Exhibit 10.1
BEST ENERGY SERVICES PROVIDES MID-YEAR UPDATE FOR SHAREHOLDERS AND INVESTORS AND
COMMENTS ON OUTLOOK FOR BALANCE OF 2010 AND POSSBLE IMPACTS ON BUSINESS FROM
GULF OF MEXICO BLOWOUT
June 8, 2010: Houston, Texas and Liberal, Kansas Best Energy Services, Inc.
(OTCBB: BEYS) in an open letter to its shareholders and the investment community
discussed its operations; recent trends and initiatives; and provided its
outlook for the balance of the year.
The letter follows:
To Our Shareholders and Friends in the Investment Community:
Now halfway through 2010, I'm pleased to report meaningful progress in our
operations and, based on recent trends, an improving outlook for the balance of
2010. I will discuss these matters in several parts:
- Recent trends in revenues and rig activity;
- Working capital;
- Outlook for activity over the balance of 2010 from our basic
Hugoton Basin marketing activities;
- Progress on Hugoton Basin Financing Partners and a possible
expansion into the Eagle Ford Shale play in South Texas;
- Upcoming Shareholder meeting;
- Preliminary ideas for later this year for the Series A Preferred; and
- Possible impacts on our business from the Gulf of Mexico oil spill.
RECENT TRENDS IN REVENUES AND RIG ACTIVITY:
In the first quarter of 2010 we reported revenues of $1,357,000 for the period
and positive cash EBITDA of $170,000. As we mentioned on our May 18 conference
call with the shareholders, those results were notable in that revenues and rig
activity had grown steadily on a month-to-month basis during the quarter.
As noted in the graph below, rig activity has continued to move up during the
month of May.
BEST ENERGY SERVICES, INC. AVERAGE RIG COUNTS 2010
[Chart Include in Attached PDF Document]
As a consequence, and as shown in the Chart below, our revenues have continued
the positive trend as well, and with an average rig count of 14.5 rigs in the
month of May were $660,000 for the month, $7.95 million annualized. Thus far in
June, we are running between 15-17 rigs on any one day. These results stand in
sharp contrast to our second quarter 2009 revenues of $840,000 or an annualized
$3,360,000.
Our gross margins remain in excess of 55%.
BEST ENERGY SERVICES, INC. BEST WELL SERVICE REVENUE
[Chart Include in Attached PDF Document]
WORKING CAPITAL:
As noted on our May 18 conference call, Best's working capital remains tight.
These favorable trends discussed above are now allowing us to begin to work-down
our payables in an orderly fashion. Assisting this effort has been senior
lender, PNC Credit, which granted us a $75,000 reduction in our monthly
amortization for both the month of May and the month of June. We deeply
appreciate all of PNC's efforts and their continued belief in our business
model, as well as the understanding of our vendors in the field with whom Best
Well Service has enjoyed strong relations for well over a decade.
HUGOTON BASIN BASE CASE ACTIVITY:
Based on our ongoing discussions with certain key customers, while there are no
guarantees, we are cautiously optimistic that there will be a continued upward
migration in our rig count, and accordingly revenues, over the balance of the
year. In addition, Best is participating in a sealed bid process with another
customer on a two year contract that, if awarded to Best, could add a further
2-5 rigs. Best favors the sealed bid process and was successful in November of
last year with another company on a similar sealed-bid contract, which currently
deploys 5-6 rigs. Such contracts point heavily to the bidder's safety record.
Best's safety record is exceptional with 547 days logged continuously without an
hour lost to a safety
incident. The sealed-bid process also favors our value-pricing model. If these
trends continue, and we are successful in obtaining these bids, Best's active
rig count may surpass 20 rigs within the next 60 days. Let me caution that with
the many uncertainties that exist in our business and the highly competitive
nature of the sealed bid process, there are no assurances we will be successful
in achieving a 20-25 rig count.
HBFP AND EAGLE FORD SHALE GOALS:
We have held numerous meetings with our customers on the HBFP initiative and
have met with a favorable reception from all those we have contacted. We are
advancing discussions with several customers we believe could be excellent
candidates for the product. Our goal is to have moved discussions with those
customers to documentation stage within the next 45 days.
On our possible move into the Eagle Ford, we have met with three of the five
companies we are targeting for work. Our goal is to have completed our
discussions with all parties and arrive at a base case for number of rigs and
specific locations within the next thirty to sixty days.
We are working on several strategic approaches to possibly add new equipment, if
we prove successful on either or both of these initiatives.
ANNUAL SHAREHOLDER MEETING:
We will be submitting a preliminary 14A Proxy statement to the SEC for review
within the next several weeks, and anticipate a shareholder meeting will be held
within the next ninety days. The two key items on that agenda will be a vote on
the existing Board of Directors and an increase in our authorized share count.
