income (expense): | | | | | | |
Interest expense, net of interest capitalized | (9,885 | ) | | (9,513 | ) | (8,651 | ) | | (9,885 | ) |
Other income, net | 684 |
| | 504 |
| |
Reorganization items | | (6,663 | ) | | — |
|
Other income (expense), net | | (5,545 | ) | | 684 |
|
Total other expense, net | (9,201 | ) | | (9,009 | ) | (20,859 | ) | | (9,201 | ) |
| | | | | | |
Loss before income taxes | (13,662 | ) | | (9,851 | ) | (70,135 | ) | | (13,662 | ) |
Income tax expense | (1,453 | ) | | (1,288 | ) | |
Income tax (expense) benefit | | 1,031 |
| | (1,453 | ) |
Net loss | $ | (15,115 | ) | | $ | (11,139 | ) | $ | (69,104 | ) | | $ | (15,115 | ) |
| | | | | | |
Loss per common share - Basic | $ | (0.19 | ) | | $ | (0.14 | ) | $ | (0.88 | ) | | $ | (0.19 | ) |
| | | | | | |
Loss per common share - Diluted | $ | (0.19 | ) | | $ | (0.14 | ) | $ | (0.88 | ) | | $ | (0.19 | ) |
| | | | | | |
Weighted average number of shares outstanding—Basic | 78,311 |
| | 77,606 |
| 78,753 |
| | 78,311 |
|
| | | | | | |
Weighted average number of shares outstanding—Diluted | 78,311 |
| | 77,606 |
| 78,753 |
| | 78,311 |
|
See accompanying notes to condensed consolidated financial statements.
PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES (DEBTOR IN POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’STOCKHOLDERS’ EQUITY
(unaudited)
| | | As of and for the three months ended March 31, 2019 | As of and for the three months ended March 31, 2020 |
| Shares | | Amount | | Additional Paid In Capital | | Accumulated Deficit | | Total Shareholders’ Equity | Shares | | Amount | | Additional Paid In Capital | | Accumulated Deficit | | Total Stockholders’ Equity |
Common | | Treasury | Common | | Treasury | Common | | Treasury | Common | | Treasury |
| (in thousands) | (in thousands) |
Balance as of December 31, 2018 | 79,005 |
| | (790 | ) | | $ | 7,900 |
| | $ | (4,965 | ) | | $ | 550,548 |
| | $ | (388,425 | ) | | $ | 165,058 |
| |
Balance as of December 31, 2019 | | 80,079 |
| | (877 | ) | | $ | 8,008 |
| | $ | (5,090 | ) | | $ | 553,210 |
| | $ | (452,052 | ) | | $ | 104,076 |
|
Net loss | — |
| | — |
| | — |
| | — |
| | — |
| | (15,115 | ) | | (15,115 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | (69,104 | ) | | (69,104 | ) |
Purchase of treasury stock | — |
| | (84 | ) | | — |
| | (120 | ) | | — |
| | — |
| | (120 | ) | — |
| | (165 | ) | | — |
| | (7 | ) | | — |
| | — |
| | (7 | ) |
Cumulative-effect adjustment due to adoption of ASC Topic 842 | — |
| | — |
| | — |
| | — |
| | — |
| | 277 |
| | 277 |
| |
Issuance of restricted stock | 326 |
| | — |
| | 33 |
| | — |
| | (33 | ) | | — |
| | — |
| 542 |
| | — |
| | 54 |
| | — |
| | (54 | ) | | — |
| | — |
|
Stock-based compensation expense | — |
| | — |
| | — |
| | — |
| | 867 |
| | — |
| | 867 |
| — |
| | — |
| | — |
| | — |
| | 328 |
| | — |
| | 328 |
|
Balance as of March 31, 2019 | 79,331 |
| | (874 | ) | | $ | 7,933 |
| | $ | (5,085 | ) | | $ | 551,382 |
| | $ | (403,263 | ) | | $ | 150,967 |
| |
Balance as of March 31, 2020 | | 80,621 |
| | (1,042 | ) | | $ | 8,062 |
| | $ | (5,097 | ) | | $ | 553,484 |
| | $ | (521,156 | ) | | $ | 35,293 |
|
| | | As of and for the three months ended March 31, 2018 | As of and for the three months ended March 31, 2019 |
| Shares | | Amount | | Additional Paid In Capital | | Accumulated Deficit | | Total Shareholders’ Equity | Shares | | Amount | | Additional Paid In Capital | | Accumulated Deficit | | Total Stockholders’ Equity |
Common | | Treasury | Common | | Treasury | Common | | Treasury | Common | | Treasury |
| (in thousands) | (in thousands) |
Balance as of December 31, 2017 | 78,350 |
| | (631 | ) | | $ | 7,835 |
| | $ | (4,416 | ) | | $ | 546,158 |
| | $ | (339,481 | ) | | $ | 210,096 |
| |
Balance as of December 31, 2018 | | 79,004 |
| | (790 | ) | | $ | 7,900 |
| | $ | (4,965 | ) | | $ | 550,548 |
| | $ | (388,425 | ) | | $ | 165,058 |
|
Net loss | — |
| | — |
| | — |
| | — |
| | — |
| | (11,139 | ) | | (11,139 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | (15,115 | ) | | (15,115 | ) |
Purchase of treasury stock | — |
| | (28 | ) | | — |
| | (96 | ) | | — |
| | — |
| | (96 | ) | — |
| | (84 | ) | | — |
| | (120 | ) | | — |
| | — |
| | (120 | ) |
Cumulative-effect adjustment due to adoption of ASC Topic 606 | — |
| | — |
| | — |
| | — |
| | — |
| | 67 |
| | 67 |
| |
Cumulative-effect adjustment due to adoption of ASC Topic 842 | | — |
| | — |
| | — |
| | — |
| | — |
| | 277 |
| | 277 |
|
Issuance of restricted stock | 105 |
| | — |
| | 10 |
| | — |
| | (10 | ) | | — |
| | — |
| 326 |
| | — |
| | 33 |
| | — |
| | (33 | ) | | — |
| | — |
|
Stock-based compensation expense | — |
| | — |
| | — |
| | — |
| | 1,259 |
| | — |
| | 1,259 |
| — |
| | — |
| | — |
| | — |
| | 867 |
| | — |
| | 867 |
|
Balance as of March 31, 2018 | 78,455 |
| | (659 | ) | | $ | 7,845 |
| | $ | (4,512 | ) | | $ | 547,407 |
| | $ | (350,553 | ) | | $ | 200,187 |
| |
Balance as of March 31, 2019 | | 79,330 |
| | (874 | ) | | $ | 7,933 |
| | $ | (5,085 | ) | | $ | 551,382 |
| | $ | (403,263 | ) | | $ | 150,967 |
|
See accompanying notes to consolidated financial statements.
PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES (DEBTOR IN POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| | | Three months ended March 31, | Three months ended March 31, |
| 2019 | | 2018 | 2020 | | 2019 |
| (in thousands) | (in thousands) |
Cash flows from operating activities: | | | | | | |
Net loss | $ | (15,115 | ) | | $ | (11,139 | ) | $ | (69,104 | ) | | $ | (15,115 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | |
Depreciation | 22,653 |
| | 23,747 |
| 21,984 |
| | 22,653 |
|
Allowance for doubtful accounts, net of recoveries | 62 |
| | (52 | ) | 727 |
| | 62 |
|
Gain on dispositions of property and equipment, net | (1,075 | ) | | (335 | ) | (717 | ) | | (1,075 | ) |
Reorganization items | | 988 |
| | — |
|
Stock-based compensation expense | 867 |
| | 1,259 |
| 328 |
| | 867 |
|
Phantom stock compensation expense | 848 |
| | 430 |
| (3 | ) | | 848 |
|
Amortization of debt issuance costs and discount | 763 |
| | 707 |
| 1,219 |
| | 763 |
|
Impairment | 1,046 |
| | — |
| 17,853 |
| | 1,046 |
|
Deferred income taxes | 1,156 |
| | 911 |
| 1,115 |
| | 1,156 |
|
Change in other noncurrent assets | 699 |
| | (463 | ) | 690 |
| | 699 |
|
Change in other noncurrent liabilities | (20 | ) | | 1,414 |
| (562 | ) | | (20 | ) |
Changes in current assets and liabilities: | | | | | | |
Receivables | (17,488 | ) | | (3,296 | ) | 14,234 |
| | (17,488 | ) |
Inventory | (1,293 | ) | | (2,042 | ) | 834 |
| | (1,293 | ) |
Prepaid expenses and other current assets | (178 | ) | | 882 |
| (1,253 | ) | | (178 | ) |
Accounts payable | 2,339 |
| | 51 |
| (4,114 | ) | | 2,339 |
|
Deferred revenues | (64 | ) | | (108 | ) | (342 | ) | | (64 | ) |
Commitment premium | | 9,584 |
| | — |
|
Accrued expenses | (5,990 | ) | | (6,908 | ) | 1,148 |
| | (5,990 | ) |
Net cash provided by (used in) operating activities | (10,790 | ) | | 5,058 |
| |
Net cash used in operating activities | | (5,391 | ) | | (10,790 | ) |
| | | | | | |
Cash flows from investing activities: | | | | | | |
Purchases of property and equipment | (16,844 | ) | | (11,657 | ) | (7,503 | ) | | (16,844 | ) |
Proceeds from sale of property and equipment | 1,043 |
| | 1,283 |
| 727 |
| | 1,043 |
|
Proceeds from insurance recoveries | — |
| | 523 |
| |
Net cash used in investing activities | (15,801 | ) | | (9,851 | ) | (6,776 | ) | | (15,801 | ) |
| | | | | | |
Cash flows from financing activities: | | | | | | |
Debt issuance costs | — |
| | (33 | ) | |
Proceeds from DIP Facility | | 4,000 |
| | — |
|
DIP Facility issuance costs | | (988 | ) | | — |
|
Purchase of treasury stock | (120 | ) | | (96 | ) | (7 | ) | | (120 | ) |
Net cash used in financing activities | (120 | ) | | (129 | ) | |
Net cash provided by (used in) financing activities | | 3,005 |
| | (120 | ) |
| | | | | | |
Net decrease in cash, cash equivalents and restricted cash | (26,711 | ) | | (4,922 | ) | (9,162 | ) | | (26,711 | ) |
Beginning cash, cash equivalents and restricted cash | 54,564 |
| | 75,648 |
| 25,617 |
| | 54,564 |
|
Ending cash, cash equivalents and restricted cash | $ | 27,853 |
| | $ | 70,726 |
| $ | 16,455 |
| | $ | 27,853 |
|
| | | | | | |
Supplementary disclosure: | | | | | | |
Interest paid | $ | 13,887 |
| | $ | 13,515 |
| $ | 4,306 |
| | $ | 13,887 |
|
Income tax paid | $ | 1,013 |
| | $ | 658 |
| $ | 623 |
| | $ | 1,013 |
|
Reorganization items paid | | $ | 2,322 |
| | — |
|
Noncash investing and financing activity: | | | | | | |
Change in capital expenditure accruals | $ | 1,531 |
| | $ | 2,931 |
| $ | 358 |
| | $ | 1,531 |
|
See accompanying notes to condensed consolidated financial statements.
PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES (DEBTOR IN POSSESSION)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Business
Pioneer Energy Services Corp. provides land-based drilling services and production services to a diverse group of oil and gas exploration and production companies in the United States and internationally in Colombia.
Our drilling services business segments provide contract land drilling services through three domestic divisions which are located in the Marcellus/Utica, Permian Basin and Eagle Ford, and Bakken regions, and internationally in Colombia. We provide a comprehensive service offering which includes the drilling rig, crews, supplies, and most of the ancillary equipment needed to operate our drilling rigs. Our drilling rigs are equipped with 1,500 horsepower or greater drawworks, arefleet is 100% pad-capable and offeroffers the latest advancements in pad drilling. The following table summarizes our current rig fleet count and composition for each drilling services business segment:
|
| | | | | | | |
| Multi-well, Pad-capable |
| AC rigs | | SCR rigs | | Total |
Domestic drilling | 17 |
| | — |
| | 17 |
International drilling | — |
| | 8 |
| | 8 |
| | | | | 25 |
Our production services business segments provide a range of well, wireline and coiled tubing services to a diverse group of explorationproducers primarily in Texas and production companies, with our operations concentrated in the major domestic onshore oil and gas producing regions in the Gulf Coast, Mid-Continent and Rocky Mountain states.regions, as well as in North Dakota, Louisiana and Mississippi. As of March 31, 2019,2020, the fleet countcounts for each of our production services business segments arewere as follows:
| | | 550 HP | | 600 HP | | Total | 550 HP | | 600 HP | | Total |
Well servicing rigs, by horsepower (HP) rating | 113 | | 12 | | 125 |
| 111 | | 12 | | 123 |
| | | |
| | Total | | Total |
Wireline services units | Wireline services units | | 93 |
| Wireline services units | | 93 |
Coiled tubing services units | Coiled tubing services units | | 9 |
| Coiled tubing services units | | 9 |
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Pioneer Energy Services Corp. and our wholly ownedwholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of our management, all adjustments (consisting of normal, recurring accruals) necessary for a fair presentation have been included. We suggest that you read these unaudited condensed consolidated financial statements together with the consolidated financial statements and the related notes included in our annual report on Form 10-K for the year ended December 31, 2018.2019.
Chapter 11 Cases — On March 1, 2020 (the “Petition Date”), Pioneer and certain of our domestic subsidiaries (collectively, the “Debtors”) filed voluntary petitions (the “Bankruptcy Petitions”) for reorganization under title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). On May 11, 2020, the Bankruptcy Court confirmed the plan of reorganization that was filed with the Bankruptcy Court on March 2, 2020, and on May 29, 2020 (the “Effective Date”), the conditions to effectiveness of the plan were satisfied and we emerged from Chapter 11. See Note 2, Chapter 11 Cases and Subsequent Events,for more information.
Use of Estimates — In preparing the accompanying unaudited condensed consolidated financial statements, we make various estimates and assumptions that affect the amounts of assets and liabilities we report as of the dates of the balance sheets and income and expenses we report for the periods shown in the income statements and statements of cash flows. Our actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to our estimates of certain variable revenues and amortization periods of certain deferred
revenues and costs associated with drilling daywork contacts, our estimates of projected cash flows and fair values for impairment evaluations, our estimate of the valuation allowance for deferred tax assets, and our estimate of the liability relating to the self-insurance portion of our health and workers’ compensation insurance and our estimate of compensation related accruals.insurance.
Subsequent Events — In preparing the accompanying unaudited condensed consolidated financial statements, we have reviewed events that have occurred after March 31, 2019,2020, through the filing of this Form 10-Q, for inclusion as necessary. See Note 2, Chapter 11 Cases and Subsequent Events,for more information.
Reclassifications—Certain amounts in the unaudited condensed consolidated financial statements for the prior year periods have been reclassified to conform to the current year’s presentation.
Change in Accounting Principle and Recently Issued Accounting Standards
Changes to accounting principles generally accepted in the United States of America (“U.S. GAAP”) are established by the Financial Accounting Standards Board (FASB) in the form of Accounting Standards Updates (ASUs) to the FASB Accounting Standards Codification (ASC). We consider the applicability and impact of all ASUs. Any ASUs not listed below were assessed and we have determined to be either not applicablethat there are currently no new or are expected torecently adopted ASUs which we believe will have an immateriala material impact on our consolidated financial position and results of operations.
Leases. In February 2016, the FASB issued ASU No. 2016-02, Leases, which among other things, requires lessees to recognize substantially all leases on the balance sheet, with expense recognition that is similar to the former lease standard, and aligns the principles of lessor accounting with the principles of the FASB’s new revenue guidance in ASC Topic 606. In July 2018, the FASB issued ASU No. 2018-11, Leases: Targeted Improvements, which provides an option to apply the guidance prospectively, and provides a practical expedient allowing lessors to combine the lease and non-lease components of revenues where the revenue recognition pattern is the same and where the lease component, when accounted for separately, would be considered an operating lease. The practical expedient also allows a lessor to account for the combined lease and non-lease components under ASC Topic 606, Revenue from Contracts with Customers, when the non-lease component is the predominant element of the combined component.
As a lessor, we elected to apply the practical expedient which allows us to continue to recognize our revenues (both lease and service components) under ASC Topic 606, and continue to present them as one revenue stream in our unaudited condensed consolidated statements of operations. As a lessee, this standard primarily impacts our accounting for long-term real estate and office equipment leases, for which we recognized an operating lease asset and a corresponding operating lease liability on our unaudited condensed consolidated balance sheet of $9.8 million at the adoption date of January 1, 2019. For leases that commenced prior to adoption of ASC Topic 842, we elected to apply the package of practical expedients which allows us to carry forward the historical lease classification. The adoption of ASC Topic 842 also resulted in a cumulative effect adjustment of $0.3 million after applicable income taxes, related to the write off of previously unamortized deferred lease liabilities at the date of adoption. For more information about the accounting under ASC Topic 842, and disclosures under the new standard, see Note 3, Leases.
Additional Detail of Account Balances
Cash Equivalents and Restricted Cash Equivalents — CashWe had no cash equivalents at March 31, 2019 and2020. Cash equivalents at December 31, 20182019 were $17.7$8.9 million, and $40.6 million, respectively, consisting of investments in highly-liquid money-market mutual funds. Our restricted cash balance reflects the portion of net proceeds from the issuance of our senior secured term loan which are currently held in a restricted account until the completion of certain administrative tasks related to providing access rights to certain of our real property.
Other Receivables — Our other receivables primarily consist of recoverable taxes related to our international operations, as well as vendor rebates and net income tax receivables.
Prepaid Expenses and Other Current Assets — Prepaid expenses and other current assets include items such as insurance, rent deposits, software subscriptions, and other fees.fees, including professional fee deposits associated with the Chapter 11 Cases. We routinely expense these items in the normal course of business over the periods that we benefit from these expenses. Prepaid expenses and other current assets also include deferred mobilization costs for short-term drilling contracts.contracts and demobilization revenues recognized on drilling contracts expiring in the near term.
Other Noncurrent Assets — Other noncurrent assets consist of prepaid taxes in Colombia which are creditable against future income taxes, deferred mobilization costs on long-term drilling contracts, cash deposits related to the deductibles on our workers’ compensation insurance policies, the noncurrent portion of prepaid insurance premiums, and deferred compensation plan investments.
Other Accrued Expenses — Our other accrued expenses include accruals for items such as sales taxes, property taxes, withholding tax liabilityliabilities related to our international operations, and professional and other fees.fees, including those associated with the Chapter 11 Cases. We routinely expense these items in the normal course of business over the periods these expenses benefit. Our other accrued expenses also includes the current portion of the lease liability associated with our long-term operating leases.
Other Noncurrent Liabilities — Our other noncurrent liabilities consist of the noncurrent portion of deferred mobilization revenues and liabilities associated with our long-term compensation plans.
2. Chapter 11 Cases and Subsequent Events
Reorganization and Chapter 11 Proceedings
In an effort to achieve liquidity that would be sufficient to meet all of our commitments, we took a number of actions, including minimizing capital expenditures and reducing recurring expenses. However, we believed that even after taking these actions, we would not have sufficient liquidity to satisfy all of our future financial obligations, comply with our debt covenants, and execute our business plan. As a result, we filed a petition for reorganization under Chapter 11 of the Bankruptcy Code on March 1, 2020.
On March 1, 2020 (the “Petition Date”), Pioneer Energy Services Corp. (“Pioneer”) and its affiliates Pioneer Coiled Tubing Services, LLC, Pioneer Drilling Services, Ltd., Pioneer Fishing & Rental Services, LLC, Pioneer Global Holdings, Inc., Pioneer Production Services, Inc., Pioneer Services Holdings, LLC, Pioneer Well Services, LLC, Pioneer Wireline Services Holdings, Inc., Pioneer Wireline Services, LLC (collectively with Pioneer, the “Pioneer RSA Parties”) filed voluntary petitions (the “Bankruptcy Petitions”) for reorganization under title 11 of the United States Code (the “Bankruptcy Code”)
in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). The Chapter 11 proceedings were being jointly administered under the caption In re Pioneer Energy Services Corp. et al (the “Chapter 11 Cases”).
In connection with the Bankruptcy Petitions, the Pioneer RSA Parties entered into a restructuring support agreement (the “RSA”) with holders of approximately 99% in aggregate principal amount of our outstanding Term Loan (the “Consenting Term Lenders”) and holders of approximately 75% in aggregate principal amount of our Senior Notes (the “Consenting Noteholders” and together with the Consenting Term Lenders, the “Consenting Creditors”). Pursuant to the RSA, the Consenting Creditors and the Pioneer RSA Parties made certain customary commitments to each other, including the Consenting Noteholders committing to vote for, and the Consenting Creditors committing to support, the restructuring transactions (the “Restructuring”) to be effectuated through a plan of reorganization that incorporates the economic terms included in the RSA (the “Plan”). The Pioneer RSA Parties filed the Plan with the Bankruptcy Court on March 2, 2020.
After commencement of the Chapter 11 Cases, we continued to operate our businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.
On May 11, 2020, the Bankruptcy Court entered an order, Docket No. 331 (the “Confirmation Order”) confirming the Plan. On May 29, 2020 (the “Effective Date”) the conditions to effectiveness of the Plan were satisfied and we emerged from Chapter 11.
The commencement of the Chapter 11 Cases constituted an event of default that accelerated our obligations under our Senior Notes, the Prepetition ABL Facility, and Term Loan. Under the Bankruptcy Code, holders of our Senior Notes and the lenders under our Term Loan and the Prepetition ABL Facility were stayed from taking any action against us as a result of this event of default. On the Effective Date, all applicable agreements governing the obligations under the Term Loan, Senior Notes and Prepetition ABL Facility were terminated. The Term Loan and Prepetition ABL Facility were paid in full and all outstanding obligations under the Senior Notes were canceled in exchange for 94.25% of the proforma common equity (subject to the dilution from the Convertible Notes and new management incentive plan).
On the Effective Date, we entered into a $75 million senior secured asset-based revolving credit agreement (the “ABL Credit Facility”), and issued $129.8 million of aggregate principal amount of 5% convertible senior unsecured pay-in-kind notes due 2025 (the “Convertible Notes”) and $78.1 million of aggregate principal amount of floating rate senior secured notes due 2025 (the “Senior Secured Notes”).
Also on the Effective Date, by operation of the Plan, all agreements, instruments, and other documents evidencing, relating to or connected with any equity interests of the Company, including the existing common stock, issued and outstanding immediately prior to the Effective Date, and any rights of any holder in respect thereof, were deemed canceled, discharged and of no force or effect. Pursuant to the Plan, we issued a total of 1,049,804 shares of our new common stock, with approximately 94.25% of such new common stock being issued to holders of the Senior Notes outstanding immediately prior to the Effective Date. Holders of the existing common stock received an aggregate of 5.75% of the proforma common equity (subject to the dilution from the Convertible Notes and new management incentive plan), at a conversion rate of 0.0006849838 new shares for each existing share.
As part of the transactions undertaken pursuant to the Plan, we converted from a Texas corporation to a Delaware corporation, filed the Certificate of Incorporation of the Company with the office of the Secretary of State of the State of Delaware and adopted Amended and Restated Bylaws of the Company.
Backstop Commitment Agreement
Prior to filing the Plan, we entered into a separate backstop commitment agreement with the Consenting Noteholders and certain members of our senior management (the “Backstop Commitment Agreement”), pursuant to which the Consenting Noteholders and certain members of our senior management committed to backstop approximately $118 million and $1.8 million, respectively, of new convertible bonds to be issued in a rights offering. As consideration for this commitment, we committed to make an aggregate payment of $9.4 million and $0.1 million to the Consenting Noteholders and certain members of our senior management, respectively, in the form of additional new convertible bonds, or in cash if the Backstop Commitment Agreement was terminated under certain circumstances as forth therein. As a result, we incurred a liability and expense at the time we entered into the Backstop Commitment Agreement for the aggregate amount of $9.6 million (the “Commitment Premium”) which was recognized in our condensed consolidated financial statements as of and for the
three months ended March 31, 2020. The Commitment Premium was settled in conjunction with our emergence from Chapter 11 and the issuance of the Convertible Notes.
Debtor-in-Possession Financing
On February 28, 2020, we received commitments pursuant to the Commitment Letter from PNC Bank, N.A. for a $75 million asset-based revolving loan debtor-in-possession financing facility (the “DIP Facility”) and a $75 million asset-based revolving exit financing facility. On March 3, 2020, with the approval of the Bankruptcy Court, we entered into the DIP Facility and used the proceeds thereunder to refinance all outstanding letters of credit under the Prepetition ABL Facility in connection with the termination of the Prepetition ABL Facility and to pay fees and expenses in connection with the Chapter 11 proceedings and transaction and professional fees related thereto.
The DIP Facility provided financing with a 5-month maturity, bearing interest at a rate of LIBOR plus 200 basis points per annum, and contained customary covenants and events of default.
As of March 31, 2020, we had $4.0 million outstanding under our DIP Facility. The DIP Facility was terminated upon our emergence from the Chapter 11 Cases on May 29, 2020.
Post-Emergence Debt Instruments
ABL Credit Facility — On the Effective Date, pursuant to the terms of the Plan, we entered into a senior secured asset-based revolving credit agreement in an aggregate amount of $75 million (the “ABL Credit Facility”) among us and our domestic subsidiaries as borrowers (the “Borrowers”), the lenders party thereto and PNC Bank, National Association as administrative agent. Among other things, proceeds of loans under the ABL Credit Facility may be used to pay fees and expenses associated with the ABL Credit Facility and finance ongoing working capital and general corporate needs.
The maturity date of loans made under the ABL Credit Facility is the earliest of 90 days prior to maturity of the Senior Secured Notes or the Convertible Notes (both of which are described further below) and May 29, 2025. Borrowings under the ABL Credit Facility will bear interest at a rate of (i) the LIBOR rate, with a LIBOR rate floor of 0%, plus an applicable margin in the range of 175 to 225 basis points per annum, or (ii) the base rate plus an applicable margin in the range of 75 to 125 basis points per annum, in both cases based on the average excess availability, as defined in the ABL Credit Facility.
The ABL Credit Facility s guaranteed by the Borrowers and is secured by a first lien on the Borrowers’ accounts receivable and inventory, and the cash proceeds thereof, and a second lien on substantially all of the other assets and properties of the Borrowers.
