ITEM 1.
FINANCIAL STATEMENTS
Basic Energy Services, Inc.
(in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
ASSETS
|
|
(Unaudited)
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
63,796
|
|
$
|
90,300
|
|
|
|
|
|
|
|
Trade accounts receivable, net of allowance of $1,573 and $1,838, respectively
|
|
140,269
|
|
144,767
|
|
|
|
|
|
|
|
Income tax receivable
|
|
3,425
|
|
1,574
|
|
Inventories
|
|
33,740
|
|
36,449
|
|
Prepaid expenses
|
|
16,164
|
|
17,479
|
|
Other current assets
|
|
6,299
|
|
4,640
|
|
|
|
|
|
|
|
Total current assets
|
|
263,693
|
|
295,209
|
|
Property and equipment, net
|
|
442,092
|
|
448,801
|
|
Operating lease right-of-use assets
|
|
19,321
|
|
—
|
|
Deferred debt costs, net of amortization
|
|
2,604
|
|
2,747
|
|
|
|
|
|
|
|
Intangible assets, net of amortization
|
|
2,925
|
|
2,984
|
|
Other assets
|
|
12,585
|
|
12,036
|
|
Total assets
|
|
$
|
743,220
|
|
$
|
761,777
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$
|
76,833
|
|
$
|
98,323
|
|
Accrued expenses
|
|
71,484
|
|
55,826
|
|
Current portion of long-term debt, net of $359 and $479 discount at March 31, 2019 and December 31, 2018, respectively
|
|
22,465
|
|
27,039
|
|
Operating lease right-of-use liabilities, current portion
|
|
5,347
|
|
—
|
|
Other current liabilities
|
|
719
|
|
3,123
|
|
Total current liabilities
|
|
176,848
|
|
184,311
|
|
Long-term debt, net of discounts and deferred financing costs of $10,448 and $10,690, at March 31, 2019 and December 31, 2018, respectively
|
|
322,358
|
|
322,701
|
|
Operating lease right-of-use liabilities, long-term portion
|
|
13,974
|
|
—
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
35,156
|
|
35,337
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
Preferred stock; $0.01 par value; 5,000,000 shares authorized; zero outstanding at March 31, 2019 and December 31, 2018
|
|
—
|
|
—
|
|
Common stock; $0.01 par value; 80,000,000 shares authorized; 27,267,899 and 26,990,034 shares issued and 26,957,350 and 26,747,712 shares outstanding at March 31, 2019 and December 31, 2018, respectively
|
|
273
|
|
270
|
|
Additional paid-in capital
|
|
467,373
|
|
464,264
|
|
Retained deficit
|
|
(268,747)
|
|
(241,271)
|
|
Treasury stock, at cost, 310,549 and 242,322 shares at March 31, 2019 and December 31, 2018, respectively
|
|
(4,015)
|
|
(3,835)
|
|
Total stockholders' equity
|
|
194,884
|
|
219,428
|
|
Total liabilities and stockholders' equity
|
|
$
|
743,220
|
|
$
|
761,777
|
See accompanying notes to
unaudited
consolidated financial statements.
Basic Energy Services, Inc.
(Unaudited)
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Completion & Remedial Services
|
|
$
|
76,834
|
|
$
|
117,597
|
|
|
|
|
|
|
Well Servicing
|
|
60,515
|
|
56,951
|
|
|
|
|
|
|
Water Logistics
|
|
55,601
|
|
56,509
|
|
|
|
|
|
|
Other Services
|
|
4,252
|
|
3,608
|
|
|
|
|
|
|
Total revenues
|
|
197,202
|
|
234,665
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
Completion & Remedial Services
|
|
63,433
|
|
89,659
|
|
|
|
|
|
|
Well Servicing
|
|
47,196
|
|
46,511
|
|
|
|
|
|
|
Water Logistics
|
|
37,299
|
|
40,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Services
|
|
3,914
|
|
4,223
|
|
|
|
|
|
|
General and administrative, including stock-based compensation of $3,288 and $6,798 in the three months ended March 31, 2019 and 2018, respectively
|
|
35,522
|
|
40,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
27,498
|
|
30,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on disposal of assets
|
|
1,455
|
|
1,779
|
|
|
|
|
|
|
Total expenses
|
|
216,317
|
|
254,308
|
|
|
|
|
|
|
Operating loss
|
|
(19,115)
|
|
(19,643)
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
(10,756)
|
|
(11,283)
|
|
|
|
|
|
|
Interest income
|
|
245
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
299
|
|
309
|
|
|
|
|
|
|
Loss before income taxes
|
|
(29,327)
|
|
(30,590)
|
|
|
|
|
|
|
Income tax benefit
|
|
1,851
|
|
59
|
|
|
|
|
|
|
Net loss
|
|
$
|
(27,476)
|
|
$
|
(30,531)
|
|
|
|
|
|
|
Loss per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.02)
|
|
$
|
(1.16)
|
|
|
|
|
|
|
Diluted
|
|
$
|
(1.02)
|
|
$
|
(1.16)
|
|
|
|
|
|
See accompanying notes to
unaudited
consolidated financial statements.
Basic Energy Services, Inc.
