ITEM 1.
FINANCIAL STATEMENTS
Basic Energy Services, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
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|
|
|
|
|
|
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June 30,
2016
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December 31,
2015
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|
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(Unaudited)
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|
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
86,100
|
|
|
$
|
46,732
|
|
Restricted cash
|
|
30,196
|
|
|
—
|
|
Trade accounts receivable, net of allowance of $2,029 and $2,670, respectively
|
|
78,767
|
|
|
102,127
|
|
Accounts receivable - related parties
|
|
26
|
|
|
35
|
|
Income tax receivable
|
|
1,276
|
|
|
1,828
|
|
Inventories
|
|
33,364
|
|
|
36,944
|
|
Prepaid expenses
|
|
14,271
|
|
|
13,851
|
|
Other current assets
|
|
9,101
|
|
|
9,968
|
|
Total current assets
|
|
253,101
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|
|
211,485
|
|
Property and equipment, net
|
|
751,070
|
|
|
846,290
|
|
Deferred debt costs, net of amortization
|
|
1,573
|
|
|
3,420
|
|
Intangible assets, net of amortization
|
|
62,298
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|
|
66,745
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|
Other assets
|
|
10,316
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|
|
10,241
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Total assets
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$
|
1,078,358
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|
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$
|
1,138,181
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LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
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|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
|
$
|
33,033
|
|
|
$
|
54,521
|
|
Accrued expenses
|
|
75,457
|
|
|
59,380
|
|
Current portion of long-term debt
|
|
42,923
|
|
|
48,651
|
|
Other current liabilities
|
|
1,011
|
|
|
7,003
|
|
Total current liabilities
|
|
152,424
|
|
|
169,555
|
|
Long-term debt, net of unamortized premium on notes of $818 and $956, and deferred debt costs of $24,321 and $9,704, respectively
|
|
961,416
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|
|
828,664
|
|
Deferred tax liabilities
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|
662
|
|
|
5,066
|
|
Other long-term liabilities
|
|
26,263
|
|
|
28,558
|
|
Commitments and contingencies
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
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Preferred stock; $0.01 par value; 5,000,000 shares authorized; none designated or issued at June 30, 2016 and December 31, 2015
|
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—
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—
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Common stock; $0.01 par value; 80,000,000 shares authorized; 43,500,032 shares issued and 42,758,940 shares outstanding at June 30, 2016; 43,500,032 shares issued and 42,196,680 shares outstanding at December 31, 2015
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|
435
|
|
|
435
|
|
Additional paid-in capital
|
|
374,711
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|
|
374,729
|
|
Retained deficit
|
|
(430,034
|
)
|
|
(256,812
|
)
|
Treasury stock, at cost, 741,092 and 1,303,352 shares at June 30, 2016 and December 31, 2015, respectively
|
|
(7,519
|
)
|
|
(12,014
|
)
|
Total stockholders' (deficit) equity
|
|
(62,407
|
)
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|
106,338
|
|
Total liabilities and stockholders' equity
|
|
$
|
1,078,358
|
|
|
$
|
1,138,181
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|
See accompanying notes to
unaudited
consolidated financial statements.
Basic Energy Services, Inc.
Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share amounts)
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Three Months Ended June 30,
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Six Months Ended June 30,
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2016
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2015
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2016
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2015
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(Unaudited)
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(Unaudited)
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Revenues:
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Completion and remedial services
|
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$
|
36,228
|
|
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$
|
69,056
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|
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$
|
75,924
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|
|
$
|
181,831
|
|
Fluid services
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|
45,491
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63,704
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|
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95,741
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|
137,506
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Well servicing
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36,824
|
|
|
56,500
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|
|
75,731
|
|
|
120,168
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|
Contract drilling
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|
1,461
|
|
|
4,336
|
|
|
2,965
|
|
|
15,812
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|
Total revenues
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|
120,004
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|
193,596
|
|
|
250,361
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|
|
455,317
|
|
Expenses:
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|
|
|
|
|
|
|
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|
|
|
|
Completion and remedial services
|
|
32,860
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|
|
57,670
|
|
|
67,648
|
|
|
138,921
|
|
Fluid services
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|
38,619
|
|
|
48,381
|
|
|
79,786
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|
|
102,512
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Well servicing
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|
31,847
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|
|
47,035
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|
|
66,318
|
|
|
99,437
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|
Contract drilling
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1,368
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|
|
3,488
|
|
|
2,929
|
|
|
11,014
|
|
General and administrative, including stock-based compensation of $2,277 and $3,270 in three months ended June 30, 2016 and 2015, and $5,117 and $7,239 in the six months ended June 30, 2016 and 2015, respectively
|
|
27,078
|
|
|
35,673
|
|
|
56,640
|
|
|
74,877
|
|
Depreciation and amortization
|
|
54,847
|
|
|
60,231
|
|
|
110,999
|
|
|
121,160
|
|
Loss (gain) on disposal of assets
|
|
336
|
|
|
(57
|
)
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|
261
|
|
|
(9
|
)
|
Total expenses
|
|
186,955
|
|
|
252,421
|
|
|
384,581
|
|
|
547,912
|
|
Operating loss
|
|
(66,951
|
)
|
|
(58,825
|
)
|
|
(134,220
|
)
|
|
(92,595
|
)
|
Other income (expense):
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|
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Interest expense
|
|
(22,521
|
)
|
|
(16,841
|
)
|
|
(43,235
|
)
|
|
(33,704
|
)
|
Interest income
|
|
7
|
|
|
4
|
|
|
9
|
|
|
10
|
|
Other income
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|
244
|
|
|
215
|
|
|
340
|
|
|
335
|
|
Loss before income taxes
|
|
(89,221
|
)
|
|
(75,447
|
)
|
|
(177,106
|
)
|
|
(125,954
|
)
|
Income tax benefit (expense)
|
|
(662
|
)
|
|
27,152
|
|
|
3,884
|
|
|
45,035
|
|
Net loss
|
|
$
|
(89,883
|
)
|
|
$
|
(48,295
|
)
|
|
$
|
(173,222
|
)
|
|
$
|
(80,919
|
)
|
Loss per share of common stock:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(2.11
|
)
|
|
$
|
(1.20
|
)
|
|
$
|
(4.14
|
)
|
|
$
|
(2.00
|
)
|
Diluted
|
|
$
|
(2.11
|
)
|
|
$
|
(1.20
|
)
|
|
$
|
(4.14
|
)
|
|
$
|
(2.00
|
)
|
See accompanying notes to
unaudited
consolidated financial statements.
Basic Energy Services, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
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Additional
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Total
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Common Stock
|
|
Paid-In
|
|
Treasury
|
|
Retained
|
|
Stockholders'
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Stock
|
|
Deficit
|
|
Equity
|
Balance - December 31, 2015
|
|
43,500,032
|
|
|
$
|
435
|
|
|
$
|
374,729
|
|
|
$
|
(12,014
|
)
|
|
$
|
(256,812
|
)
|
|
$
|
106,338
|
|
Issuances of restricted stock
|
|
—
|
|
|
—
|
|
|
(5,135
|
)
|
|
5,135
|
|
|
—
|
|
|
—
|
|
Amortization of share-based compensation
|
|
—
|
|
|
—
|
|
|
5,117
|
|
|
—
|
|
|
—
|
|
|
5,117
|
|
Purchase of treasury stock
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(640
|
)
|
|
—
|
|
|
(640
|
)
|
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(173,222
|
)
|
|
(173,222
|
)
|
Balance - June 30, 2016 (unaudited)
|
|
43,500,032
|
|
|
$
|
435
|
|
|
$
|
374,711
|
|
|
$
|
(7,519
|
)
|
|
$
|
(430,034
|
)
|
|
$
|
(62,407
|
)
|
See accompanying notes to
unaudited
consolidated financial statements.
Basic Energy Services, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
|
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|
|
|
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|
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|
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
Cash flows from operating activities:
|
|
|
|
|
Net loss
|
|
$
|
(173,222
|
)
|
|
$
|
(80,919
|
)
|
Adjustments to reconcile net loss to net cash
|
|
|
|
|
(used in) provided by operating activities:
|
|
|
|
|
Depreciation and amortization
|
|
110,999
|
|
|
121,160
|
|
Accretion on asset retirement obligation
|
|
72
|
|
|
66
|
|
Change in allowance for doubtful accounts
|
|
(641
|
)
|
|
(582
|
)
|
Amortization of deferred financing costs
|
|
4,486
|
|
|
1,525
|
|
Amortization of premium on notes
|
|
(138
|
)
|
|
(126
|
)
|
Non-cash compensation
|
|
5,117
|
|
|
7,239
|
|
(Gain) loss on disposal of assets
|
|
261
|
|
|
(9
|
)
|
Deferred income taxes
|
|
(4,404
|
)
|
|
(45,037
|
)
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
Accounts receivable
|
|
24,010
|
|
|
121,348
|
|
Inventories
|
|
4,440
|
|
|
3,949
|
|
Income tax receivable
|
|
552
|
|
|
954
|
|
Prepaid expenses and other current assets
|
|
294
|
|
|
(978
|
)
|
Other assets
|
|
(85
|
)
|
|
160
|
|
Accounts payable
|
|
(21,488
|
)
|
|
(23,474
|
)
|
Other liabilities
|
|
(8,338
|
)
|
|
(956
|
)
|
Accrued expenses
|
|
16,077
|
|
|
(16,204
|
)
|
Net cash (used in) provided by operating activities
|
|
(42,008
|
)
|
|
88,116
|
|
Cash flows from investing activities:
|
|
|
|
|
Purchase of property and equipment
|
|
(11,561
|
)
|
|
(34,823
|
)
|
Proceeds from sale of assets
|
|
1,451
|
|
|
6,411
|
|
Net cash used in investing activities
|
|
(10,110
|
)
|
|
(28,412
|
)
|
Cash flows from financing activities:
|
|
|
|
|
Payments of debt
|
|
(25,422
|
)
|
|
(43,111
|
)
|
Proceeds from debt
|
|
165,000
|
|
|
—
|
|
Change in restricted cash
|
|
(30,196
|
)
|
|
—
|
|
Purchase of treasury stock
|
|
(640
|
)
|
|
(4,562
|
)
|
Tax withholding from exercise of stock options
|
|
—
|
|
|
(3
|
)
|
Exercise of employee stock options
|
|
—
|
|
|
727
|
|
Deferred loan costs and other financing activities
|
|
(17,256
|
)
|
|
(848
|
)
|
Net cash provided by (used in) financing activities
|
|
91,486
|
|
|
(47,797
|
)
|
Net increase in cash and equivalents
|
|
39,368
|
|
|
11,907
|
|
Cash and cash equivalents - beginning of period
|
|
$
|
46,732
|
|
|
79,915
|
|
Cash and cash equivalents - end of period
|
|
$
|
86,100
|
|
|
$
|
91,822
|
|
See accompanying notes to
unaudited
consolidated financial statements.