The ABL Credit Facility limits our annual capital expenditures to 125% of the budget set forth in the projections for any fiscal year and provides that if our availability falls below $11.25 million (15% of the maximum revolver amount), we will be required to comply with a fixed charge coverage ratio of 1.0 to 1.0, all of which is defined in the ABL Credit Facility. As of May 31, 2020, we had no borrowings and approximately $7.1 million in outstanding letters of credit under the ABL Credit Facility and subject to the availability requirements in the ABL Credit Facility, based on eligible accounts receivable and inventory balances at May 31, 2020, availability under the ABL Credit Facility was $20.3 million, which our access to would be limited by our requirement to maintain 15% available or comply with a fixed charge coverage ratio, as described above.
Convertible Notes Indenture and Convertible Notes due 2025 — We entered into an indenture, dated as of the Effective Date, among the Company and Wilmington Trust, N.A., as trustee (the “Convertible Notes Indenture”), and issued $129.8 million aggregate principal amount of convertible senior unsecured pay-in-kind notes due 2025 thereunder (the “Convertible Notes”).
The Convertible Notes are general unsecured obligations which will mature on November 15, 2025, unless earlier accelerated, redeemed, converted or repurchased, and bear interest at a fixed rate of 5% per annum, which will be payable semi-annually in-kind in the form of an increase to the principal amount. The Convertible Notes are convertible at the option of the holders at any time into shares of our common stock and will convert mandatorily into our common stock at maturity; provided, however, that if the value of our common stock otherwise deliverable in connection with a mandatory conversion of a Convertible Note on the maturity date would be less than the principal amount of such Convertible Note plus accrued and unpaid interest, then the Convertible Note will instead convert into an amount of cash equal to the principal amount thereof
plus accrued and unpaid interest. The initial conversion rate is 75 shares of common stock per $1,000 principal amount of the Convertible Notes. The conversion rate is subject to customary anti-dilution adjustments.
If we undergo a “fundamental change” as defined in the Convertible Notes Indenture, subject to certain conditions, holders may require us to repurchase all or any portion of their Convertible Notes for cash at an amount equal to 100% of the principal amount of the Convertible Notes to be repurchased plus any accrued and unpaid interest. In the case of certain fundamental change events that constitute merger events (as defined in the Convertible Notes Indenture), we have a superseding right to cause the mandatory conversion of all or part of the Convertible Notes into a number of shares of common stock, per $1,000 principal amount of Convertible Notes, equal to the then-current conversion rate or the cash value of such number of shares of common stock (but not less than the principal amount).
Holders of Convertible Notes are entitled to vote on all matters on which holders of our common stock generally are entitled to vote (or, if any, to take action by written consent of the holders of our common stock), voting together as a single class together with the shares of our common stock and not as a separate class, on an as-converted basis, at any annual or special meeting of holders of our common stock and each holder is entitled to such number of votes as such holder would receive on an as-converted basis on the record date for such vote.
The Convertible Notes Indenture contains customary events of default and covenants that limit our ability and the ability of certain of our subsidiaries to incur, assume or guarantee additional indebtedness and create liens and enter into mergers or consolidations.
Senior Secured Notes Indenture and Senior Secured Notes due 2025 — We entered into an indenture, dated as of the Effective Date, among the Company, the subsidiary guarantors party thereto and Wilmington Trust, N.A., as trustee (the “Senior Secured Notes Indenture”), and issued $78.1 million aggregate principal amount of floating rate senior secured notes due 2025 (the “Senior Secured Notes”) thereunder. The Senior Secured Notes are guaranteed on a senior secured basis by our existing subsidiaries that also guarantee our obligations under the ABL Credit Facility (the “Guarantors”) on a full and unconditional basis and are secured by a second lien on the accounts receivable and inventory and a first lien on substantially all of the other assets and properties (including the cash proceeds thereof) of the Company and the Guarantors.
The Senior Secured Notes will mature on May 15, 2025 and interest will accrue at the rate of LIBOR plus 9.5% per annum, with a LIBOR rate floor of 1.5%, payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, commencing on August 15, 2020. With respect to any interest payment due on or prior to May 29, 2021, 50% of the interest will be payable in cash and 50% of the interest will be paid in-kind in the form of an increase to the principal amount; however, a majority in interest of the holders of the Senior Secured Notes may elect to have 100% of the interest due on or prior to May 29, 2021 payable in-kind. For all interest periods commencing on or after May 15, 2024, the interest rate for the Senior Secured Notes will be a rate equal to LIBOR plus 10.5%, with a LIBOR rate floor of 1.5%.
We may redeem all or part of the Senior Secured Notes on or after June 1, 2021 at redemption prices (expressed as percentages of the principal amount) equal to (i) 104% for the twelve-month period beginning on June 1, 2021; (ii) 102% for the twelve-month period beginning on June 1, 2022; (iii) 101% for the twelve-month period beginning on June 1, 2023 and (iii) 100% for the twelve-month period beginning June 1, 2024 and at any time thereafter, plus accrued and unpaid interest at the redemption date. Notwithstanding the foregoing, if a change of control (as defined in the Senior Secured Notes Indenture) occurs prior to June 1, 2022, we may elect to purchase all remaining outstanding Senior Secured Notes not tendered to us as described below at a redemption price equal to 103% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the applicable redemption date. If a change of control (as defined in the Senior Secured Notes Indenture) occurs, holders of the Senior Secured Notes will have the right to require us to repurchase all or any part of their Senior Secured Notes at a purchase price equal to 101% of the aggregate principal amount of the Senior Secured Notes repurchased, plus accrued and unpaid interest, if any, to the repurchase date.
The Senior Secured Notes Indenture contains a minimum asset coverage ratio of 1.5 to 1.0 as of any June 30 or December 31. The Senior Secured Notes Indenture provides for certain customary events of default and contains covenants that limit, among other things, our ability and the ability of certain of our subsidiaries, to incur, assume or guarantee additional indebtedness; pay dividends or distributions on capital stock or redeem or repurchase capital stock; make investments; repay junior debt; sell stock of its subsidiaries; transfer or sell assets; enter into sale and lease back transactions; create liens; enter into transactions with affiliates; and enter into mergers or consolidations.
Chapter 11 Accounting
The accompanying unaudited condensed consolidated financial statements contemplate our continuation as a going concern and have been prepared in accordance with FASB ASC Topic 852, Reorganizations.
Pre-petition restructuring charges — All expenses and losses incurred prior to the Petition Date which were related to the Chapter 11 proceedings are presented as pre-petition restructuring charges in our condensed consolidated statements of operations, including $9.6 million of expense incurred for the Commitment Premium pursuant to the Backstop Commitment Agreement.
Reorganization items — Any expenses, gains, and losses incurred subsequent to and as a direct result of the Chapter 11 proceedings are presented as reorganization items in our condensed consolidated statements of operations. Reorganization items consisted of the following for the three months ended March 31, 2020 (amounts in thousands):
|
| | | |
Legal and professional fees | $ | 6,150 |
|
DIP facility costs | 513 |
|
| $ | 6,663 |
|
Liabilities subject to compromise — Pre-petition unsecured and under-secured obligations that may be impacted by the Chapter 11 Cases have been classified as liabilities subject to compromise on our condensed consolidated balance sheet. As of March 31, 2020, liabilities subject to compromise consisted of the following (amounts in thousands):
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| | | |
Senior Notes | $ | 300,000 |
|
Unamortized debt issuance costs on Senior Notes | (2,003 | ) |
Accrued interest on Senior Notes | 8,422 |
|
| $ | 306,419 |
|
Contractual interest expense on our Senior Notes totaled $4.6 million for the three months ended March 31, 2020, which is in excess of the $3.1 million included in interest expense on our condensed consolidated statement of operations because we discontinued accruing interest on the Petition Date in accordance with the terms of the Plan and ASC Topic 852. See Note 6, Debt and DIP Financing for more information.
Fresh Start Accounting — We expect to adopt the fresh start accounting rules upon emergence from Chapter 11, in which case our assets and liabilities will be recorded at fair value as of the fresh start reporting date, which may differ materially from the recorded values of assets and liabilities on our consolidated balance sheets.
Debtor Financial Statements
Following are the consolidated financial statements of the entities included in the Chapter 11 Cases:
PIONEER ENERGY SERVICES CORP. DEBTOR ENTITIES (DEBTOR IN POSSESSION)
CONDENSED COMBINED BALANCE SHEET
(unaudited)
|
| | | |
| March 31, 2020 |
| (in thousands) |
ASSETS | |
Current assets: | |
Cash and cash equivalents | $ | 7,938 |
|
Restricted cash | 998 |
|
Receivables, net of allowance | 84,674 |
|
Intercompany receivables, net | 32,599 |
|
Inventory | 9,530 |
|
Assets held for sale | 1,825 |
|
Prepaid expenses and other current assets | 7,127 |
|
Total current assets | 144,691 |
|
Net property and equipment | 412,711 |
|
Investment in subsidiaries | 549,536 |
|
Deferred income taxes | 38,948 |
|
Operating lease assets | 7,441 |
|
Other noncurrent assets | 1,754 |
|
Total assets | $ | 1,155,081 |
|
| |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
Current liabilities: | |
Accounts payable | $ | 23,166 |
|
Deferred revenues | 428 |
|
Commitment premium | 9,584 |
|
Debtor in possession financing | 4,000 |
|
Accrued expenses | 48,480 |
|
Total current liabilities | 85,658 |
|
Long-term debt, less unamortized discount and debt issuance costs | 170,921 |
|
Noncurrent operating lease liabilities | 6,058 |
|
Deferred income taxes | 42,204 |
|
Other noncurrent liabilities | 383 |
|
Total liabilities not subject to compromise | 305,224 |
|
Liabilities subject to compromise | 306,419 |
|
Stockholders’ equity | 543,438 |
|
Total liabilities and stockholders’ equity | $ | 1,155,081 |
|
PIONEER ENERGY SERVICES CORP. DEBTOR ENTITIES (DEBTOR IN POSSESSION)
CONDENSED COMBINED STATEMENT OF OPERATIONS
(unaudited)
|
| | | |
| Three months ended March 31, 2020 |
| (in thousands) |
| |
Revenues | $ | 99,867 |
|
| |
Costs and expenses: | |
Operating costs | 79,885 |
|
Depreciation | 20,683 |
|
General and administrative | 14,155 |
|
Pre-petition restructuring charges | 17,074 |
|
Impairment | 17,853 |
|
Bad debt expense, net | 727 |
|
Gain on dispositions of property and equipment, net | (717 | ) |
Intercompany leasing | (1,215 | ) |
Total costs and expenses | 148,445 |
|
Loss from operations | (48,578 | ) |
| |
Other income (expense): | |
Equity in losses of subsidiaries | (31,726 | ) |
Interest expense, net of interest capitalized | (8,668 | ) |
Reorganization items | (6,663 | ) |
Other income (expense), net | 197 |
|
Total other expense, net | (46,860 | ) |
| |
Loss before income taxes | (95,438 | ) |
Income tax (expense) benefit | 1,116 |
|
Net loss | $ | (94,322 | ) |
PIONEER ENERGY SERVICES CORP. DEBTOR ENTITIES (DEBTOR IN POSSESSION)
CONDENSED COMBINED STATEMENT OF CASH FLOWS
(unaudited)
|
| | | |
| Three months ended March 31, 2020 |
| (in thousands) |
| |
Cash flows from operating activities | $ | (4,277 | ) |
| |
Cash flows from investing activities: | |
Purchases of property and equipment | (6,180 | ) |
Proceeds from sale of property and equipment | 876 |
|
| (5,304 | ) |
| |
Cash flows from financing activities: | |
Proceeds from DIP Facility | 4,000 |
|
DIP Facility issuance costs | (988 | ) |
Purchase of treasury stock | (7 | ) |
Intercompany contributions | 53 |
|
| 3,058 |
|
| |
Net decrease in cash, cash equivalents and restricted cash | (6,523 | ) |
Beginning cash, cash equivalents and restricted cash | 15,459 |
|
Ending cash, cash equivalents and restricted cash | $ | 8,936 |
|
Other Subsequent Events
In April 2020, we closed our coiled tubing operations and idled all our coiled tubing equipment, which were subsequently placed as held for sale.
3. Revenue from Contracts with Customers
Our production services business segments earn revenues for well servicing, wireline services and coiled tubing services pursuant to master services agreements based on purchase orders or other contractual arrangements with the client. Production services jobs are generally short-term (ranging in duration from several hours to less than 30 days) and are charged at current market rates for the labor, equipment and materials necessary to complete the job. Production services jobs are varied in nature but typically represent a single performance obligation, either for a particular job, a series of distinct jobs, or a period of time during which we stand ready to provide services as our client needs them. Revenue is recognized for these services over time, as the services are performed.
Our drilling services business segments earn revenues by drilling oil and gas wells for our clients under daywork contracts. Daywork contracts are comprehensive agreements under which we provide a comprehensive service offering, including the drilling rig, crew, supplies, and most of the ancillary equipment necessary to operate the rig. Contract modifications that extend the term of a dayrate contract are generally accounted for prospectively as a separate dayrate contract. We account for our services provided under daywork contracts as a single performance obligation comprised of a series of distinct time increments which are satisfied over time. Accordingly, dayrate revenues are recognized in the period during which the services are performed.
With most drilling contracts, we also receive payments contractually designated for the mobilization and demobilization of drilling rigs and other equipment to and from the client’s drill site. Revenues associated with the mobilization and demobilization of our drilling rigs to and from the client’s drill site do not relate to a distinct good or service and are recognized ratably over the related contract term.
The amount of demobilization revenue that we ultimately collect is dependent upon the specific contractual terms, most of which include provisions for reduced (or no) payment for demobilization when, among other things, the contract is renewed or extended with the same client, or when the rig is subsequently contracted with another client prior to the termination of the current contract. Since revenues associated with demobilization activity are typically variable, at each period end, they are estimated at the most likely amount, and constrained when the likelihood of a significant reversal is probable. Any change in the expected amount of demobilization revenue is accounted for with the net cumulative impact of the change in estimate recognized in the period during which the revenue estimate is revised.
The upfront costs that we incur to mobilize the drilling rig to our client’s initial drilling site are capitalized and recognized ratably over the term of the related contract, including any contracted renewal or extension periods, which is our estimate of the period during which we expect to benefit from the cost of mobilizing the rig. Costs associated with the final demobilization at the end of the contract term are expensed when incurred, when the demobilization activity is performed.
We also act as a principal for certain reimbursable services and auxiliary equipment provided by us to our clients, for which we incur costs and earn revenues, many of which are variable, or dependent upon the activity that is actually performed each day under the related contract. Accordingly, reimbursements that we receive for out-of-pocket expenses are recorded as revenues and the out-of-pocket expenses for which they relate are recorded as operating costs during the period to which they relate within the series of distinct time increments.
All of our revenues are recognized net of sales taxes, when applicable.
Contract Asset and Liability Balances and Contract Cost Assets
Contract asset and contract liability balances relate to demobilization and mobilization revenues, respectively. Demobilization revenue that we expect to receive is recognized ratably over the related contract term, but invoiced upon completion of the demobilization activity. Mobilization revenue, which is typically collected upon the completion of the initial mobilization activity, is deferred and recognized ratably over the related contract term. Contract asset and liability
balances are netted at the contract level, with the net current and noncurrent portions separately classified in our condensed consolidated balance sheets, and the resulting contract liabilities are referred to herein as “deferred revenues.” When demobilization revenues are recognized prior to the activity being performed, they are not yet billable, and the resulting contract assets are included in our other current assets in our unaudited condensed consolidated financial statements.
Contract cost assets represent the costs associated with the initial mobilization required in order to fulfill the contract, which are deferred and recognized ratably over the period during which we expect to benefit from the mobilization, or the period during which we expect to satisfy the performance obligations of the related contract. Contract cost assets are presented as either current or noncurrent, according to the duration of the original contract to which it relates, and referred to herein as “deferred costs.”
Our current and noncurrent deferred revenues, contract assets and deferred costs as of March 31, 20192020 and December 31, 20182019 were as follows (amounts in thousands):
| | | March 31, 2019 | | December 31, 2018 | March 31, 2020 | | December 31, 2019 |
Current deferred revenues | $ | 1,659 |
| | $ | 1,722 |
| $ | 997 |
| | $ | 1,339 |
|
Current deferred costs | 1,621 |
| | 1,543 |
| 591 |
| | 1,071 |
|
Current contract assets | | 795 |
| | — |
|
| | | | | | |
Noncurrent deferred revenues | $ | 428 |
| | $ | 437 |
| $ | — |
| | $ | 57 |
|
Noncurrent deferred costs | 676 |
| | 679 |
| 142 |
| | 267 |
|
The changes in deferred revenue and costcontract balances during the three months ended March 31, 20192020 are primarily related to increased deferred mobilization revenue and cost balances for the deployment of one international rig and two domestic rigs under new term contracts in 2019, mostly offset by the amortization of deferred revenues and costs during the period.period, partially offset by increases related to two rigs deployed under new contracts in 2020, and an increase in demobilization revenues recognized on contracts that are expected to expire or be terminated in the near term. Amortization of deferred revenues and costs during the three months ended March 31, 20192020 and 20182019 were as follows (amounts in thousands):
| | | Three months ended March 31, | Three months ended March 31, |
| 2019 | | 2018 | 2020 | | 2019 |
Amortization of deferred revenues | $ | 954 |
| | $ | 499 |
| $ | 1,613 |
| | $ | 954 |
|
Amortization of deferred costs | 986 |
| | 463 |
| 1,263 |
| | 986 |
|
In February 2019, onelate March 2020, rather than terminating their contracts with us, several of our domestic clients elected to early terminate their contract with ustemporarily stack the rigs and makeplace them on an upfront early termination payment based onextended standby for a per dayreduced revenue rate forand the remaining termoption to reactivate the rig through the remainder of the contract resultingterm.
4. Property and Equipment
Capital Expenditures — Our capital expenditure additions were $7.9 million and $18.4 million, including the impact of accruals for capital additions, during the three months ended March 31, 2020 and 2019, respectively. Capital additions during the three months ended March 31, 2020 primarily related to routine expenditures to maintain our fleets, while capital additions during the corresponding period also included the completion of construction on our 17th AC drilling rig which we deployed in $0.4March 2019, and various vehicle and ancillary equipment purchases and upgrades.
Gain/Loss on Disposition of Property — We recognized net gains of $0.7 million and $1.1 million during the three months ended March 31, 2020 and 2019, respectively, on the disposition or sale of revenues associatedvarious property and equipment, including drill pipe and collars and certain older and/or underutilized equipment.
Assets Held for Sale — We have various equipment designated as held for sale with the 34 days that were remaining under the contract term. We subsequently placed this rig with another client. Asvalues of $1.8 million and $3.4 million in aggregate as of March 31, 2020 and December 31, 2019, respectively, primarily consisting of real estate property for two wireline locations closed during 2019 that were sold in 2020, and the remaining equipment from two SCR drilling rigs which were dismantled for spare parts.
During the three months ended March 31, 2020 and 2019, we recognized impairment charges of $1.5 million and $1.0 million, respectively, to reduce the carrying values of assets which were classified as held for sale, to their estimated fair values, based on expected sales prices which are classified as Level 3 inputs as defined by ASC Topic 820, Fair Value Measurements and Disclosures.
Impairments — In accordance with ASC Topic 360, Property, Plant and Equipment, we monitor all but oneindicators of potential impairments. We evaluate for potential impairment of long-lived assets when indicators of impairment are present, which may include, among other things, significant adverse changes in industry trends (including revenue rates, utilization rates, oil and natural gas market prices, and industry rig counts). In performing an impairment evaluation, we estimate the future undiscounted net cash flows from the use and eventual disposition of the assets grouped at the lowest level that independent cash flows can be identified. We perform an impairment evaluation and estimate future undiscounted cash flows for each of our 25 rigsasset groups separately, which are earning under daywork contracts, 14our domestic drilling services, international drilling services, well servicing, wireline services and coiled tubing services segments. If the sum of the estimated future undiscounted net cash flows is less than the carrying amount of the asset group, then we determine the fair value of the asset group, and the amount of an impairment charge would be measured as the difference between the carrying amount and the fair value of the assets.
Due to the significant decline in industry conditions, commodity prices, and projected utilization of equipment, as well as the COVID-19 pandemic’s impact on our industry, our projected cash flows declined during the first quarter of 2020, and we performed recoverability testing on all our reporting units. As a result of this analysis, we incurred impairment charges of $16.4 million to reduce the carrying values of our coiled tubing assets to their estimated fair values. For all our other reporting units, excluding coiled tubing, we determined that the sum of the estimated future undiscounted net cash flows were in excess of the carrying amounts and that no impairment existed for these reporting units at March 31, 2020.
The assumptions we use in the evaluation for impairment are inherently uncertain and require management judgment. Although we believe the assumptions and estimates used in our impairment analysis are reasonable, different assumptions and estimates could materially impact the analysis and resulting conclusions. The most significant inputs used in our impairment analysis include the projected utilization and pricing of our services, as well as the estimated proceeds upon any future sale or disposal of the assets, all of which are domestic term contracts. Our international drilling contractsclassified as Level 3 inputs as defined by ASC Topic 820, Fair Value Measurements and Disclosures. If commodity prices decrease or remain at current levels for an extended period of time, or if the demand for any of our services decreases below what we are cancelable bycurrently projecting, our clients without penalty, althoughestimated cash flows may decrease and our estimates of the contracts require 15fair value of certain assets may decrease as well. If any of the foregoing were to 30 days notice and payment for demobilization services. The spot contracts for our domestic drilling rigs are also terminable by our client with 30 days notice, but typically do not include a required payment for demobilization services.occur, we could incur impairment charges on the related assets.
3.5. Leases
As a drilling and production services provider, we provide the drilling rigs and production services equipment which are necessary to fulfill our performance obligations and which are considered leases under ASU No. 2016-02, Leases, ((together with its amendments, herein referred to as “ASC Topic 842”). However, ASU No. 2018-11, Leases: Targeted Improvements, allows lessors to (i) combine the lease and non-lease components of revenues when the revenue recognition pattern is the same and when the lease component, when accounted for separately, would be considered an operating lease, and (ii) account for the combined lease and non-lease components under ASC Topic 606, Revenue from Contracts with Customers, when the non-lease component is the predominant element of the combined component. We elected to apply this expedient and therefore continue to recognize our revenues (both lease and service components) under ASC Topic 606, and continue to present them as one revenue stream in our unaudited condensed consolidated statements of operations.
As a lessee, we lease our corporate office headquarters in San Antonio, Texas, and we conduct our business operations through 2819 other regional offices located throughout the United States and internationally in Colombia. These operating locations typically include regional offices, storage and maintenance yards and employee housing sufficient to support our operations in the area. We lease most of these properties under non-cancelable term and month-to-month operating leases, many of which contain renewal options that can extend the lease term from onethree months to five years and some of which contain escalation clauses. We also lease various items of supplemental equipment, typically under cancelable short-term and very short term (less than 30 days) leases. Due to the nature of our business, any option to renew these short-term leases, and the options to extend certain of our long-term real estate leases, are generally not considered reasonably certain to be exercised. Therefore,
the periods covered by such optional periods are not included in the determination of the term of the lease, and the lease payments during these periods are similarly excluded from the calculation of operating lease asset and lease liability balances.
In accordance with ASC Topic 842, we recognize an operating lease asset and a corresponding operating lease liability for all our long-term leases, which include real estate and office equipment leases, for which we elected to combine, or not separate, the lease and non-lease components, and therefore, all fixed charges associated with non-lease components are included in the lease payments and the calculation of the operating lease asset and associated lease liability. The operating lease asset and operating lease liability are discounted at the rate which represents our secured incremental borrowing rate, as most of our leases do not provide an implicit rate, and which we estimate based on the rate in effect under our asset-based lending facility.
We recognize rent expense on a straight-line basis, except for certain variable expenses which are recognized when the variability is resolved, typically during the period in which they are paid. Variable lease payments typically include charges for property taxes and insurance, and some leases contain variable payments related to non-lease components, including common area maintenance and usage of office equipment (for example, copiers), which totaled approximately $0.3 million during the three months ended March 31, 2019. The following table summarizes our lease expense recognized, for the three months ending March 31, 2019, excluding variable lease costs (amounts in thousands):
| | | | Three months ended March 31, |
| | | | 2020 | | 2019 |
Long-term operating lease expense | $ | 842 |
| $ | 662 |
| | $ | 842 |
|
Short-term operating lease expense | $ | 3,403 |
| 3,526 |
| | 3,403 |
|
The following table summarizes the amount and timing of our obligations associated with our long-term operating leases (amounts in thousands):
| | | March 31, 2019 | | December 31, 2018 | March 31, 2020 | | December 31, 2019 |
Within 1 year | $ | 2,878 |
| | $ | 3,318 |
| $ | 2,413 |
| | $ | 2,496 |
|
In the second year | 2,045 |
| | 2,032 |
| 1,966 |
| | 1,933 |
|
In the third year | 1,761 |
| | 1,721 |
| 1,592 |
| | 1,447 |
|
In the fourth year | 1,355 |
| | 1,407 |
| 1,259 |
| | 1,117 |
|
In the fifth year | 1,007 |
| | 1,110 |
| 1,176 |
| | 912 |
|
Thereafter | 1,496 |
| | 1,738 |
| 1,079 |
| | 811 |
|
Total undiscounted lease obligations | $ | 10,542 |
| | $ | 11,326 |
| $ | 9,485 |
| | $ | 8,716 |
|
Impact of discounting | (1,098 | ) | | | (967 | ) | | (818 | ) |
Discounted value of operating lease obligations | $ | 9,444 |
| | | $ | 8,518 |
| | 7,898 |
|
| | | | | | |
Current operating lease liabilities | $ | 2,515 |
| | | $ | 2,084 |
| | 2,198 |
|
Noncurrent operating lease liabilities | 6,929 |
| | | 6,434 |
| | 5,700 |
|
| $ | 9,444 |
| | | $ | 8,518 |
| | 7,898 |
|
The following table summarizes the weighted-average remaining lease term and discount rate associated with our long-term operating leases:
|
| | |
| March 31, 2019 |
Weighted-average remaining lease term (in years) | 4.9 |
|
Weighted-average discount rate | 4.5 | % |
4. Property and Equipment
Capital Expenditures — Our capital expenditures were $18.4 million and $14.6 million during the three months ended March 31, 2019 and 2018, respectively. Capital expenditures during the three months ended March 31, 2019 primarily related to various upgrades and refurbishments of our drilling and production services fleets, the completion of construction on our 17th AC drilling rig which we deployed in March, and various vehicle and ancillary equipment purchases. Capital expenditures during the three months ended March 31, 2018 primarily related to the expansion of our wireline and coiled tubing fleets, upgrades and refurbishments to our international drilling rigs, and routine equipment and fleet maintenance.