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
Additional
|
|
Treasury
|
|
|
|
|
|
Total
|
|
|
|
Issued
|
|
Common
|
|
Paid-In
|
|
Treasury
|
|
Treasury
|
|
Retained
|
|
Stockholders'
|
|
|
|
Shares
|
|
Stock
|
|
Capital
|
|
Shares
|
|
Stock
|
|
Deficit
|
|
Equity
|
|
Balance - December 31, 2018
|
|
26,990,034
|
|
$
|
270
|
|
$
|
464,264
|
|
242,322
|
|
$
|
(3,835)
|
|
$
|
(241,271)
|
|
$
|
219,428
|
|
Issuances of restricted stock
|
|
277,865
|
|
3
|
|
(3)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Amortization of equity-classified share-based compensation
|
|
—
|
|
—
|
|
3,275
|
|
—
|
|
—
|
|
—
|
|
3,275
|
|
Treasury stock, net
|
|
—
|
|
—
|
|
(163)
|
|
68,227
|
|
(180)
|
|
—
|
|
(343)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(27,476)
|
|
(27,476)
|
|
Balance - March 31, 2019 (unaudited)
|
|
27,267,899
|
|
$
|
273
|
|
$
|
467,373
|
|
310,549
|
|
$
|
(4,015)
|
|
$
|
(268,747)
|
|
$
|
194,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
Additional
|
|
Treasury
|
|
|
|
|
|
Total
|
|
|
|
Issued
|
|
Common
|
|
Paid-In
|
|
Treasury
|
|
Treasury
|
|
Retained
|
|
Stockholders'
|
|
|
|
Shares
|
|
Stock
|
|
Capital
|
|
Shares
|
|
Stock
|
|
Deficit
|
|
Equity
|
|
Balance - December 31, 2017
|
|
26,371,572
|
|
$
|
264
|
|
$
|
439,517
|
|
152,443
|
|
$
|
(4,454)
|
|
$
|
(96,674)
|
|
$
|
338,653
|
|
Issuances of restricted stock
|
|
272,510
|
|
2
|
|
(2)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Amortization of equity-classified share-based compensation
|
|
—
|
|
—
|
|
6,798
|
|
—
|
|
—
|
|
—
|
|
6,798
|
|
Treasury stock, net
|
|
—
|
|
—
|
|
(291)
|
|
69,337
|
|
(1,051)
|
|
—
|
|
(1,342)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(30,531)
|
|
(30,531)
|
|
Balance - March 31, 2018 (unaudited)
|
|
26,644,082
|
|
$
|
266
|
|
$
|
446,022
|
|
221,780
|
|
$
|
(5,505)
|
|
$
|
(127,205)
|
|
$
|
313,578
|
See accompanying notes to
unaudited
consolidated financial statements.
Basic Energy Services, Inc.
(Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
2019
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(27,476)
|
|
|
|
$
|
(30,531)
|
|
Adjustments to reconcile net loss to net cash (used in) provided by operating activities
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
27,498
|
|
|
|
30,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion on asset retirement obligation
|
|
85
|
|
|
|
41
|
|
Change in allowance for doubtful accounts
|
|
(265)
|
|
|
|
(159)
|
|
Amortization of deferred financing costs
|
|
564
|
|
|
|
176
|
|
Amortization of debt discounts
|
|
262
|
|
|
|
1,474
|
|
Non-cash compensation
|
|
3,288
|
|
|
|
6,798
|
|
Loss on disposal of assets
|
|
1,455
|
|
|
|
1,779
|
|
Deferred income taxes
|
|
—
|
|
|
|
(78)
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
4,763
|
|
|
|
(7,618)
|
|
Inventories
|
|
2,709
|
|
|
|
(812)
|
|
Prepaid expenses and other current assets
|
|
(1,282)
|
|
|
|
1,593
|
|
Other assets
|
|
(549)
|
|
|
|
44
|
|
Accounts payable
|
|
(20,496)
|
|
|
|
(5,987)
|
|
Income tax receivable
|
|
(1,851)
|
|
|
|
19
|
|
Other liabilities
|
|
(2,559)
|
|
|
|
(1,641)
|
|
Accrued expenses
|
|
15,658
|
|
|
|
9,215
|
|
Net cash provided by operating activities
|
|
1,804
|
|
|
|
4,548
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
(18,885)
|
|
|
|
(15,412)
|
|
Proceeds from sale of assets
|
|
2,664
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
(16,221)
|
|
|
|
(15,214)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds from debt
|
|
—
|
|
|
|
21,000
|
|
Payments of debt
|
|
(11,423)
|
|
|
|
(13,657)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in treasury stock including restricted stock issuances
|
|
(343)
|
|
|
|
(1,342)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loan costs and other financing activities
|
|
(321)
|
|
|
|
—
|
|
Net cash provided by (used in) financing activities
|
|
(12,087)
|
|
|
|
6,001
|
|
Net decrease in cash and cash equivalents
|
|
(26,504)
|
|
|
|
(4,665)
|
|
Cash and cash equivalents - beginning of period
|
|
90,300
|
|
|
|
86,223
|
|
Cash and cash equivalents - end of period
|
|
$
|
63,796
|
|
|
|
$
|
81,558
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing activity:
|
|
|
|
|
|
|
|
Finance leases and notes issued for equipment
|
|
$
|
6,144
|
|
|
|
$
|
3,321
|
|
Change in accrued property and equipment
|
|
(994)
|
|
|
|
2,518
|
|
Change in asset retirement obligations
|
|
$
|
124
|
|
|
|
$
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax paid
|
|
—
|
|
|
|
—
|
See accompanying notes to
unaudited
consolidated financial statements.
BASIC ENERGY SERVICES, INC.
March 31, 2019 (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 notes required by accounting principles generally accepted in the United States for complete financial statements. Certain information relating to Basic's 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2018. 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.
On June 28, 2018, the SEC adopted amendments that expanded the definition of “smaller reporting company” by increasing the applicable public float and revenue thresholds. Under the amended definition, which became effective on September 10, 2018, a company qualifies as a smaller reporting company if it has (i) a public float of less than $250 million at the end of its most recently completed second fiscal quarter or (ii) less than $100 million in annual revenues and either no public float or a public float of less than $700 million. Based on the Company's public float (the aggregate market value of its common equity held by non-affiliates) as of June 29, 2018, the Company is considered a smaller reporting company under the revised SEC rules and, as such, is eligible to use certain scaled financial and non-financial disclosure requirements. Smaller reporting companies may elect to comply with the scaled reporting requirements separately, thereby permitting the Company to choose such disclosure requirements on an item-by-item basis.
Liquidity and Capital Resources
On October 2, 2018, the Company issued in a private offering $300.0 million aggregate principal amount of 10.75% senior secured notes due 2023 at 99.042% of par and entered into a new $150.0 million senior secured revolving credit facility. For further discussion see Note 4, "Long-Term Debt and Interest Expense".
Basic's current primary capital resources are cash flow from operations, the availability under the New ABL Facility, the ability to enter into finance leases, the ability to incur additional secured indebtedness, and a cash balance of $63.8 million at March 31, 2019. The Company had $66.2 million of available borrowing capacity under the New ABL Facility at March 31, 2019.