BASIC ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
June 30, 2016
(unaudited)
1. Basis of Presentation and Nature of Operations
Basis of Presentation
The accompanying unaudited consolidated financial statements of Basic Energy Services, Inc. and subsidiaries (“Basic” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. Certain information relating to our organization and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in this Quarterly Report on Form 10-Q in accordance with GAAP and financial statement requirements promulgated by the U.S. Securities and Exchange Commission (“SEC”). The notes to the consolidated financial statements (unaudited) should be read in conjunction with the notes to the consolidated financial statements contained in the
December 31, 2015
Form 10-K. In the opinion of management, all adjustments which are of a normal recurring nature considered necessary for a fair presentation have been made in the accompanying unaudited financial statements.
Nature of Operations
Basic provides a wide range of well site services to oil and natural gas drilling and producing companies, including completion and remedial services, fluid services, well servicing and contract drilling. These services are primarily provided using Basic’s fleet of equipment. Basic’s operations are concentrated in the major United States onshore oil and gas producing regions in Texas, New Mexico, Oklahoma, Arkansas, Kansas, Louisiana, Wyoming, North Dakota, Colorado, Utah, Montana, West Virginia, Ohio, California, Kentucky and Pennsylvania.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Basic and its wholly owned subsidiaries. Basic has no variable interest in any other organization, entity, partnership or contract. All intercompany transactions and balances have been eliminated.
Estimates and Uncertainties
Preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management uses historical and other pertinent information to determine these estimates. Actual results could differ from those estimates. Areas where critical accounting estimates are made by management include:
•
Depreciation and amortization of property and equipment and intangible assets
•
Impairment of property and equipment, goodwill and intangible assets
•
Allowance for doubtful accounts
•
Litigation and self-insured risk reserves
•
Fair value of assets acquired and liabilities assumed in an acquisition
•
Stock-based compensation
•
Income taxes
2. Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. This assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business.
The Company incurred a net loss of
$173.2 million
for the six months ended June 30, 2016, and a net loss of
$241.7 million
for the year ended December 31, 2015.
Basic’s senior management and Board are evaluating potential strategic alternatives, such as refinancing or restructuring of the Company’s capital structure or available financing options to address the Company's liquidity position and high debt levels. Basic has engaged financial and legal advisers, and is actively working with these advisers and negotiating with certain creditors and their advisers with respect to alternatives to the Company’s current capital structure. While the Company is optimistic that ongoing negotiations with its creditors will lead to satisfactory resolution of these issues, the Company cannot provide any assurance that these negotiations will be successful. If the Company is unable to find acceptable alternatives to its current capital structure to better fund future capital needs, or if the Company is unable to finance its operations on acceptable terms or at all, the Company’s business, financial condition and results of operations may be materially and adversely affected.
For additional information, please see “Risk Factors” in Part II, Item 1A of this Quarterly Report, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” in Part I, Item 2 of this Quarterly Report.
3. Acquisitions
In
2015
, Basic acquired substantially all of the assets of the following business, which was accounted for using the purchase method of accounting. The following table summarizes the values for the acquisition at the date of acquisition (in thousands):
|
|
|
|
|
|
|
|
|
|
Total Cash Paid
|
|
Closing Date
|
|
(net of cash acquired)
|
|
|
|
|
Harbor Resources, LLC
|
July 17, 2015
|
|
$
|
4,500
|
|
Aerion Rental, LLC
|
July 24, 2015
|
|
1,997
|
|
Grey Rock Pressure Pumping, LLC
|
August 31, 2015
|
|
10,233
|
|
Total 2015
|
|
|
$
|
16,730
|
|
The operations of the acquisitions listed above are included in Basic’s consolidated statement of operations as of each respective closing date. The provisional value used with respect to Harbor Resources, LLC, Aerion Rental, LLC and Grey Rock Pressure Pumping, LLC will be finalized during the third quarter of
2016
. The pro forma effect of the acquisitions completed during 2015 were not material, either individually or when aggregated, to the reported results of operations. Basic has not made any acquisitions during the first
six
months of
2016
.
4. Goodwill and Other Intangible Assets
During 2015, as a result of the Company’s assessment of goodwill, we impaired all existing goodwill. The Company had
no
additions to goodwill during the
six
months ended
June 30, 2016
.
Basic’s intangible assets were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
Customer relationships
|
|
$
|
92,660
|
|
|
$
|
92,660
|
|
Non-compete agreements
|
|
9,427
|
|
|
13,057
|
|
Trade names
|
|
1,939
|
|
|
1,939
|
|
Other intangible assets
|
|
2,096
|
|
|
2,086
|
|
|
|
106,122
|
|
|
109,742
|
|
Less accumulated amortization
|
|
43,824
|
|
|
42,997
|
|
Intangible assets subject to amortization, net
|
|
$
|
62,298
|
|
|
$
|
66,745
|
|
Amortization expense for the three months ended
June 30, 2016
and
2015
was approximately
$2.2 million
and
$2.3 million
, respectively. Amortization expense for the
six
months ended
June 30, 2016
and
2015
was approximately
$4.5 million
and
$4.4 million
, respectively.
Intangible assets, net of accumulated amortization allocated to reporting units as of
June 30, 2016
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completion
|
|
|
|
|
|
|
|
|
|
|
And Remedial
|
|
|
|
|
|
Contract
|
|
|
|
|
Services
|
|
Well Servicing
|
|
Fluid Services
|
|
Drilling
|
|
Total
|
Intangible assets subject to amortization, net
|
|
$
|
46,467
|
|
|
$
|
5,647
|
|
|
$
|
7,467
|
|
|
$
|
2,717
|
|
|
$
|
62,298
|
|
Customer relationships are amortized over a
15
-year life, non-compete agreements are amortized over a
five
-year life, and other intangible assets are amortized over a
15
-year life.
5. Property and Equipment
Property and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
Land
|
|
$
|
20,422
|
|
|
$
|
19,893
|
|
Buildings and improvements
|
|
75,359
|
|
|
73,599
|
|
Well service units and equipment
|
|
489,345
|
|
|
488,003
|
|
Frac equipment/test tanks
|
|
355,358
|
|
|
363,346
|
|
Pumping equipment
|
|
344,679
|
|
|
345,938
|
|
Fluid services equipment
|
|
268,778
|
|
|
268,249
|
|
Disposal facilities
|
|
163,015
|
|
|
166,371
|
|
Contract drilling equipment
|
|
112,690
|
|
|
112,068
|
|
Rental equipment
|
|
95,633
|
|
|
94,970
|
|
Light vehicles
|
|
67,419
|
|
|
67,521
|
|
Software
|
|
21,920
|
|
|
21,920
|
|
Other
|
|
16,335
|
|
|
16,672
|
|
Construction equipment
|
|
15,010
|
|
|
15,174
|
|
Brine and fresh water stations
|
|
15,810
|
|
|
13,761
|
|
|
|
2,061,773
|
|
|
2,067,485
|
|
Less accumulated depreciation and amortization
|
|
1,310,703
|
|
|
1,221,195
|
|
Property and equipment, net
|
|
$
|
751,070
|
|
|
$
|
846,290
|
|
Basic is obligated under various capital leases for certain vehicles and equipment that expire at various dates during the next
five years
. The gross amount of property and equipment and related accumulated amortization recorded under capital leases and included above consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
Fluid services equipment
|
|
$
|
117,773
|
|
|
$
|
129,459
|
|
Pumping equipment
|
|
39,709
|
|
|
43,573
|
|
Light vehicles
|
|
27,996
|
|
|
33,424
|
|
Contract drilling equipment
|
|
5,840
|
|
|
6,493
|
|
Well service units and equipment
|
|
335
|
|
|
541
|
|
Construction equipment
|
|
118
|
|
|
288
|
|
|
|
191,771
|
|
|
213,778
|
|
Less accumulated amortization
|
|
84,363
|
|
|
82,679
|
|
|
|
$
|
107,408
|
|
|
$
|
131,099
|
|
Amortization of assets held under capital leases of approximately
$9.2 million
and
$10.4 million
for the three months ended
June 30, 2016
and
2015
, respectively and
$18.8 million
and
$21.2 million
for the
six
months ended
June 30, 2016
and
2015
, respectively, is included in depreciation and amortization expense in the consolidated statements of operations.
6. Long-Term Debt and Interest Expense
Long-term debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
Credit Facilities:
|
|
|
|
|
Term Loan
|
|
$
|
165,000
|
|
|
$
|
—
|
|
7.75% Senior Notes due 2019
|
|
475,000
|
|
|
475,000
|
|
7.75% Senior Notes due 2022
|
|
300,000
|
|
|
300,000
|
|
Unamortized premium
|
|
818
|
|
|
956
|
|
Capital leases and other notes
|
|
87,842
|
|
|
111,063
|
|
Total debt
|
|
1,028,660
|
|
|
887,019
|
|
Less debt issuance costs, net of amortization
|
|
24,321
|
|
|
9,704
|
|
Less current portion
|
|
42,923
|
|
|
48,651
|
|
Long-term debt
|
|
$
|
961,416
|
|
|
$
|
828,664
|
|
On February 17, 2016, the Company entered into the Term Loan Credit Agreement (as subsequently amended, the “Term Loan Agreement”) with a syndicate of lenders and U.S. Bank National Association, as administrative agent for the lenders. The Term Loan Agreement includes
two
categories of borrowings (collectively, the “Term Loans”): (a) the closing date term loan borrowings in an aggregate amount of
$165.0 million
on the closing date, and (b) a delayed draw term loan borrowing in an aggregate principal amount not to exceed
$15.0 million
. The making of the Term Loans is subject to the satisfaction of certain conditions precedent, including, with respect to the delayed draw term loans, the consent of the lenders providing the delayed draw term loans.