At March 31, 2019, capital expenditures incurred for property and equipment not yet placed in service was $9.2 million, primarily related to capital projects to upgrade and refurbish certain components of our drilling rig fleet, support equipment for our coiled tubing unit fleet, and installments on two new wireline units on order at March 31, 2019, both of which were
received and placed in service in April. At December 31, 2018, property and equipment not yet placed in service was $19.6 million, primarily related to approximately $8.0 million of costs for the construction of a new-build drilling rig, various refurbishments and upgrades of drilling and production services equipment, and the purchase of other new ancillary equipment.
Gain/Loss on Disposition of Property — During the three months ended March 31, 2019, we recognized a net gain of $1.1 million on the disposition of various property2020, leased assets obtained in exchange for new operating lease liabilities totaled approximately $1.7 million.
6. Debt and equipment. During the three months ended March 31, 2018, we recognized a net gain of $0.3 million on the disposition of various property and equipment, including the sale of six wireline units and one drilling rig, which was previously held for sale.DIP Financing
Assets Held for Sale — AsThe commencement of March 31, 2019the Chapter 11 Cases constituted an event of default that accelerated our obligations under our Senior Notes, the Prepetition ABL Facility, and December 31, 2018,Term Loan. Under the Bankruptcy Code, holders of our condensed consolidated balance sheet reflects assets held for saleSenior Notes and the lenders under our Term Loan and the Prepetition ABL Facility were stayed from taking any action against us as a result of $4.8 million and $3.6 million, respectively, which includes the fair valuethis event of one domestic SCR drilling rig and related spare equipment and three coiled tubing units. Additionally, our March 31, 2019 assets held for sale also include the fair value of a building for one closed wireline location, 12 wireline units and spare coiled tubing equipment which were designated as held for sale in the first quarter of 2019.default.
DuringOn the three months ended March 31, 2019, we recognized impairment chargesEffective Date, all applicable agreements governing the obligations under the Term Loan, Senior Notes and Prepetition ABL Facility were terminated. The Term Loan and Prepetition ABL Facility were paid in full and all outstanding obligations under the Senior Notes were canceled in exchange for 94.25% of $1.0 million to reduce the carrying values of assets which were classified as held for sale, to their estimated fair values, based on expected sales prices which are classified as Level 3 inputs as defined by ASC Topic 820,proforma common equity. For additional information concerning our bankruptcy proceedings under Chapter 11, see Note 2, Fair Value MeasurementsChapter 11 Cases and DisclosuresSubsequent Events.
Impairments — In accordance with ASC Topic 360, Property, Plant and Equipment, we monitor all indicators of potential impairments, and concluded there are no triggers present that require impairment testing as of March 31, 2019, other than the placement of certain assets as held for sale.
We evaluate for potential impairment of long-lived assets when indicators of impairment are present, which may include, among other things, significant adverse changes in industry trends (including revenue rates, utilization rates, oil and natural gas market prices, and industry rig counts). In performing an impairment evaluation, we estimate the future undiscounted net cash flows from the use and eventual disposition of the assets grouped at the lowest level that independent cash flows can be identified. We perform an impairment evaluation and estimate future undiscounted cash flows for each of our reporting units separately, which are our domestic drilling services, international drilling services, well servicing, wireline services and coiled tubing services segments. If the sum of the estimated future undiscounted net cash flows is less than the carrying amount of the asset group, then we determine the fair value of the asset group, and the amount of an impairment charge would be measured as the difference between the carrying amount and the fair value of the assets.
The most significant inputs used in our impairment analysis include the projected utilization and pricing of our services, as well as the estimated proceeds upon any future sale or disposal of the assets, all of which are classified as Level 3 inputs as defined by ASC Topic 820, Fair Value Measurements and Disclosures. The assumptions we use in the evaluation for impairment are inherently uncertain and require management judgment. Although we believe the assumptions and estimates used in our impairment analysis are reasonable, different assumptions and estimates could materially impact the analysis and resulting conclusions.
| |
5. | Valuation Allowances on Deferred Tax Assets |
As of March 31, 2019,2020, our outstanding debt obligations were as follows:
|
| | | |
| March 31, 2020 |
Debtor in possession financing | $ | 4,000 |
|
| |
Term Loan | $ | 175,000 |
|
Less unamortized discount on Term Loan | (1,656 | ) |
Less unamortized debt issuance costs on Term Loan | (2,423 | ) |
Long-term debt, less unamortized discount and debt issuance costs | $ | 170,921 |
|
| |
Senior Notes | $ | 300,000 |
|
Unamortized debt issuance costs on Senior Notes | (2,003 | ) |
Accrued interest on Senior Notes | 8,422 |
|
Liabilities subject to compromise | $ | 306,419 |
|
Debtor-in-Possession Financing
On February 28, 2020, we had $98.1received commitments pursuant to the Commitment Letter from PNC Bank, N.A. for a $75 million asset-based revolving loan debtor-in-possession financing facility and $9.3a $75 million of deferred tax assets related to domestic and foreign net operating losses, respectively, that are available to reduce future taxable income. Our domestic net operating losses will begin to expire in 2030, while losses generated after 2017 are carried forward indefinitely but are limited in usage to 80% of taxable income. The majority of our foreign net operating losses are carried forward indefinitely, but losses generated after 2016 are carried forward for 12 years and will begin to expire in 2029.
We provide a valuation allowance when it is more likely than not that some portionasset-based revolving exit financing facility. On March 3, 2020, with the approval of the deferred tax assets will not be realized. As result, asBankruptcy Court, we entered into the DIP Facility and used the proceeds thereunder to refinance all outstanding letters of March 31, 2019, we had a valuation allowance of $66.4 million that offset a portion of our domestic and foreign net deferred tax assets.
Since 2017, market conditions and operating results for our Colombian operations have improved, and if they continue to improve, then we may determine that there is sufficient evidence that future taxable income will be generated to utilize our foreign net operating losses which would resultcredit under the Prepetition ABL Facility in connection with the reversaltermination of the valuation allowance relatingPrepetition ABL Facility and to our foreign deferred tax assets.pay fees and expenses in connection with the Chapter 11 proceedings and transaction and professional fees related thereto.
6. Debt
Our debt consistsThe DIP Facility provided financing with a 5-month maturity, bearing interest at a rate of LIBOR plus 200 basis points per annum, and contained customary covenants and events of default. The DIP Facility was terminated upon our emergence from the following (amountsChapter 11 Cases on May 29, 2020. Upon emergence from the Chapter 11 Cases, we entered into a new ABL Credit Facility, as described in thousands):
|
| | | | | | | |
| March 31, 2019 | | December 31, 2018 |
Senior secured term loan | $ | 175,000 |
| | $ | 175,000 |
|
Senior notes | 300,000 |
| | 300,000 |
|
| 475,000 |
| | 475,000 |
|
Less unamortized discount (based on imputed interest rate of 10.46%) | (2,475 | ) | | (2,668 | ) |
Less unamortized debt issuance costs | (7,210 | ) | | (7,780 | ) |
| $ | 465,315 |
| | $ | 464,552 |
|
more detail in Note 2, Chapter 11 Cases and Subsequent Events.Senior Secured Term Loan - Not Subject to Compromise
Our senior secured term loan (the “Term Loan”) entered into on November 8,in 2017 provided for one drawing in the amount of $175 million, net of a 2% original issue discount. Proceeds from the issuance of the Term Loan were used to repay the entire outstanding balance under our previous credit facility, plus fees and accrued and unpaid interest, as well as the fees and expenses associated with entering into the Term Loan and Prepetition ABL Facility, which is further described below.Facility. The remainder of the proceeds are available to bewere used for other general corporate purposes.
The Term Loan is not subject to amortization payments of principal. Interest on the principal amount accruesaccrued at the LIBOR rate or the base rate as defined in the agreement, at our option, plus an applicable margin of 7.75% and 6.75%, respectively. The Term Loan iswas set to mature on November 8, 2022, or earlier, subject to certain circumstances as described in the agreement, and including an earlier maturity date if the outstanding balance of the Senior Notes exceeds $15.0 million on December 14, 2021, at which time the Term Loan would then mature. However, the Term Loan may be prepaid, at our option, at any time, in whole or in part, subject to a minimum of $5 million, and subject to a declining call premium as defined in the agreement.
The Term Loan contains a financial covenant requiring the ratio of (i) the net orderly liquidation value of our fixed assets (based on appraisals obtained as required by our lenders), on a consolidated basis, in which the lenders under the Term Loan maintain a first priority security interest, plus proceeds of asset dispositions not required to be used to effect a prepayment of the Term Loan to (ii) the outstanding principal amount of the Term Loan, to be at least equal to 1.50 to 1.00 as of any June 30 or December 31 of any calendar year through maturity.
The Term Loan contains customary mandatory prepayments from the proceeds of certain transactions including certain asset dispositions and debt issuances, and has additional customary restrictions that, among other things, and subject to certain exceptions, limit our ability to:
incur or permit liens on assets;
make investments and acquisitions;
consolidate or merge with another company;
engage in asset sales; and
pay dividends or make distributions.
In addition, the Term Loan contains customary events of default, upon the occurrence and during the continuation of any of which the applicable margin would increase by 2% per year, including without limitation:
payment defaults;
covenant defaults;
material breaches of representations or warranties;
event of default under, or acceleration of, other material indebtedness;
bankruptcy or insolvency;
material judgments against us;
failure of any security document supporting the Term Loan; and
change of control.
Our obligations under the Term Loan arewere guaranteed by our wholly-owned domestic subsidiaries, and are secured by substantially all of our domestic assets, in each case, subject to certain exceptions and permitted liens.
Prepetition Asset-based Lending Facility
In addition to enteringAt the same time as we entered into the Term Loan on November 8,in 2017, we also entered into a senior secured revolving asset-based credit facility (the “ABL“Prepetition ABL Facility”) providingwhich provided for borrowings in the aggregate principal amount of up to $75 million, subject to a borrowing base and including a $30 million sub-limit for letters of credit. The ABL Facility bears interest, at our option, at the LIBOR rate or the base rate as defined in the ABL Facility, plus an applicable margin ranging from 1.75% to 3.25%, based on average availability on the ABL Facility. The ABL Facility requires a commitment fee due monthly based on the average monthly unused amount of the commitments of the lenders, a fronting fee due for each letter of credit issued, and a monthly letter of credit fee due based on the average undrawn amount of letters of credit outstanding during such period. The ABL Facility is generally set to mature 90 days prior to the maturity of the Term Loan, subject to certain circumstances, including the future repayment, extinguishment or refinancing of our Term Loan and/or Senior Notes prior to their respective maturity dates. Availability under the ABL Facility is determined by reference to a borrowing base as defined in the agreement, generally comprised of a percentage of our accounts receivable and inventory.
We have not drawn upon the ABL Facility to date. As of March 31, 2019,2020, we had $9.7 million in committed letters of credit, which, after borrowing base limitations, resulted in borrowing availability of $58.7 million. Borrowings availableno borrowings outstanding under the Prepetition ABL Facility. As a part of the Chapter 11 process, the Prepetition ABL Facility are available for general corporate purposes,was terminated at the Petition Date and there are no limitations on our ability to access the borrowing capacity provided there is no default and compliance with the covenants under the ABL Facility is maintained. Additionally, if our availability under the ABL Facility is less than 15% of the maximum amount (or $11.25 million), we are required to maintain a minimum fixed charge coverage ratio, as definedall remaining unamortized debt issuance costs were written off in the ABL Facility, of at least 1.00 to 1.00, measured on a trailing 12 month basis.
The ABL Facility also contains customary restrictive covenants which, subject to certain exceptions, limit, among other things, our ability to:
declare dividends and make other distributions;
issue or sell certain equity interests;
optionally prepay, redeem or repurchase certain of our subordinated indebtedness;
make loans or investments (including acquisitions);
incur additional indebtedness or modify the terms of permitted indebtedness;
change our business or the business of our subsidiaries;
merge, consolidate, reorganize, recapitalize, or reclassify our equity interests;
enter into certain types of transactions with affiliates.
Our obligations under the ABL Facility are guaranteed by us and our domestic subsidiaries, subject to certain exceptions, and are secured by (i) a first-priority perfected security interest in all inventory and cash, and (ii) a second-priority perfected security in substantially all of our tangible and intangible assets, in each case, subject to certain exceptions and permitted liens.March 2020.
Senior Notes - Subject to Compromise
In 2014, we issued $300 million of unregistered senior notes at face value, with a coupon interest rate of 6.125% that arewere due in 2022 (the “Senior Notes”). The Senior Notes willwere set to mature on March 15, 2022 with interest due semi-annually in arrears on March 15 and September 15 of each year. We have the option to redeem the Senior Notes, in whole or in part, in each case at the redemption price specified in the Indenture dated March 18, 2014 (the “Indenture”) plus any accrued and unpaid interest and any additional interest (as defined in the Indenture) thereon to the date of redemption.
In accordance with a registration rights agreement with the holders of our Senior Notes, we filed an exchange offer registration statement on Form S-4 with the Securities and Exchange Commission that became effective on October 2, 2014. The exchange offer registration statement enabled the holders of our Senior Notes to exchange their senior notes for publicly registered notes with substantially identical terms. References to the “Senior Notes” herein include the senior notes issued in the exchange offer.
If we experience a change of control (as defined in the Indenture), we will be required to make an offer to each holder of the Senior Notes to repurchase all or any part of the Senior Notes at a purchase price equal to 101% of the principal amount of each Senior Note, plus accrued and unpaid interest, if any, to the date of repurchase. If we engage in certain asset sales, within 365 days of such sale we will be required to use the net cash proceeds from such sale, to the extent we do not reinvest those proceeds in our business, to make an offer to repurchase the Senior Notes at a price equal to 100% of the principal amount of each Senior Note, plus accrued and unpaid interest to the repurchase date.
The Indenture, among other things, limits us and certain of our subsidiaries, subject to certain exceptions, in our ability to:
pay dividends on stock, repurchase stock, redeem subordinated indebtedness or make other restricted payments and investments;
incur, assume or guarantee additional indebtedness or issue preferred or disqualified stock;
create liens on our or their assets;
enter into sale and leaseback transactions;
borrow, pay dividends, or transfer other assets from certain of our subsidiaries;
consolidate with or merge with or into, or sell all or substantially all of our properties to any other person;
enter into transactions with affiliates; and
enter into new lines of business.
The Senior Notes are not subject to any sinking fund requirements. The Senior Notes arewere fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by certain of our existing domestic subsidiaries and by certain of our future domestic subsidiaries. (See Note 1213, Guarantor/Non-Guarantor Condensed ConsolidatedConsolidating Financial Statements.)
Debt Issuance Costs and Original Issue Discount
Costs incurred in connection withAs a result of the issuance of our Senior Notes were capitalized and are being amortized using the effective interest method over the term ofChapter 11 Cases, the Senior Notes which matureceased accruing interest as of the Petition Date, in March 2022. The original issue discount and costs incurred in connectionaccordance with the issuance of the Term Loan were capitalized and are being amortized using the effective interest method over the expected term of the agreement. Costs incurred in connection with the ABL Facility were capitalized and are being amortized using the straight-line method over the expected term of the agreement.Plan.
| |
7. | Fair Value of Financial InstrumentsValuation Allowances on Deferred Tax Assets and Tax Legislation Developments |
Our deferred tax assets related to net operating losses, which are available to reduce future taxable income, consist of the following (amounts in thousands):
|
| | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Domestic net operating loss carryforward | $ | 110,167 |
| | $ | 102,827 |
|
Foreign net operating loss carryforward | 5,826 |
| | 8,007 |
|
We provide a valuation allowance when it is more likely than not that some portion of the deferred tax assets will not be realized. As result, as of March 31, 2020 and December 31, 2019, we had valuation allowances of $68.5 million and $59.8 million that offset a portion of our domestic net deferred tax assets.
The majority of our domestic net operating losses will begin to expire in 2030, while losses generated after 2017 are carried forward indefinitely but are limited in usage to 80% of taxable income beginning in 2021. The majority of our foreign net operating losses are carried forward indefinitely, but losses generated after 2016 are carried forward for 12 years and will begin to expire in 2029. Upon our emergence from Chapter 11 on May 29, 2020, we underwent an ownership change, as defined in the U.S. Internal Revenue Code, which we expect will result in future annual limitations on the usage of our domestic net operating losses.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act contains numerous corporate income tax provisions, some of which impact our calculation of income taxes, including providing for the carryback of certain net operating losses, modifications to the net interest deduction limitations, refundable payroll tax credits, and deferment of employer social security payments. However, the provisions did not have a material impact on our financial statements for the three months ended March 31, 2020.
8. Fair Value of Financial Instruments
The FASB’s Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures, defines fair value and provides a hierarchal framework associated with the level of subjectivity used in measuring assets and liabilities at fair value. Our financial instruments consist primarily of cash and cash equivalents, trade and other receivables, trade payables, phantom stock unit awards, borrowings under the DIP Facility and long-term debt.
The carrying value of cash and cash equivalents, trade and other receivables, and trade payables and borrowings under the DIP Facility are considered to be representative of their respective fair values due to the short-term nature of these instruments. At March 31, 2019 and December 31, 2018, the aggregate estimated fair value of our phantom stock unit awards was $10.3 million and $5.1 million, respectively, for which the vested portion recognized as a liability in our condensed consolidated balance sheets was $4.5 million and $3.6 million, respectively. The phantom stock unit awards are classified as liability awards and the measurement ofare carried at fair value for these awards, are described in more detail in Note 9,accordance with ASC Topic 718, Stock-Based Compensation Plans.Compensation—Stock Compensation.
The fair value of ourOur Senior Notes is estimated based on recentare publicly registered and traded securities with observable market prices, for our debt instruments, which are defined by ASC Topic 820 as Level 2 inputs. The fair valueHowever, as a result of the Chapter 11 Cases, there was minimal trading of our Senior Notes subsequent to the Petition Date. On the Effective Date, the Term Loan is based on estimated market pricingwas repaid in full and all outstanding obligations under the Senior Notes were canceled in exchange for our debt instrument, which is defined by ASC Topic 820 as using Level 3 inputs which are unobservable and therefore more likely to be affected by changes in assumptions. The following table presents supplemental fair value information and carrying value for our debt, net94.25% of discount and debt issuance costs (amounts in thousands):the proforma common equity.
|
| | | | | | | | | | | | | | | | | |
| | | March 31, 2019 | | December 31, 2018 |
| Hierarchy Level | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Senior notes | 2 | | $ | 297,198 |
| | $ | 187,500 |
| | $ | 296,988 |
| | $ | 186,750 |
|
Senior secured term loan | 3 | | 168,117 |
| | $ | 175,875 |
| | 167,564 |
| | 175,875 |
|
| | | $ | 465,315 |
| | $ | 363,375 |
| | $ | 464,552 |
| | $ | 362,625 |
|
9. Earnings (Loss) Per Common Share
| |
8. | Earnings (Loss) Per Common Share |
The following table presents a reconciliation of the numerators and denominators of the basic earnings per share and diluted earnings per share computations (amounts in thousands, except per share data):
| | | Three months ended March 31, | Three months ended March 31, |
| 2019 | | 2018 | 2020 | | 2019 |
Numerator (both basic and diluted): | | | | | | |
Net loss | $ | (15,115 | ) | | $ | (11,139 | ) | $ | (69,104 | ) | | $ | (15,115 | ) |
Denominator: | | | | | | |
Weighted-average shares (denominator for basic earnings (loss) per share) | 78,311 |
| | 77,606 |
| 78,753 |
| | 78,311 |
|
Dilutive effect of outstanding stock options, restricted stock and restricted stock unit awards | — |
| | — |
| — |
| | — |
|
Denominator for diluted earnings (loss) per share | 78,311 |
| | 77,606 |
| 78,753 |
| | 78,311 |
|
Loss per common share - Basic | $ | (0.19 | ) | | $ | (0.14 | ) | $ | (0.88 | ) | | $ | (0.19 | ) |
Loss per common share - Diluted | $ | (0.19 | ) | | $ | (0.14 | ) | $ | (0.88 | ) | | $ | (0.19 | ) |
Potentially dilutive securities excluded as anti-dilutive | 4,189 |
| | 5,621 |
| 4,794 |
| | 4,189 |
|
| |
9. | Stock-Based Compensation Plans
|
We grant10. Stock-Based Compensation Plans
As of March 31, 2020, we had outstanding stock option and restricted stock awards with vesting based on time of service conditions. We grantconditions; restricted stock unit awards with vesting based on time of service conditions, and in certain cases, subject to performance and market conditions. We grantconditions; and phantom stock unit awards with vesting based on time of service, performance and market conditions, which are classified as liability awards under ASC Topic 718, Compensation—Stock Compensation since we expectgranted these awards with the expectation to settle the awardsthem in cash when they becomeonce vested. However, we temporarily discontinued the grants of any new equity-based incentive awards until after our emergence from the Chapter 11 Cases.
We recognize compensation cost for our stock-based compensation awards based on the fair value estimated in accordance with ASC Topic 718, Compensation—Stock Compensation, and we recognize forfeitures when they occur. For our awards with graded vesting, we recognize compensation expense on a straight-line basis over the service period for each separately vesting portion of the award as if the award was, in substance, multiple awards. The following table summarizes the stock-based compensation expense recognized, by award type, and the compensation expense (benefit) recognized for phantom stock unit awards during the three months ended March 31, 20192020 and 20182019 (amounts in thousands):
| | | Three months ended March 31, | Three months ended March 31, |
| 2019 | | 2018 | 2020 | | 2019 |
Stock option awards | $ | 51 |
| | $ | 142 |
| $ | 9 |
| | $ | 51 |
|
Restricted stock awards | 114 |
| | 113 |
| 133 |
| | 114 |
|
Restricted stock unit awards | 702 |
| | 1,004 |
| 186 |
| | 702 |
|
| $ | 867 |
| | $ | 1,259 |
| $ | 328 |
| | $ | 867 |
|
Phantom stock unit awards | $ | 848 |
| | $ | 430 |
| $ | (3 | ) | | $ | 848 |
|
Stock Option Awards
We grant stock optionUpon our emergence from the Chapter 11 Cases in May 2020, all unvested equity-based incentive compensation awards which generally become exercisable over a three-year periodvested in full, and expire ten years after the date of grant. Our stock-based compensation plans require that all stock option awards have an exercise price that is not less than the fair market value of our common stock on the date of grant. We issuesettled in shares of our new post-emergence common stock when vested stock optionstock.
Pursuant to the terms of the Plan, we adopted the Pioneer Energy Services Corp. 2020 Employee Incentive Plan (the “Employee Incentive Plan”) providing for the issuance from time to time, as approved by the Company’s new board of directors, of equity and equity-based awards are exercised. We estimatewith respect to the fair valueCommon Stock in the aggregate and on a fully-diluted basis, of each option grantup to 1,198,074 shares of Common Stock, representing approximately 114% of the shares of Common Stock issued on the dateEffective Date, but representing 10% of grant using a Black-Scholes option pricing model. We did not grant any stock option awards during the three months ended March 31, 2019 or 2018.
Restrictedshares of Common Stock and Restricted Stock Unit Awards
We grant restricted stock awards that vest over a one-year period with a fair value basedissued on the closing priceEffective Date on a fully-diluted basis. The shares of our common stockCommon Stock issued under the Employee Incentive Plan in the future will dilute all of the shares of Common Stock issued on the dateEffective Date and all shares of Common Stock issued upon conversion of the grant. When restricted stock awards are granted, or when restricted stock unit awards are converted to restricted stock, shares of our common stock are considered issued, but subject to certain restrictions.
We grant restricted stock unit awards with vesting based on time of service conditions only (“time-based RSUs”), and we grant restricted stock unit awards with vesting based on time of service, which are also subject to performance and market conditions (“performance-based RSUs”). Shares of our common stock are issued to recipients of restricted stock units only when they have satisfied the applicable vesting conditions.
There were no restricted stock or performance-based restricted stock unit awards granted during the three months ended March 31, 2019 or 2018. The following table summarizes the number and weighted-average grant-date fair value of the restricted stock unit awards granted during the three months ended March 31, 2019 and 2018:
|
| | | | | | | |
| Three months ended March 31, |
| 2019 | | 2018 |
Time-based RSUs granted | 870,648 |
| | 788,377 |
|
Weighted-average grant-date fair value (per unit) | $ | 1.38 |
| | $ | 3.85 |
|
Our time-based RSUs generally vest over a three-year period, with fair values based on the closing price of our common stock on the date of grant.Our performance-based RSUs cliff vest at 39 months from the date of grant and are granted at a target number of issuable shares, for which the final number of shares of common stock is adjusted based on our actual achievement levels that are measured against predetermined performance conditions. The number of shares of common stock awarded will be based upon the Company’s achievement in certain performance conditions, as compared to a predefined peer group, over the performance period, generally three years. As of March 31, 2019, we estimate that the achievement level for our outstanding performance-based RSUs granted in 2017 will be approximately 100% of the predetermined performance conditions.
Phantom Stock Unit Awards
We grant phantom stock unit awards with vesting based on time of service, performance and market conditions. Time-based phantom stock unit awards, which were granted in 2019, vest annually in thirds over a three-year vesting period. Performance-based phantom stock unit awards, which were granted in 2016, 2018 and 2019, cliff-vest after 39 months from the date of grant, with vesting based on time of service, performance and market conditions. The number of performance-based units ultimately awarded will be based upon the Company’s achievement in certain performance conditions, as compared to a predefined peer group, over the respective three-year performance periods. Each unit awarded will entitle the employee to a cash payment equal to the stock price of our common stock on the date of vesting, subject to an applicable maximum payout feature that is based on a multiple of the grant date stock price.
The fair value of time-based phantom stock unit awards is measured using a Black-Scholes pricing model and the fair value of performance-based phantom stock unit awards is measured using a Monte Carlo simulation model, with inputs that are defined as Level 3 inputs under ASC Topic 820, Fair Value Measurements and Disclosures.
The following table summarizes the number, weighted-average grant-date fair value, and applicable maximum cash value of the phantom stock unit awards granted during the three months ended March 31, 2019 and 2018:
|
| | | | | | | |
| Three months ended March 31, |
| 2019 | | 2018 |
Performance-based: | | | |
Phantom stock unit awards granted | 2,467,776 |
| | 1,188,216 |
|
Weighted-average grant-date fair value (per unit) | $ | 1.10 |
| | $ | 3.06 |
|
Maximum cash value per unit (three times the grant date stock price) | $ | 4.62 |
| | $ | 9.66 |
|
Time-based: | | | |
Phantom stock unit awards granted | 810,648 |
| | — |
|
Weighted-average grant-date fair value (per unit) | $ | 1.17 |
| | $ | — |
|
Maximum cash value per unit (three times the grant date stock price) | $ | 4.62 |
| | $ | — |
|
These awards are classified as liability awards under ASC Topic 718, Compensation—Stock Compensation, because we expect to settle the awards in cash when they vest, and are remeasured at fair value at the end of each reporting period until they vest. The change in fair value is recognized as a current period compensation expense in our condensed consolidated statements of operations. Therefore, changes in the inputs used to measure fair value can result in volatility in our compensation expense. This volatility increases as the phantom stock awards approach the vesting date. We estimate that a hypothetical increase of $1 in the market price of our common stock, which was $1.77 as of March 31, 2019, if all other inputs were unchanged, would result in an increase in cumulative compensation expense of $0.6 million, which represents the hypothetical increase in fair value of the liability for the 2018 and 2019 phantom stock unit awards. The maximum payout feature of these awards would limit this volatility if the stock price exceeds the maximum payout threshold. As of March 31, 2019, we estimate the weighted-average achievement level for our outstanding phantom stock unit awards granted in 2018 and 2019 to be 100%.