Nature of Operations
Basic provides a wide range of well site services to oil and natural gas drilling and producing companies, including completion & remedial services, water logistics, well servicing and contract drilling. These services are primarily provided by Basic’s fleet of equipment. Basic’s operations are concentrated in major United States onshore oil and natural gas producing regions located in Texas, New Mexico, Oklahoma, Kansas, Arkansas, Louisiana, Wyoming, North Dakota, Colorado and California.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Basic's subsidiaries, for which Basic holds a majority voting interest. All intercompany transactions and balances have been eliminated.
Segment Information
In the first quarter of 2019, Basic revised its reportable segments for financial reporting purposes to combine its contract drilling operations with its rig manufacturing operations to form an Other Services segment. The Company's business now consists of the following four segments: Well Servicing, Water Logistics, Completion & Remedial Services, and Other Services. See Note 12, "Business Segment Information" for further information.
Estimates, Risks 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 disclosures of contingent 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 litigation and self-insured risk reserves.
2. Property and Equipment
The following table summarizes the components of property and equipment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
Land
|
|
$
|
20,827
|
|
$
|
21,431
|
|
Buildings and improvements
|
|
41,212
|
|
40,524
|
|
Well service units and equipment
|
|
128,960
|
|
122,694
|
|
Fracturing/test tanks
|
|
121,206
|
|
123,550
|
|
Pumping equipment
|
|
103,532
|
|
103,689
|
|
Fluid services equipment
|
|
80,061
|
|
78,524
|
|
Disposal facilities
|
|
66,995
|
|
63,229
|
|
Rental equipment
|
|
67,735
|
|
62,642
|
|
Light vehicles
|
|
29,828
|
|
27,080
|
|
Contract drilling equipment
|
|
9,039
|
|
9,846
|
|
Other
|
|
4,262
|
|
4,257
|
|
|
|
|
|
|
|
Brine and fresh water stations
|
|
3,192
|
|
3,296
|
|
Software
|
|
833
|
|
857
|
|
Property and equipment, gross
|
|
677,682
|
|
661,619
|
|
Less accumulated depreciation and amortization
|
|
(235,590)
|
|
(212,818)
|
|
Property and equipment, net
|
|
$
|
442,092
|
|
$
|
448,801
|
Basic is obligated under various finance leases for certain vehicles and equipment that expire at various dates during the next five years. The table below summarizes the gross amount of property and equipment and related accumulated amortization recorded under finance leases and included above (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
Fluid services equipment
|
|
$
|
35,437
|
|
$
|
35,034
|
|
Pumping equipment
|
|
24,393
|
|
48,929
|
|
Light vehicles
|
|
21,182
|
|
18,376
|
|
Contract drilling equipment
|
|
—
|
|
314
|
|
Well service units and equipment
|
|
—
|
|
199
|
|
|
|
|
|
|
|
Property and equipment under finance lease, cost
|
|
81,012
|
|
102,852
|
|
Less accumulated amortization
|
|
(22,513)
|
|
(31,954)
|
|
Property and equipment under finance lease, net
|
|
$
|
58,499
|
|
$
|
70,898
|
3. Intangible Assets
Basic had trade names of $3.4 million as of each of March 31, 2019 and December 31, 2018. Trade names have a 15-year life and are tested for impairment when triggering events are identified.
Basic’s intangible assets subject to amortization were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
$
|
3,410
|
|
$
|
3,410
|
|
Other intangible assets
|
|
48
|
|
48
|
|
Intangible assets
|
|
3,458
|
|
3,458
|
|
Less accumulated amortization
|
|
(533)
|
|
(474)
|
|
Intangible assets subject to amortization, net
|
|
$
|
2,925
|
|
$
|
2,984
|
Amortization expense of intangible assets for the three months ended March 31, 2019 and 2018 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible amortization expense
|
|
$
|
59
|
|
$
|
60
|
|
|
|
|
4. Long-Term Debt and Interest Expense
Long-term debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
10.75% Senior Notes due 2023
|
|
$
|
300,000
|
|
$
|
300,000
|
|
|
|
|
|
|
|
Finance leases and other notes
|
|
55,630
|
|
60,909
|
|
Unamortized discounts and deferred financing costs
|
|
(10,807)
|
|
(11,169)
|
|
Total long-term debt
|
|
344,823
|
|
349,740
|
|
Less current portion
|
|
22,465
|
|
27,039
|
|
Total non-current portion of long-term debt
|
|
$
|
322,358
|
|
$
|
322,701
|
Debt Discounts
The following discounts on debt represent the unamortized discount to fair value of the Senior Notes and the short-term portions of the fair value discount o
f finance leases
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
Unamortized discount on Senior Notes
|
|
$
|
2,589
|
|
$
|
2,731
|
|
Unamortized discount on finance leases - short-term
|
|
359
|
|
479
|
|
|
|
|
|
|
|
Unamortized deferred debt issuance costs
|
|
7,859
|
|
7,959
|
|
Total unamortized discounts and deferred financing costs
|
|
$
|
10,807
|
|
$
|
11,169
|
Interest Expense
Basic’s interest expense for the three months ended March 31, 2019 and 2018, consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments for interest
|
|
$
|
1,752
|
|
$
|
8,578
|
|
|
|
|
|
|
Change in accrued interest
|
|
8,148
|
|
221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of discounts
|
|
262
|
|
1,474
|
|
|
|
|
|
|
Amortization of deferred debt costs
|
|
564
|
|
177
|
|
|
|
|
|
|
Commitment and other fees paid
|
|
11
|
|
809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
19
|
|
24
|
|
|
|
|
|
|
Total interest expense
|
|
$
|
10,756
|
|
$
|
11,283
|
|
|
|
|
|
Senior Secured Notes
On October 2, 2018, the Company issued $300.0 million aggregate principal amount of 10.75% senior secured notes due 2023 (the “Senior Notes”) in an offering exempt from registration under the Securities Act. The Senior Notes were issued at a price of 99.042% of par to yield 11.0%. The Senior Notes are secured by a first-priority lien on substantially all of the assets of the Company and the subsidiary guarantors other than accounts receivable, inventory and certain related assets. Net proceeds from the offering of approximately $290.0 million were used to repay the Company’s existing indebtedness under the Amended and Restated Term Loan Agreement, to repay the Company’s outstanding borrowings under its previous credit facility (the "Prior ABL Facility"), and for general corporate purposes.