On February 26, 2016, the Company satisfied the conditions precedent to the making of the closing date term loans, and the proceeds of the closing date term loans were deposited into an escrow account, pending satisfaction of certain conditions. On the closing date,
49.1%
of the proceeds of the closing date term loans were released upon Basic causing not less than
49.1%
of the term loan priority collateral to become subject to a perfected lien in favor of the administrative agent. On May 31, 2016, an additional
26%
, and on June 30, 2016, an additional
10%
of the proceeds of the closing date term loans were released upon Basic causing not less than
85%
of the term loan priority collateral to become subject to a perfected lien in favor of the administrative agent. On August 31, 2016, upon the satisfaction of predetermined conditions related to perfection of collateral, the remaining proceeds of the Term Loans deposited in the escrow account may be released upon the Company causing not less than
95%
of the term loan priority collateral to become subject to a perfected lien in favor of the administrative agent. However, such conditions may not be satisfied by August 31, 2016, and the Company is currently seeking an extension of the deadline for satisfaction of such conditions. The Company cannot predict whether the Term Loan Agreement lenders will agree to extend the deadline for satisfaction of such conditions. Delayed draw term loan borrowings may be made until October 31, 2016.
Borrowings under the Term Loan Agreement will mature in February, 2021. However, if Basic has not completed an acceptable 2019 senior notes refinancing by November, 2018, then the borrowings under the Term Loan Agreement will mature in November, 2018. Basic is required to prepay the Term Loan Agreement under certain circumstances without premium or penalty unless such prepayment is in connection with the “springing” maturity date of November, 2018 described above, a change of control or the incurrence of indebtedness not permitted under the Term Loan Agreement and under certain other circumstances, in which case such prepayment will be subject to the applicable premium.
Each Term Loan will bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to
13.50%
. In addition, Basic was responsible for the applicable lenders’ fees, including a closing payment equal to
7.00%
of the aggregate principal amount of commitments of each lender under the Term Loan Agreement as of the effective date, and administrative agent fees.
The Term Loan Agreement contains various covenants that, subject to agreed upon exceptions, limit Basic’s ability and the ability of certain of Basic’s subsidiaries to:
|
|
•
|
enter into sale and leaseback transactions;
|
|
|
•
|
make loans, capital expenditures, acquisitions and investments;
|
|
|
•
|
change the nature of business;
|
|
|
•
|
acquire or sell assets or consolidate or merge with or into other companies;
|
|
|
•
|
declare or pay dividends;
|
|
|
•
|
enter into transactions with affiliates;
|
|
|
•
|
enter into burdensome agreements;
|
|
|
•
|
prepay, redeem or modify or terminate other indebtedness;
|
|
|
•
|
change accounting policies and reporting practices;
|
|
|
•
|
amend organizational documents; and
|
|
|
•
|
use proceeds to fund any activities of or business with any person that is the subject of governmental sanctions.
|
If an event of default occurs under the Term Loan Agreement, then the administrative agent may, with the consent of the required lenders, or shall, at the direction of, the required lenders, (i) terminate lenders’ commitments under the Term Loan Agreement, (ii) declare any outstanding loans under the Term Loan Agreement to be immediately due and payable, and (iii) exercise on behalf of itself and the lenders all rights and remedies available to it and the lenders under the loan documents or applicable law or equity.
On February 26, 2016, in connection with the initial closing date of the Term Loan Agreement, the Company entered into an amendment to its existing
$250 million
revolving credit facility (as so amended, the “Modified Facility”) with a syndicate of lenders and Bank of America, N.A., as administrative agent for the lenders, which, among other things: (i) reduced the maximum aggregate commitments thereunder from
$250 million
to
$100 million
; (ii) revised the maturity date to the earliest to occur of November, 2019 and August, 2018 if a specified refinancing of Basic’s 2019 senior notes has not been completed by August, 2018; (iii) modified the borrowing base calculation; (iv) permitted Basic to incur Term Loans under the new Term Loan Agreement in an aggregate principal amount not to exceed
$180 million
, and enter into and permitted to exist other obligations and liens relating to the Term Loan Agreement; and (v) redefined the collateral under the Modified Facility to exclude term loan priority collateral, and released and discharged the administrative agent’s security interests in and liens on such collateral.
The Company adopted Accounting Standards Update (“ASU”) 2015-03, “Simplifying the Presentation of Debt Issuance Cost” beginning on January 1, 2016, and retrospectively for all periods presented. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The table below presents long-term debt and associated deferred debt issuance costs, net of amortization. The unamortized value of deferred debt issuance costs associated with the Modified Facility continue to be presented as an asset on the Company’s consolidated balance sheets.
As of
June 30, 2016
, Basic had
no
borrowings and
$51.8 million
of letters of credit outstanding under its Modified Facility, giving Basic
$22.1 million
of available borrowing capacity based on its borrowing base determined as of such date.
Basic’s interest expense consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
Cash payments for interest
|
|
$
|
32,560
|
|
|
$
|
30,892
|
|
Commitment and other fees paid
|
|
1,272
|
|
|
1,336
|
|
Amortization of debt issuance costs and discount or premium on notes
|
|
4,348
|
|
|
1,398
|
|
Change in accrued interest
|
|
5,010
|
|
|
174
|
|
Other
|
|
45
|
|
|
(96
|
)
|
|
|
$
|
43,235
|
|
|
$
|
33,704
|
|
7. Commitments and Contingencies
Environmental
Basic is subject to various federal, state and local environmental laws and regulations that establish standards and requirements for protection of the environment. Basic cannot predict the future impact of such standards and requirements, which are subject to change and can have retroactive effectiveness. Basic continues to monitor the status of these laws and regulations. Management believes that the likelihood of any of these items resulting in a material adverse impact to Basic’s financial position, liquidity, capital resources or future results of operations is remote.
Currently, Basic has not been fined, cited or notified of any environmental violations that would have a material adverse effect upon its financial position, liquidity or capital resources. However, management does recognize that by the very nature of its business, material costs could be incurred in the near term to bring Basic into total compliance. The amount of such future expenditures is not determinable due to several factors, including the unknown magnitude of possible contamination, the unknown timing and extent of the corrective actions which may be required, the determination of Basic’s liability in proportion to other responsible parties and the extent to which such expenditures are recoverable from insurance or indemnification.
Litigation
From time to time, Basic is a party to litigation or other legal proceedings that Basic considers to be a part of the ordinary course of business. Basic is not currently involved in any legal proceedings that it considers probable or reasonably possible, individually or in the aggregate, to result in a material adverse effect on its financial condition, results of operations or liquidity.
Self-Insured Risk Accruals
Basic is self-insured up to retention limits as it relates to workers’ compensation, general liability claims, and medical and dental coverage of its employees. Basic generally maintains no physical property damage coverage on its workover rig fleet, with the exception of certain of its 24-hour workover rigs and newly manufactured rigs. Basic has deductibles per occurrence for workers’ compensation, general liability claims, automobile liability and medical coverage of
$2.5 million
,
$1.0 million
,
$1.0 million
, and
$400,000
, respectively. Basic maintains accruals in the accompanying consolidated balance sheets related to self-insurance retentions based upon third-party data and claims history.
At
June 30, 2016
and
December 31, 2015
, self-insured risk accruals totaled approximately
$31.1 million
and
$30.8 million
, respectively.
8. Stockholders’ Equity
Common Stock
In March 2016, Basic granted various employees
790,263
restricted shares of common stock that vest over a
three
-year period.
Treasury Stock
As of
June 30, 2016
, Basic may purchase up to an additional
$9.5 million
of Basic’s shares of common stock under the repurchase program. During the first
six
months of
2016
, Basic did not repurchase any shares under the repurchase program.
Basic has acquired treasury shares through net share settlements for payment of payroll taxes upon the vesting of restricted stock. Basic acquired a total of
220,391
shares through net share settlements during the first
six
months of
2016
and
203,594
shares through net share settlements during the first
six
months of
2015
.
9. Incentive Plan
During the three months ended
June 30, 2016
and
2015
, compensation expense related to share-based arrangements was approximately
$2.3 million
and
$3.3 million
, respectively. For compensation expense recognized during the three months ended June 30,
2015
, Basic recognized a tax benefit of approximately
$1.2 million
. During the
six
months ended
June 30, 2016
and
2015
, compensation expense related to share-based arrangements was approximately
$5.1 million
and
$7.2 million
, respectively. For compensation expense recognized during the
six
months ended June 30,
2015
, Basic recognized a tax benefit of approximately
$2.6 million
.
As of
June 30, 2016
, there was approximately
$12.6 million
of total unrecognized compensation related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of
2.0 years
. The total fair value of share-based awards vested during the
six
months ended
June 30, 2016
and
2015
was approximately
$2.5 million
and
$5.0 million
, respectively. During the six months ended
June 30, 2016
and
2015
, there was
no
excess tax benefit due to the net operating loss carryforwards (“NOL”). If there was
no
NOL, there would have been an excess tax benefit of approximately
$11,000
at
June 30, 2015
.
Stock Option Awards
The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option-pricing model. Options granted under the Plan expire
10 years
from the date they are granted, and generally vest over a
three
- to
five
-year service period.