In April 2019, we determined that 175% of the target number of phantom stock unit awards granted during 2016 were earned based on the Company’s achievement of the performance measures, as compared to the predefined peer group, which resulted in an aggregate cash payment of $3.5 million to settle these awards.Convertible Notes equally.
| |
10. | 11. Segment Information |
We have five operating segments, comprised of two drilling services business segments (domestic and international drilling) and three production services business segments (well servicing, wireline services and coiled tubing services), which reflects the basis used by management in making decisions regarding our business for resource allocation and performance assessment, as required by ASC Topic 280, Segment Reporting.
Our domestic and international drilling services segments provide contract land drilling services to a diverse group of exploration and production companies through our three drilling divisions in the US and internationally in Colombia. We provide a comprehensive service offering which includes the drilling rig, crews, supplies, and most of the ancillary equipment needed to operate our drilling rigs.
Our well servicing, wireline services and coiled tubing services segments provide a range of production services to a diverse group of explorationproducers primarily in Texas and production companies, with our operations concentrated in the major domestic onshore oil and gas producing regions in the Gulf Coast, Mid-Continent and Rocky Mountain states.
regions, as well as in North Dakota, Louisiana and Mississippi.
The following tables set forth certain financial information for each of our segments and corporate (amounts in thousands):
|
| | | | | | | |
| As of and for the three months ended March 31, |
| 2019 | | 2018 |
Revenues: | | | |
Domestic drilling | $ | 38,009 |
| | $ | 35,926 |
|
International drilling | 21,643 |
| | 17,611 |
|
Drilling services | 59,652 |
| | 53,537 |
|
Well servicing | 26,254 |
| | 21,114 |
|
Wireline services | 45,874 |
| | 56,601 |
|
Coiled tubing services | 14,788 |
| | 13,226 |
|
Production services | 86,916 |
| | 90,941 |
|
Consolidated revenues | $ | 146,568 |
| | $ | 144,478 |
|
| | | |
Operating costs: | | | |
Domestic drilling | $ | 22,469 |
| | $ | 20,898 |
|
International drilling | 16,485 |
| | 12,961 |
|
Drilling services | 38,954 |
| | 33,859 |
|
Well servicing | 18,896 |
| | 15,570 |
|
Wireline services | 39,347 |
| | 42,486 |
|
Coiled tubing services | 11,388 |
| | 10,851 |
|
Production services | 69,631 |
| | 68,907 |
|
Consolidated operating costs | $ | 108,585 |
| | $ | 102,766 |
|
| | | |
Gross margin: | | | |
Domestic drilling | $ | 15,540 |
| | $ | 15,028 |
|
International drilling | 5,158 |
| | 4,650 |
|
Drilling services | 20,698 |
| | 19,678 |
|
Well servicing | 7,358 |
| | 5,544 |
|
Wireline services | 6,527 |
| | 14,115 |
|
Coiled tubing services | 3,400 |
| | 2,375 |
|
Production services | 17,285 |
| | 22,034 |
|
Consolidated gross margin | $ | 37,983 |
| | $ | 41,712 |
|
| | | |
Identifiable Assets: | | | |
Domestic drilling (1) | $ | 377,239 |
| | $ | 380,382 |
|
International drilling (1) (2) | 44,565 |
| | 39,305 |
|
Drilling services | 421,804 |
| | 419,687 |
|
Well servicing | 121,861 |
| | 124,162 |
|
Wireline services | 96,297 |
| | 96,686 |
|
Coiled tubing services | 40,810 |
| | 30,824 |
|
Production services | 258,968 |
| | 251,672 |
|
Corporate | 56,319 |
| | 86,341 |
|
Consolidated identifiable assets | $ | 737,091 |
| | $ | 757,700 |
|
| | | |
Depreciation: | | | |
Domestic drilling | $ | 10,545 |
| | $ | 10,449 |
|
International drilling | 1,343 |
| | 1,447 |
|
Drilling services | 11,888 |
| | 11,896 |
|
Well servicing | 4,882 |
| | 4,920 |
|
Wireline services | 4,075 |
| | 4,608 |
|
Coiled tubing services | 1,528 |
| | 2,032 |
|
Production services | 10,485 |
| | 11,560 |
|
Corporate | 280 |
| | 291 |
|
Consolidated depreciation | $ | 22,653 |
| | $ | 23,747 |
|
|
| | | | | | | |
| As of and for the three months ended March 31, |
| 2020 | | 2019 |
Revenues: | | | |
Domestic drilling | $ | 35,891 |
| | $ | 38,009 |
|
International drilling | 14,455 |
| | 21,643 |
|
Drilling services | 50,346 |
| | 59,652 |
|
| | | As of and for the three months ended March 31, | As of and for the three months ended March 31, |
| 2019 | | 2018 | 2020 | | 2019 |
Capital Expenditures: | | | | |
Well servicing | | 25,616 |
| | 26,254 |
|
Wireline services | | 33,133 |
| | 45,874 |
|
Coiled tubing services | | 5,227 |
| | 14,788 |
|
Production services | | 63,976 |
| | 86,916 |
|
Consolidated revenues | | $ | 114,322 |
| | $ | 146,568 |
|
| | | | |
Operating costs: | | | | |
Domestic drilling | | $ | 23,865 |
| | $ | 22,469 |
|
International drilling | | 12,138 |
| | 16,485 |
|
Drilling services | | 36,003 |
| | 38,954 |
|
Well servicing | | 20,951 |
| | 18,896 |
|
Wireline services | | 28,284 |
| | 39,347 |
|
Coiled tubing services | | 6,784 |
| | 11,388 |
|
Production services | | 56,019 |
| | 69,631 |
|
Consolidated operating costs | | $ | 92,022 |
| | $ | 108,585 |
|
| | | | |
Gross margin: | | | | |
Domestic drilling | | $ | 12,026 |
| | $ | 15,540 |
|
International drilling | | 2,317 |
| | 5,158 |
|
Drilling services | | 14,343 |
| | 20,698 |
|
Well servicing | | 4,665 |
| | 7,358 |
|
Wireline services | | 4,849 |
| | 6,527 |
|
Coiled tubing services | | (1,557 | ) | | 3,400 |
|
Production services | | 7,957 |
| | 17,285 |
|
Consolidated gross margin | | $ | 22,300 |
| | $ | 37,983 |
|
| | | | |
Identifiable Assets: | | | | |
Domestic drilling (1) | | $ | 336,260 |
| | $ | 377,239 |
|
International drilling (1) (2) | | 51,443 |
| | 44,565 |
|
Drilling services | | 387,703 |
| | 421,804 |
|
Well servicing | | 107,747 |
| | 121,861 |
|
Wireline services | | 66,712 |
| | 96,297 |
|
Coiled tubing services | | 11,373 |
| | 40,810 |
|
Production services | | 185,832 |
| | 258,968 |
|
Corporate | | 42,199 |
| | 56,319 |
|
Consolidated identifiable assets | | $ | 615,734 |
| | $ | 737,091 |
|
| | | | |
Depreciation: | | | | |
Domestic drilling | $ | 8,242 |
| | $ | 2,758 |
| $ | 10,905 |
| | $ | 10,545 |
|
International drilling | 1,758 |
| | 2,700 |
| 1,301 |
| | 1,343 |
|
Drilling services | 10,000 |
| | 5,458 |
| 12,206 |
| | 11,888 |
|
Well servicing | 3,895 |
| | 2,049 |
| 4,781 |
| | 4,882 |
|
Wireline services | 2,835 |
| | 3,673 |
| 3,077 |
| | 4,075 |
|
Coiled tubing services | 1,524 |
| | 3,164 |
| 1,693 |
| | 1,528 |
|
Production services | 8,254 |
| | 8,886 |
| 9,551 |
| | 10,485 |
|
Corporate | 121 |
| | 244 |
| 227 |
| | 280 |
|
Consolidated capital expenditures | $ | 18,375 |
| | $ | 14,588 |
| |
Consolidated depreciation | | $ | 21,984 |
| | $ | 22,653 |
|
| | | | |
| | | | |
|
| | | | | | | |
| As of and for the three months ended March 31, |
| 2020 | | 2019 |
Capital Expenditures: | | | |
Domestic drilling | $ | 3,241 |
| | $ | 8,242 |
|
International drilling | 1,167 |
| | 1,758 |
|
Drilling services | 4,408 |
| | 10,000 |
|
Well servicing | 1,717 |
| | 3,895 |
|
Wireline services | 1,572 |
| | 2,835 |
|
Coiled tubing services | 163 |
| | 1,524 |
|
Production services | 3,452 |
| | 8,254 |
|
Corporate | 1 |
| | 121 |
|
Consolidated capital expenditures | $ | 7,861 |
| | $ | 18,375 |
|
| |
(1) | Identifiable assets for our drilling segments include the impact of a $42.5$32.9 million and $31.5$42.5 million intercompany balance, as of March 31, 20192020 and 20182019, respectively, between our domestic drilling segment (intercompany receivable) and our international drilling segment (intercompany payable). |
| |
(2) | Identifiable assets for our international drilling segment include five drilling rigs that are owned by our Colombia subsidiary and three drilling rigs that are owned by one of our domestic subsidiaries and leased to our Colombia subsidiary. |
The following table reconciles the consolidated gross margin of our segments reported above to loss from operations as reported on the condensed consolidated statements of operations (amounts in thousands):
| | | Three months ended March 31, | Three months ended March 31, |
| 2019 | | 2018 | 2020 | | 2019 |
Consolidated gross margin | $ | 37,983 |
| | $ | 41,712 |
| $ | 22,300 |
| | $ | 37,983 |
|
Depreciation | (22,653 | ) | | (23,747 | ) | (21,984 | ) | | (22,653 | ) |
General and administrative | (19,758 | ) | | (19,194 | ) | (14,655 | ) | | (19,758 | ) |
Bad debt expense (recovery), net | (62 | ) | | 52 |
| |
Pre-petition restructuring charges | | (17,074 | ) | | — |
|
Impairment | (1,046 | ) | | — |
| (17,853 | ) | | (1,046 | ) |
Bad debt (expense) recovery, net | | (727 | ) | | (62 | ) |
Gain on dispositions of property and equipment, net | 1,075 |
| | 335 |
| 717 |
| | 1,075 |
|
Loss from operations | $ | (4,461 | ) | | $ | (842 | ) | $ | (49,276 | ) | | $ | (4,461 | ) |
In April 2020, we closed our coiled tubing operations and idled all our coiled tubing equipment, which were subsequently placed as held for sale.
| |
11. | Commitments and Contingencies
|
12. Commitments and Contingencies
In connection with our operations in Colombia, our foreign subsidiaries routinely obtain bonds for bidding on drilling contracts, performing under drilling contracts, and remitting customs and importation duties. We have guaranteed payments of $63.0 million relating to our performance under these bonds as of March 31, 2019. Based on historical experience and information currently available, we believe the likelihood of demand for payment under these bonds and guarantees is remote.
We are currently undergoing sales and use tax audits for multi-year periods. As of March 31, 20192020 and December 31, 2018,2019, our accrued liability was $1.8$2.1 million and $1.72.0 million, respectively, based on our estimate of the sales and use tax obligations that are expected to result from these audits. Due to the inherent uncertainty of the audit process, we believe that it is reasonably possible that we may incur additional tax assessments with respect to one or more of the audits in excess of the amount accrued. We believe that such an outcome would not have a material adverse effect on our results of operations or financial position. Because certain of these audits are in a preliminary stage, an estimate of the possible loss or range of loss from an adverse result in all or substantially all of these cases cannot reasonably be made.
Due to the nature of our business, we are, from time to time, involved in litigation or subject to disputes or claims related to our business activities, including workers’ compensation claims and employment-related disputes. Legal costs relating to these matters are expensed as incurred. In the opinion of our management, none of the pending litigation, disputes or claims against us will have a material adverse effect on our financial condition, results of operations or cash flow from operations.
Backstop Commitment Agreement
Prior to filing the Plan, we entered into a separate backstop commitment agreement with the Consenting Noteholders and certain members of our senior management (the “Backstop Commitment Agreement”), pursuant to which the Consenting Noteholders and certain members of our senior management committed to backstop approximately $118 million and $1.8 million, respectively, of new convertible bonds to be issued in a rights offering. As consideration for this commitment, we committed to make an aggregate payment of $9.4 million and $0.1 million to the Consenting Noteholders and certain members of our senior management, respectively, in the form of additional new convertible bonds, or in cash if the Backstop Commitment Agreement was terminated under certain circumstances as forth therein. As a result, we incurred a liability and expense at the time we entered into the Backstop Commitment Agreement for the aggregate amount of $9.6 million (the “Commitment Premium”) which was recognized in our condensed consolidated financial statements as of and for the three months ended March 31, 2020. The Commitment Premium was settled in conjunction with our emergence from Chapter 11 and the issuance of the Convertible Notes. For additional information concerning our bankruptcy proceedings under Chapter 11, see Note 2, Chapter 11 Cases and Subsequent Events.
19
| |
12. | 13. Guarantor/Non-Guarantor Condensed Consolidating Financial Statements |
Our Senior Notes arewere fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all existing 100% owned domestic subsidiaries, except for Pioneer Services Holdings, LLC. The subsidiaries that generally operate our non-U.S. business concentrated in Colombia dodid not guarantee our Senior Notes. The non-guarantor subsidiaries dodid not have any payment obligations under the Senior Notes, the guarantees or the Indenture.
In the event of a bankruptcy, liquidation or reorganization of any non-guarantor subsidiary, such non-guarantor subsidiary willwould be obligated to pay the holders of its debt and other liabilities, including its trade creditors, before it willwould be able to distribute any of its assets to us. In the future, any non-U.S. subsidiaries, immaterial subsidiaries and subsidiaries that we designate as unrestricted subsidiaries under the Indenture will not guarantee the Senior Notes. As of March 31, 20192020, there were no restrictions on the ability of subsidiary guarantors to transfer funds to the parent company. The Senior Notes, the guarantees, and the Indenture were terminated on the Effective Date pursuant to the Plan.
As a result of the guarantee arrangements, we are presenting the following condensed consolidating balance sheets, statements of operations and statements of cash flows of the issuer, the guarantor subsidiaries and the non-guarantor subsidiaries.
PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES (DEBTOR IN POSSESSION)
CONDENSED CONSOLIDATING BALANCE SHEETS
(unaudited, in thousands)
| | | March 31, 2019 | March 31, 2020 |
| Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated | Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
ASSETS | | | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | 24,400 |
| | $ | — |
| | $ | 2,455 |
| | $ | — |
| | $ | 26,855 |
| $ | 7,937 |
| | $ | — |
| | $ | 7,520 |
| | $ | — |
| | $ | 15,457 |
|
Restricted cash | 998 |
| | — |
| | — |
| | — |
| | 998 |
| 998 |
| | — |
| | — |
| | — |
| | 998 |
|
Receivables, net of allowance | 380 |
| | 108,312 |
| | 39,959 |
| | (566 | ) | | 148,085 |
| 157 |
| | 84,517 |
| | 18,420 |
| | (171 | ) | | 102,923 |
|
Intercompany receivable (payable) | (27,942 | ) | | 70,231 |
| | (42,289 | ) | | — |
| | — |
| (26,931 | ) | | 59,530 |
| | (32,599 | ) | | — |
| | — |
|
Inventory | — |
| | 10,606 |
| | 9,623 |
| | — |
| | 20,229 |
| — |
| | 9,530 |
| | 12,089 |
| | — |
| | 21,619 |
|
Assets held for sale | — |
| | 4,794 |
| | — |
| | — |
| | 4,794 |
| — |
| | 1,825 |
| | — |
| | — |
| | 1,825 |
|
Prepaid expenses and other current assets | 1,524 |
| | 4,218 |
| | 1,565 |
| | — |
| | 7,307 |
| 2,452 |
| | 4,675 |
| | 1,002 |
| | — |
| | 8,129 |
|
Total current assets | (640 | ) | | 198,161 |
| | 11,313 |
| | (566 | ) | | 208,268 |
| (15,387 | ) | | 160,077 |
| | 6,432 |
| | (171 | ) | | 150,951 |
|
Net property and equipment | 1,863 |
| | 487,415 |
| | 28,489 |
| | — |
| | 517,767 |
| 2,144 |
| | 410,567 |
| | 27,243 |
| | — |
| | 439,954 |
|
Investment in subsidiaries | 584,449 |
| | 27,789 |
| | — |
| | (612,238 | ) | | — |
| 508,145 |
| | 41,392 |
| | — |
| | (549,537 | ) | | — |
|
Deferred income taxes | 42,659 |
| | — |
| | — |
| | (42,659 | ) | | — |
| 38,948 |
| | — |
| | 9,264 |
| | (38,948 | ) | | 9,264 |
|
Operating lease assets | 3,470 |
| | 5,273 |
| | 680 |
| | — |
| | 9,423 |
| 2,911 |
| | 4,530 |
| | 531 |
| | — |
| | 7,972 |
|
Other noncurrent assets | 622 |
| | 523 |
| | 488 |
| | — |
| | 1,633 |
| 1,295 |
| | 459 |
| | 5,839 |
| | — |
| | 7,593 |
|
Total assets | $ | 632,423 |
| | $ | 719,161 |
| | $ | 40,970 |
| | $ | (655,463 | ) | | $ | 737,091 |
| $ | 538,056 |
| | $ | 617,025 |
| | $ | 49,309 |
| | $ | (588,656 | ) | | $ | 615,734 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | |
Accounts payable | $ | 1,089 |
| | $ | 31,188 |
| | $ | 5,886 |
| | $ | — |
| | $ | 38,163 |
| $ | 2,373 |
| | $ | 20,793 |
| | $ | 5,608 |
| | $ | — |
| | $ | 28,774 |
|
Deferred revenues | — |
| | 443 |
| | 1,216 |
| | — |
| | 1,659 |
| — |
| | 428 |
| | 569 |
| | — |
| | 997 |
|
Commitment premium | | 9,584 |
| | — |
| | — |
| | — |
| | 9,584 |
|
Debtor in possession financing | | 4,000 |
| | — |
| | — |
| | — |
| | 4,000 |
|
Accrued expenses | 9,678 |
| | 50,451 |
| | 5,191 |
| | (566 | ) | | 64,754 |
| 6,738 |
| | 41,742 |
| | 1,364 |
| | (171 | ) | | 49,673 |
|
Total current liabilities | 10,767 |
| | 82,082 |
| | 12,293 |
| | (566 | ) | | 104,576 |
| 22,695 |
| | 62,963 |
| | 7,541 |
| | (171 | ) | | 93,028 |
|
Long-term debt, less unamortized discount and debt issuance costs | 465,315 |
| | — |
| | — |
| | — |
| | 465,315 |
| 170,921 |
| | — |
| | — |
| | — |
| | 170,921 |
|
Noncurrent operating lease liabilities | 3,076 |
| | 3,322 |
| | 531 |
| | — |
| | 6,929 |
| 2,583 |
| | 3,475 |
| | 376 |
| | — |
| | 6,434 |
|
Deferred income taxes | — |
| | 47,503 |
| | — |
| | (42,659 | ) | | 4,844 |
| — |
| | 42,204 |
| | — |
| | (38,948 | ) | | 3,256 |
|
Other noncurrent liabilities | 2,298 |
| | 1,805 |
| | 357 |
| | — |
| | 4,460 |
| 145 |
| | 238 |
| | — |
| | — |
| | 383 |
|
Total liabilities | 481,456 |
| | 134,712 |
| | 13,181 |
| | (43,225 | ) | | 586,124 |
| |
Total shareholders’ equity | 150,967 |
| | 584,449 |
| | 27,789 |
| | (612,238 | ) | | 150,967 |
| |
Total liabilities and shareholders’ equity | $ | 632,423 |
| | $ | 719,161 |
| | $ | 40,970 |
| | $ | (655,463 | ) | | $ | 737,091 |
| |
Total liabilities not subject to compromise | | 196,344 |
| | 108,880 |
| | 7,917 |
| | (39,119 | ) | | 274,022 |
|
Liabilities subject to compromise | | 306,419 |
| | — |
| | — |
| | — |
| | 306,419 |
|
Total stockholders’ equity | | 35,293 |
| | 508,145 |
| | 41,392 |
| | (549,537 | ) | | 35,293 |
|
Total liabilities and stockholders’ equity | | $ | 538,056 |
| | $ | 617,025 |
| | $ | 49,309 |
| | $ | (588,656 | ) | | $ | 615,734 |
|
| | | | | | | | | | | | | | | | | | |
| December 31, 2018 | December 31, 2019 |
| Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated | Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
ASSETS | | | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | 50,350 |
| | $ | — |
| | $ | 3,216 |
| | $ | — |
| | $ | 53,566 |
| $ | 14,461 |
| | $ | — |
| | $ | 10,158 |
| | $ | — |
| | $ | 24,619 |
|
Restricted cash | 998 |
| | — |
| | — |
| | — |
| | 998 |
| 998 |
| | — |
| | — |
| | — |
| | 998 |
|
Receivables, net of allowance | 436 |
| | 95,030 |
| | 35,219 |
| | 196 |
| | 130,881 |
| 107 |
| | 92,394 |
| | 30,908 |
| | 117 |
| | 123,526 |
|
Intercompany receivable (payable) | (27,245 | ) | | 67,098 |
| | (39,853 | ) | | — |
| | — |
| (28,664 | ) | | 64,485 |
| | (35,821 | ) | | — |
| | — |
|
Inventory | — |
| | 9,945 |
| | 8,953 |
| | — |
| | 18,898 |
| — |
| | 10,325 |
| | 12,128 |
| | — |
| | 22,453 |
|
Assets held for sale | — |
| | 3,582 |
| | — |
| | — |
| | 3,582 |
| — |
| | 3,447 |
| | — |
| | — |
| | 3,447 |
|
Prepaid expenses and other current assets | 1,743 |
| | 3,197 |
| | 2,169 |
| | — |
| | 7,109 |
| 2,849 |
| | 4,122 |
| | 898 |
| | — |
| | 7,869 |
|
Total current assets | 26,282 |
| | 178,852 |
| | 9,704 |
| | 196 |
| | 215,034 |
| (10,249 | ) | | 174,773 |
| | 18,271 |
| | 117 |
| | 182,912 |
|
Net property and equipment | 2,022 |
| | 494,376 |
| | 28,460 |
| | — |
| | 524,858 |
| 2,374 |
| | 441,567 |
| | 27,229 |
| | — |
| | 471,170 |
|
Investment in subsidiaries | 574,695 |
| | 25,370 |
| | — |
| | (600,065 | ) | | — |
| 547,123 |
| | 47,953 |
| | — |
| | (595,076 | ) | | — |
|
Deferred income taxes | 42,585 |
| | — |
| | — |
| | (42,585 | ) | | — |
| 44,224 |
| | — |
| | 11,540 |
| | (44,224 | ) | | 11,540 |
|
Operating lease assets | | 3,114 |
| | 3,581 |
| | 569 |
| | — |
| | 7,264 |
|
Other noncurrent assets | 596 |
| | 511 |
| | 551 |
| | — |
| | 1,658 |
| 506 |
| | 562 |
| | — |
| | — |
| | 1,068 |
|
Total assets | $ | 646,180 |
| | $ | 699,109 |
| | $ | 38,715 |
| | $ | (642,454 | ) | | $ | 741,550 |
| $ | 587,092 |
| | $ | 668,436 |
| | $ | 57,609 |
| | $ | (639,183 | ) | | $ | 673,954 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | |
Accounts payable | $ | 1,093 |
| | $ | 26,795 |
| | $ | 6,246 |
| | $ | — |
| | $ | 34,134 |
| $ | 1,811 |
| | $ | 24,436 |
| | $ | 6,304 |
| | $ | — |
| | $ | 32,551 |
|
Deferred revenues | — |
| | 95 |
| | 1,627 |
| | — |
| | 1,722 |
| — |
| | 513 |
| | 826 |
| | — |
| | 1,339 |
|
Accrued expenses | 14,020 |
| | 49,640 |
| | 5,056 |
| | 196 |
| | 68,912 |
| 10,570 |
| | 44,893 |
| | 2,111 |
| | 117 |
| | 57,691 |
|
Total current liabilities | 15,113 |
| | 76,530 |
| | 12,929 |
| | 196 |
| | 104,768 |
| 12,381 |
| | 69,842 |
| | 9,241 |
| | 117 |
| | 91,581 |
|
Long-term debt, less unamortized discount and debt issuance costs | 464,552 |
| | — |
| | — |
| | — |
| | 464,552 |
| 467,699 |
| | — |
| | — |
| | — |
| | 467,699 |
|
Noncurrent operating lease liabilities | | 2,749 |
| | 2,536 |
| | 415 |
| | — |
| | 5,700 |
|
Deferred income taxes | — |
| | 46,273 |
| | — |
| | (42,585 | ) | | 3,688 |
| — |
| | 48,641 |
| | — |
| | (44,224 | ) | | 4,417 |
|
Other noncurrent liabilities | 1,457 |
| | 1,611 |
| | 416 |
| | — |
| | 3,484 |
| 187 |
| | 294 |
| | — |
| | — |
| | 481 |
|
Total liabilities | 481,122 |
| | 124,414 |
| | 13,345 |
| | (42,389 | ) | | 576,492 |
| 483,016 |
| | 121,313 |
| | 9,656 |
| | (44,107 | ) | | 569,878 |
|
Total shareholders’ equity | 165,058 |
| | 574,695 |
| | 25,370 |
| | (600,065 | ) | | 165,058 |
| |
Total liabilities and shareholders’ equity | $ | 646,180 |
| | $ | 699,109 |
| | $ | 38,715 |
| | $ | (642,454 | ) | | $ | 741,550 |
| |
Total stockholders’ equity | | 104,076 |
| | 547,123 |
| | 47,953 |
| | (595,076 | ) | | 104,076 |
|
Total liabilities and stockholders’ equity | | $ | 587,092 |
| | $ | 668,436 |
| | $ | 57,609 |
| | $ | (639,183 | ) | | $ | 673,954 |
|
PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES (DEBTOR IN POSSESSION)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(unaudited, in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2019 |
| Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
Revenues | $ | — |
| | $ | 124,925 |
| | $ | 21,643 |
| | $ | — |
| | $ | 146,568 |
|
Costs and expenses: | | | | | | | | | |
Operating costs | — |
| | 92,102 |
| | 16,483 |
| | — |
| | 108,585 |
|
Depreciation | 280 |
| | 21,030 |
| | 1,343 |
| | — |
| | 22,653 |
|
General and administrative | 7,996 |
| | 11,446 |
| | 451 |
| | (135 | ) | | 19,758 |
|
Bad debt expense (recovery), net | — |
| | 62 |
| | — |
| | — |
| | 62 |
|
Gain on dispositions of property and equipment, net | — |
| | (984 | ) | | (91 | ) | | — |
| | (1,075 | ) |
Impairment | — |
| | 1,046 |
| | — |
| | — |
| | 1,046 |
|
Intercompany leasing | — |
| | (1,215 | ) | | 1,215 |
| | — |
| | — |
|
Total costs and expenses | 8,276 |
| | 123,487 |
| | 19,401 |
| | (135 | ) | | 151,029 |
|
Income (loss) from operations | (8,276 | ) | | 1,438 |
| | 2,242 |
| | 135 |
| | (4,461 | ) |
Other income (expense): | | | | | | | | | |
Equity in earnings of subsidiaries | 2,768 |
| | 2,464 |
| | — |
| | (5,232 | ) | | — |
|
Interest expense, net of interest capitalized | (9,874 | ) | | (14 | ) | | 3 |
| | — |
| | (9,885 | ) |
Other | 206 |
| | 266 |
| | 347 |
| | (135 | ) | | 684 |
|
Total other income (expense) | (6,900 | ) | | 2,716 |
| | 350 |
| | (5,367 | ) | | (9,201 | ) |
Income (loss) before income taxes | (15,176 | ) | | 4,154 |
| | 2,592 |
| | (5,232 | ) | | (13,662 | ) |
Income tax (expense) benefit 1 | 61 |
| | (1,386 | ) | | (128 | ) | | — |
| | (1,453 | ) |
Net income (loss) | $ | (15,115 | ) | | $ | 2,768 |
| | $ | 2,464 |
| | $ | (5,232 | ) | | $ | (15,115 | ) |
| |
| Three months ended March 31, 2018 |
| Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
Revenues | $ | — |
| | $ | 126,867 |
| | $ | 17,611 |
| | $ | — |
| | $ | 144,478 |
|
Costs and expenses: | | | | | | | | | |
Operating costs | — |
| | 89,809 |
| | 12,957 |
| | — |
| | 102,766 |
|
Depreciation | 291 |
| | 22,009 |
| | 1,447 |
| | — |
| | 23,747 |
|
General and administrative | 6,238 |
| | 12,539 |
| | 522 |
| | (105 | ) | | 19,194 |
|
Bad debt expense (recovery), net | — |
| | (52 | ) | | — |
| | — |
| | (52 | ) |
Gain on dispositions of property and equipment, net | — |
| | (321 | ) | | (14 | ) | | — |
| | (335 | ) |
Intercompany leasing | — |
| | (1,215 | ) | | 1,215 |
| | — |
| | — |
|
Total costs and expenses | 6,529 |
| | 122,769 |
| | 16,127 |
| | (105 | ) | | 145,320 |
|
Income (loss) from operations | (6,529 | ) | | 4,098 |
| | 1,484 |
| | 105 |
| | (842 | ) |
Other income (expense): | | | | | | | | | |
Equity in earnings of subsidiaries | 4,549 |
| | 1,653 |
| | — |
| | (6,202 | ) | | — |
|
Interest expense, net of interest capitalized | (9,516 | ) | | — |
| | 3 |
| | — |
| | (9,513 | ) |
Other | 2 |
| | 219 |
| | 388 |
| | (105 | ) | | 504 |
|
Total other income (expense) | (4,965 | ) | | 1,872 |
| | 391 |
| | (6,307 | ) | | (9,009 | ) |