Indenture
The Company’s Senior Notes were issued under and are governed by an indenture, dated as of October 2, 2018 (the “Indenture”), by and among the Company, the guarantors named therein (the “Guarantors”), and UMB Bank, N.A. as Trustee and Collateral Agent (the “Trustee”). The Senior Notes are jointly and severally, fully and unconditionally guaranteed (the “Guarantees”) on a senior secured basis by the Guarantors and are secured by first priority liens on substantially all of the Company’s and the Guarantors’ assets, other than accounts receivable, inventory and certain related assets.
The Indenture contains covenants that limit the ability of the Company and certain subsidiaries to:
•
incur additional indebtedness or issue preferred stock;
•
pay dividends or make other distributions to
its stockholders;
•
repurchase or redeem capital stock or subordinated indebtedness and certain refinancings thereof;
•
make certain investments;
•
incur liens;
•
enter into certain types of transactions with affiliates;
•
limit dividends or other payments by restricted subsidiaries to the Company; and
•
sell assets or consolidate or merge with or into other companies.
These limitations are subject to a number of important qualifications and exceptions. Upon an Event of Default (as defined in the Indenture), the Trustee or the holders of at least 25.0% in aggregate principal amount of the outstanding Senior Notes may declare the entire principal of, premium, if any, and accrued and unpaid interest, if any, on all the Senior Notes to be due and payable immediately.
At any time on or prior to October 15, 2020, the Company may redeem up to 35.0% of the aggregate principal amount of the Senior Notes at a redemption price equal to 110.8% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, with an amount of cash not greater than the net proceeds from certain equity offerings. At any time prior to October 15, 2020, the Company may redeem the Senior Notes, in whole or in part, at a redemption price equal to 100.0% of the principal amount of the Senior Notes plus a “make-whole” premium plus accrued and unpaid interest, if any, to the redemption date. The Company may also redeem all or a part of the Senior Notes at any time on or after October 15, 2020, at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any, to the redemption date.
The Company may redeem all, but not less than all, of the Senior Notes in connection with a company sale transaction, at a redemption price of 105.4% of principal for a company sale that occurs on or after April 15, 2019 and on or before October 15, 2019, or 108.1% of principal amount for a company sale that occurs after October 15, 2019 and before October 15, 2020, in each case plus accrued and unpaid interest, if any, to the redemption date. If the Company experiences a change of control, the Company may be required to offer to purchase the Senior Notes at a purchase price equal to 101.0% of the principal amount, plus accrued and unpaid interest, if any, to the purchase date.
The Senior Notes and the Guarantees rank equally in right of payment with all of the Company’s and the Guarantors’ existing and future unsubordinated indebtedness, effectively senior to all of the Company’s and the Guarantors’ existing and future indebtedness to the extent of the value of the collateral securing the Senior Notes but junior to other indebtedness that is secured by liens on assets other than collateral for the Senior Notes to the extent of the value of such assets, and senior to all of the Company’s and the Guarantors’ future subordinated indebtedness.
Pursuant to a collateral rights agreement, the Senior Notes and Guarantees are secured by first priority liens, subject to limited exceptions, on the collateral securing the Senior Notes, consisting of substantially all of the property and assets now owned or hereafter acquired by the Company and the Guarantors, except for certain excluded property described in the Indenture.
New ABL Facility
On October 2, 2018, the Company terminated the Prior ABL Facility and Amended and Restated Term Loan Agreement and entered into an ABL Credit Agreement (the “New ABL Credit Agreement”) among the Company, as borrower (in such capacity, the “Borrower”), Bank of America, N.A., as administrative agent (the “Administrative Agent”), swing line lender and letter of credit issuer, UBS Securities LLC, as syndication agent, PNC Bank National Association, as documentation agent and letter of credit issuer, and the other lenders from time to time party thereto (collectively, the “New ABL Lenders”). Pursuant to the New ABL Credit Agreement, the New ABL Lenders have extended to the Borrower a revolving credit facility in the maximum aggregate principal amount of $150.0 million, subject to borrowing base capacity (the “New ABL Facility”). The New ABL Facility includes a sublimit for letters of credit of up to $50.0 million in the aggregate, and for borrowings on same-day notice under swingline loans subject to a sublimit of the lesser of (a) $15.0 million and (b) the aggregate commitments of the New ABL Lenders. The New ABL Facility also provides capacity for base rate protective advances up to $10.0 million at the discretion of the Administrative Agent and provisions relating to overadvances. The New ABL Facility contains no restricted cash requirements.
Borrowings under the New ABL Facility bear interest at a rate per annum equal to an applicable rate, plus, at Borrower’s option, either (a) a base rate or (b) a LIBO rate. The applicable rate was fixed from the closing date to April 1, 2019. Following April 1, 2019, the applicable rate is determined by reference to the average daily availability as a percentage of the borrowing base during the fiscal quarter immediately preceding such applicable quarter.
Principal amounts outstanding under the New ABL Facility will be due and payable in full on the maturity date, which is five years from the closing of the facility; provided that if the Senior Notes have not been redeemed by July 3, 2023, then the maturity date shall be July 3, 2023.
Substantially all of the domestic subsidiaries of the Company guarantee the borrowings under the New ABL Facility, and Borrower guarantees the payment and performance by each specified loan party of its obligations under its guaranty with respect to swap obligations. All obligations under the New ABL Facility and the related guarantees are secured by a perfected first-priority security interest in substantially all accounts receivable, inventory, and certain other assets, not including equity interests. As of March 31, 2019, Basic had no borrowings and $39.6 million of letters of credit outstanding under the New ABL Facility.
5.
Leases
Basic adopted ASU No. 2016-02, Topic 842 - Leases,
effective January 1, 2019. This ASU requires lessees to recognize an operating lease right-of-use ("ROU") asset and liability on the balance sheet for all operating leases with an initial lease term greater than twelve months.
Per ASU 2018-11 Leases – Targeted Improvements, allowed for a practical expedient wherein all periods previously reported under ASC 840 will continue to be reported under ASC 840, and periods beginning January 1, 2019 and after are reported under ASC 842. Basic elected to adopt this practical expedient along with the package of practical expedients which allows Basic to combine lease and non-lease costs, and not to assess whether existing or or expired land easements that were not previously accounted for as leases under Topic 840 are or contain a lease under this Topic.