The following table reflects changes during the
six
month period and a summary of stock options outstanding at
June 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted
|
|
Remaining
|
|
Aggregate
|
|
|
Number of
|
|
Average
|
|
Contractual
|
|
Intrinsic
|
|
|
Options
|
|
Exercise
|
|
Term
|
|
Value
|
|
|
Granted
|
|
Price
|
|
(Years)
|
|
(000's)
|
Non-statutory stock options:
|
|
|
|
|
|
|
|
|
Outstanding, beginning of period
|
|
175,000
|
|
|
$
|
26.29
|
|
|
|
|
|
Options expired
|
|
(152,000
|
)
|
|
26.84
|
|
|
|
|
|
Outstanding, end of period
|
|
23,000
|
|
|
$
|
22.66
|
|
|
0.7
|
|
$
|
—
|
|
Exercisable, end of period
|
|
23,000
|
|
|
$
|
22.66
|
|
|
0.7
|
|
$
|
—
|
|
Vested or expected to vest, end of period
|
|
23,000
|
|
|
$
|
22.66
|
|
|
0.7
|
|
$
|
—
|
|
The total intrinsic value of share options exercised during the
six
months June 30, 2015 was approximately
$37,000
. There were
no
stock options exercised during the six months ended June 30, 2016.
Cash received from share option exercises under the Plan was approximately
$724,000
for the
six
months ended June 30,
2015
. During the
six
months ended
June 30, 2016
and
2015
, there was
no
excess tax benefit due to the NOL. If there was
no
NOL, there would have been no tax benefit for at June 30, 2016, and an excess tax benefit of approximately
$534,000
at
June 30, 2015
.
Restricted Stock Awards
A summary of the status of Basic’s non-vested share grants at
June 30, 2016
and changes during the
six
months ended
June 30, 2016
is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Number of
|
|
Grant Date Fair
|
Nonvested Shares
|
|
Shares
|
|
Value Per Share
|
Nonvested at beginning of period
|
|
1,967,376
|
|
|
$
|
14.34
|
|
Granted during period
|
|
790,263
|
|
|
2.73
|
|
Vested during period
|
|
(858,705
|
)
|
|
15.02
|
|
Forfeited during period
|
|
(7,612
|
)
|
|
23.81
|
|
Nonvested at end of period
|
|
1,891,322
|
|
|
$
|
9.14
|
|
Phantom
Stock Awards
On March 24, 2016, Basic’s Board of Directors approved grants of performance-based phantom stock awards to certain members of management. The performance-based phantom stock awards are tied to Basic’s achievement of total stockholder return (“TSR”) relative to the TSR of a peer group of energy services companies over the performance period (defined as the
two
-year calculation period starting on the 20th NYSE trading day prior to and including the last NYSE trading day of 2015 and ending on the last NYSE trading day of 2017). The number of phantom shares to be issued will range from
0%
to
150%
of the
705,263
target number of phantom shares, depending on the performance noted above. Any phantom shares earned at the end of the performance period will then remain subject to vesting in one-half increments on March 15, 2018 and 2019 (subject to accelerated vesting in certain circumstances). As of June 30, 2016, Basic estimated that
100%
of the target number of performance-based awards will be earned. The Board of Directors also approved grants of phantom restricted stock awards to certain key employees. The number of phantom shares issued was
552,100
. These grants remain subject to vesting annually in one-third increments over a
three
-year period, with the first portion vesting March 15, 2017 (subject to accelerated vesting in certain circumstances).
Key Employee Retention Plan and Key Employee Incentive Plan
In June 2016, in order to retain top-tier executive talent, Basic entered into (i) Key Employee Retention Bonus ("KERP") agreements with certain of its employees, and (ii) Key Employee Incentive Bonus ("KEIP") agreements with certain of its executive officers. The Company’s Board of Directors authorized the KERP and KEIP, which are designed to supplement Basic’s existing employee compensation programs. The KERP and KEIP programs are to be paid in cash. The first installment of the KERP was paid in June 2016. The remaining payments are to be paid on each of August 15, 2016, November 15, 2016 and February 15, 2017. The first payment of the KEIP was paid in June 2016, and remaining payments under the KEIP bonus are subject to the attainment of certain goals related to restructuring of the Company's debt.
Under the retention bonus agreements, if prior to June 20, 2017 either (i) a recipient voluntarily terminates his employment with the Company other than as an eligible retirement or (ii) his employment is terminated by the Company for cause then the recipient will both forfeit his right to payment of any remaining installment payments and be obligated to repay the Company for the total amount of any installment payments previously paid prior to such termination. The recipient will be eligible to receive any scheduled installment payments under the plans in the event of a termination of employment prior to the vesting date that is without cause, as an eligible retirement or by reason of disability or death.
10. Related Party Transactions
Basic had receivables from employees of approximately
$26,000
and
$34,000
as of
June 30, 2016
and
December 31, 2015
, respectively.
In December 2010, Basic entered into a lease agreement with Darle Vuelta Cattle Co., LLC (“DVCC”) for the right to operate a salt water disposal well, brine well and fresh water well. The term of the lease will continue until the salt water disposal well and brine well are plugged and no fresh water is being sold. The lease payments are the greater of (i) the sum of
$0.10
per barrel of disposed oil and gas waste and
$0.05
per barrel of brine or fresh water sold or (ii)
$5,000
per month. In February 2015, Basic purchased
100
acres of vacant land outside of Midland, Texas for
$1.5 million
from DVCC.
11. Earnings Per Share
The following table sets forth the computation of unaudited basic and diluted earnings (loss) per share (in thousands, except share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Numerator (both basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(89,883
|
)
|
|
$
|
(48,295
|
)
|
|
$
|
(173,222
|
)
|
|
$
|
(80,919
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic loss per share
|
|
42,602,128
|
|
|
40,167,876
|
|
|
41,869,855
|
|
|
40,360,194
|
|
Denominator for diluted loss per share
|
|
42,602,128
|
|
|
40,167,876
|
|
|
41,869,855
|
|
|
40,360,194
|
|
Basic loss per common share:
|
|
$
|
(2.11
|
)
|
|
$
|
(1.20
|
)
|
|
$
|
(4.14
|
)
|
|
$
|
(2.00
|
)
|
Diluted loss per common share:
|
|
$
|
(2.11
|
)
|
|
$
|
(1.20
|
)
|
|
$
|
(4.14
|
)
|
|
$
|
(2.00
|
)
|
Unvested restricted stock shares of approximately
803,240
and
781,526
were excluded from the computation of diluted loss per share for the three month and six months ended June 30, 2016, respectively, and stock options and unvested restricted stock of
494,670
and
650,972
were excluded in the computation of diluted loss per share for the three and
six
months ended June 30, 2015, respectively, as the effect would have been anti-dilutive.
12. Business Segment Information
The following table sets forth certain financial information with respect to Basic’s reportable segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completion
|
|
|
|
|
|
|
|
|
|
|
|
|
and Remedial
|
|
Fluid
|
|
Well
|
|
Contract
|
|
Corporate and
|
|
|
|
|
Services
|
|
Services
|
|
Servicing
|
|
Drilling
|
|
Other
|
|
Total
|
Three Months Ended June 30, 2016 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
36,228
|
|
|
45,491
|
|
|
36,824
|
|
|
1,461
|
|
|
$
|
—
|
|
|
$
|
120,004
|
|
Direct operating costs
|
|
(32,860
|
)
|
|
(38,619
|
)
|
|
(31,847
|
)
|
|
(1,368
|
)
|
|
—
|
|
|
$
|
(104,694
|
)
|
Segment profits
|
|
$
|
3,368
|
|
|
$
|
6,872
|
|
|
$
|
4,977
|
|
|
$
|
93
|
|
|
$
|
—
|
|
|
$
|
15,310
|
|
Depreciation and amortization
|
|
$
|
18,954
|
|
|
$
|
16,145
|
|
|
$
|
13,886
|
|
|
$
|
3,201
|
|
|
$
|
2,661
|
|
|
$
|
54,847
|
|
Capital expenditures (excluding acquisitions)
|
|
$
|
935
|
|
|
$
|
3,031
|
|
|
$
|
2,303
|
|
|
$
|
—
|
|
|
$
|
1,526
|
|
|
$
|
7,795
|
|
Three Months Ended June 30, 2015 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
69,056
|
|
|
$
|
63,704
|
|
|
$
|
56,500
|
|
|
$
|
4,336
|
|
|
$
|
—
|
|
|
$
|
193,596
|
|
Direct operating costs
|
|
(57,670
|
)
|
|
(48,381
|
)
|
|
(47,035
|
)
|
|
(3,488
|
)
|
|
—
|
|
|
(156,574
|
)
|
Segment profits
|
|
$
|
11,386
|
|
|
$
|
15,323
|
|
|
$
|
9,465
|
|
|
$
|
848
|
|
|
$
|
—
|
|
|
$
|
37,022
|
|
Depreciation and amortization
|
|
$
|
21,056
|
|
|
$
|
17,515
|
|
|
$
|
15,284
|
|
|
$
|
3,512
|
|
|
$
|
2,864
|
|
|
$
|
60,231
|
|
Capital expenditures (excluding acquisitions)
|
|
$
|
2,274
|
|
|
$
|
2,710
|
|
|
$
|
2,892
|
|
|
$
|
236
|
|
|
$
|
1,831
|
|
|
$
|
9,943
|
|
Six Months Ended June 30, 2016 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
75,924
|
|
|
95,741
|
|
|
75,731
|
|
|
2,965
|
|
|
$
|
—
|
|
|
$
|
250,361
|
|
Direct operating costs
|
|
(67,648
|
)
|
|
(79,786
|
)
|
|
(66,318
|
)
|
|
(2,929
|
)
|
|
—
|
|
|
$
|
(216,681
|
)
|
Segment profits
|
|
$
|
8,276
|
|
|
$
|
15,955
|
|
|
$
|
9,413
|
|
|
$
|
36
|
|
|
$
|
—
|
|
|
$
|
33,680
|
|
Depreciation and amortization
|
|
$
|
38,359
|
|
|
$
|
32,673
|
|
|
$
|
28,102
|
|
|
$
|
6,479
|
|
|
$
|
5,386
|
|
|
$
|
110,999
|
|
Capital expenditures (excluding acquisitions)
|
|
$
|
1,511
|
|
|
$
|
6,178
|
|
|
$
|
3,454
|
|
|
$
|
113
|
|
|
$
|
2,506
|
|
|
$
|
13,762
|
|
Identifiable assets
|
|
$
|
324,114
|
|
|
$
|
227,006
|
|
|
$
|
209,498
|
|
|
$
|
45,976
|
|
|
$
|
271,764
|
|
|
$
|
1,078,358
|
|
Six Months Ended June 30, 2015 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
181,831
|
|
|
$
|
137,506
|
|
|
$
|
120,168
|
|
|
$
|
15,812
|
|
|
$
|
—
|
|
|
$
|
455,317
|
|
Direct operating costs
|
|
(138,921
|
)
|
|
(102,512
|
)
|
|
(99,437
|
)
|
|
(11,014
|
)
|
|
—
|
|
|
(351,884
|
)
|
Segment profits
|
|
$
|
42,910
|
|
|
$
|
34,994
|
|
|
$
|
20,731
|
|
|
$
|
4,798
|
|
|
$
|