Income (loss) before income taxes | (11,494 | ) | | 5,970 |
| | 1,875 |
| | (6,202 | ) | | (9,851 | ) |
Income tax (expense) benefit 1 | 355 |
| | (1,421 | ) | | (222 | ) | | — |
| | (1,288 | ) |
Net income (loss) | $ | (11,139 | ) | | $ | 4,549 |
| | $ | 1,653 |
| | $ | (6,202 | ) | | $ | (11,139 | ) |
| | | | | | | | | |
1 The income tax (expense) benefit reflected in each column does not include any tax effect of the equity in earnings (losses) of subsidiaries. |
|
| | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2020 |
| Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
Revenues | $ | — |
| | $ | 99,867 |
| | $ | 14,455 |
| | $ | — |
| | $ | 114,322 |
|
Costs and expenses: | | | | | | | | | |
Operating costs | — |
| | 79,885 |
| | 12,137 |
| | — |
| | 92,022 |
|
Depreciation | 227 |
| | 20,456 |
| | 1,301 |
| | — |
| | 21,984 |
|
General and administrative | 5,943 |
| | 8,212 |
| | 635 |
| | (135 | ) | | 14,655 |
|
Pre-petition restructuring charges | 17,074 |
| | — |
| | — |
| | — |
| | 17,074 |
|
Impairment | — |
| | 17,853 |
| | — |
| | — |
| | 17,853 |
|
Bad debt expense, net | — |
| | 727 |
| | — |
| | — |
| | 727 |
|
Gain on dispositions of property and equipment, net | 3 |
| | (720 | ) | | — |
| | — |
| | (717 | ) |
Intercompany leasing | — |
| | (1,215 | ) | | 1,215 |
| | — |
| | — |
|
Total costs and expenses | 23,247 |
| | 125,198 |
| | 15,288 |
| | (135 | ) | | 163,598 |
|
Income (loss) from operations | (23,247 | ) | | (25,331 | ) | | (833 | ) | | 135 |
| | (49,276 | ) |
Other income (expense): | | | | | | | | | |
Equity in earnings of subsidiaries | (25,218 | ) | | (6,508 | ) | | — |
| | 31,726 |
| | — |
|
Interest expense, net of interest capitalized | (8,669 | ) | | 1 |
| | 17 |
| | — |
| | (8,651 | ) |
Reorganization items | (6,663 | ) | | — |
| | — |
| | — |
| | (6,663 | ) |
Other | (37 | ) | | 234 |
| | (5,607 | ) | | (135 | ) | | (5,545 | ) |
Total other income (expense) | (40,587 | ) | | (6,273 | ) | | (5,590 | ) | | 31,591 |
| | (20,859 | ) |
Income (loss) before income taxes | (63,834 | ) | | (31,604 | ) | | (6,423 | ) | | 31,726 |
| | (70,135 | ) |
Income tax (expense) benefit 1 | (5,270 | ) | | 6,386 |
| | (85 | ) | | — |
| | 1,031 |
|
Net income (loss) | $ | (69,104 | ) | | $ | (25,218 | ) | | $ | (6,508 | ) | | $ | 31,726 |
| | $ | (69,104 | ) |
| |
| Three months ended March 31, 2019 |
| Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
Revenues | $ | — |
| | $ | 124,925 |
| | $ | 21,643 |
| | $ | — |
| | $ | 146,568 |
|
Costs and expenses: | | | | | | | | | |
Operating costs | — |
| | 92,102 |
| | 16,483 |
| | — |
| | 108,585 |
|
Depreciation | 280 |
| | 21,030 |
| | 1,343 |
| | — |
| | 22,653 |
|
General and administrative | 7,996 |
| | 11,446 |
| | 451 |
| | (135 | ) | | 19,758 |
|
Impairment | — |
| | 1,046 |
| | — |
| | — |
| | 1,046 |
|
Bad debt expense, net | — |
| | 62 |
| | — |
| | — |
| | 62 |
|
Gain on dispositions of property and equipment, net | — |
| | (984 | ) | | (91 | ) | | — |
| | (1,075 | ) |
Intercompany leasing | — |
| | (1,215 | ) | | 1,215 |
| | — |
| | — |
|
Total costs and expenses | 8,276 |
| | 123,487 |
| | 19,401 |
| | (135 | ) | | 151,029 |
|
Income (loss) from operations | (8,276 | ) | | 1,438 |
| | 2,242 |
| | 135 |
| | (4,461 | ) |
Other income (expense): | | | | | | | | | |
Equity in earnings of subsidiaries | 2,768 |
| | 2,464 |
| | — |
| | (5,232 | ) | | — |
|
Interest expense, net of interest capitalized | (9,874 | ) | | (14 | ) | | 3 |
| | — |
| | (9,885 | ) |
Other | 206 |
| | 266 |
| | 347 |
| | (135 | ) | | 684 |
|
Total other income (expense) | (6,900 | ) | | 2,716 |
| | 350 |
| | (5,367 | ) | | (9,201 | ) |
Income (loss) before income taxes | (15,176 | ) | | 4,154 |
| | 2,592 |
| | (5,232 | ) | | (13,662 | ) |
Income tax (expense) benefit 1 | 61 |
| | (1,386 | ) | | (128 | ) | | — |
| | (1,453 | ) |
Net income (loss) | $ | (15,115 | ) | | $ | 2,768 |
| | $ | 2,464 |
| | $ | (5,232 | ) | | $ | (15,115 | ) |
| | | | | | | | | |
1 The income tax (expense) benefit reflected in each column does not include any tax effect of the equity in earnings (losses) of subsidiaries. |
PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES (DEBTOR IN POSSESSION)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
| | | | Three months ended March 31, 2020 |
| | Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
Cash flows from operating activities | | $ | (21,117 | ) | | $ | 16,839 |
| | $ | (1,262 | ) | | $ | 149 |
| | $ | (5,391 | ) |
| | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | |
Purchases of property and equipment | | (563 | ) | | (5,617 | ) | | (1,323 | ) | | — |
| | (7,503 | ) |
Proceeds from sale of property and equipment | | — |
| | 876 |
| | — |
| | (149 | ) | | 727 |
|
| | (563 | ) | | (4,741 | ) | | (1,323 | ) | | (149 | ) | | (6,776 | ) |
| | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | |
Proceeds from DIP Facility | | 4,000 |
| | — |
| | — |
| | — |
| | 4,000 |
|
DIP Facility issuance costs | | (988 | ) | | — |
| | — |
| | — |
| | (988 | ) |
Purchase of treasury stock | | (7 | ) | | — |
| | — |
| | — |
| | (7 | ) |
Intercompany contributions/distributions | | 12,151 |
| | (12,098 | ) | | (53 | ) | | — |
| | — |
|
| | 15,156 |
| | (12,098 | ) | | (53 | ) | | — |
| | 3,005 |
|
| | | | | | | | | | |
Net decrease in cash, cash equivalents and restricted cash | | (6,524 | ) | | — |
| | (2,638 | ) | | — |
| | (9,162 | ) |
Beginning cash, cash equivalents and restricted cash | | 15,459 |
| | — |
| | 10,158 |
| | — |
| | 25,617 |
|
Ending cash, cash equivalents and restricted cash | | $ | 8,935 |
| | $ | — |
| | $ | 7,520 |
| | $ | — |
| | $ | 16,455 |
|
| | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2019 | Three months ended March 31, 2019 |
| Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated | Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
Cash flows from operating activities | $ | (18,807 | ) | | $ | 7,603 |
| | $ | 414 |
| | $ | — |
| | $ | (10,790 | ) | $ | (18,807 | ) | | $ | 7,603 |
| | $ | 414 |
| | $ | — |
| | $ | (10,790 | ) |
| | | | | | | | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | | | |
Purchases of property and equipment | (162 | ) | | (15,496 | ) | | (1,186 | ) | | — |
| | (16,844 | ) | (162 | ) | | (15,496 | ) | | (1,186 | ) | | — |
| | (16,844 | ) |
Proceeds from sale of property and equipment | — |
| | 987 |
| | 56 |
| | — |
| | 1,043 |
| — |
| | 987 |
| | 56 |
| | — |
| | 1,043 |
|
| (162 | ) | | (14,509 | ) | | (1,130 | ) | | — |
| | (15,801 | ) | (162 | ) | | (14,509 | ) | | (1,130 | ) | | — |
| | (15,801 | ) |
| | | | | | | | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | | | | | | | |
Purchase of treasury stock | (120 | ) | | — |
| | — |
| | — |
| | (120 | ) | (120 | ) | | — |
| | — |
| | — |
| | (120 | ) |
Intercompany contributions/distributions | (6,861 | ) | | 6,906 |
| | (45 | ) | | — |
| | — |
| (6,861 | ) | | 6,906 |
| | (45 | ) | | — |
| | — |
|
| (6,981 | ) | | 6,906 |
| | (45 | ) | | — |
| | (120 | ) | (6,981 | ) | | 6,906 |
| | (45 | ) | | — |
| | (120 | ) |
| | | | | | | | | | | | | | | | | | |
Net decrease in cash, cash equivalents and restricted cash | (25,950 | ) | | — |
| | (761 | ) | | — |
| | (26,711 | ) | (25,950 | ) | | — |
| | (761 | ) | | — |
| | (26,711 | ) |
Beginning cash, cash equivalents and restricted cash | 51,348 |
| | — |
| | 3,216 |
| | — |
| | 54,564 |
| 51,348 |
| | — |
| | 3,216 |
| | — |
| | 54,564 |
|
Ending cash, cash equivalents and restricted cash | $ | 25,398 |
| | $ | — |
| | $ | 2,455 |
| | $ | — |
| | $ | 27,853 |
| $ | 25,398 |
| | $ | — |
| | $ | 2,455 |
| | $ | — |
| | $ | 27,853 |
|
| | | | | | | | | | |
| Three months ended March 31, 2018 | |
| Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated | |
Cash flows from operating activities | $ | (15,289 | ) | | $ | 17,992 |
| | $ | 2,355 |
| | $ | — |
| | $ | 5,058 |
| |
| | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | |
Purchases of property and equipment | (179 | ) | | (8,978 | ) | | (2,500 | ) | | — |
| | (11,657 | ) | |
Proceeds from sale of property and equipment | — |
| | 1,283 |
| | — |
| | — |
| | 1,283 |
| |
Proceeds from insurance recoveries | — |
| | 508 |
| | 15 |
| | — |
| | 523 |
| |
| (179 | ) | | (7,187 | ) | | (2,485 | ) | | — |
| | (9,851 | ) | |
| | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | |
Debt issuance costs | (33 | ) | | — |
| | — |
| | — |
| | (33 | ) | |
Purchase of treasury stock | (96 | ) | | — |
| | — |
| | — |
| | (96 | ) | |
Intercompany contributions/distributions | 10,860 |
| | (10,805 | ) | | (55 | ) | | — |
| | — |
| |
| 10,731 |
| | (10,805 | ) | | (55 | ) | | — |
| | (129 | ) | |
| | | | | | | | | | |
Net decrease in cash, cash equivalents and restricted cash | (4,737 | ) | | — |
| | (185 | ) | | — |
| | (4,922 | ) | |
Beginning cash, cash equivalents and restricted cash | 72,385 |
| | — |
| | 3,263 |
| | — |
| | 75,648 |
| |
Ending cash, cash equivalents and restricted cash | $ | 67,648 |
| | $ | — |
| | $ | 3,078 |
| | $ | — |
| | $ | 70,726 |
| |
| | |
| |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Statements we make in the following discussion that express a belief, expectation or intention, as well as those that are not historical fact, are forward-looking statements made in good faith that are subject to risks, uncertainties and assumptions. These forward-looking statements are based on our current beliefs, intentions, and expectations and are not guarantees or indicators of future performance. Our actual results, performance or achievements, or industry results, could differ materially from those we express in the following discussion as a result of a variety of factors, including risks and uncertainties relating to the effects of our bankruptcy on our business and relationships, the concentration of our equity ownership following bankruptcy, the application of fresh start accounting, the effect of the coronavirus (COVID-19) pandemic on our industry, general economic and business conditions and industry trends, levels and volatility of oil and gas prices, the continued demand for drilling services or production services in the geographic areas where we operate, decisions about exploration and development projects to be made by oil and gas exploration and production companies, the highly competitive nature of our business, technological advancements and trends in our industry and improvements in our competitors' equipment, the loss of one or more of our major clients or a decrease in their demand for our services, future compliance with covenants under debt agreements, including our senior secured term loan, our senior secured revolving asset-based credit facility, and our senior notes, operating hazards inherent in our operations, the supply of marketable drilling rigs, well servicing rigs, coiled tubing units and wireline unitsequipment within the industry, the continued availability of new components for drilling rigs, well servicing rigs, coiled tubing units and wireline units,our fleets, the continued availability of qualified personnel, the success or failure of our acquisition strategy, the occurrence of cybersecurity incidents, the political, economic, regulatory and other uncertainties encountered by our operations, and changes in, or our failure or inability to comply with, governmental regulations, including those relating to the environment.environment, the occurrence of cybersecurity incidents, the success or failure of future dispositions or acquisitions, future compliance with our debt agreements, and the impact of not having our common stock listed on a national securities exchange. We have discussed many of these factors in more detail elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2018,2019, as amended by Form 10-K/A for the year ended December 31, 2019, including under the headings “Risk Factors” in Item 1A and “Special Note Regarding Forward-Looking Statements” in the Introductory Note to Part I and “Risk Factors” in Item 1A.I. These factors are not necessarily all the important factors that could affect us. Other unpredictable or unknown factors could also have material adverse effects on actual results of matters that are the subject of our forward-looking statements. All forward-looking statements speak only as of the date on which they are made and we undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise. We advise our shareholdersstockholders that they should (1) recognize that important factors not referred to above could affect the accuracy of our forward-looking statements and (2) use caution and common sense when considering our forward-looking statements.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes thereto and with our Annual Report on Form 10-K for the year ended December 31, 2019, as amended by Form 10-K/A for the year ended December 31, 2019.
Recent Developments
Reorganization and Emergence from Chapter 11
In an effort to achieve liquidity that would be sufficient to meet all of our commitments, we took a number of actions, including minimizing capital expenditures and reducing recurring expenses. However, we believed that even after taking these actions, we would not have sufficient liquidity to satisfy all of our future financial obligations, comply with our debt covenants, and execute our business plan. As a result, we filed a petition for reorganization under Chapter 11 of the Bankruptcy Code on March 1, 2020.
On May 11, 2020, the Bankruptcy Court confirmed the Plan and on May 29, 2020, the conditions to effectiveness of the Plan were satisfied and the Pioneer RSA Parties emerged from Chapter 11. Our completion of the Chapter 11 Cases has allowed us to significantly de-leverage our balance sheet, reduce overall indebtedness and reduce our future cash interest obligations.
On the Effective Date, all applicable agreements governing the obligations under the Term Loan, Senior Notes and Prepetition ABL Facility were terminated. The Term Loan and Prepetition ABL Facility were paid in full and all outstanding obligations under the Senior Notes were canceled in exchange for 94.25% of the proforma common equity. On the Effective Date, we entered into a $75 million senior secured asset-based revolving credit agreement (the “ABL Credit Facility”), and issued $129.8 million of aggregate principal amount of 5% convertible senior unsecured pay-in-kind notes due 2025 (the “Convertible Notes”) and $78.1 million of aggregate principal amount of floating rate senior secured notes due 2025 (the “Senior Secured Notes”), the proceeds of which were used to repay our outstanding Term Loan and certain related fees, all of which are described in more detail in the Liquidity and Capital Resources section below, under the headings entitled ABL Credit Facility and Debt Instruments and Compliance Requirements.
Also on the Effective Date, by operation of the Plan, all agreements, instruments, and other documents evidencing, relating to or connected with any equity interests of the Company, including the existing common stock, issued and outstanding immediately prior to the Effective Date, and any rights of any holder in respect thereof, were deemed canceled, discharged and of no force or effect. Pursuant to the Plan, we issued a total of 1,049,804 shares of our new common stock, with approximately 94.25% of such new common stock being issued to holders of the Senior Notes outstanding immediately prior to the Effective Date. Holders of the existing common stock received an aggregate of 5.75% of the proforma common equity (subject to the dilution from the Convertible Notes and new management incentive plan), at a conversion rate of 0.0006849838 new shares for each existing share.
As part of the transactions undertaken pursuant to the Plan, we converted from a Texas corporation to a Delaware corporation, filed the Certificate of Incorporation of the Company with the office of the Secretary of State of the State of Delaware and adopted Amended and Restated Bylaws of the Company.
Shares of our common stock were delisted from the OTC Pink Marketplace. We anticipate the trading of our new common stock on the OTC market to commence again in the near future.
For additional information concerning our bankruptcy proceedings under Chapter 11, see Note 2, Chapter 11 Cases and Subsequent Events,of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 Financial Statements.
Fresh Start Accounting — We expect to adopt the fresh start accounting rules upon emergence from Chapter 11, in which case our assets and liabilities will be recorded at fair value as of the fresh start reporting date, which may differ materially from the recorded values of assets and liabilities on our consolidated balance sheets included in this Quarterly Report on Form 10-Q.
Effects of COVID 19
Measures taken by federal, state and local governments, both globally and domestically, to reduce the rate of spread of COVID-19 have resulted in a decrease in general economic activity and a corresponding decrease in global and domestic energy demand, which has negatively impacted oil and gas prices, which in turn has reduced demand for, and the pricing of, products and services provided to the oil and gas industry, including the products and services which we provide. In addition, actions by OPEC and a group of other oil-producing nations led by Russia have negatively impacted crude oil prices. These events pushed crude oil storage near capacity and drove prices down significantly during March, April and
May 2020. See the section entitled “Market Conditions and Outlook” below. To the extent these conditions continue to exist in future periods, our clients’ willingness and ability to explore for, develop and produce hydrocarbons will be adversely affected, which will reduce demand for our products and services and adversely affect our results of operations and liquidity.
We have worked to respond to the recent and current market conditions in a number of ways, including:
Reduced Capital Spending. We significantly reduced our initial 2020 capital expenditure budget. Currently, we expect to spend a total of $15 million to $17 million on capital expenditures during 2020; our original budget contemplated capital expenditures of approximately $40 million. We continue to closely monitor current market conditions to assess what additional changes, if any, should be made to our 2020 capital expenditures budget.
Closure of Under-performing Operations. In April 2020, we closed our coiled tubing operations and idled all our coiled tubing equipment, which were subsequently placed as held for sale. We have also closed or consolidated 7 operating locations within our wireline and well servicing operations and exited 13 long-term leases during 2020, as well as various other short-term leases that support our business, in order to reduce overhead and improve profitability.
Cost-Cutting Measures. Throughout 2020, we have implemented various cost-cutting measures including, among other things, (i) a 50% reduction in our total headcount, (ii) the suspension of our Employee Incentive Plan and determining that no bonuses would be payable thereunder in respect of the first quarter of 2020, (ii) a reduction in the base salaries of each of our executive officers by 20% to 28%, (iii) certain salary and incentive compensation reductions for administrative and operations personnel throughout the company, and (iv) the elimination of certain benefits, including 401K matching.
Safety Measures. We have taken proactive steps in our field operations and corporate offices to protect the health and safety of our employees and contractors, including temperature screenings at field job sites, remote working for our office employees and we implemented procedures for hygiene and distancing at all our locations.
Company Overview
Pioneer Energy Services Corp. provides land-based drilling services and production services to a diverse group of oil and gas exploration and production companies in the United States and internationally in Colombia. Drilling services and production services are fundamental to establishing and maintaining the flow of oil and natural gas throughout the productive life of a well.
Drilling Services—Services — Our current drilling rig fleet is 100% pad-capable and offers the latest advancements in pad drilling. We havedrilling, with 17 AC rigs in the US and eight8 SCR rigs in Colombia, all of which have 1,500 horsepower or greater drawworks.Colombia. We provide a comprehensive service offering which includes the drilling rig, crews, supplies, and most of the ancillary equipment needed to operate our drilling rigs, which are deployed through our division offices in the following regions:
|
| | | |
| | Rig Count |
Domestic drilling: | | |
Marcellus/Utica | | 65 |
|
Permian Basin and Eagle Ford | | 910 |
|
Bakken | | 2 |
|
International drilling | | 8 |
|
| | 25 |
|
Production Services—Services — Our production services business segments provide a range of well, wireline and coiled tubing services to a diverse group of explorationproducers primarily in Texas and production companies, with our operations concentrated in the major domestic onshore oil and gas producing regions in the Gulf Coast, Mid-Continent and Rocky Mountain states.
Well Servicing. A range of services are required in order to establish production in newly-drilled wells and to maintain production over the useful lives of active wells. We use our well servicing rig fleet to provide these necessary services, including the completion of newly-drilled wells, maintenance and workover of active wells, and plugging and abandonment of wells at the end of their useful lives. As of March 31, 2019, we have a fleet of 113 rigs with 550 horsepower and 12 rigs with 600 horsepower with operations in 10 locations, mostly in the Gulf Coast states,regions, as well as in North Dakota, Louisiana and Colorado.Mississippi.
Wireline Services. Oil and gas exploration and production companies require wireline services to better understand the reservoirs they are drilling or producing, and use logging services to accurately characterize reservoir rocks and fluids. To complete a cased-hole well, the production casing must be perforated to establish a flow path between the reservoir and the wellbore. We use our fleet of wireline units to provide these important logging and perforating services in addition to a range of other mechanical services that are needed in order to place equipment in or retrieve equipment or debris from the wellbore, install bridge plugs and control pressure. As of March 31, 2019, we have a fleet of 93 wireline units, which are deployed through 12 operating locations in the Gulf Coast, Mid-Continent and Rocky Mountain states. | |
◦ | Well Servicing. Our fleet consists of 111 rigs with 550 horsepower and 12 rigs with 600 horsepower which are deployed through 6 operating locations concentrated in Texas, as well as in North Dakota and Mississippi. |
| |
◦ | Wireline Services. Our fleet of 93 wireline units, including nine units that offer greaseless electric wireline used to reach further depths in longer laterals and two greaseless, EcoQuietTM units designed to reduce noise when operating in proximity to urban areas, is deployed through 7 operating locations concentrated in Texas and the Rocky Mountain and Mid-Continent regions, as well as in Louisiana and North Dakota. |
Coiled Tubing Services. Coiled tubing is another important element of the well servicing industry that allows operators to continue production during service operations on a well under pressure without shutting in the well, thereby reducing the risk of formation damage. Coiled tubing services involve the use of a continuous flexible metal pipe which is spooled on a large reel and inserted into the wellbore to perform a variety of oil and natural gas well applications, such as wellbore clean-outs, nitrogen jet lifts, through-tubing fishing, formation stimulation utilizing acid, chemical treatments and fracturing. Coiled tubing is also used for a number of horizontal well applications, such as milling temporary plugs between frac stages. As of March 31, 2019, we have a current fleet of nine coiled tubing units, the majority of which offer larger diameter coil (larger than two inches), deployed through two operating locations that provide services in Texas, Wyoming and surrounding areas.
| |
◦ | Coiled Tubing Services. Our fleet consists of 4 small-diameter and 5 large-diameter (larger than two inches) units, which were deployed through 2 operating locations providing services in Texas, Wyoming and surrounding areas. In April 2020, we closed our coiled tubing operations and idled all our coiled tubing equipment, which were subsequently placed as held for sale. |
Pioneer Energy Services Corp. was incorporated under the laws of the State of Texas in 1979 as the successor to a business that had been operating since 1968. Since then, we have significantly expanded and transformed our business through acquisitions and organic growth. Upon emergence from Chapter 11 in May 2020, we converted from a Texas corporation to a Delaware corporation.