Under this transition option, Basic will continue to apply the legacy guidance in ASC 840, including its disclosure requirements, in the comparative periods presented and will make only annual disclosures for the comparative periods because ASC 840 does not require interim disclosures. Prior period amounts have not been adjusted and continue to be reflected in accordance with Basic’s historical accounting. The adoption of this standard resulted in the recording of ROU assets and lease liabilities of approximately of $20.8 million as of January 1, 2019, with no related impact on Basic’s
Consolidated Statement of Equity
or
Consolidated Statement of Income (Loss)
.
As a lessee, Basic leases its corporate office headquarters in Fort Worth, Texas, and conducts its business operations through various regional offices located throughout the United States. These operating locations typically include regional offices, storage and maintenance yards, disposal facilities and employee housing sufficient to support its operations in the area. Basic leases most of these properties under non-cancelable term and month-to-month operating leases, many of which contain renewal options that can extend the lease term from one to five years and some of which contain escalation clauses. Basic also leases supplemental equipment, typically under cancelable short-term and very short term (less than 30 days) leases. Due to the nature of the Company's business, any option to renew these short-term leases, and the options to extend certain of its long-term real estate leases, are generally not considered reasonably certain to be exercised. Therefore, the periods covered by such optional periods are not included in the determination of the term of the lease, and the lease payments during these periods are similarly excluded from the calculation of operating lease asset and lease liability balances.
Basic recognizes rent expense on a straight-line basis, except for certain variable expenses which are recognized when the variability is resolved, typically during the period in which they are paid. Variable lease payments typically include charges for property taxes and insurance, and some leases contain variable payments related to non-lease components, including common area maintenance and usage of facilities or office equipment (for example, copiers), which totaled approximately $0.3 million during the three months ended March 31, 2019. Prepaid rent total $0.2 million during the three months ended March, 31, 2019. Operating lease expense consists of rent expense related to leases which were included in ROU assets under Topic 842. The following table summarizes the components of the Company's lease expense recognized for the three months ending March 31, 2019, excluding variable lease and prepaid rent costs (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended
|
|
|
|
|
|
March 31, 2019
|
|
|
|
Operating lease expense:
|
|
|
|
|
|
Short-term operating lease expense
|
|
$
|
1,974
|
|
|
|
Long-term operating lease expense
|
|
2,185
|
|
|
|
Total operating lease expense
|
|
$
|
4,159
|
|
|
|
Finance lease expense:
|
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
5,440
|
|
|
|
Interest on lease liabilities
|
|
1,382
|
|
|
|
Total finance lease expense
|
|
$
|
6,822
|
|
|
Supplemental information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Remaining Lease Term (in years)
|
|
|
|
Operating leases
|
|
3.0
|
|
Finance leases
|
|
2.6
|
|
|
|
|
|
Weighted Average Discount Rate
|
|
|
|
Operating leases
|
|
14.4%
|
|
|
Finance leases
|
|
8.0%
|
|
Supplemental cash flow information related to leases was as follows for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended
|
|
|
|
March 31, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash outflows from operating leases
|
|
$
|
4,159
|
|
Operating cash outflows from finance leases
|
|
1,382
|
|
Financing cash outflows from finance leases
|
|
11,423
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
Operating leases
|
|
$
|
—
|
|
Finance leases
|
|
6,144
|
Supplemental balance sheet information related to leases was as follows for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
|
|
|
|
|
|
Right-of-Use Assets under Operating Leases
|
|
|
|
|
|
Operating lease right-of-use assets
|
|
$
|
19,321
|
|
$
|
20,819
|
|
|
|
|
|
|
|
Operating lease right-of-use liabilities, current portion
|
|
5,347
|
|
5,649
|
|
Operating lease right-of-use liabilities, long-term portion
|
|
13,974
|
|
15,170
|
|
Total operating lease liabilities
|
|
$
|
19,321
|
|
$
|
20,819
|
|
|
|
|
|
|
|
Right-of-Use Assets under Finance Leases
|
|
|
|
|
|
Property and equipment, at cost
|
|
$
|
81,012
|
|
$
|
102,852
|
|
Accumulated depreciation
|
|
(22,513)
|
|
(31,954)
|
|
Property and equipment, net
|
|
$
|
58,499
|
|
$
|
70,898
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
22,824
|
|
$
|
27,519
|
|
Long-term debt
|
|
32,806
|
|
33,390
|
|
Total finance lease liabilities
|
|
$
|
55,630
|
|
$
|
60,909
|
The Company adopted ASU 2016-02 on January 1, 2019 as noted above, and as required, the following disclosure is provided for periods prior to adoption. Future annual minimum lease payments and capital lease commitments as of December 31, 2018 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Finance Leases
|
|
2019
|
|
$
|
8,179
|
|
$
|
27,519
|
|
2020
|
|
6,323
|
|
19,322
|
|
2021
|
|
5,438
|
|
10,697
|
|
2022
|
|
4,696
|
|
3,233
|
|
2023
|
|
1,248
|
|
83
|
|
Thereafter
|
|
1,215
|
|
55
|
|
Total lease payments
|
|
$
|
27,099
|
|
$
|
60,909
|
|
|
|
|
|
|
Maturities of lease liabilities were as follows at March 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Finance Leases
|
|
|
|
|
|
|
|
2019
|
|
$
|
5,926
|
|
$
|
17,575
|
|
2020
|
|
6,398
|
|
20,463
|
|
2021
|
|
5,517
|
|
12,156
|
|
2022
|
|
4,775
|
|
4,786
|
|
2023
|
|
1,308
|
|
595
|
|
Thereafter
|
|
1,158
|
|
55
|
|
Total lease payments
|
|
$
|
25,082
|
|
$
|
55,630
|
|
Impact of discounting
|
|
(5,761)
|
|
|
|
Discounted value of operating lease obligations
|
|
$
|
19,321
|
|
|
|
|
|
|
|
|
|
Current operating lease liabilities
|
|
$
|
4,151
|
|
|
|
Noncurrent operating lease liabilities
|
|
15,170
|
|
|
|
|
|
$
|
19,321
|
|
|
6. Fair Value Measurements
The following is a summary of the carrying amounts, net of discounts, and estimated fair values of the Company's Senior Notes as of March 31, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
|
December 31, 2018
|
|
|
|
|
Hierarchy Level
|
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
10.75% Senior Notes due 2023
|
1
|
|
$
|
297,411
|
|
$
|
245,568
|
|
$
|
297,269
|
|
$
|
257,806
|
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities approximate fair value due to the short maturities of these instruments.