—
|
|
|
$
|
103,433
|
|
Depreciation and amortization
|
|
$
|
42,356
|
|
|
$
|
35,233
|
|
|
$
|
30,745
|
|
|
$
|
7,064
|
|
|
$
|
5,762
|
|
|
$
|
121,160
|
|
Capital expenditures (excluding acquisitions)
|
|
$
|
16,446
|
|
|
$
|
8,936
|
|
|
$
|
13,243
|
|
|
$
|
1,110
|
|
|
$
|
4,346
|
|
|
$
|
44,081
|
|
Identifiable assets
|
|
$
|
477,316
|
|
|
$
|
277,739
|
|
|
$
|
257,778
|
|
|
$
|
56,230
|
|
|
$
|
333,011
|
|
|
$
|
1,402,074
|
|
The following table reconciles the segment profits reported above to the operating loss as reported in the consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Segment profits
|
|
$
|
15,310
|
|
|
$
|
37,022
|
|
|
$
|
33,680
|
|
|
$
|
103,433
|
|
General and administrative expenses
|
|
(27,078
|
)
|
|
(35,673
|
)
|
|
(56,640
|
)
|
|
(74,877
|
)
|
Depreciation and amortization
|
|
(54,847
|
)
|
|
(60,231
|
)
|
|
(110,999
|
)
|
|
(121,160
|
)
|
Gain (Loss) on disposal of assets
|
|
(336
|
)
|
|
57
|
|
|
(261
|
)
|
|
9
|
|
Operating loss
|
|
$
|
(66,951
|
)
|
|
$
|
(58,825
|
)
|
|
$
|
(134,220
|
)
|
|
$
|
(92,595
|
)
|
13. Supplemental Schedule of Cash Flow Information
The following table reflects non-cash financing and investing activity during the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
|
(In thousands)
|
Capital leases issued for equipment
|
|
$
|
2,201
|
|
|
$
|
9,257
|
|
Asset retirement obligation additions (retirements)
|
|
$
|
(21
|
)
|
|
$
|
13
|
|
Basic paid
no
income taxes during the
six
months ended
June 30, 2016
and
2015
. Basic paid interest of approximately
$32.6 million
and
$30.9 million
during the
six
months ended
June 30, 2016
and
2015
, respectively.
14. Fair Value Measurements
The following is a summary of the carrying amounts and estimated fair values of our financial instruments as of
June 30, 2016
and
December 31, 2015
. The fair value of our long-term notes is based upon the quoted market prices at
June 30, 2016
and
December 31, 2015
and is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
June 30, 2016
|
|
December 31, 2015
|
|
Hierarchy Level
|
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
|
|
|
(In thousands)
|
7.75% Senior Notes due 2019, excluding premium
|
1
|
|
$
|
475,000
|
|
|
$
|
180,500
|
|
|
$
|
475,000
|
|
|
$
|
399,000
|
|
7.75% Senior Notes due 2022, excluding premium
|
1
|
|
$
|
300,000
|
|
|
$
|
84,006
|
|
|
$
|
300,000
|
|
|
$
|
238,500
|
|
Term Loan
|
3
|
|
$
|
165,000
|
|
|
$
|
167,968
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The fair value of the Company’s Senior Notes is based on quoted market prices available for Basic’s Senior Notes. The fair value of the Company’s Term Loan is based upon our discounted cash flows model using a third-party discount rate. The carrying amount of our Modified Facility approximates fair value due to its variable-rate characteristics.
The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts receivable-related parties, accounts payable and accrued expenses approximate fair value due to the short maturities of these instruments.
15.
Recent Accounting Pronouncements
Recently adopted
In April 2015, the FASB issued ASU 2015-03, “
Simplifying the Presentation of Debt Issuance Costs.
” ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The ASU is effective for annual periods beginning after December 15, 2015. Basic has adopted this pronouncement, which resulted in a reclassification of deferred debt costs related to long-term debt from an asset to an offset of the related liability. The adoption of the ASU did not affect our method of amortizing debt issuance costs, and will not affect the statement of operations.
In November 2015, the FASB issued ASU 2015-17, “
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
.” The main provision of this Update is to simplify the presentation of deferred income taxes by requiring that deferred tax assets and liabilities be classified as noncurrent in the statement of financial position. This Update is effective for Basic in annual and interim periods beginning after December 15, 2016, however early adoption is permitted. Basic has elected to adopt this ASU beginning in the interim period ended March 31, 2016, and retrospectively for all periods presented.
Not yet adopted
In August, 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-15, “
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
,” which requires management to assess a company’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. Under the new standard, disclosures are required when conditions give rise to substantial doubt about a company’s ability to continue as a going concern within one year from the financial statement issuance date. The Update applies to all companies and is effective for the annual period ending after December 15, 2016, and all annual and interim periods thereafter.
In July 2015, the FASB issued ASU 2015-11,
“Simplifying the Measurement of Inventory.”
ASU 2015-11, changes the measurement principle for entities that do not measure inventory using the last-in, first-out (LIFO) or retail inventory method from the lower of cost or market to lower of cost and net realizable value. The ASU also eliminates the requirement for these entities to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory. The ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Basic has evaluated this pronouncement and determined that it will not have a material impact on its consolidated financial statements.
In August 2015, the FASB issued ASU 2015-14,
“Revenue from Contracts with Customers-Deferral of the Effective Date,”
that defers by one year the effective date of ASU 2014-09,
“Revenue from Contracts with Customers.”
The ASU is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period.
Basic is in the process of determining if this pronouncement will have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
“Leases (Topic 842).”
The purpose of this Update to is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This Update is effective for Basic in annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Basic is in the process of determining if this pronouncement will have a material impact on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09,
“Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.”
The purpose of this Update to is to simplify overly complex areas of GAAP, while maintaining or improving the usefulness of the information. The areas for simplification in this Update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This Update is effective for Basic in annual periods beginning after December 15, 2016, including interim periods within those fiscal years. Basic is in the process of determining if this pronouncement will have a material impact on its consolidated financial statements.
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Overview
We provide a wide range of well site services to oil and natural gas drilling and producing companies, including completion and remedial services, well servicing, fluid services and contract drilling. Our results of operations reflect the impact of our acquisition strategy as a leading consolidator in the domestic land-based well services industry. Our acquisitions have increased our breadth of service offerings at the well site and expanded our market presence. In implementing our acquisition strategy, we made three business acquisitions from January 1, 2015 to
June 30, 2016
. These transactions, as well as market fluctuations, may make our revenues, expenses and income not directly comparable between periods.
Our total hydraulic horsepower (“hhp”) increased to 444,000 at
June 30, 2016
compared to
442,000
in the second quarter of 2015. Our weighted average number of fluid service trucks decreased from 1,011 in the
second
quarter of
2015
to
976
in the
second
quarter of
2016
. Our weighted average number of well servicing rigs remained constant at 421 during the
second
quarter of
2016
compared to the
second
quarter of 2015.
Our operating revenues from each of our segments, and their relative percentages of our total revenues, consisted of the following (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Months-Ended June 30,
|
|
|
2016
|
|
2015
|
Revenues:
|
|
|
|
|
|
|
|
|
Completion and remedial services
|
|
$
|
75.9
|
|
|
30
|
%
|
|
$
|
181.8
|
|
|
41
|
%
|
Fluid services
|
|
$
|
95.8
|
|
|
38
|
%
|
|
$
|
137.5
|
|
|
30
|
%
|
Well servicing
|
|
$
|
75.7
|
|
|
31
|
%
|
|
$
|
120.2
|
|
|
26
|
%
|
Contract drilling
|
|
$
|
3.0
|
|
|
1
|
%
|
|
$
|
15.8
|
|
|
3
|
%
|
Total revenues
|
|
$
|
250.4
|
|
|
100
|
%
|
|
$
|
455.3
|
|
|
100
|
%
|
During the fourth quarter of
2015
, oil prices declined to a level near $50 per barrel (WTI Cushing) and remained at or below that level during the first half of
2016
. During the first quarter of
2016
, oil prices declined further to a level below $30 per barrel (WTI Cushing) and increased somewhat, but remained below $50 per barrel throughout the
second
quarter. As a result, we have continued to see a significant impact on our customers’ activity and the rates we are able to charge our customers. Despite the
second
-quarter
2016
stabilization in oil prices, levels of customer capital expenditures, including maintenance and workover activities have not increased as oil prices remain below breakeven levels in many basins. Additionally, the Company experienced significant weather conditions during the first part of the second quarter of 2016.
As a result of increased concentration of equipment and activity, utilization and pricing for our services has remained competitive in our oil-based operating areas. Natural gas prices have been depressed for a prolonged period and utilization and pricing for our services in our natural gas-based operating areas remained challenged during
2016
.