Our business is comprised of two business lines — Drilling Services and Production Services. We report our Drilling Services business as two reportable segments: (i) Domestic Drilling and (ii) International Drilling. We report our Production Services business as three reportable segments: (i) Well Servicing, (ii) Wireline Services, and (iii) Coiled Tubing Services. Financial information about our operating segments is included in Note 10,11, Segment Information, of the Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
Pioneer Energy Services Corp.’s corporate office is located at 1250 N.E. Loop 410, Suite 1000, San Antonio, Texas 78209. Our phone number is (855) 884-0575 and our website address is www.pioneeres.com. We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (SEC). Information on our website is not incorporated into this report or otherwise made part of this report.
Market Conditions in Our Industryand Outlook
Industry Overview — Demand for oilfield services offered by our industry is a function of our clients’ willingness and ability to make operating expenditures and capital expenditures to explore for, develop and produce hydrocarbons, which is primarily driven by current and expected oil and natural gas prices.
Our business is influenced substantially by exploration and production companies’ spending that is generally categorized as either a capital expenditure or an operating expenditure. Capital expenditures for the drilling and completion of exploratory and development wells in proven areas are more directly influenced by current and expected oil and natural gas prices and generally reflect the volatility of commodity prices. In contrast, operating expenditures for the maintenance of existing wells, for which a range of production services are required in order to maintain production, are relatively more stable and predictable.
Drilling and production services have historically trended similarly in response to fluctuations in commodity prices. However, because exploration and production companies often adjust their budgets for exploration and development drilling first in response to a change in commodity prices, the demand for drilling services is generally impacted first and to a greater extent than the demand for production services which is more dependent on ongoing expenditures that are necessary to maintain production. Additionally, within the range of production services businesses, those that derive more revenue from production relatedproduction-related activity, as opposed to completion of new wells, tend to be less affected by fluctuations in commodity prices and temporary reductions in industry activity.
However, in a severe downturn that is prolonged, both operating and capital expenditures are significantly reduced, and the demand for all our service offerings is significantly impacted. After a prolonged downturn among the production services, the demand for completion-orientedworkover services generally improves first, followed by the demand for completion-oriented services as exploration and production companies begin to complete wells that were previously drilled but not completed during the downturn, and to complete newly drilled wells as the demand for drilling services improves during recovery.
From time to time, temporary regional slowdowns or constraints occur in our industry due to a variety of factors, including, among others, infrastructure or takeaway capacity limitations, labor shortages, increased regulatory or environmental pressures, or an influx of competitors in a particular region. Any of these factors can influence the profitability of operations in the affected region. However, term contract coverage for our drilling services business and the mobility of all our equipment between regions reduces our exposure to the impact of regional constraints and fluctuations in demand.
Technological advancements and trends in our industry also affect the demand for certain types of equipment, and can affect the overall demand for the services our industry provides. Enhanced directional and horizontal drilling techniques have allowed exploration and production operators to drill increasingly longer lateral wellbores which enable higher hydrocarbon production per well, and reduce the overall number of wells needed to achieve the desired production. This trend toward longer lateral wellbores also increases demand for the more specialized equipment, such as high-spec drilling rigs, higher horsepower well servicing rigs equipped with taller masts, larger diameter coiled tubing units, and other higher power ancillary equipment, which is needed in order to drill, complete and provide services to the full length of the wellbore. Our domestic drilling and production services fleets are highly capable and designed for operation in today’s long lateral, pad-oriented environment.
For additional information concerning the potential effects of volatility in oil and gas prices and other industry trends, see Item 1A – “Risk Factors” in Part I of our Annual Report on Form 10-K for the year ended December 31, 2018.2019, filed with the SEC on March 6, 2020, as amended by Form 10-K/A filed with the SEC on April 28, 2020.
Market Conditions and Outlook — Our industry experiencedSince January 2020, the COVID-19 pandemic and fear of further spread of the coronavirus have caused disruptions in international economies and international financial and oil markets, including a severe down cycle from late 2014 through 2016, during which WTIsignificant decline in the price of oil. The economic downturn caused by the COVID-19 pandemic has weakened demand for oil, and after OPEC and a group of other oil-producing nations led by Russia failed on March 6, 2020 to agree on oil production cuts, Saudi Arabia announced that it would cut oil prices dipped below $30 per barreland increase production. In April 2020, OPEC and other oil-producing nations, including Russia, came to an agreement to cut limited amounts of production in early 2016. A modest recoveryMay and June 2020. The market competition between OPEC and non-OPEC countries and the impact of the COVID-19 pandemic simultaneously increased oil supply and decreased global demand for oil. These extreme supply and demand dynamics caused significant crude oil price declines, negatively impacting our industry’s oil producers who responded with significant cuts in their recent and projected spending. We cannot predict whether or when the current imbalance in supply and demand will correct, and when and to what extent crude oil production activities will return to normalized levels.
Additionally, because our business depends on the level of spending by our clients, we are also affected by our clients’ ability to access the capital markets. After several consecutive years without significant improvement in commodity prices, began in the latter half of 2016 with WTI oil prices steadily increasing from just under $50 per barrel at the end of June 2016 to approximately $60 per barrel at the end of 2017. In 2018, WTI oil prices continued to increasemany exploration and production companies have limited their spending to a highlevel which can be supported by net operating cash flows alone, as access to the capital markets through debt or equity financings has become more challenging in our industry. This challenge has increased recently due to the major stock market and bond market indices experiencing substantial declines, with such declines intensifying, and elevated levels of $75 per barrelvolatility, in October, but then decreased to $45 per barrel at the end of 2018. The average WTI oil price in the first quarter of 2019 increased to approximately $55 per barrel.2020.
The trends in spot prices of WTI crude oil and Henry Hub natural gas, and the resulting trends in domestic land rig counts (per Baker Hughes) and domestic well servicing rig counts (per Guiberson/Association of Energy Service Companies) over the last three yearsfrom March 2019 through March 2020 are illustrated in the graphs below.
The trends in commodity pricing and domestic rig counts over the last 12 monthsfrom January through May 2020 are illustratedillustrated below:
The recent commodity price environment and global oversupply of oil has resulted in an oversupply of equipment in our industry, declining rig counts and dayrates, and substantially reduced activity for all our service offerings. Oil and gas exploration and production companies have reduced their previously planned capital spending programs for 2020, thereby reducing demand for our services. In March 2020, many operators began to curtail operations and several of our clients terminated their drilling contracts with us in April and May 2020.
AsAt the end of March 31, 2019, 242020, 15 of our 25 drilling rigs arewere earning revenues, 2011 of which arewere under term contracts, which if not canceled or renewed prior toand 3 more were under contract but with suspended operations. By the end of their terms, will expire as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| Spot Market Contracts | | | | Term Contract Expiration by Period |
| | Total Term Contracts | | Within 6 Months | | 6 Months to 1 Year | | 1 Year to 18 Months | | 18 Months to 2 Years | | 2 to 4 Years |
Domestic rigs | 3 |
| | 14 |
| | 6 |
| | 6 |
| | — |
| | 1 |
| | 1 |
|
International rigs | 1 |
| | 6 |
| | 2 |
| | 1 |
| | 2 |
| | 1 |
| | — |
|
| 4 |
| | 20 |
| | 8 |
| | 7 |
| | 2 |
| | 2 |
| | 1 |
|
Our international drilling contracts are cancelable by our clients without penalty, although the contracts require 15 to 30 days notice and payment for demobilization services. We are actively marketing our idle rig in Colombia, and we also continue to evaluate the possibility of selling some or allMay 2020, 10 of our assetsdrilling rigs were earning revenues, 3 of which were earning but not working, with an aggregate average term remaining of approximately 10 months. Utilization of our production services fleets also dropped significantly in Colombia.
During the quarter ended March 31, 2019, our well servicing rig hours increased by 7%, while the number of wireline jobs completedresponse to recent market conditions, and revenue days forin April 2020, we closed our coiled tubing services were consistent, as compared to the fourth quarter of 2018. However, average revenue rates foroperations and idled all our coiled tubing equipment, which were subsequently placed as held for sale.
While the current industry conditions impacted our results for only the latter portion of the first quarter of 2020, we have experienced and wireline services provided during this same period increased by 15% and 6% (on a per job and per day basis, respectively), while average revenues per hour for our well servicing decreased slightly by 2%. The increase in coiled tubing revenues is primarily attributable to an increaseare projecting continued declines in the proportion of work performed bynear term. We are currently focusing our large-diameter coiled tubing units, which generally earn higher revenue rates as compared to smaller diameter coiled tubing units, while the increases in wireline and well servicing revenues were primarily due to an increase in completion activity.
The level of exploration and production activity within a region can fluctuate due to a variety of factors which may directly or indirectly impact our operations in the region. Despite the recovery of demand experienced in onshore markets, offshore activity remained depressed, and as a result, we exited the offshore wireline and coiled tubing market in the second quarter of 2018. In the Permian Basin, limited takeaway capacity has led to price discountsefforts on crude oil that could continue to impact activity and near-term growth in the region; however, eight of our nine drilling rigs currently operating in this region are under term contracts, which helps to reduce our exposure to the impact of pricing fluctuations in this region. In Colorado, Senate Bill 19-181 was enacted in April, which gives the state’s oil and gas conservation commissionreducing costs and the state’s local governments more authority over oilrealignment of certain businesses, while maintaining essential functions and gas operations, and which could lead to newly imposed regulations that may impede our clients’ ability to operate inreadiness for when the region, and similarly reduce demand for the services that we provide in this region. At the end of March 2019, we were operating eleven wireline units and five well servicing rigs in Colorado, which we believe can be redeployed to other markets should future regulations negatively impact demand.
Although we expect a highly competitive environment to continue in all the areas in which we operate, wemarket improves. We believe our high-quality equipment, and services, and our excellent safety record position us well to compete.compete when our industry recovers.
Liquidity and Capital Resources
Sources of Capital Resources
Our principal sources of liquidity currently consist of:
total cash and cash equivalents ($27.9 million as of March 31, 2019);
cash generated from operations;
proceeds from sales of assets; and
the availability under our asset-based lending facility ($58.7 million as of March 31, 2019).Liquidity Overview
Our asset-based lending facility (the “ABL Facility”) provides for a senior secured revolving asset-based credit facility, with sub-limits for letters of credit, of up to a current aggregate commitment amount of $75 million, subject to availability under a borrowing base generally comprised of a percentage of our accounts receivable and inventory. The ABL Facility is generally set to mature 90 days prior to the maturitycompletion of the Term Loan, subject to certain circumstances, including the future repayment, extinguishment or refinancing of our Term Loan and/or Senior Notes prior to their respective maturity dates.
We have not drawn upon our ABL Facility to date. As of March 31, 2019, we had $9.7 million in committed letters of credit, which, after borrowing base limitations, resulted in borrowing availability of $58.7 million. Borrowings available under the ABL Facility are available for general corporate purposes, and there are no limitations on our ability to access the borrowing capacity provided there is no default and compliance with the covenants under the ABL Facility is maintained. Additional information regarding these covenants is provided in the Debt Compliance Requirements section below.
In the future, we may also consider equity and/or debt offerings, as appropriate, to meet our liquidity needs. On May 22, 2018, we filed a registration statement that permitsChapter 11 Cases has allowed us to sell equity or debt in one or more offerings up to a total dollar amount of $300 million. As of March 31, 2019, the entire $300 million under the shelf registration statement is available for equity or debt offerings, subject to the limitations imposed bysignificantly de-leverage our Term Loan, ABL Facilitybalance sheet, reduce overall indebtedness and Senior Notes.
reduce our future cash interest obligations. We currently expect that cash and cash equivalents, cash generated from operations, proceeds from sales of assets, and available borrowingsfunds under our current ABL Credit Facility are adequate to cover our liquidity requirements for at least the next 12 months. However, our ability to maintain sufficient liquidity and compliance with our debt instruments over the next 12 months is dependent upon the level of demand for our products and services, the level of spending by our clients, our ability to collect our receivables and access borrowings under our current ABL Credit Facility, the supply and demand for oil, oil and gas prices, general economic and market conditions and other factors which are beyond our control.
Our ability to grow, make capital expenditures and service our debt depends primarily upon the level of demand for our products and services, the level of spending by our clients, our ability to collect our receivables and access borrowings under our current ABL Credit Facility, the supply and demand for oil, and oil and gas prices. The market competition between OPEC and non-OPEC countries and the impact of the COVID-19 pandemic has caused significant crude oil price declines, negatively impacting our industry’s oil producers who responded with significant cuts in their recent and projected spending. A continued decrease in the demand for oil, combined with current depressed oil prices, has affected and could continue to negatively affect the amount of cash we generate and have available for capital expenditures and debt service. The decrease in demand for our products and services has resulted in decreased availability under our ABL Credit Facility, which at May 31, 2020 was $20.3 million.
In addition, as a result of current market conditions, certain of our clients are facing financial pressures and liquidity issues. There can be no assurance that one or more of our clients will not delay or default on payments owed to us or file for bankruptcy protection, in which case we may be unable to collect all, or any portion, of the accounts receivable owed to us by such clients. Delays or defaults in payments of accounts receivable owed to us may also adversely affect our borrowing base and our ability to borrow under our ABL Credit Facility.
Sources of Capital Resources
Our principal sources of liquidity currently consist of:
cash and cash equivalents;
cash generated from operations; and
the availability under our current ABL Credit Facility.
In the future, we may also consider equity and/or debt offerings, as appropriate, to meet our liquidity needs. However, our ability to access the capital markets by issuing debt or equity securities will be dependent on market conditions, our financial condition, and other factors beyond our control. Additionally, the current ABL Credit Facility and the indentures for our Convertible Notes and Senior Secured Notes contain covenants that limit our ability to incur additional indebtedness, the incurrence of which would also first require the approval of two of our principal stockholders.
Debtor-in-Possession Financing — On March 3, 2020, with the approval of the Bankruptcy Court, we entered into the DIP Facility and used the proceeds thereunder to refinance all outstanding letters of credit under the Prepetition ABL Facility in connection with the termination of the Prepetition ABL Facility and to pay fees and expenses in connection with the Chapter 11 proceedings and transaction and professional fees related thereto. Upon emergence from Chapter 11 on May 29, 2020, the DIP Facility was paid in full and terminated, and we entered into a new ABL Credit Facility, as described below. For a description of our Prepetition ABL Facility and the DIP Facility, see Note 6, Debt and DIP Financing,of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 Financial Statements.
ABL Credit Facility — On the Effective Date, pursuant to the terms of the Plan, we entered into a senior secured asset-based revolving credit agreement in an aggregate amount of $75 million among us and our domestic subsidiaries as borrowers (the “Borrowers”), the lenders party thereto and PNC Bank, National Association as administrative agent. Among other things, proceeds of loans under the ABL Credit Facility may be used to pay fees and expenses associated with the ABL Credit Facility and finance ongoing working capital and general corporate needs.
The maturity date of loans made under the ABL Credit Facility is the earliest of 90 days prior to maturity of the Senior Secured Notes or the Convertible Notes (both of which are described below in the section entitled Debt Instruments and
Compliance Requirements) and May 29, 2025. Borrowings under the ABL Credit Facility will bear interest at a rate of (i) the LIBOR rate, with a LIBOR rate floor of 0%, plus an applicable margin in the range of 175 to 225 basis points per annum, or (ii) the base rate plus an applicable margin in the range of 75 to 125 basis points per annum, in both cases based on the average excess availability, as defined in the ABL Credit Facility.
The ABL Credit Facility is guaranteed by the Borrowers and is secured by a first lien on the Borrowers’ accounts receivable and inventory, and the cash proceeds thereof, and a second lien on substantially all of the other assets and properties of the Borrowers. The ABL Credit Facility limits our annual capital expenditures to 125% of the budget set forth in the projections for any fiscal year and provides that if our availability falls below $11.25 million (15% of the maximum revolver amount), we will be required to comply with a fixed charge coverage ratio of 1.0 to 1.0, all of which is defined in the ABL Credit Facility. If compliance with the fixed charge coverage ratio were required as of the date hereof, we do not expect, based on our current performance, that we would be in compliance with such ratio, which would constitute a default under the ABL Credit Facility and cause cross-defaults of our other debt instruments.
As of May 31, 2020, we had no borrowings and approximately $7.1 million in outstanding letters of credit under the ABL Credit Facility and subject to the availability requirements in the ABL Credit Facility, based on eligible accounts receivable and inventory balances at May 31, 2020, availability under the ABL Credit Facility was $20.3 million, which our access to would be limited by our requirement to maintain 15% available or comply with a fixed charge coverage ratio, as described above.
Uses of Capital Resources
Our principal liquidity requirements are currently for:
working capital needs;
debt service;capital expenditures; and
debt service.
Our working capital expenditures.
Our operations have historically generated cash flows sufficientneeds typically fluctuate in relation to meet our requirements for debt serviceactivity and normal capital expenditures. However,pricing. Following a sustained period of low activity, our working capital requirementsneeds generally increase during periods when rig construction projectsas we invest in reactivating previously idle equipment and in purchases of inventory and supplies for expected increasing activity. Our capital requirements to maintain our equipment also fluctuate in relation to activity, and increase following a period of sustained low activity. Our capital requirements are in progress oralso increased during periods of expansion, in our production services business, at which times we have been more likely to access capital through equity or debt financing. Additionally, our working capital needs may increase in periods of increasing activity following a sustained period of low activity. During periods of sustained low activity and pricing, when our cash flow from operations are negatively impacted, we may also access additional capital through the use of available funds under ourthe ABL Credit Facility.
Working Capital — Our working capital was $103.7 million at March 31, 2019, compared to $110.3 million at December 31, 2018. Ourand current ratio, which we calculate by dividing current assets by current liabilities, was 2.0 atas follows as of March 31, 2019, as compared to 2.1 at2020 and December 31, 2018. The changes in the components of our working capital were as follows2019 (amounts in thousands), and as described below:thousands, except current ratio):
|
| | | | | | | | | | | |
| March 31, 2019 | | December 31, 2018 | | Change |
Cash and cash equivalents | $ | 26,855 |
| | $ | 53,566 |
| | $ | (26,711 | ) |
Restricted cash | 998 |
| | 998 |
| | — |
|
Receivables: | | | | | |
Trade, net of allowance for doubtful accounts | 90,816 |
| | 76,924 |
| | 13,892 |
|
Unbilled receivables | 27,535 |
| | 24,822 |
| | 2,713 |
|
Insurance recoveries | 23,427 |
| | 23,656 |
| | (229 | ) |
Other receivables | 6,307 |
| | 5,479 |
| | 828 |
|
Inventory | 20,229 |
| | 18,898 |
| | 1,331 |
|
Assets held for sale | 4,794 |
| | 3,582 |
| | 1,212 |
|
Prepaid expenses and other current assets | 7,307 |
| | 7,109 |
| | 198 |
|
Current assets | 208,268 |
| | 215,034 |
| | (6,766 | ) |
Accounts payable | 38,163 |
| | 34,134 |
| | 4,029 |
|
Deferred revenues | 1,659 |
| | 1,722 |
| | (63 | ) |
Accrued expenses: | | | | | |
Payroll and related employee costs | 24,699 |
| | 24,598 |
| | 101 |
|
Insurance claims and settlements | 22,819 |
| | 23,593 |
| | (774 | ) |
Insurance premiums and deductibles | 5,543 |
| | 5,482 |
| | 61 |
|
Interest | 1,460 |
| | 6,148 |
| | (4,688 | ) |
Other | 10,233 |
| | 9,091 |
| | 1,142 |
|
Current liabilities | 104,576 |
| | 104,768 |
| | (192 | ) |
Working capital | $ | 103,692 |
| | $ | 110,266 |
| | $ | (6,574 | ) |
|
| | | | | | | | | | | |
| March 31, 2020 | | December 31, 2019 | | Change |
Current assets | $ | 150,951 |
| | $ | 182,912 |
| | $ | (31,961 | ) |
Current liabilities | 93,028 |
| | 91,581 |
| | 1,447 |
|
Working capital | $ | 57,923 |
| | $ | 91,331 |
| | $ | (33,408 | ) |
Current ratio | 1.6 |
| | 2.0 |
| | (0.4 | ) |
CashOur current assets decreased by $32.0 million during 2020, primarily related to a $14.9 million decrease in total trade and cash equivalents— The changeunbilled receivables, a $9.2 million decrease in cash and cash equivalents, during 2019 is primarily due to $16.8and a $5.2 million of cash used for the purchase of property and equipment as well as $10.8 million of cash useddecrease in operating activities, offset slightly by $1.0 million of proceeds from the sale of property and equipment.
other receivables.Trade and unbilled receivables—The net increasedecrease in our total trade and unbilled receivables during 20192020 is primarily due to lengthened collection cycles in our domestic segments, the timing of the billing and collection cycles for long-term drilling contracts in Colombia, and the 4% increase12% decrease in our revenues during the quarter ended March 31, 2019,2020, as compared to the quarter ended December 31, 2018.2019. Our domestic trade receivables generally turn over within 60 days, and our Colombian trade receivables generally turn over within 120 days.
Inventory — The increasedecrease in inventorycash and cash equivalents during 20192020 is primarily due to an increase$7.5 million of cash used for the purchase of property and equipment and $5.4 million of cash used in inventoryoperating activities, offset in part by $4.0 million of proceeds from the issuance of our DIP facility.
The decrease in other receivables during 2020 is primarily due to the decrease in recoverable taxes for our international operations as credits were applied during 2020 to reduce import taxes payable.
Our current liabilities increased by $1.4 million during 2020, primarily related to the $9.6 million Commitment Premium liability incurred pursuant to the Backstop Commitment Agreement entered into in February 2020 and purchases$4.0 million of supplies and job materials forborrowings under our wireline operations.
Assets held for sale— As of March 31, 2019 and December 31, 2018, our condensed consolidated balance sheet reflects assets held for sale of $4.8 million and $3.6 million, respectively, which includes the fair value of one domestic SCR drilling rig and related spare equipment and three coiled tubing units. Additionally, our March 31, 2019 assets held for sale also includes the fair value of a building for one closed wireline location, 12 wireline units and spare coiled tubing equipment which were designated as held for sale in the first quarter of 2019. ForDIP Facility. (For additional information concerning our bankruptcy proceedings under Chapter 11, see Note 4,2, PropertyChapter 11 Cases and EquipmentSubsequent Events,of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 Financial Statements, of this Quarterly Report on Form 10-Q.
Accounts payable — Our.) These increases more than offset a $5.3 million decrease in accrued interest expense as well as decreases in accounts payable generally turn over within 90 days. and accrued employee compensation, as described further below.
Our accrued interest decreased during 2020 because the Senior Notes stopped accruing interest as of March 1, 2020, in accordance with the terms of the Plan.
The increase$3.8 million decrease in accounts payable during 20192020 is primarily due to lengthened payment cycles, the 4% increase7% decrease in our operating costs for the quarter ended March 31, 20192020 as compared to the quarter ended December 31, 2018, and a $1.5 million increase in our accruals for capital expenditures.
Accrued payroll and related employee costs — The change in accrued payroll and related employee costs during 2019 primarily resulted from an increase in accrued costs due toas well as the timing of pay periodspayments at each period-end.
The decrease in accrued employee compensation and related costs during 2020 resulted from a decrease in annualaccrued cash incentive compensation associated with the $3.5 million payment of 2018 annualfourth quarter 2019 bonuses, which were fully accrued at December 31, 2018 and were paid in the first quarter of 2019.
Accrued interest— The decrease in accrued interest expense during 2019 is primarily due to2020, and the payment of interest on our Senior Notes which is due semi-annually on March 15 and September 15.
Other accrued expenses— The increase in other accrued expenses during 2019 is primarily due to the recognition of $2.5 million of current operating lease liabilities upon our adoption of ASU No. 2016-02, Leases, and its related amendments, as of January 1, 2019. For additional information about adoption of this standard, see Note 1, Organization and Summary of Significant Accounting Policies and Note 3, Leases, of the Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q. The increase is partially offset, however, by a decrease in property and sales tax accruals due to the timing of payments.
Debt and Other Contractual Obligations — The following table includes information about the amount and timingsuspension of our contractual obligations at March 31, 2019 (amounts are undiscounted and in thousands):
|
| | | | | | | | | | | | | | | | | | | |
| Payments Due by Period |
Contractual Obligations | Total | | Within 1 Year | | 2 to 3 Years | | 4 to 5 Years | | Beyond 5 Years |
Debt | $ | 475,000 |
| | $ | — |
| | $ | 475,000 |
| | $ | — |
| | $ | — |
|
Interest on debt | 104,213 |
| | 36,225 |
| | 67,988 |
| | — |
| | — |
|
Purchase commitments | 9,679 |
| | 9,679 |
| | — |
| | — |
| | — |
|
Operating leases | 10,542 |
| | 2,878 |
| | 3,806 |
| | 2,362 |
| | 1,496 |
|
Incentive compensation | 23,630 |
| | 8,370 |
| | 11,824 |
| | 3,436 |
| | — |
|
| $ | 623,064 |
| | $ | 57,152 |
| | $ | 558,618 |
| | $ | 5,798 |
| | $ | 1,496 |
|
Debt — Debt obligations at March 31, 2019 consist of $300 million of principal amount outstanding under our Senior Notes which mature on March 15, 2022 and $175 million of principal amount outstanding under our Term Loan which is expected to mature December 14, 2021. As of March 31, 2019, we had no debt outstanding under our ABL Facility.
Interest on debt— Interest payment obligations on our Senior Notes are calculated based on the coupon interest rate of 6.125% due semi-annually in arrears on March 15 and September 15 of each year until maturity on March 15, 2022. Interest payment obligations on our Term Loan were estimated based on (1) the 10.2% interest rate that was in effect at March 31, 2019, and (2) the principal balance of $175 million at March 31, 2019, and assuming repayment of the outstanding balance occurs at December 14, 2021.