Basic did not have any assets or liabilities that were measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018.
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.
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 recognizes that by the very nature of its business, material costs could be incurred in the near term to maintain compliance. The amount of such future expenditures is not determinable due to several factors, including the unknown magnitude of possible regulation or liabilities, 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.
Sales and Use Tax Audit
In 2014, Basic was notified by the Texas State Comptroller’s office that a sales and use tax audit for the period from 2010 through 2013 would be conducted. A preliminary report was issued in the second quarter of 2018 for this audit, and Basic will appeal the preliminary report through the redetermination process. Based on the Company's analysis, the potential liability associated with this audit ranges from $6.0 million to $24.0 million. This range could potentially change in future periods as the appeal and redetermination process progresses. Net of good faith payments made by the Company, the Company currently has $5.1 million in its financial statements as liabilities and the related interest associated with the taxes of $0.3 million is included in interest expense for the three months ended March 31, 2019.
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 rig fleet, with the exception of certain of its 24-hour workover rigs, newly manufactured rigs and pumping services equipment. Basic has deductibles per occurrence for workers’ compensation, general liability claims, and medical and dental coverage of $4.0 million, $1.0 million, and $0.4 million, respectively. Basic has a $1.0 million deductible per occurrence for automobile liability. Basic maintains accruals in the accompanying consolidated balance sheets related to self-insurance retentions based upon third-party data and claims history. At March 31, 2019, short-term and long-term self-insured risk reserves were $7.2 million and $16.3 million, respectively. At December 31, 2018, short-term and long-term self-insured risk reserves were $6.7 million and $16.3 million, respectively.
8. Stockholders’ Equity
Common Stock
Basic did not make any equity grants or issue any new shares in the quarter ended March 31, 2019. In February 2018, Basic granted certain members of management 203,625 performance-based restricted stock units and 203,625 restricted stock units, which each vest over a
three
-year period.
9. Incentive Plan
During the three-month periods ended March 31, 2019 and 2018, compensation expense related to share-based arrangements under the Basic Energy Services, Inc. Management Incentive Plan (the “MIP”), including restricted stock, restricted stock units and stock option awards, was approximately $3.3 million and $6.8 million respectively. Basic did not recognize a tax benefit for compensation expense recognized during the three-month periods ended March 31, 2019 and 2018.
At March 31, 2019, there was $13.2 million unrecognized compensation expense related to non-vested share-based compensation arrangements granted under the MIP. That cost is expected to be recognized over a weighted average period of 1.9 years.
Stock Option Awards
The fair value of each stock option is estimated on the date of grant using the Black-Scholes-Merton option-pricing model. Stock options granted under the MIP expire
ten
years from the date they are granted, and vest over a
three
-year service period. Total expense related to stock options in three-month periods ended March 31, 2019 and 2018, was approximately $755,000 and $1.1 million, respectively. Future expense for all options is expected to be approximately $2.5 million in total through February 2020.
The following table reflects changes during the three-month period and a summary of stock options outstanding at March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Weighted
|
|
Remaining
|
|
Aggregate
|
|
|
|
Number of
|
|
Average
|
|
Contractual
|
|
Intrinsic
|
|
|
|
Options
|
|
Exercise
|
|
Term
|
|
Value
|
|
Non-statutory stock options:
|
|
Granted
|
|
Price
|
|
(Years)
|
|
(000's)
|
|
Outstanding, beginning of period
|
|
595,736
|
|
$
|
39.23
|
|
|
|
|
|
Options granted
|
|
—
|
|
—
|
|
|
|
|
|
Options forfeited
|
|
(6,474)
|
|
$
|
40.12
|
|
|
|
|
|
Options exercised
|
|
—
|
|
—
|
|
|
|
|
|
Options expired
|
|
(71,228)
|
|
$
|
39.23
|
|
|
|
|
|
Outstanding, end of period
|
|
518,034
|
|
$
|
39.21
|
|
7.8
|
|
$—
|
|
Exercisable, end of period
|
|
347,528
|
|
$
|
39.21
|
|
7.8
|
|
$—
|
|
Vested or expected to vest, end of period
|
|
170,506
|
|
$
|
39.23
|
|
7.8
|
|
$—
|
There were no stock options exercised during the three months ended March 31, 2019 and 2018.
Restricted Stock Unit Awards
Time-based
A summary of the status of Basic’s non-vested restricted stock units at March 31, 2019 and changes during the three months ended March 31, 2019 are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Number of
|
|
Grant Date Fair
|
|
Non-vested Units
|
|
Restricted Stock Units
|
|
Value Per Unit
|
|
Non-vested at beginning of period
|
|
191,302
|
|
$
|
16.58
|
|
Granted during period
|
|
—
|
|
—
|
|
Vested during period
|
|
(73,976)
|
|
16.17
|
|
Forfeited during period
|
|
(2,912)
|
|
17.31
|
|
Non-vested at end of period
|
|
114,414
|
|
$
|
16.83
|
Valuation of time vesting restricted stock units for all periods presented is equal to the quoted market price for the shares on the date of the grant. The total fair value of time-vesting restricted stock units vested in three months ended March 31, 2019 and 2018, was $299,000 and $49,000, respectively, and is measured as the quoted market price of the Company’s common stock on the vesting date for the number of shares vested.
Performance-based
A summary of the status of Basic’s non-vested performance-based grants at March 31, 2019 and changes during the three months ended March 31, 2019 are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Number of
|
|
Grant Date Fair
|
|
Non-vested Units
|
|
Performance Stock Units
|
|
Value Per Unit
|
|
Non-vested at beginning of period
|
|
682,985
|
|
$
|
27.27
|
|
Granted during period
|
|
—
|
|
—
|
|
Vested during period
|
|
(218,541)
|
|
36.33
|
|
Forfeited during period
|
|
(9,764)
|
|
26.66
|
|
Non-vested at end of period
|
|
454,680
|
|
$
|
22.93
|
The total fair value of performance-based restricted stock units vested during the three months ended March 31, 2019 and 2018 was $1.0 million and $4.8 million, respectively, and was measured as the quoted market price of the Company’s common stock on the vesting date for the number of shares vested.