We believe that the most important performance measures for our business segments are as follows:
|
|
•
|
Completion and Remedial Services
— segment profits as a percent of revenues;
|
|
|
•
|
Well Servicing
— rig hours, rig utilization rate, revenue per rig hour, profits per rig hour and segment profits as a percent of revenues;
|
|
|
•
|
Fluid Services —
trucking hours, revenue per truck, segment profits per truck and segment profits as a percent of revenues; and
|
|
|
•
|
Contract Drilling
— rig operating days, revenue per drilling day, profits per drilling day and segment profits as a percent of revenues.
|
Segment profits are computed as segment operating revenues less direct operating costs. These measurements provide important information to us about the activity and profitability of our lines of business. For a detailed analysis of these indicators for our company, see “Segment Overview” below.
Selected Acquisitions
and Divestitures
During
2015
, we made three business acquisitions that complemented our existing business segments, including:
Grey Rock Pressure Pumping, LLC
On August 31, 2015, we acquired all of the assets of Grey Rock Pressure Pumping, LLC for total cash consideration of $10.2 million. This acquisition has been included in our completion and remedial services segment.
During the first
six
months of
2016
, we did not make any business acquisitions.
Segment Overview
Completion and Remedial Services
During the first
six
months of
2016
, our completion and remedial services segment represented approximately
30%
of our revenues. Revenues from our completion and remedial services segment are generally derived from a variety of services designed to complete and stimulate new oil and natural gas production or place cement slurry within the wellbores. Our completion and remedial services segment includes pumping services, rental and fishing tool operations, coiled tubing services, nitrogen services, cased-hole wireline services, snubbing and other services.
Our pumping services typically concentrate on providing mid-sized fracturing services in selected markets. Cementing and acidizing services also are included in our pumping services operations. Our total hydraulic horsepower capacity for our pumping operations was
444,000
and
442,000
at
June 30, 2016
and
2015
, respectively.
In this segment, we derive our revenues on a project-by-project basis in a competitive bidding process. Our bids are based on the amount and type of equipment and personnel required, with the materials consumed billed separately. During this extended period of decreased spending by oil and gas companies, we have discounted our rates to remain competitive, which would cause lower segment profits.
The following is an analysis of our completion and remedial services segment for each of the quarters in
2015
, the full year ended
December 31, 2015
and
the quarters ended March 31, 2016
and
June 30, 2016
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
Revenues
|
|
Profits %
|
2015:
|
|
|
|
|
First Quarter
|
|
$
|
112,775
|
|
|
28
|
%
|
Second Quarter
|
|
$
|
69,055
|
|
|
17
|
%
|
Third Quarter
|
|
$
|
67,240
|
|
|
16
|
%
|
Fourth Quarter
|
|
$
|
58,480
|
|
|
15
|
%
|
Full Year
|
|
$
|
307,550
|
|
|
20
|
%
|
2016:
|
|
|
|
|
First Quarter
|
|
$
|
39,696
|
|
|
12
|
%
|
Second Quarter
|
|
$
|
36,228
|
|
|
9
|
%
|
The decrease in completion and remedial services revenue to
$36.2 million
in the
second
quarter of
2016
from
$39.7 million
in the first quarter of
2016
resulted primarily from decreased activity and severe weather throughout much of our geographic footprint. Competition has driven pricing for frac and other pumping services below breakeven levels in several basins. Segment profits as a percentage of revenue decreased to
9%
in the
second
quarter of
2016
from
12%
in first quarter of
2016
on reduced pricing for services and lower utilization levels.
Fluid Services
During the first
six
months of
2016
, our fluid services segment represented approximately
38%
of our revenues. Revenues in our fluid services segment are earned from the sale, transportation, treatment, and recycling, storage and disposal of fluids used in the drilling, production and maintenance of oil and natural gas wells. Revenues also include well site construction and maintenance services. The fluid services segment has a base level of business consisting of transporting and disposing of salt water produced as a by-product of the production of oil and natural gas. These services are necessary for our customers and usually have a stable demand but produce lower relative segment profits than other parts of our fluid services segment. Fluid services for completion and workover projects require fresh or brine water for making drilling mud, circulating fluids or frac fluids used during a job, and all of these fluids require storage tanks and hauling and disposal. Because we can provide a full complement of fluid sales, trucking, storage and disposal required on most drilling and workover projects, the add-on services associated with drilling and workover activity generally enable us to generate higher segment profits. The higher segment profits for these add-on services are due to the relatively small incremental labor costs associated with providing these services in addition to our base fluid services segment. Revenues from our water treatment and recycling services include the treatment,
recycling and disposal of wastewater, including frac water and flowback, to reuse this water in the completion and production processes. Revenues from our well site construction services are derived primarily from preparing and maintaining access roads and well locations, installing small diameter gathering lines and pipelines, constructing foundations to support drilling rigs and providing maintenance services for oil and natural gas facilities. We price fluid services by the job, by the hour, or by the quantities sold, disposed of or hauled.
The following is an analysis of our fluid services operations for each of the quarters in
2015
, the full year ended
December 31, 2015
and
the quarters ended March 31, 2016
and
June 30, 2016
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Segment
|
|
|
|
|
Average
|
|
|
|
Revenue
|
|
Profits Per
|
|
|
|
|
Number of
|
|
|
|
Per Fluid
|
|
Fluid
|
|
|
|
|
Fluid Service
|
|
Trucking
|
|
Service
|
|
Service
|
|
Segment
|
|
|
Trucks
|
|
Hours
|
|
Truck
|
|
Truck
|
|
Profits %
|
2015:
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
1,046
|
|
|
595,100
|
|
|
$
|
71
|
|
|
$
|
19
|
|
|
27
|
%
|
Second Quarter
|
|
1,011
|
|
|
573,700
|
|
|
$
|
63
|
|
|
$
|
15
|
|
|
24
|
%
|
Third Quarter
|
|
1,012
|
|
|
565,400
|
|
|
$
|
62
|
|
|
$
|
15
|
|
|
24
|
%
|
Fourth Quarter
|
|
1,002
|
|
|
557,000
|
|
|
$
|
58
|
|
|
$
|
12
|
|
|
21
|
%
|
Full Year
|
|
1,018
|
|
|
2,291,200
|
|
|
$
|
254
|
|
|
$
|
61
|
|
|
24
|
%
|
2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
985
|
|
|
521,500
|
|
|
$
|
51
|
|
|
$
|
10
|
|
|
18
|
%
|
Second Quarter
|
|
976
|
|
|
474,400
|
|
|
$
|
47
|
|
|
$
|
7
|
|
|
15
|
%
|
Revenue per fluid service truck decreased to
$47,000
in the second quarter of
2016
compared to
$51,000
in the first quarter of
2016
and segment profit percentage
decreased
to
15%
in the second quarter of 2016 from
18%
in the first quarter of
2016
primarily due to decreases in customer pricing and disposal utilization.
Well Servicing
During the first six months of
2016
, our well servicing segment represented
31%
of our revenues. Revenue in our well servicing segment is derived from maintenance, workover, completion, manufacturing and plugging and abandonment services. We provide maintenance-related services as part of the normal, periodic upkeep of producing oil and natural gas wells. Maintenance-related services represent a relatively consistent component of our business. Workover and completion services generate more revenue per hour than maintenance work due to the use of auxiliary equipment, but demand for workover and completion services fluctuates more with the overall activity level in the industry. We also have a rig manufacturing and servicing facility that builds new workover rigs, performs large-scale refurbishments of used workover rigs and provides maintenance services on previously manufactured rigs.
We charge our well servicing rig customers for services on an hourly basis at rates that are determined by the type of service and equipment required, market conditions in the region in which the rig operates, the ancillary equipment provided on the rig and the necessary personnel. Depending on the type of job, we may also charge by the project or by the day. We measure the activity levels of our well servicing rigs on a weekly basis by calculating a rig utilization rate based on a 55-hour work week per rig. Our fleet remained constant at a weighted average number of 421 rigs.
The following is an analysis of our well servicing operations for each of the quarters in
2015
, the full year ended
December 31, 2015
and
the quarters ended March 31, 2016
and
June 30, 2016
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Rig
|
|
Revenue
|
|
|
|
|
|
|
Number
|
|
|
|
Utilization
|
|
Per Rig
|
|
Profits Per
|
|
|
|
|
Of Rigs
|
|
Rig hours
|
|
Rate
|
|
Hour
|
|
Rig hour
|
|
Profits %
|
2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
421
|
|
|
163,900
|
|
|
55
|
%
|
|
$
|
377
|
|
|
$
|
69
|
|
|
18
|
%
|
Second Quarter
|
|
421
|
|
|
154,700
|
|
|
51
|
%
|
|
$
|
351
|
|
|
$
|
61
|
|
|
17
|
%
|
Third Quarter
|
|
421
|
|
|
154,100
|
|
|
50
|
%
|
|
$
|
334
|
|
|
$
|
50
|
|
|
14
|
%
|
Fourth Quarter
|
|
421
|
|
|
120,000
|
|
|
39
|
%
|
|
$
|
324
|
|
|
$
|
33
|
|
|
9
|
%
|
Full Year
|
|
421
|
|
|
592,700
|
|
|
49
|
%
|
|
$
|
348
|
|
|
$
|
54
|
|
|
15
|
%
|
2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
421
|
|
|
108,400
|
|
|
36
|
%
|
|
$
|
321
|
|
|
$
|
44
|
|
|
11
|
%
|
Second Quarter
|
|
421
|
|
|
113,700
|
|
|
38
|
%
|
|
$
|
308
|
|
|
$
|
44
|
|
|
14
|
%
|
Rig utilization was
38%
in the
second
quarter of
2016
, up slightly from
36%
in the first quarter of
2016
. The higher utilization rate in the
second
quarter of
2016
resulted from an increase in well servicing hours and increases in activity in selected basins. Our segment profit percentage increased to
14%
for the
second
quarter of
2016
from
11%
in the first quarter of 2016, primarily due to increased utilization and the effects of cost-saving initiatives on direct costs during the first half of
2016
.
Contract Drilling
During the first
six
months of
2016
, our contract drilling segment represented approximately
1%
of our revenues. Revenues from our contract drilling segment are derived primarily from the drilling of new wells.