Consequent to the last equity raise and its potential warrant dilution we have
now reached our maximum share count. We believe the possible exercise of options
in the months to come may reduce such potential dilution, but also believe it is
prudent for the company to have flexibility in its cap structure. All of
management and the Board are extremely focused on share dilution, as it is our
strong conviction that building shareholder values on a per share basis is
always the paramount goal.
SERIES A PREFERRED:
Dependent on our continued financial performance and market conditions in
general, Best is evaluating a possible exchange offer for the Series A
Preferred, which, if made, would be at a discount to the face value of the
Preferred. We believe the common shareholders would benefit greatly by Best's
retiring that Preferred on attractive terms so that more residual financial
value would accrete through to the common shareholders.
GULF OF MEXICO IMPACT ON BEST:
The environmental devastation of the Gulf of Mexico and its economic and
regulatory aftermath are likely to have a meaningful impact on Best's operating
environment on at least three fronts:
First, in tandem with offshore safety standards, onshore safety standards are
likely to be further tightened either through new Federal initiatives and/or
State regulatory measures. We support strong safety standards for our industry.
Indeed, Best is exceptionally proud of its safety record, which ranks among the
highest in our space and is already recognized industry safety sites as such by
IS Net World and PEC Premier Safe Land programs. Our strict in-house HSE
programs allow us to proceed with work for customers that demand such efforts,
while many of our smaller competitors are forced to work for those who do not
demand such standards. Federal/State mandated changes may further advantage Best
as those who have not or cannot maintain in-house HSE programs are forced to
shut down.
Second, the supply of natural gas from the Gulf will likely diminish over the
next six months. Deep water and geo-pressured reservoirs will be the two most
conspicuous targets for permit denials. Shallower water drilling may also see a
slow down as permits are delayed pending new HSE standards. Approximately 35% of
our nation's natural gas supply is from the Gulf of Mexico, and much of that
from highly porous and permeable reservoirs that while initially prolific, may
decline at 35%+ per annum. In the face of such imbedded decline rates, delays in
permitting additional development wells may also have a material impact on the
supply demand equation. Higher natural gas prices in our gas-prone Hugoton Basin
operating area would likely propel additional activity.
Third, capital flows may begin to bias towards the onshore as investment
opportunities offshore become more problematic in the emerging regulatory
regime. Deploying advanced fracing and completion techniques in conventional
basins such as the Hugoton, as well as various source rock plays such as the
Eagle Ford and others should stimulate onshore activity over the intermediate to
longer term. Capital flows into the Hugoton Basin would be a further benefit to
our activity.
In my own 35 years in the energy industry, I have often seen events as dramatic
as the Gulf spill characteristically lead to an overreaction by regulators. This
will likely be no exception. As a consequence, the precise timing, breadth and
magnitude of the three drivers enumerated above- government mandated safety
standards, natural gas supply and capital flows are not possible to fully
quantify. Important for now is to recognize the trends and how they may impact
Best's operating and growth strategies over the coming months and years.
We hope this update is useful to you. We will also be updating our website over
the next month to better reflect our current operations and growth model.
We always welcome your calls and questions.
Sincerely yours;
Mark Harrington
Chairman and CEO
ABOUT BEST ENERGY SERVICES, INC.
Headquartered in Houston, Texas, Best Energy Services, Inc. is a leading well
service/workover provider in the Hugoton Basin. For more information, please
visit www.BEYSinc.com.
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Certain statements contained in this press release, which are not based on
historical facts, are forward-looking statements as the term is defined in the
Private Securities Litigation Reform Act of 1995, and are subject to substantial
uncertainties and risks in part detailed in the respective Company's Securities
and Exchange Commission filings, that may cause actual results to materially
differ from projections. Although the Company believes that its expectations are
reasonable assumptions within the bounds of its knowledge of its businesses,
expectations, representations and operations, there can be no assurance that
actual results will not differ materially from their expectations. Important
factors currently known to management that could cause actual results to differ
materially from those in forward-looking statements include the Company's
ability to execute properly its business model, to raise additional capital to
implement its continuing business model, the ability to attract and retain
personnel - including highly qualified executives, management and operational
personnel, ability to negotiate favorable current debt and future capital
raises, and the inherent risk associated with a diversified business to achieve
and maintain positive cash flow and net profitability. In light of these risks
and uncertainties, there can be no assurance that the forward-looking
information contained in this press release will, in fact, occur.
FOR MORE INFORMATION, PLEASE CONTACT
MR. DENNIS IRWIN
BEST ENERGY SERVICES, INC.
5433 WESTHEIMER AVENUE
SUITE 825
HOUSTON, TEXAS 77056
713-933-2600