Purchase commitments — Purchase commitments generally relate to capital projects for the repair, upgrade and maintenance of our equipment, the construction or purchase of new equipment, and purchase orders for various job and inventory supplies. At March 31, 2019, our purchase commitments primarily pertain to $3.6 million of service equipment for our coiled tubing operations and $2.7 million of inventory and job supplies for our coiled tubing operations. Other purchase commitments include drilling equipment on order as well as various refurbishments and upgrades to our drilling and production services fleets.
Operating leases — Our operating lease obligations relate to long-term lease agreements for office space, operating facilities, field personnel housing, and office equipment.
Incentive compensation — Incentive compensation is payable to our employees, generally contingent upon their continued employment through the date of each respective award’s payout. A portion of our long-term incentive compensation is performance-based and therefore the final amount will be determined based on our actual performance relative to a pre-determined peer group over the performance period. In April 2019, we determined that 175% of the target number of phantom stock unit awards granted during 2016 were earned based on the Company’s achievement of the performance measures, as compared to the predefined peer group, which resulted in an aggregate cash payment of $3.5 million to settle these awards, and which is includedplan beginning in the table above as an obligation due within one year.
Debt Compliance Requirements — The following is a summaryfirst quarter of our debt compliance requirements including covenants, restrictions and guarantees, all of which are described in more detail in Note 6, Debt, and Note 12, Guarantor/Non-Guarantor
Condensed Consolidating Financial Statements, of the Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
The Term Loan contains a financial covenant requiring the ratio of (i) the net orderly liquidation value of our fixed assets (based on appraisals obtained as required by our lenders), on a consolidated basis, in which the lenders under the Term Loan maintain a first priority security interest, plus proceeds of asset dispositions not required to be used to effect a prepayment of the Term Loan to (ii) the outstanding principal amount of the Term Loan, to be at least equal to 1.50 to 1.00 as of any June 30 or December 31 of any calendar year through maturity. As of December 31, 2018, the asset coverage ratio, as calculated under the Term Loan, was 2.36 to 1.00.
The Term Loan contains customary mandatory prepayments from the proceeds of certain transactions including certain asset dispositions and debt issuances, and has additional customary restrictions that limit our ability to enter into various transactions. In addition, the Term Loan contains customary events of default, upon the occurrence and during the continuation of any of which the applicable margin would increase by 2% per year. Our obligations under the Term Loan are guaranteed by our wholly-owned domestic subsidiaries, and are secured by substantially all of our domestic assets, in each case, subject to certain exceptions and permitted liens.
The ABL Facility also contains customary restrictive covenants which, subject to certain exceptions, limit, among other things, our ability to enter into certain transactions. Additionally, if our availability under the ABL Facility is less than 15% of the maximum amount (or $11.25 million), we are required to maintain a minimum fixed charge coverage ratio, as defined in the ABL Facility, of at least 1.00 to 1.00, measured on a trailing 12 month basis.
Our obligations under the ABL Facility are guaranteed by us and our domestic subsidiaries, subject to certain exceptions, and are secured by (i) a first-priority perfected security interest in all inventory and cash, and (ii) a second-priority perfected security in substantially all of our tangible and intangible assets, in each case, subject to certain exceptions and permitted liens.
The Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by certain of our existing domestic subsidiaries and by certain of our future domestic subsidiaries. The subsidiaries that generally operate our non-U.S. business concentrated in Colombia do not guarantee our Senior Notes. Our Senior Notes are not subject to any sinking fund requirements. The Indenture governing our Senior Notes contains additional restrictive covenants that limit our ability to enter into various transactions.
As of March 31, 2019, we were in compliance with all covenants required by our Term Loan, ABL Facility and Senior Notes.2020.
Capital Expenditures — During the three months ended March 31, 2019,2020, we spent $16.8$7.5 million on purchases of property and equipment and placed into service property and equipment of $18.4$7.9 million. Currently, we expect to spend approximately $55a total of $15 million to $60$17 million on capital expenditures during 2019, which includes approximately $7 millionfor final payments on the construction of the new-build drilling rig that began operations in the first quarter, and previous commitments on high-pressure pump packages for coiled tubing completion operations.
2020. Actual capital expenditures may vary depending on the climate of our industry and any resulting increase or decrease in activity levels, the timing of commitments and payments, availability of capital resources, and the level of rig build and other expansioninvestment opportunities that meet our strategic and return on capital employed criteria. We expect to fund the remaining capital expenditures in 20192020 from operating cash flow in excess of our working capital requirements, although proceeds from sales of assets, remaining proceeds from our Term Loan issuance, and available borrowings under our ABL Credit Facility are also available, if necessary.
Debt Instruments and Compliance Requirements— As of March 1, 2020, we were in default under our Term Loan, Prepetition ABL Facility, and Senior Notes. Filing the Chapter 11 Cases accelerated our Term Loan, Prepetition ABL Facility, and Senior Notes obligations. Additionally, events of default under the credit agreements governing our Term Loan and Prepetition ABL Facility and the indenture governing our Senior Notes occurred, including as a result of cross-defaults between such credit agreements and indenture. However, any efforts to enforce such payment obligations were automatically stayed under the provisions of the Bankruptcy Code. On the Effective Date, all applicable agreements governing the obligations under the Term Loan, Senior Notes and Prepetition ABL Facility were terminated. The Term Loan and Prepetition ABL Facility were paid in full and all outstanding obligations under the Senior Notes were canceled in exchange for 94.25% of the proforma common equity (subject to the dilution from the Convertible Notes and new management incentive plan).
On the Effective Date, we entered into a $75 million senior secured asset-based revolving credit agreement (the “ABL Credit Facility”), and issued $129.8 million of aggregate principal amount of 5% convertible senior unsecured pay-in-kind notes due 2025 (the “Convertible Notes”) and $78.1 million of aggregate principal amount of floating rate senior secured notes due 2025 (the “Senior Secured Notes”). The proceeds from the issuance of the Convertible Notes and the Senior Secured Notes were used to repay the outstanding Term Loan.
The following is a summary of our debt instruments and compliance requirements including covenants, restrictions and guarantees, as it relates to our Convertible Notes and Senior Secured Notes, and a summary of our ABL Credit Facility is included in the above section entitled ABL Credit Facility.As of May 31, 2020, we were in compliance with all covenants required by our debt instruments. However, our ability to maintain compliance with our debt instruments is dependent upon the level of demand for our products and services, the level of spending by our clients, the supply and demand for oil, oil and gas prices, general economic and market conditions and other factors which are beyond our control.
Convertible Notes Indenture and Convertible Notes due 2025. We entered into an indenture, dated as of the Effective Date, among the Company and Wilmington Trust, N.A., as trustee (the “Convertible Notes Indenture”), and issued $129.8 million aggregate principal amount of convertible senior unsecured pay-in-kind notes due 2025 thereunder.
The Convertible Notes are general unsecured obligations which will mature on November 15, 2025, unless earlier accelerated, redeemed, converted or repurchased, and bear interest at a fixed rate of 5% per annum, which will be payable semi-annually in-kind in the form of an increase to the principal amount.
The Convertible Notes are convertible at the option of the holders at any time into shares of our common stock and will convert mandatorily into our common stock at maturity; provided, however, that if the value of our common stock otherwise deliverable in connection with a mandatory conversion of a Convertible Note on the maturity date would be less than the principal amount of such Convertible Note plus accrued and unpaid interest, then the Convertible Note will instead convert into an amount of cash equal to the principal amount thereof plus accrued and unpaid interest. The initial conversion rate is 75 shares of common stock per $1,000 principal amount of the Convertible Notes. The conversion rate is subject to customary anti-dilution adjustments.
If we undergo a “fundamental change” as defined in the Convertible Notes Indenture, subject to certain conditions, holders may require us to repurchase all or any portion of their Convertible Notes for cash at an amount equal to 100% of the principal amount of the Convertible Notes to be repurchased plus any accrued and unpaid interest. In the case of certain fundamental change events that constitute merger events (as defined in the Convertible Notes Indenture), we have a superseding right to cause the mandatory conversion of all or part of the Convertible Notes into a number of shares of common stock, per $1,000 principal amount of Convertible Notes, equal to the then-current conversion rate or the cash value of such number of shares of common stock (but not less than the principal amount).
Holders of Convertible Notes are entitled to vote on all matters on which holders of our common stock generally are entitled to vote (or, if any, to take action by written consent of the holders of our common stock), voting together as a single class together with the shares of our common stock and not as a separate class, on an as-converted basis, at any annual or special meeting of holders of our common stock and each holder is entitled to such number of votes as such holder would receive on an as-converted basis on the record date for such vote.
The Convertible Notes Indenture contains covenants that limit our ability and the ability of certain of our subsidiaries to incur, assume or guarantee additional indebtedness and create liens and enter into mergers or consolidations.
The Convertible Notes Indenture contains customary events of default. In the case of an event of default arising from certain events of bankruptcy, insolvency or other similar law, with respect to us or any of our significant subsidiaries, all outstanding Convertible Notes will become due and payable immediately without further action or notice. If any other event of default occurs and is continuing, then the trustee or the holders of at least 25% in aggregate principal amount of the Convertible Notes then outstanding may declare the Convertible Notes due and payable immediately.
The Convertible Notes Indenture provides, subject to certain exceptions, that for so long as our common stock is registered under the Securities Exchange Act of 1934 (the “Exchange Act”), a beneficial owner of the Convertible Notes is not entitled to receive shares of our common stock upon an optional conversion of any Convertible Notes during any period of time in which the aggregate number of shares of our common stock that may be acquired by such beneficial owner upon conversion of Convertible Notes shall, when added to the aggregate number of shares of our common stock deemed beneficially owned, directly or indirectly, by such beneficial owner and each person subject to aggregation of our common stock with such beneficial owner under Section 13 or Section 16 of the Exchange Act at such time, exceed 9.99% of the total issued and outstanding shares of our common stock. Certain of the holders of Convertible Notes opted out of this provision at the Effective Date.
Senior Secured Notes Indenture and Senior Secured Notes due 2025. We entered into an indenture, dated as of the Effective Date, among the Company, the subsidiary guarantors party thereto and Wilmington Trust, N.A., as trustee (the “Senior Secured Notes Indenture”), and issued $78.1 million aggregate principal amount of floating rate senior secured notes due 2025 thereunder. The Senior Secured Notes are guaranteed on a senior secured basis by our existing subsidiaries that also guarantee our obligations under the ABL Credit Facility (the “Guarantors”) on a full and unconditional basis and are secured by a second lien on the accounts receivable and inventory and a first lien on substantially all of the other assets and properties (including the cash proceeds thereof) of the Company and the Guarantors.
The Senior Secured Notes will mature on May 15, 2025 and interest will accrue at the rate of LIBOR plus 9.5% per annum, with a LIBOR rate floor of 1.5%, payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, commencing on August 15, 2020. With respect to any interest payment due on or prior to May 29, 2021, 50% of the interest will be payable in cash and 50% of the interest will be paid in-kind in the form of an increase to the principal amount; however, a majority in interest of the holders of the Senior Secured Notes may elect to have 100% of the interest due on or prior to May 29, 2021 payable in-kind. For all interest periods commencing on or after May 15, 2024, the interest rate for the Senior Secured Notes will be a rate equal to LIBOR plus 10.5%, with a LIBOR rate floor of 1.5%.
We may redeem all or part of the Senior Secured Notes on or after June 1, 2021 at redemption prices (expressed as percentages of the principal amount) equal to (i) 104% for the twelve-month period beginning on June 1, 2021; (ii) 102% for the twelve-month period beginning on June 1, 2022; (iii) 101% for the twelve-month period beginning on June 1, 2023 and (iii) 100% for the twelve-month period beginning June 1, 2024 and at any time thereafter, plus accrued and unpaid interest at the redemption date. Notwithstanding the foregoing, if a change of control (as defined in the Senior Secured Notes Indenture) occurs prior to June 1, 2022, we may elect to purchase all remaining outstanding Senior Secured Notes not tendered to us as described below at a redemption price equal to 103% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the applicable redemption date. If a change of control (as defined in the Senior Secured Notes Indenture) occurs, holders of the Senior Secured Notes will have the right to require us to repurchase all or any part of their Senior Secured Notes at a purchase price equal to 101% of the aggregate principal amount of the Senior Secured Notes repurchased, plus accrued and unpaid interest, if any, to the repurchase date.
The Senior Secured Notes Indenture contains covenants that limit, among other things, our ability and the ability of certain of our subsidiaries, to incur, assume or guarantee additional indebtedness; pay dividends or distributions on capital stock or redeem or repurchase capital stock; make investments; repay junior debt; sell stock of our subsidiaries; transfer or sell assets; enter into sale and lease back transactions; create liens; enter into transactions with affiliates; and enter into mergers or consolidations. The Senior Secured Notes Indenture contains a minimum asset coverage ratio of 1.5 to 1.0 as of any June 30 or December 31. The Senior Secured Notes Indenture also provides for certain customary events of default, including, among others, nonpayment of principal or interest, breach of covenants, failure to pay final judgments in excess of a specified threshold, failure of a guarantee to remain in effect, failure of a security document to create an effective security interest in collateral, bankruptcy and insolvency events, and cross acceleration, which would permit the principal, premium, if any, interest and other monetary obligations on all the then outstanding Senior Secured Notes to be declared due and payable immediately.
Results of Operations
Statements of Operations Analysis
The following table provides certain information about our operations, including details of each of our business segments’ revenues, operating costs and gross margin, and the percentage of the consolidated amount of each which is attributable to each business segment, for the three months ended March 31, 20192020 and 20182019 (amounts in thousands, except percentages):
| | | Three months ended March 31, | Three months ended March 31, |
| 2019 | | 2018 | 2020 | | 2019 |
Revenues: | | | | | | | | | | | | | | |
Domestic drilling | $ | 38,009 |
| | 26 | % | | $ | 35,926 |
| | 25 | % | $ | 35,891 |
| | 31 | % | | $ | 38,009 |
| | 26 | % |
International drilling | 21,643 |
| | 15 | % | | 17,611 |
| | 12 | % | 14,455 |
| | 13 | % | | 21,643 |
| | 15 | % |
Drilling services | 59,652 |
| | 41 | % | | 53,537 |
| | 37 | % | 50,346 |
| | 44 | % | | 59,652 |
| | 41 | % |
Well servicing | 26,254 |
| | 18 | % | | 21,114 |
| | 15 | % | 25,616 |
| | 22 | % | | 26,254 |
| | 18 | % |
Wireline services | 45,874 |
| | 31 | % | | 56,601 |
| | 39 | % | 33,133 |
| | 29 | % | | 45,874 |
| | 31 | % |
Coiled tubing services | 14,788 |
| | 10 | % | | 13,226 |
| | 9 | % | 5,227 |
| | 5 | % | | 14,788 |
| | 10 | % |
Production services | 86,916 |
| | 59 | % | | 90,941 |
| | 63 | % | 63,976 |
| | 56 | % | | 86,916 |
| | 59 | % |
Consolidated revenues | $ | 146,568 |
| | 100 | % | | $ | 144,478 |
| | 100 | % | $ | 114,322 |
| | 100 | % | | $ | 146,568 |
| | 100 | % |
| | | | | | | | | | | | | | |
Operating costs: | | | | | | | | | | | | | | |
Domestic drilling | $ | 22,469 |
| | 21 | % | | $ | 20,898 |
| | 20 | % | $ | 23,865 |
| | 26 | % | | $ | 22,469 |
| | 21 | % |
International drilling | 16,485 |
| | 15 | % | | 12,961 |
| | 13 | % | 12,138 |
| | 13 | % | | 16,485 |
| | 15 | % |
Drilling services | 38,954 |
| | 36 | % | | 33,859 |
| | 33 | % | 36,003 |
| | 39 | % | | 38,954 |
| | 36 | % |
Well servicing | 18,896 |
| | 17 | % | | 15,570 |
| | 15 | % | 20,951 |
| | 23 | % | | 18,896 |
| | 17 | % |
Wireline services | 39,347 |
| | 36 | % | | 42,486 |
| | 41 | % | 28,284 |
| | 31 | % | | 39,347 |
| | 36 | % |
Coiled tubing services | 11,388 |
| | 11 | % | | 10,851 |
| | 11 | % | 6,784 |
| | 7 | % | | 11,388 |
| | 11 | % |
Production services | 69,631 |
| | 64 | % | | 68,907 |
| | 67 | % | 56,019 |
| | 61 | % | | 69,631 |
| | 64 | % |
Consolidated operating costs | $ | 108,585 |
| | 100 | % | | $ | 102,766 |
| | 100 | % | $ | 92,022 |
| | 100 | % | | $ | 108,585 |
| | 100 | % |
| | | | | | | | | | | | | | |
Gross margin: | | | | | | | | | | | | | | |
Domestic drilling | $ | 15,540 |
| | 41 | % | | $ | 15,028 |
| | 36 | % | $ | 12,026 |
| | 54 | % | | $ | 15,540 |
| | 41 | % |
International drilling | 5,158 |
| | 14 | % | | 4,650 |
| | 11 | % | 2,317 |
| | 10 | % | | 5,158 |
| | 14 | % |
Drilling services | 20,698 |
| | 55 | % | | 19,678 |
| | 47 | % | 14,343 |
| | 64 | % | | 20,698 |
| | 55 | % |
Well servicing | 7,358 |
| | 19 | % | | 5,544 |
| | 13 | % | 4,665 |
| | 21 | % | | 7,358 |
| | 19 | % |
Wireline services | 6,527 |
| | 17 | % | | 14,115 |
| | 34 | % | 4,849 |
| | 22 | % | | 6,527 |
| | 17 | % |
Coiled tubing services | 3,400 |
| | 9 | % | | 2,375 |
| | 6 | % | (1,557 | ) | | (7 | )% | | 3,400 |
| | 9 | % |
Production services | 17,285 |
| | 45 | % | | 22,034 |
| | 53 | % | 7,957 |
| | 36 | % | | 17,285 |
| | 45 | % |
Consolidated gross margin | $ | 37,983 |
| | 100 | % | | $ | 41,712 |
| | 100 | % | $ | 22,300 |
| | 100 | % | | $ | 37,983 |
| | 100 | % |
| | | | | | | | | | | | | | |
Consolidated: | | | | | | | | | | | | | | |
Net loss | $ | (15,115 | ) | | | | $ | (11,139 | ) | | | $ | (69,104 | ) | | | | $ | (15,115 | ) | | |
Adjusted EBITDA (1) | $ | 19,922 |
| | | | $ | 23,409 |
| | | $ | 2,090 |
| | | | $ | 19,922 |
| | |
(1) Adjusted EBITDA represents income (loss) before interest expense, income tax (expense) benefit, depreciation and amortization, pre-petition restructuring charges, impairment, reorganization items, and any loss on extinguishment of debt. Adjusted EBITDA is a non-GAAP measure that our management uses to facilitate period-to-period comparisons of our core operating performance and to evaluate our long-term financial performance against that of our peers. We believe that this measure is useful to investors and analysts in allowing for greater transparency of our core operating performance and makes it easier to compare our results with those of other companies within our industry. Adjusted EBITDA should not be considered (a) in isolation of, or as a substitute for, net income (loss), (b) as an indication of cash flows from operating activities or (c) as a measure of liquidity. In addition, Adjusted EBITDA does not represent funds available for discretionary use. Adjusted EBITDA may not be comparable to other similarly titled measures reported by other companies.
A reconciliation of net loss, as reported, to Adjusted EBITDA, and to consolidated gross margin, are set forth in the following table:
| | | Three months ended March 31, | Three months ended March 31, |
| 2019 | | 2018 | 2020 | | 2019 |
| (amounts in thousands) | (amounts in thousands) |
Net loss | $ | (15,115 | ) | | $ | (11,139 | ) | $ | (69,104 | ) | | $ | (15,115 | ) |
Depreciation | 22,653 |
| | 23,747 |
| 21,984 |
| | 22,653 |
|
Pre-petition restructuring charges | | 17,074 |
| | — |
|
Impairment | 1,046 |
| | — |
| 17,853 |
| | 1,046 |
|
Reorganization items | | 6,663 |
| | — |
|
Interest expense | 9,885 |
| | 9,513 |
| 8,651 |
| | 9,885 |
|
Income tax expense | 1,453 |
| | 1,288 |
| |
Income tax expense (benefit) | | (1,031 | ) | | 1,453 |
|
Adjusted EBITDA | 19,922 |
| | 23,409 |
| 2,090 |
| | 19,922 |
|
General and administrative | 19,758 |
| | 19,194 |
| 14,655 |
| | 19,758 |
|
Bad debt expense (recovery), net | 62 |
| | (52 | ) | |
Bad debt expense, net of recovery | | 727 |
| | 62 |
|
Gain on dispositions of property and equipment, net | (1,075 | ) | | (335 | ) | (717 | ) | | (1,075 | ) |
Other income | (684 | ) | | (504 | ) | |
Other expense (income) | | 5,545 |
| | (684 | ) |
Consolidated gross margin | $ | 37,983 |
| | $ | 41,712 |
| $ | 22,300 |
| | $ | 37,983 |
|
Consolidated gross margin — Our consolidated gross margin decreased by $3.7$15.7 million, or 9%41%, for the three months ended March 31, 20192020 as compared to the corresponding period in 2018,2019, due to athe decline in demand foracross all our service offerings, most significantly impacting our coiled tubing and wireline services, despite an increase in gross margin for all our other business segments. The $3.7 million overall decrease in consolidated gross marginwhich are heavily completion-oriented businesses, while well servicing maintenance work was net of a $3.9 million combined increase in gross margin forrelatively steady and the impact on our drilling services, well servicing, and coiled tubing services segments.operations was mitigated by the longer term nature of the operations, typically supported by term contracts.
Drilling Services — Our drilling services revenues increasedand operating costs decreased by $6.1$9.3 million, or 11%16%, and $3.0 million, or 8%, respectively, for the three months ended March 31, 20192020 as compared to the corresponding period in 2018, while operating costs increased by $5.1 million, or 15%. The increases in our drilling services revenues and operating costs are primarily due to higher dayrates, a 7% increase in utilization of our international drilling fleet, and the deployment of our newest AC drilling rig in March 2019. The following table provides operating statistics for each of our drilling services segments:
| | | Three months ended March 31, | Three months ended March 31, |
| 2019 | | 2018 | 2020 | | 2019 |
Domestic drilling: | | | | | | |
Average number of drilling rigs | 16 |
| | 16 |
| 17 |
| | 16 |
|
Utilization rate | 97 | % | | 100 | % | 89 | % | | 97 | % |
Revenue days | 1,420 |
| | 1,440 |
| 1,382 |
| | 1,420 |
|
| | | | | | |
Average revenues per day | $ | 26,767 |
| | $ | 24,949 |
| $ | 25,970 |
| | $ | 26,767 |
|
Average operating costs per day | 15,823 |
| | 14,513 |
| 17,268 |
| | 15,823 |
|
Average margin per day | $ | 10,944 |
| | $ | 10,436 |
| $ | 8,702 |
| | $ | 10,944 |
|
| | | | | | |
International drilling: | | | | | | |
Average number of drilling rigs | 8 |
| | 8 |
| 8 |
| | 8 |
|
Utilization rate | 81 | % | | 76 | % | 43 | % | | 81 | % |
Revenue days | 580 |
| | 550 |
| 315 |
| | 580 |
|
| | | | | | |
Average revenues per day | $ | 37,316 |
| | $ | 32,020 |
| $ | 45,889 |
| | $ | 37,316 |
|
Average operating costs per day | 28,422 |
| | 23,565 |
| 38,533 |
| | 28,422 |
|
Average margin per day | $ | 8,894 |
| | $ | 8,455 |
| $ | 7,356 |
| | $ | 8,894 |
|
Our domestic drilling average revenues and margin per day decreased for the three months ended March 31, 2019 increased2020 as compared to the corresponding period in 2018,2019, primarily due to an increasethe 8% decrease in utilization and the decline in dayrates on newrenewed and extendedrenegotiated contracts in 2018 and 2019, except for four rigs that re-priced downward in 2018 from historically high pre-downturn rates. Our average domestic drilling revenues and operating costs per day for the three months ended March 31, 2019 also increased from the corresponding period in 2018 partially due to an increase in mobilization activity during the first quarter oflate 2019.
Our margin per day during the The first quarter of 2019 also benefited from $0.4 million of revenues associated with the early termination of one of our drilling contracts in February 2019.
Our internationaldomestic drilling average revenues, operating costs and margin per day increased for the three months ended March 31, 2019,2020 as compared to the corresponding period in 2018,2019, primarily due to thean increase in utilizationmobilization costs associated with higher mobilization activity in 2020, for
which there are no associated revenue days, and increasing dayrates. increased amortization of deferred mobilization costs for rigs deployed under new contracts in the second half of 2019.
Our international drilling operations experienced a 47% decrease in utilization, while average marginrevenues and operating costs per day also increased for the three months ended March 31, 20192020 as compared to the corresponding period in 2018,2019, as certain customers terminated or suspended drilling contracts in part dueresponse to additionalthe recent decline in industry conditions, which also resulted in an increase in rig demobilization activity, for which revenues and costs incurredare higher than daywork activity, and for which there are no associated revenue days. The decline in utilization combined with an increase in rig standby and demobilization costs contributed to deploy a previously idle rigthe decrease in the first quarter of 2018.average margin per day.
Production Services — Our revenues and operating costs from production services decreased by $4.0$22.9 million, or 4%26%, and $13.6 million, or 20%, for the three months ended March 31, 20192020 as compared to the corresponding period in 2018, while operating costs increased only marginally. The decrease in revenue is a result of the decreased demand for wireline completion services, for which the decrease was partially offset by increases in demand for both our well servicing and coiled tubing services, which experienced 24% and 12% increases in revenue, respectively.2019. The following table provides operating statistics for each of our production services segments:
| | | Three months ended March 31, | Three months ended March 31, |
| 2019 | | 2018 | 2020 | | 2019 |
Well servicing: | | | | | | |
Average number of rigs | 125 |
| | 125 |
| 123 |
| | 125 |
|
Utilization rate | 54 | % | | 47 | % | 51 | % | | 54 | % |
Rig hours | 47,064 |
| | 40,774 |
| 44,232 |
| | 47,064 |
|
Average revenue per hour | $ | 558 |
| | $ | 518 |
| $ | 579 |
| | $ | 558 |
|
| | | | | | |
Wireline services: | | | | | | |
Average number of units | 105 |
| | 110 |
| 93 |
| | 105 |
|
Number of jobs | 2,342 |
| | 2,830 |
| |
Average revenue per job | $ | 19,588 |
| | $ | 20,000 |
| |
Number of stages | | 6,070 |
| | 6,695 |
|
| | | | | | |
Coiled tubing services: | | | | | | |
Average number of units | 9 |
| | 14 |
| 9 |
| | 9 |
|
Revenue days | 351 |
| | 414 |
| 206 |
| | 351 |
|
Average revenue per day | $ | 42,131 |
| | $ | 31,947 |
| $ | 25,374 |
| | $ | 42,131 |
|
Our well servicing rig hours decreased by 6%, while average revenues per hour increased by 4% for the three months ended March 31, 2020 as compared to the corresponding period in 2019. Although overall activity declined, especially in March 2020, average revenues per hour increased during the period as a result of an increase in the proportion of revenue earned in regions where the pricing for our services is higher, as well as slight pricing improvement throughout 2019.