Within this segment, we charge our drilling rig customers a “daywork” daily rate, or “footage” at an established rate per number of feet drilled. We measure the activity level of our drilling rigs on a weekly basis by calculating a rig utilization rate based on a seven-day work week per rig. Our contract drilling rig fleet had a weighted average of 12 rigs during the
second
quarter of
2016
.
The following is an analysis of our contract drilling segment for each of the quarters in
2015
, the full year ended
December 31, 2015
and
the quarters ended March 31, 2016
and
June 30, 2016
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Rig
|
|
|
|
|
|
|
|
|
Number of
|
|
Operating
|
|
Revenue Per
|
|
Profits Per
|
|
Segment
|
|
|
Rigs
|
|
Days
|
|
Drilling Day
|
|
Drilling Day
|
|
Profits %
|
2015:
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
12
|
|
|
674
|
|
|
$
|
17,000
|
|
|
$
|
5,900
|
|
|
34
|
%
|
Second Quarter
|
|
12
|
|
|
280
|
|
|
$
|
15,500
|
|
|
$
|
3,000
|
|
|
20
|
%
|
Third Quarter
|
|
12
|
|
|
252
|
|
|
$
|
15,300
|
|
|
$
|
2,600
|
|
|
17
|
%
|
Fourth Quarter
|
|
12
|
|
|
155
|
|
|
$
|
16,500
|
|
|
$
|
400
|
|
|
3
|
%
|
Full Year
|
|
12
|
|
|
1,361
|
|
|
$
|
16,300
|
|
|
$
|
4,000
|
|
|
25
|
%
|
2016:
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
12
|
|
|
91
|
|
|
$
|
16,500
|
|
|
$
|
(600
|
)
|
|
(4
|
)%
|
Second Quarter
|
|
12
|
|
|
91
|
|
|
$
|
16,100
|
|
|
$
|
1,000
|
|
|
6
|
%
|
Revenue per day
decreased
to
$16,100
in the
second
quarter of
2016
compared to
$16,500
in the first quarter of
2016
. The decrease in drilling revenue per day in the
second
quarter of
2016
was due to a decrease in rig trucking revenues and utilization. Segment profit percentage increased to
6%
in the second quarter of
2016
compared to segment loss of
4%
in the first quarter of
2016
due to the effects of cost-saving initiatives implemented throughout the first half of 2016.
Operating Cost Overview
Our operating costs are comprised primarily of labor, including workers’ compensation and health insurance, repair and maintenance, fuel and insurance. The majority of our employees are paid on an hourly basis. We also incur costs to employ personnel to sell and supervise our services and perform maintenance on our fleet. These costs are not directly tied to our level of business activity. Repair and maintenance is performed by our crews, company maintenance personnel and outside service providers. Compensation for our administrative personnel in local operating yards and in our corporate office is accounted for as general and administrative expenses. Insurance is generally a fixed cost regardless of utilization and relates to the number of rigs, trucks and other equipment in our fleet, employee payroll and safety record.
Critical Accounting Policies and Estimates
Our unaudited consolidated financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of our significant accounting policies is included in Note 2 of the Financial Statements and Supplementary Data in our most recent Annual Report on Form 10-K.
Results of Operations
The following is a comparison of our results of operations for the three months ended
June 30, 2016
compared to the three months ended
June 30, 2015
. For additional segment-related information and trends, please read “Segment Overview” above.
Three Months Ended
June 30, 2016
Compared to Three Months Ended
June 30, 2015
Revenues.
Revenues
decreased
by
38%
to
$120.0 million
during the
second
quarter of
2016
from
$193.6 million
during the same period in
2015
. This decrease was primarily due to decreased demand for our services by our customers compared to the second quarter of 2015, when our customers were still in the process of determining whether to reduce their capital budgets and ramp down projects. After the prolonged period of lower oil prices including the second quarter of 2016, our customers have curtailed projects and reduced capital budgets for new projects.
Completion and remedial services revenues
decreased
by
48%
to
$36.2 million
during the
second
quarter of
2016
compared to
$69.1 million
in the same period in
2015
. The decrease in revenue between these periods was primarily due to continued lower demand for completion related activities and our reduced pricing for our services, particularly in our pumping services and coiled tubing lines of business. Total hydraulic horsepower increased to
444,000
at
June 30, 2016
from
442,000
at
June 30, 2015
.
Fluid services revenues
decreased
by
29%
to
$45.5 million
during the
second
quarter of
2016
compared to
$63.7 million
in the same period in
2015
, due to decreases in trucking hours and lower pricing for our services. Our revenue per fluid service truck decreased
25%
to
$47,000
in the
second
quarter of
2016
compared to
$63,000
in the same period in
2015
due mainly to decreases in pricing, disposal utilization and skim oil revenues. Our weighted average number of fluid service trucks decreased to
976
during the
second
quarter of
2016
compared to
1,011
in the same period in
2015
.
Well servicing revenues
decreased
by
35%
to
$36.8 million
during the
second
quarter of
2016
compared to
$56.5 million
during the same period in
2015
. The decrease was driven by a decrease in utilization of our equipment, primarily due to declines in customer demand and pricing. Our weighted average number of well servicing rigs remained constant at 421 during the
second
quarter of
2016
and
2015
. Utilization was
38%
in the
second
quarter of
2016
, compared to
51%
in the comparable quarter of
2015
. Revenue per rig hour in the
second
quarter of
2016
was
$308
, decreasing from
$351
in the comparable quarter of
2015
, due to competitive rate pressures.
Contract drilling revenues decreased by
66%
to
$1.5 million
during the
second
quarter of
2016
compared to
$4.3 million
in the same period in
2015
. The number of rig operating days decreased
68%
to
91
in the
second
quarter of
2016
compared to
280
in the
second
quarter of
2015
. The decrease in revenue and rig operating days was due to a decrease in drilling activity in the Permian Basin.
Direct Operating Expenses.
Direct operating expenses, which primarily consist of labor, including workers’ compensation and health insurance, repair and maintenance, fuel and insurance,
decreased
to
$104.7 million
during the
second
quarter of
2016
from
$156.6 million
in the same period in
2015
, primarily due to decreases in activity and corresponding reductions in employee headcount and wages to adapt to current activity levels.
Direct operating expenses for the completion and remedial services segment
decreased
by
43%
to
$32.9 million
during the
second
quarter of
2016
compared to
$57.7 million
for the same period in
2015
due primarily to decreased activity levels overall, especially in our pumping and coil tubing services. Segment profits
decreased
to
9%
of revenues during the
second
quarter of
2016
compared to
17%
for the same period in
2015
, due to decremental margin impact of lower activity and increased price competition.
Direct operating expenses for the fluid services segment
decreased
by
20%
to
$38.6 million
during the
second
quarter of
2016
compared to
$48.4 million
for the same period in
2015
, mainly due to decreased activity levels. Segment profits were
15%
of revenues during the
second
quarter of
2016
compared to
24%
for the same period in
2015
due to the decline in trucking hours and lower skim oil sales and disposal activity.
Direct operating expenses for the well servicing segment
decreased
by
32%
to
$31.8 million
during the
second
quarter of
2016
compared to
$47.0 million
for the same period in
2015
. The decrease in direct operating expenses corresponds to decreased workover and plugging activity levels. Segment profits
decreased
to
14%
of revenues during the
second
quarter of
2016
compared to
17%
of revenues during the
second
quarter of
2015
due to the impact of decremental margins on a lower revenue base and increased pricing competition.
Direct operating expenses for the contract drilling segment
decreased
61%
to
$1.4 million
during the
second
quarter of
2016
compared to
$3.5 million
for the same period in
2015
, due to decreased activity and fewer rig operating days. Segment profits
decreased
to
6%
of revenues during the
second
quarter of
2016
from
20%
during the
second
quarter of
2015
due to a significant decline in drilling projects during the
second
quarter of
2016
.
General and Administrative Expenses.
General and administrative expenses decreased by 24% to
$27.1 million
during the
second
quarter of
2016
from
$35.7 million
for the same period in
2015
, due to cost cutting measures implemented throughout the first half of 2016 including reduced headcount, salary reductions and lower incentive bonus expense. General and administrative expenses included $2.3 million and $3.3 million of stock-based compensation expense during the
second
quarters of
2016
and
2015
, respectively.
Depreciation and Amortization
Expenses.
Depreciation and amortization expenses were
$54.8 million
during the
second
quarter of
2016
compared to
$60.2 million
for the same period in
2015
. The decrease in depreciation and amortization expense is due to the decrease in capital expenditures for equipment during the second quarter of 2016.
Interest Expense.
Interest expense increased to
$22.5 million
during the
second
quarter of
2016
compared to
$16.8 million
during the
second
quarter of
2015
due to additional interest related to our Term Loan Agreement.
Income Tax Expense.
There was income tax expense of
$662,000
during the
second
quarter of
2016
compared to an income tax benefit of
$27.2 million
for the same period in
2015
. Our effective tax rate during the
second
quarter of
2016
and
2015
was approximately (1)% and 36%, respectively. The difference in the rate from 2015 to
2016
is due to the impact of deferred tax valuation allowances related to net operating loss carryforwards available to be used in future periods.
Six Months Ended June 30, 2016
Compared to
Six Months Ended June 30, 2015
The following is a comparison of our results of operations for the
six
months ended
June 30, 2016
compared to the
six
months ended
June 30, 2015
. For additional segment-related information and trends, please read “Segment Overview” above.
Revenues.
Revenues
decreased
by
45%
to
$250.4 million
during the
six
months ended
June 30, 2016
from
$455.3 million
during the same period in
2015
. This decrease was primarily due to decreased demand for our services by our customers compared to the first half of 2015, when our customers were still in the process of determining whether to reduce their capital budgets and ramp down projects. After the prolonged period of lower oil prices including the first half of 2016, our customers have curtailed projects and reduced capital budgets for new projects.