Restricted
Stock Awards
On May 21, 2018, Basic’s Board of Directors (the "Board") approved grants of an aggregate of 48,400 restricted stock shares to non-employee members of the Board. These grants are subject to vesting over a period of
ten
months and are subject to accelerated vesting under certain circumstances. The total fair value of restricted stock awards vested during the three months ended March 31, 2019 and 2018 was $33,000 and $77,000, respectively, and was measured as the quoted market price of the Company’s common stock on the vesting date for the number of shares vested.
Phantom
Stock Awards
On March 21, 2019, the Compensation Committee of the Board approved grants of phantom restricted stock awards to certain key employees. Phantom shares are recorded as a liability at their current market value and are included in other current liabilities. The number of phantom shares issued on March 22, 2019 was 370,350. These grants remain subject to vesting annually in one-third increments over a
three
-year period, with the first portion vesting on March 22, 2020, and are subject to accelerated vesting in certain circumstances. Total expense related to phantom stock in three-month periods ended March 31, 2019 and 2018, was approximately $13,000 and $276,000, respectively.
10.
Revenues
The Company's revenues are generated by services, which are consumed as provided by its customers on their sites. As a decentralized organization, contracts for the Company's services are negotiated on a regional level and are on a per job basis, with jobs being completed in a short period of time, usually one day or up to a week. Revenue is recognized as performance obligations have been completed on a daily basis either as Accounts Receivable or Work-in-Process ("WIP"), when all of the proper approvals are obtained.
A small percentage of the Company's jobs may require performance obligations which extend over a longer period of time and are not invoiced until all performances obligations in the contract are complete, such as, drilling or plugging a well, fishing services, and pad site preparation jobs. Because these jobs are performed on the customer's job site, and Basic is contractually entitled to bill for its services performed to date, revenues for these service lines are recognized on a daily basis as services are performed and recorded as Contract Assets rather than a WIP or Accounts Receivable. Contract Assets are typically invoiced within 30 to 60 days of recognizing revenue.
As of March 31, 2019, accounts receivable related to products and services were $140.3 million compared to $144.8 million at December 31, 2018. At March 31, 2019, the Company had $1.6 million of contract assets and no contract liabilities on its consolidated balance sheet compared to $1.1 million of contract assets and $855,000 of contract liabilities on its consolidated balance sheet at December 31, 2018.
Basic does not have any long-term service contracts, nor does it have revenue expected to be recognized in any future year related to remaining performance obligations or contracts with variable consideration related to undelivered performance obligations.
The following table sets forth certain financial information with respect to Basic’s disaggregation of revenues by geographic location and type (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completion & Remedial Services
|
Water Logistics
|
Well Servicing
|
Other Services
|
Total
|
|
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
Primary Geographical Markets
|
|
|
|
|
|
|
Permian Basin
|
$
|
32,520
|
$
|
31,687
|
$
|
31,506
|
$
|
3,033
|
$
|
98,746
|
|
Texas Gulf Coast
|
—
|
9,350
|
7,398
|
—
|
16,748
|
|
ArkLaTex & Mid-Continent
|
28,392
|
10,680
|
9,491
|
6,492
|
55,055
|
|
Rocky Mountain
|
17,893
|
6,542
|
6,089
|
—
|
30,524
|
|
|
|
|
|
|
|
|
West Coast
|
—
|
—
|
6,730
|
—
|
6,730
|
|
Corporate (Intercompany)
|
(1,971)
|
(2,658)
|
(699)
|
(5,273)
|
(10,601)
|
|
Total
|
$
|
76,834
|
$
|
55,601
|
$
|
60,515
|
$
|
4,252
|
$
|
197,202
|
|
Major Products or Service Line
|
|
|
|
|
|
|
Pumping equipment
|
$
|
25,716
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
25,716
|
|
Well servicing
|
—
|
—
|
51,383
|
—
|
51,383
|
|
Transport/vacuum
|
—
|
32,554
|
—
|
—
|
32,554
|
|
Coiled tubing
|
12,438
|
—
|
—
|
—
|
12,438
|
|
RAFT
|
20,643
|
—
|
—
|
—
|
20,643
|
|
|
|
|
|
|
|
|
Plugging
|
—
|
—
|
6,626
|
—
|
6,626
|
|
|
|
|
|
|
|
|
Production and disposal facilities
|
—
|
5,600
|
—
|
—
|
5,600
|
|
Hot oiler
|
—
|
6,745
|
—
|
—
|
6,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
18,037
|
10,702
|
2,506
|
4,252
|
35,497
|
|
Total
|
$
|
76,834
|
$
|
55,601
|
$
|
60,515
|
$
|
4,252
|
$
|
197,202
|
|
Timing of Revenue Recognition
|
|
|
|
|
|
|
Products transferred at a point in time
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
1301
|
$
|
1,301
|
|
Products and services transferred over time
|
76,834
|
55,601
|
60,515
|
2,951
|
195,901
|
|
Total
|
$
|
76,834
|
$
|
55,601
|
$
|
60,515
|
$
|
4,252
|
$
|
197,202
|
|
Three Months Ended March 31, 2018
|
|
|
|
|
|
|
Primary Geographical Markets
|
|
|
|
|
|
|
Permian Basin
|
$
|
38,166
|
$
|
30,588
|
$
|
27,013
|
$
|
3,156
|
$
|
98,923
|
|
Texas Gulf Coast
|
809
|
8,874
|
7,315
|
—
|
16,998
|
|
ArkLaTex & Mid-Continent
|
49,727
|
10,706
|
8,642
|
2,150
|
71,225
|
|
Rocky Mountain
|
29,789
|
7,776
|
6,224
|
—
|
43,789
|
|
Eastern USA
|
1,690
|
—
|
2,185
|
—
|
3,875
|
|
West Coast
|
—
|
—
|
6,449
|
—
|
6,449
|
|
Corporate (Intercompany)
|
(2,584)
|
(1,435)
|
(877)
|
(1,698)
|
(6,594)
|
|
Total
|
$
|
117,597
|
$
|
56,509
|
$
|
56,951
|
$
|
3,608
|
$
|
234,665
|
|
Major Products or Service Line
|
|
|
|
|
|
|
Pumping equipment
|
$
|
72,810
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
72,810
|
|
Well servicing
|
—
|
—
|
48,536
|
—
|
48,536
|
|
Transport/vacuum
|
—
|
35,245
|
—
|
—
|
35,245
|
|
Coiled tubing
|
19,980
|
—
|
—
|
—
|
19,980
|
|
RAFT
|
20,782
|
—
|
—
|
—
|
20,782
|
|
|
|
|
|
|
|
|
Plugging
|
—
|
—
|
6,013
|
—
|
6,013
|
|
|
|
|
|
|
|
|
Production and disposal facilities
|
—
|
5,651
|
—
|
—
|
5,651
|
|
Hot oiler
|
—
|
5,385
|
—
|
—
|
5,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
4,025
|
10,228
|
2,402
|
3,608
|
20,263
|
|
Total
|
$
|
117,597
|
$
|
56,509
|
$
|
56,951
|
$
|
3,608
|
$
|
234,665
|
|
Timing of revenue recognition
|
|
|
|
|
|
|
Products transferred at a point in time
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
|
Products and services transferred over time
|
117,597
|
56,509
|
56,951
|
3,608
|
234,665
|
|
Total
|
$
|
117,597
|
$
|
56,509
|
$
|
56,951
|
$
|
3,608
|
$
|
234,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. Earnings (Loss) Per Share
The following table sets forth the computation of unaudited basic and diluted loss per share (in thousands, except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator (both basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(27,476)
|
|
$
|
(30,531)
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted loss per share
|
|
26,850,499
|
|
26,336,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per common share:
|
|
$
|
(1.02)
|
|
$
|
(1.16)
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per common share:
|
|
$
|
(1.02)
|
|
$
|
(1.16)
|
|
|
|
|
|
|
|
|
|
The Company has issued potentially dilutive instruments such as unvested restricted stock and common stock options. However, the Company did not include these instruments in its calculation of diluted loss per share during the periods presented, because to include them would be anti-dilutive.