Our wireline services business segment experienced a 17% decreasedecreases of 9% and 15% in the number of jobs completed,perforating stages performed and a 2% decrease in average revenue per jobstage, respectively, for the three months ended March 31, 2019,2020, as compared to the corresponding period in 2018,2019. These decreases were primarily due to a decrease inresult of reduced demand for completion-related activityservices for the three months ended March 31, 2020, which worsened with the sharp decline in industry conditions in late February and March 2020, as compared to the corresponding period in 2018, during which time we experienced higher demand for services2019, and also resulted in our decision to complete both newly drilled wells and the remaining inventory of wells which had been drilled but not yet completed.subsequently close certain operating locations.
Our well servicingcoiled tubing services business experienced an increasea decrease of 41% in demand duringrevenue days for the three months ended March 31, 2019,2020 as compared to the corresponding period in 2018, as the number2019, while average revenue per day experienced a corresponding decrease of completed wells increased during the recovery40%. An influx of our industry, resulting in a larger inventory of producing wells that now require ongoing maintenance. Our well servicing rig hours increased by 15%, while revenues per hour increased by 8%.
Our coiled tubing services business continuedequipment in 2019 led to experience an improvementexcess capacity and increased competition in demand for services provided using our larger diameter coiled tubing units. Although revenue daysthe South Texas and Rocky Mountain regions, in combination with a decline in completion activity in early 2020, which resulted in decreased 15%utilization and pricing for the three months ended March 31, 2019, as compared to the corresponding period in 2018, average revenue per day increased 32% primarily due to a larger proportion of the work performed with larger diameter2020. In April 2020, we closed our coiled tubing units which typically earn higher revenue rates as compared to smaller diameteroperations and idled all our coiled tubing units, partially resulting from the addition of two new large diameter coiled tubing unitsequipment, which wewere subsequently placed in service in July and December 2018.as held for sale.
Depreciation expense — Our depreciation expense decreased by $1.1$0.7 million for the three months ended March 31, 2019,2020, primarily in our wireline and coiled tubing segments, which currently operate with an overall smaller fleetservices segment, as our capital expenditure discipline in recent years resulted in a greater proportion of fully depreciated equipment during 2020 as compared to the corresponding period in 2018.2019. The decrease in depreciation expense was partially offset by an increase due to the deployment of our 17th domestic AC drilling rig in March 2019.
Pre-petition restructuring charges— All expenses and losses incurred prior to the Petition Date which were related to the Chapter 11 proceedings are presented as pre-petition restructuring charges in our condensed consolidated statements of
operations, including$9.6 million of expense incurred for the Commitment Premium pursuant to the Backstop Commitment Agreement. For more detail, see Note 2, Chapter 11 Cases and Subsequent Events, of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
Impairment — DuringDue to the three months ended March 31, 2019,significant decline in industry conditions, commodity prices, and projected utilization of equipment, as well as the COVID-19 pandemic’s impact on our industry, our projected cash flows declined during the first quarter of 2020, and we recognizedperformed recoverability testing on all our reporting units. As a result of this analysis, we incurred impairment charges of $1.0$16.4 million and $1.5 million to reduce the carrying values of our coiled tubing assets and certain held-for-sale assets, which were classified as held for sale,respectively, to their estimated fair values based on expected
sale prices. For more detail, see Note 4, Property and Equipment, of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
Reorganization items — Any expenses, gains, and losses incurred subsequent to and as a direct result of the Chapter 11 proceedings are presented as reorganization items in our condensed consolidated statements of operations. For more detail, see Note 2, Chapter 11 Cases and Subsequent Events, of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
Interest expense — Our interest expense decreased by $1.2 million for the three months ended March 31, 2020, as compared to the corresponding period in 2019, primarily because the Senior Notes stopped accruing interest as of March 1, 2020, in accordance with the terms of the Plan. The decrease was partially offset by $0.5 million of debt issuance costs which were written off upon the termination of the pre-petition ABL Facility.
Income tax expense (benefit) — Our effective tax rates differ from the applicable U.S. statutory rates due to a number of factors, including valuation allowances, the impact of permanent items and the mix of profit and loss between federal, state and international taxing jurisdictions.
General and administrative expense — Our general and administrative expense increaseddecreased by $0.6$5.1 million, or 3%26%, for the three months ended March 31, 2019,2020 as compared to the corresponding period in 2018, partially2019, largely due to a $0.3$4.1 million increasedecrease in our phantom stockincentive compensation, expense, attributable toprimarily associated with the increase in fair valuetermination of our phantom stock unit awards.previous annual and long-term cash incentive awards in 2019 as well as the suspension of our quarterly incentive awards in early 2020.
Gain on dispositions of property and equipment, net — During the three months ended March 31, 2020 and the corresponding period in 2019, we recognized a net gaingains of $0.7 million and $1.1 million, respectively, on the disposition or sale of various property and equipment, including drill pipe and collars and certain older and/or underutilized equipment. During
Other expense (income)— The decrease in our other expense for the three months ended March 31, 2018, we recognized a net gain of $0.3 million on the disposition of various property and equipment, including the sale of six wireline units and one drilling rig, which was previously held for sale.
Other income— The increase in our other income during the three months ended March 31, 2019, as compared to the corresponding period in 2018,2020 is primarily related to interest earned on the investments made$5.6 million of net foreign currency losses recognized for our Colombian operations, as compared to $0.3 million of net foreign currency gains during 2018 in highly-liquid money-market mutual funds.2019.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Actual results could differ from those estimates. Except for those related to the adoption of ASC Topic 842 discussed below, asAs of March 31, 2019,2020, there were no significant changes to our critical accounting policies since the date of our annual report on Form 10-K for the year ended December 31, 2018.
Leases— In February 2016, the FASB issued ASU No. 2016-02, Leases, which among other things, requires lessees to recognize substantially all leases on the balance sheet, with expense recognition that is similar to the former lease standard, and aligns the principles of lessor accounting with the principles of the FASB’s new revenue guidance in ASC Topic 606. In July 2018, the FASB issued ASU No. 2018-11, Leases: Targeted Improvements, which provides an option to apply the guidance prospectively, and provides a practical expedient allowing lessors to combine the lease and non-lease components of revenues where the revenue recognition pattern is the same and where the lease component, when accounted for separately, would be considered an operating lease. The practical expedient also allows a lessor to account for the combined lease and non-lease components under ASC Topic 606, Revenue from Contracts with Customers, when the non-lease component is the predominant element of the combined component.
As a lessor, we elected to apply the practical expedient which allows us to continue to recognize our revenues (both lease and service components) under ASC Topic 606, and continue to present them as one revenue stream in our unaudited condensed consolidated statements of operations. As a lessee, this standard primarily impacts our accounting for long-term real estate and office equipment leases, for which we recognized an operating lease asset and a corresponding operating lease liability on our unaudited condensed consolidated balance sheet of $9.8 million at the adoption date of January 1, 2019. For leases that commenced prior to adoption of ASC Topic 842, we elected to apply the package of practical expedients which allows us to carry forward the historical lease classification. The adoption of ASC Topic 842 also resulted in a cumulative effect adjustment of $0.3 million after applicable income taxes, related to the write off of previously unamortized deferred lease liabilities at the date of adoption. For more information about the accounting under ASC Topic 842, and disclosures under the new standard, see Note 3, Leases, of the Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 Financial Statements, of this Quarterly Report on Form 10-Q.
Accounting estimates — Material estimates that are particularly susceptible to significant changes in the near term relate to our estimates of certain variable revenues and amortization periods of certain deferred revenues and costs associated with drilling daywork contacts, our estimates of projected cash flows and fair values for impairment evaluations, our estimate of the valuation allowance for deferred tax assets, and our estimate of the liability relating to the self-insurance portion of our health and workers’ compensation insurance and our estimate of compensation related accruals.insurance.
In accordance with ASC Topic 606, Revenue from Contracts with Customers, we estimate certain variable revenues associated with the demobilization of our drilling rigs under daywork drilling contracts. We also make estimates of the applicable amortization periods for deferred mobilization costs, and for mobilization revenues related to cancelable term contracts which represent a material right to our clients. These estimates and assumptions are described in more detail in Note 2,3, Revenue from Contracts with Customers. In order to make these estimates, management considers all the facts and circumstances pertaining to each particular contract, our past experience and knowledge of current market
conditions. For more information, see Note 2,3, Revenue from Contracts with Customers, of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
In accordance with ASC Topic 360, Property, Plant and Equipment, we monitor all indicators of potential impairments. Due to the significant decline in industry conditions, commodity prices, and concluded there are projected utilization of equipment, as well as the COVID-19 pandemic’s impact on our industry, our projected cash flows declined during the first quarter of 2020, and we performed recoverability testing on all our reporting units. As a result of this analysis, we incurred impairment charges of $16.4 million to reduce the carrying values of our coiled tubing assets to their estimated fair values. For all our other reporting units, excluding coiled tubing, we determined that the sum of the estimated future undiscounted net cash flows were in excess of the carrying amounts and that no triggers present that require impairment testing as ofexisted for these reporting units at March 31, 2019, other than2020.
The assumptions we use in the placement of certain assets as heldevaluation for sale. impairment are inherently uncertain and require management judgment. Although we believe the assumptions and estimates used in our impairment analysis are reasonable, different assumptions and estimates could materially impact the analysis and resulting conclusions. The most significant inputs used in our impairment analysis include the projected utilization and pricing of our services, as well as the estimated proceeds upon any future sale or disposal of the assets, all of which are classified as Level 3 inputs as defined by ASC Topic 820, Fair Value Measurements and Disclosures. The assumptions we use in the evaluation for impairment are inherently uncertain and require management judgment. Although we believe the assumptions and estimates used in our impairment analysis are reasonable, different assumptions and estimates could materially impact the analysis and resulting conclusions. If commodity prices decrease or remain at current levels for an extended period of time, or if the demand for any of our services decreases below what we are currently projecting, our estimated cash flows may decrease and ifour estimates of the fair value of certain assets may decrease as well. If any of the foregoing were to occur, we could incur impairment charges on the related assets. For more information, see Note 4, Property and Equipment, of the Notes to
Condensed Consolidated Financial Statements, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
As of March 31, 2019,2020, we had $98.1$110.2 million and $9.3$5.8 million of deferred tax assets related to domestic and foreign net operating losses, respectively, that are available to reduce future taxable income. In assessing the realizability of our deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. As result, as of March 31, 2019,2020, we hadcontinue to maintain a valuation allowance of $66.4$68.5 million that offsetoffsets a portion of our domestic and foreign net deferred tax assets. Since 2017, market conditions and operating results for our Colombian operations have improved, and if they continue to improve, then we may determine that there is sufficient evidence that future taxable income will be generated to utilize our foreign net operating losses which would result in the reversal of the valuation allowance relating to our foreign deferred tax assets. For more information, see Note 5,7, Valuation Allowances on Deferred Tax Assets and Tax Legislation Developments, of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
We use a combination of self-insurance and third-party insurance for various types of coverage. We have stop-loss coverage of $200,000$225,000 per covered individual per year under our health insurance and a deductible of $500,000 per occurrence under our workers’ compensation insurance. We have a deductible of $250,000 per occurrence under both our general liability insurance and auto liability insurance, as well as an additional annual aggregate deductible of $250,000 under our general liability insurance. At March 31, 2019,2020, our accrued insurance premiums and deductibles include approximately $1.6$1.2 million of accruals for costs incurred under the self-insurance portion of our health insurance and approximately $3.2$3.0 million of accruals for costs associated with our workers’ compensation insurance. We accrue for these costs as claims are incurred using an actuarial calculation that is based on industry and our company’s historical claim development data, and we accrue the cost of administrative services associated with claims processing.
Our compensation expense includes estimates for certain of our long-term incentive compensation plans which have performance-based award components dependent upon our performance over a set performance period, as compared to the performance of a pre-defined peer group. The accruals for these awards include estimates which affect our compensation expense, employee related accruals and equity. The accruals are adjusted based on actual achievement levels at the end of the pre-determined performance periods. Additionally, our phantom stock unit awards are classified as liability awards under ASC Topic 718, Compensation—Stock Compensation, because we expect to settle the awards in cash when they vest, and are remeasured at fair value at the end of each reporting period until they vest. The change in fair value is recognized as a current period compensation expense in our condensed consolidated statements of operations. Therefore, changes in the inputs used to measure fair value can result in volatility in our compensation expense. This volatility increases as the phantom stock awards approach the vesting date. For more information, see Note 9, Stock-Based Compensation Plans, of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
Recently Issued Accounting Standards
For a detail ofinformation about recently issued accounting standards, see Note 1, Organization and Summary of Significant Accounting Policies, of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Our exposure to market risk primarily consists of (i) interest rate risk associated with our variable rate debt and (ii) foreign currency exchange rate risk associated with our Colombian operations.
Interest Rate Risk — We are exposed to interest rate market risk on our variable rate debt. We do not use financial instruments for trading or other speculative purposes. As of March 31, 2019, the principal amount under our Term Loan was $175 million, which is our only variable rate debt with an outstanding balance. The impact of a hypothetical 1% increase or decrease in interest rates on this amount of debt would have resulted in a corresponding increase or decrease, respectively, in interest expense of approximately $0.4 million during the three months ended March 31, 2019. This potential increase or decrease is based on the simplified assumption that the level of variable rate debt remains constant with an immediate across-the-board interest rate increase or decrease as of January 1, 2019.
Foreign Currency Risk — While the U.S. dollar is the functional currency for reporting purposes for our Colombian operations, we enter into transactions denominated in Colombian Pesos. Nonmonetary assets and liabilities are translated at historical rates and monetary assets and liabilities are translated at exchange rates in effect at the end of the period. Income statement accounts are translated at average rates for the period. As a result, Colombian Peso denominated transactions are affected by changes in exchange rates. We generally accept the exposure to exchange rate movements without using derivative financial instruments to manage this risk. Therefore, both positive and negative movements in the Colombian Peso currency exchange rate against the U.S. dollar have and will continue to affect the reported amount of revenues, expenses, profit, and assets and liabilities in our consolidated financial statements. The impact of currency rate changes on our Colombian Peso denominated transactions and balances resulted in net foreign currency gains of $0.3 million for the three months ended March 31, 2019.Not applicable.
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ITEM 4. | CONTROLS AND PROCEDURES |
In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 20192020, to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
In the ordinary course of business, we may make changes to our systems and processes to improve controls and increase efficiency, and make changes to our internal controls over financial reporting in order to ensure that we maintain an effective internal control environment.
We adopted ASU No. 2016-02, Leases, and its related amendments, as of January 1, 2019, which we discuss more fully in Note 1, Organization and Summary of Significant Accounting Policies, of the Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q. During this implementation and upon adoption of the new standard, we assessed and modified our internal controls in order to facilitate adoption of the new lease accounting standard, primarily related to the implementation of a new lease accounting system and modifications to the related payment and accounting processes.
Other than the impact of adopting ASC Topic 842 as described above, thereThere has been no change in our internal control over financial reporting that occurred during the three months ended March 31, 20192020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
From time to time, we are involved in routine litigation or subject to disputes or claims arising out of our business activities, including workers’ compensation claims and employment-related disputes. In the opinion of our management, none of the pending litigation, disputes or claims against us will have a material adverse effect on our financial condition, results of operations or cash flows. For information on Legal Proceedings, see Note 12, Commitments and Contingencies, of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 Financial Statements, of this Quarterly Report on Form 10-Q.
On March 1, 2020, the Pioneer RSA Parties filed a voluntary petition under chapter 11 of the United States Bankruptcy Code. On May 11, 2020, the Bankruptcy Court confirmed the Plan and on May 29, 2020, the conditions to effectiveness of the Plan were satisfied and the Pioneer RSA Parties emerged from Chapter 11. For additional information concerning our bankruptcy proceedings under Chapter 11, see Note 2, Chapter 11 Cases and Subsequent Events,of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 Financial Statements, of this Quarterly Report on Form 10-Q.
Not applicable.In addition to the risk factors described below and the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in Item 1A – “Risk Factors” in our 2019 Form 10-K and Amendment No. 1 on Form 10-K/A, which could materially affect our business, financial condition or future results.
Risks Relating to the Restructuring
We recently emerged from bankruptcy, which may adversely affect our business and relationships.
As a result of our bankruptcy filing and recent emergence:
key suppliers, vendors or other contract counterparties may terminate their relationships with us or require additional financial assurances or enhanced performance from us;
our ability to renew existing contracts and compete for new business may be adversely affected;
our ability to attract, motivate and/or retain key executives and employees may be adversely affected;
our competitors may take business away from us, and our ability to attract and retain customers may be negatively impacted;
our employees may be distracted from performance of their duties or more easily attracted to other employment opportunities; and
we may have difficulty obtaining the capital we need to run and grow our business.
The occurrence of one or more of these events could have a material adverse effect on our operations, financial condition and reputation.
Upon our emergence from Chapter 11, the composition of our stockholder base and concentration of equity ownership changed significantly.
As a result of the concentration of our equity ownership, the future strategy and plans of the Company may differ materially from those in the past. Upon our emergence from Chapter 11, twelve stockholder groups beneficially own approximately 95% (the “Significant Stockholders”) of our issued and outstanding common stock and, therefore, have significant control on the outcome of matters submitted to a vote of stockholders, including, but not limited to, electing directors and approving corporate transactions. In addition, our incurrence of additional indebtedness requires the consent of each of our current stockholders that, together with their affiliates and related funds, owns more than 17.5% of our outstanding common stock on a fully-diluted basis, and the consent of one particular stockholder is required for us to issue additional equity as long as such stockholder, together with its affiliates and related funds, owns more than 12.5% of our outstanding common stock on a fully-diluted basis. As a result, our future strategy and plans may differ materially from those of the past. Circumstances may occur in which the interests of the Significant Stockholders could
be in conflict with the interests of other stockholders, and the Significant Stockholders would have substantial influence to cause us to take actions that align with their interests. Should conflicts arise, we can provide no assurance that the Significant Stockholders would act in the best interests of other stockholders or that any conflicts of interest would be resolved in a manner favorable to our other stockholders.
Upon our emergence from Chapter 11, the composition of our board of directors changed significantly.
Pursuant to the Plan, the composition of our board of directors (the “Board”) changed significantly. Upon emergence, our Board consists of five directors, only one of whom, our Chief Executive Officer, served on the Board prior to our emergence from Chapter 11. The new directors have different backgrounds, experiences and perspectives from those individuals who previously served on our Board and, thus, may have different views on the issues that will determine our future. There is no guarantee that our new Board will pursue, or will pursue in the same manner, our current strategic plans. As a result, the future strategy and our plans may differ materially from those of the past.
Certain information contained in our historical financial statements will not be comparable to the information contained in our financial statements after the application of fresh start accounting.
We expect to adopt the fresh start accounting rules upon emergence from Chapter 11, in which case our assets and liabilities will be recorded at fair value as of the fresh start reporting date, which may differ materially from the recorded values of assets and liabilities on our consolidated balance sheets. This Quarterly Report does not reflect the adoption of fresh start accounting. As a result of the application of fresh start accounting, as well as the effects of the implementation of the Plan, our assets and liabilities will be recorded at fair value as of the fresh start reporting date, which may differ materially from the recorded values of assets and liabilities on our consolidated balance sheets included in this Quarterly Report on Form 10-Q. As a result, our financial statements for future periods subsequent to our emergence from Chapter 11 may not be comparable to our financial statements for prior periods. This will make it difficult for stockholders to assess our performance in relation to prior periods. Please see Note 2, Chapter 11 Cases and Subsequent Events, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 Financial Statements for further information.
Risks Relating to Our Common Stock
We cannot assure you that an active trading market for our common stock will develop or be maintained, and the market price of our common stock may be volatile, which could cause the value of your investment to decline.
Our shares of common stock are not currently listed on the OTC Market Place or on any other stock exchange. We anticipate the trading of our new common stock on the OTC market to commence again in the near future.
We cannot assure you that an active public market for our common stock will develop or, if it develops, that it will be sustained. In the absence of an active public trading market, it may be difficult to liquidate your investment in our common stock.
In the event our common stock commences trading, the trading price of our common stock may fluctuate significantly. Numerous factors, including many over which we have no control, may have a significant impact on the market price of our common stock. These factors include, among other things:
our operating and financial performance and prospects;
our ability to repay our debt;
investor perceptions of us and the industry and markets in which we operate;
future sales, or the availability for sale, of equity or equity-related securities;
changes in earnings estimates or buy/sell recommendations by analysts;
conversion of our Convertible Notes;
limited trading volume of our common stock; and
general financial, domestic, economic and other market conditions.
In the event our common stock commences trading, the trading price of our common stock may not accurately reflect the value of our business.
Upon our emergence from Chapter 11, ownership of our common stock is highly concentrated, and there are a limited number of shares available for trading on any public market. As a result, any future reported trading prices for our common stock at any given time may not accurately reflect the underlying economic value of our business at that time. Any future reported trading prices could be higher or lower than the price a stockholder would be able to receive in a sale transaction, and there can be no assurance that there will be sufficient public trading in our common stock in the future to create a liquid trading market that accurately reflects the underlying economic value of our business.
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ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
We did not make any unregistered sales of equity securities during the quarter ended March 31, 2019.2020. The following table provides information relating to our repurchase of common shares during the quarter ended March 31, 2019:2020:
| | Period | Total Number of Shares Purchased (1) | | Average Price Paid per Share (2) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | Total Number of Shares Purchased (1) | | Average Price Paid per Share (2) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
January 1 - January 31 | 84,266 |
| | $ | 1.42 |
| | — |
| | — |
| 164,518 |
| | $ | 0.04 |
| | — |
| | — |
|
February 1 - February 28 | 593 |
| | $ | 1.50 |
| | — |
| | — |
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February 1 - February 29 | | — |
| | — |
| | — |
| | — |
|
March 1 - March 31 | — |
| | $ | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
|
Total | 84,859 |
| | $ | 1.42 |
| | — |
| | — |
| 164,518 |
| | $ | 0.04 |
| | — |
| | — |
|
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(1) | The shares indicated consist of shares of our common stock tendered by employees to the Company during the three months ended March 31, 2019,2020, to satisfy the employees’ tax withholding obligations in connection with the vesting of share-based compensation awards, which we repurchased based on the fair market value on the date the relevant transaction occurred. |
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(2) | The calculation of the average price paid per share does not give effect to any fees, commissions or other costs associated with the repurchase of such shares. |
Upon emergence from Chapter 11 on May 29, 2020 and the effectiveness of the Plan, all previously issued and outstanding equity interests were canceled and we issued a total of 1,049,804 shares of common stock, with approximately 94.25% of such new common stock being issued to the holders of existing Senior Notes and the remaining 5.75% being issued to the holders of existing common stock prior to the Effective Date. Upon the effectiveness of the Plan, we also issued $129.8 million aggregate principal amount of Convertible Notes, which are convertible into 75 shares of common stock per $1,000 principal amount of the Convertible Notes and which on the Effective Date were convertible into approximately 9,732,825 shares of common stock.
The shares of common stock described above were exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 1145 of Chapter 11 of Title 11 of the United States Code (which generally exempts from such registration requirements the issuance of securities under a plan of reorganization). The Convertible Notes described above were exempt from registration under the Securities Act pursuant to Section 4(a)(2) thereof and Regulation D promulgated thereunder.
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ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
Not applicable.The commencement of the Chapter 11 Cases constituted an event of default that accelerated our obligations under our Senior Notes, the Prepetition ABL Facility, and Term Loan. Under the Bankruptcy Code, holders of our Senior Notes and the lenders under our Term Loan and the Prepetition ABL Facility were stayed from taking any action against us as a result of this event of default.
For additional information concerning our bankruptcy proceedings under Chapter 11, see Note 2, Chapter 11 Cases and Subsequent Events of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
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ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
Not applicable.Pursuant to the Plan, we:
appointed four new members to our board of directors to replace the non-employee directors who were deemed to have resigned on the Effective Date;
adopted the Pioneer Energy Services Corp. 2020 Employee Incentive Plan (the “Employee Incentive Plan”) providing for the issuance from time to time, as approved by our board of directors, of equity and equity-based awards with respect to the new common stock in the aggregate and on a fully-diluted basis, of up to 1,198,074 shares of new common stock, representing approximately 114% of the shares of new common stock issued on the Effective Date, but representing 10% of the shares of new common stock issued on the Effective Date on a fully-diluted basis; and
adopted the Pioneer Energy Services Corp. Key Executive Severance Plan providing for protection for loss of salary and benefits in the event of certain involuntary terminations of employment for sixteen key employees to assist us in retaining an intact management team.
The following exhibits are filed as part of this report:
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Exhibit Number | | Description |
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2.1* | - | |
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3.1* | - | |
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3.2* | - | |
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4.1* | - | |
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4.2** | - | |
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4.3** | - | |
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4.4* | - | |
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4.2*4.5* | - | |
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4.3*4.6* | - | |
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4.7* | - | |
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10.1* | - | |
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10.1**+10.2* | - | |
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10.3* | - | |
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10.4* | - | |
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10.5* | - | |
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31.1** | - | |
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31.2** | - | |
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32.1# | - | |
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32.2# | - | |
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101**101.INS | - | The following financial statements from Pioneer Energy Services Corp.’s Form 10-Q for the quarter ended March 31, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Shareholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements.Instance Document |
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101.SCH | - | XBRL Taxonomy Schema Document |
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101.CAL | - | XBRL Calculation Linkbase Document |
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101.LAB | - | XBRL Label Linkbase Document |
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101.PRE | - | XBRL Presentation Linkbase Document |
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|
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101.DEF | - | XBRL Definition Linkbase Document |
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* | Incorporated by reference to the filing indicated. |
** | Filed herewith. |
# | Furnished herewith. |
+ | Management contract or compensatory plan or arrangement. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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PIONEER ENERGY SERVICES CORP. |
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/s/ Lorne E. Phillips |
Lorne E. Phillips |
Executive Vice President and Chief Financial Officer |
(Principal Financial Officer and Duly Authorized Officer) |
Dated: May 2, 2019June 29, 2020