Completion and remedial services revenues
decreased
by
58%
to
$75.9 million
during the
six
months ended
June 30, 2016
compared to
$181.8 million
in the same period in
2015
. The decrease in revenue between these periods was primarily due to decreased demand for completion related activities and pricing for our services, particularly in our pumping and coil tubing services lines of business. Additionally, we agreed to extend a $4.5 million credit to a customer as the result of an audit in the second quarter of 2015. Total hydraulic horsepower increased to
444,000
at
June 30, 2016
from
442,000
at
June 30, 2015
.
Fluid services revenues
decreased
by
30%
to
$95.7 million
during the
six
months ended
June 30, 2016
compared to
$137.5 million
in the same period in
2015
, due to decreases in trucking hours and lower pricing for our services. Our revenue per fluid service truck decreased
27%
to
$98,000
in the
six
months ended
June 30, 2016
compared to
$134,000
in the same period in
2015
due mainly to decreases in pricing for our services, disposal utilization and skim oil revenues. Our weighted average number of fluid service trucks
decreased
to
980
during the
six
months ended
June 30, 2016
compared to
1,029
in the same period in
2015
.
Well servicing revenues
decreased
by
37%
to
$75.7 million
during the
six
months ended
June 30, 2016
compared to
$120.2 million
during the same period in
2015
. The decrease was driven by a decrease in rig hours, primarily due to declines in utilization and pricing for our services. Our weighted average number of well servicing rigs
remained constant
at
421
during the
six
months ended
June 30, 2016
and
2015
. Utilization was
37%
in the
six
months ended
June 30, 2016
, compared to
53%
in the comparable period of
2015
. Revenue per rig hour in the
six
months ended
June 30, 2016
was
$314
decreasing from
$364
in the comparable period of
2015
due to competitive pricing pressures.
Contract drilling revenues
decreased
by
81%
to
$3.0 million
during the
six
months ended
June 30, 2016
compared to
$15.8 million
in the same period in
2015
. The number of rig operating days
decreased
81%
to
182
in the
six
months ended
June 30, 2016
compared to
954
in the
six
months ended
June 30, 2015
. The decrease in revenue and rig operating days was due to a decrease in drilling activity in the Permian Basin.
Direct Operating Expenses.
Direct operating expenses, which primarily consist of labor, including workers’ compensation and health insurance, repair and maintenance, fuel and insurance,
decreased
to
$216.7 million
during the
six
months ended
June 30, 2016
from
$351.9 million
in the same period in
2015
, primarily due to decreases in activity and corresponding reductions in employee headcount and wages to adapt to current activity levels.
Direct operating expenses for the completion and remedial services segment
decreased
by
51%
to
$67.6 million
during the
six
months ended
June 30, 2016
compared to
$138.9 million
for the same period in
2015
due primarily to decreased activity levels overall, especially in our pumping and coil tubing services. Segment profits
decreased
to
11%
of revenues during the
six
months ended
June 30, 2016
compared to
24%
for the same period in
2015
, due to decreased completion-related activity, price competition and a $4.5 million credit given to a customer as the result of an audit in the second quarter of 2015.
Direct operating expenses for the fluid services segment
decreased
by
22%
to
$79.8 million
during the
six
months ended
June 30, 2016
compared to
$102.5 million
for the same period in
2015
, mainly due to decreased activity and pricing levels. Segment profits were
17%
of revenues during the
six
months ended
June 30, 2016
compared to
25%
for the same period in
2015
due to the decline in trucking hours and lower skim oil sales and disposal activity.
Direct operating expenses for the well servicing segment
decreased
by
33%
to
$66.3 million
during the
six
months ended
June 30, 2016
compared to
$99.4 million
for the same period in
2015
. The decrease in direct operating expenses corresponds to decreased workover and plugging activity levels. Segment profits
decreased
to
12%
of revenues during the
six
months ended
June 30, 2016
compared to
17%
of revenues during the
six
months ended
June 30, 2015
due to decremental margins on lower revenues.
Direct operating expenses for the contract drilling segment
decreased
73%
to
$2.9 million
during the
six
months ended
June 30, 2016
compared to
$11.0 million
for the same period in
2015
, due to decreased activity and fewer rig operating days. Segment profits
decreased
to
1%
of revenues during the
six
months ended
June 30, 2016
from
30%
during the
six
months ended
June 30, 2015
due to a significant decline in drilling projects in the Permian Basin.
General and Administrative Expenses.
General and administrative expenses decreased by 24% to
$56.6 million
during the
six
months ended
June 30, 2016
from
$74.9 million
for the same period in
2015
, due to the effects of cost cutting measures implemented in the
six
months ended
June 30, 2016
, including headcount reductions, salary reductions and lower incentive bonus expense. General and administrative expenses included $5.1 million and $7.2 million of stock-based compensation expense during the
six
months ended
June 30, 2016
and
2015
, respectively.
Depreciation and Amortization
Expenses.
Depreciation and amortization expenses were
$111.0 million
during the
six
months ended
June 30, 2016
compared to
$121.2 million
for the same period in
2015
. The decrease in depreciation and amortization expense is due to the decrease in capital expenditures for equipment during the first
six
months of 2016.
Interest Expense.
Interest expense increased to
$43.2 million
during the
six
months ended
June 30, 2016
compared to
$33.7 million
during the
six
months ended
June 30, 2015
, due to additional interest expense related to our Term Loan Agreement.
Income Tax Expense.
There was income tax benefit of
$3.9 million
during the
six
months ended
June 30, 2016
compared to an income tax benefit of
$45.0 million
for the same period in
2015
. Our effective tax rate during the
six
months ended
June 30, 2016
and
2015
was approximately 2% and 36%, respectively. The difference in the rate from
2015
to
2016
is due to the impact of deferred tax valuation allowances related to net operating loss carryforwards available to be used in future periods.
Liquidity and Capital Resources
As of
June 30, 2016
, our primary capital resources were utilization of capital leases, borrowings under our Term Loan Agreement and borrowings under our Modified Facility, partially offset by net cash used in operations. As of
June 30, 2016
, we had unrestricted cash and cash equivalents of $86.1 million compared to $46.7 million as of December 31, 2015. An additional amount of $19.4 million is classified as restricted cash and may be released only upon satisfaction of predetermined conditions related to perfection of the collateral by August 31, 2016. However, such conditions may not be satisfied by August 31, 2016, and the Company is currently seeking an extension of the deadline for satisfaction of such conditions. The Company cannot predict whether the Term Loan Agreement lenders will agree to extend the deadline for the satisfaction of such conditions.
As of
June 30, 2016
, Basic had no borrowings and $51.8 million of letters of credit outstanding under its Modified Facility, giving Basic $22.1 million of available borrowing capacity under the Modified Facility based on its borrowing base determined as of such date, of which $15 million is subject to leverage covenants.
On February 17, 2016, the Company entered into the Term Loan Agreement with a syndicate of lenders and U.S. Bank National Association, as administrative agent for the lenders. For further discussion of the terms of the Term Loan Agreement, see Note 6. "Long-Term Debt and Interest Expense" to the consolidated financial statements included in Part I, Item 1 (Financial Statements (unaudited)) of this Quarterly Report on Form 10-Q. At June 30, 2016, we were in compliance with all covenants under the Term Loan Agreement and the Modified Facility.
We used $42.0 million in operations during the six months ended June 30, 2016, compared to cash provided by operations of $88.1 million for the same period in 2015. We have implemented cost-reduction and cash conservation measures. However, if cash flow from operations remains depressed due to an extended period of lower commodity prices, then we may have difficulty financing our short-term obligations. We can provide no assurance that additional financing will be available or, if available, offered to us on acceptable terms.
Basic’s senior management and Board are evaluating potential strategic alternatives, such as refinancing or restructuring of the Company’s capital structure or available financing options to address the Company's liquidity position and high debt levels. Basic has engaged financial and legal advisors, and is actively working with its advisors and negotiating with certain creditors and their advisors with respect to alternatives to the Company's current capital structure. While the Company is optimistic that ongoing negotiations with its creditors will lead to satisfactory resolution of these issues, the Company cannot provide any assurance that these negotiations will be successful. If the Company is unable to find acceptable alternatives to its current capital structure to better fund future capital needs, or if the Company is unable to finance its operations on acceptable terms or at all, the Company’s business, financial condition and results of operations may be materially and adversely affected.
Net Cash Provided by Operating Activities
Cash used by operating activities was $42.0 million for the three months ended
June 30, 2016
, a decrease compared to cash provided by operating activities of $88.1 million during the same period in 2015. Operating cash flow usage in the first six months of 2016 was due to an operating loss; however, working capital increased during the period due to lower levels of accounts receivable and payable.
Our liquidity, including our ability to meet our ongoing operational obligations, is dependent upon, among other things, our ability to maintain adequate cash on hand and our ability to generate cash flow from operations. Our ability to maintain adequate liquidity depends upon industry conditions and financial, competitive, and other factors beyond our control. In the event that cash on hand and cash flow from operations is not sufficient to meet our liquidity needs, we may have limited access to additional financing.
Capital Expenditures
Cash capital expenditures during the first six months of 2016 were $11.6 million compared to $34.8 million in the same period of 2015. We added $2.2 million of additional assets through our capital lease program during the first six months of 2016 compared to $9.3 million of additional assets in the same period in 2015.
In 2016, we currently have planned capital expenditures of under $30.0 million, including capital leases of $10.0 million. We do not budget acquisitions in the normal course of business, and we regularly engage in discussions related to potential acquisitions related to the oilfield services industry.
Capital Resources and Financing
Our ability to access additional sources of financing will be dependent on our operating cash flows and demand for our services, which could be negatively impacted due to the extreme volatility of commodity prices and declines in capital and debt markets. Our long-term liquidity requirements and the adequacy of our capital resources are difficult to predict at this time.
Other Matters
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Net Operating Losses
As of
June 30, 2016
, we had approximately $467.0 million of net operating loss carryforwards.
Recent Accounting Pronouncements
The Company's consideration of recent accounting pronouncements is included in
Note 14. Recent Accounting Pronouncements
to these consolidated financial statements.
Impact of Inflation on Operations
Management is of the opinion that inflation has not had a significant impact on our business.