The following table sets forth potentially dilutive instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
|
Stock options
|
|
517,674
|
|
654,016
|
|
Warrants
|
|
2,066,576
|
|
2,066,624
|
|
Unvested restricted stock
|
|
6,153
|
|
3,536
|
|
Total
|
|
2,590,403
|
|
2,724,176
|
12. Business Segment Information
In the first quarter of 2019, the Company revised its reportable segments to combine its rig manufacturing business with its Contract Drilling segment, creating an Other Services segment. With this change, the Company's segments consist of: Well Servicing, Water Logistics, Completion & Remedial Services, and Other Services. These reporting segments, which are also the Company's operating segments, align with how the Chief Operating Decision Maker allocates resources and assesses performance against the Company’s key growth strategies. Costs related to other business activities, primarily corporate headquarter functions, are disclosed separately from the four operating segments as "Corporate." The Company evaluates segment performance on earnings before interest expense and income taxes. Products are transferred between segments and geographic areas on a basis intended to reflect as nearly as possible the “market value” of the products. Prior period segment information has been retrospectively revised to reflect Basic's current segmentation.
The following table sets forth certain financial information with respect to Basic’s reportable segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completion
|
|
|
|
|
|
|
|
|
& Remedial
|
Well
|
Water
|
|
Other
|
|
|
|
|
Services
|
Servicing
|
Logistics
|
|
Services
|
Corporate
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019 (Unaudited)
|
|
|
|
|
|
|
|
|
Operating revenues
|
$
|
76,834
|
$
|
60,515
|
$
|
55,601
|
|
$
|
4,252
|
$
|
—
|
$
|
197,202
|
|
Direct operating costs
|
(63,433)
|
(47,196)
|
(37,299)
|
|
(3,914)
|
—
|
(151,842)
|
|
Segment profits
|
13,401
|
13,319
|
18,302
|
|
338
|
—
|
45,360
|
|
Depreciation and amortization
|
13,193
|
5,295
|
6,968
|
|
274
|
1,768
|
27,498
|
|
Capital expenditures including ARO additions
|
10,008
|
6,238
|
7,510
|
|
6
|
272
|
24,034
|
|
Identifiable assets
|
$
|
229,004
|
$
|
102,033
|
$
|
112,533
|
|
$
|
4,252
|
$
|
295,398
|
$
|
743,220
|
|
Three Months Ended March 31, 2018 (Unaudited)
|
|
|
|
|
|
|
|
|
Operating revenues
|
$
|
117,597
|
$
|
56,951
|
$
|
56,509
|
|
$
|
3,608
|
$
|
—
|
$
|
234,665
|
|
Direct operating costs
|
(89,659)
|
(46,511)
|
(40,923)
|
|
(4,223)
|
—
|
(181,316)
|
|
Segment profits
|
27,938
|
10,440
|
15,586
|
|
(615)
|
—
|
53,349
|
|
Depreciation and amortization
|
14,260
|
5,700
|
7,726
|
|
492
|
2,057
|
30,235
|
|
Capital expenditures including ARO additions
|
11,517
|
6,705
|
2,189
|
|
407
|
433
|
21,251
|
|
Identifiable assets
|
$
|
255,067
|
$
|
109,279
|
$
|
123,599
|
|
$
|
7,810
|
$
|
315,810
|
$
|
811,565
|
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 March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profits
|
|
$
|
45,360
|
|
$
|
53,349
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
(35,522)
|
|
(40,978)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
(27,498)
|
|
(30,235)
|
|
|
|
|
|
|
|
|
|
|
Loss on disposal of assets
|
|
(1,455)
|
|
(1,779)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(19,115)
|
|
$
|
(19,643)
|
|
|
|
|
|
|
|
|
|
13.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02 - “
Leases (Topic 842).
” The purpose of this update 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. Basic has adopted the standard effective January 1, 2019 and has included the disclosures required by ASU 2016-02. For further discussion see Note 5, "Leases".
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 & Remedial Services, well servicing, water logistics and contract drilling.
Our total hydraulic horsepower (“HHP”) decreased to 489,000 at the end of the first quarter of 2019 compared to 523,000 for the first quarter of 2018. Our weighted average HHP capacity decreased from 523,000 at January 1, 2018 to 502,900 at March 31, 2019. Our weighted average number of fluid service trucks decreased to 818 in the first quarter of 2019 from 960 in the first quarter of 2018. Our weighted average number of well servicing rigs remained constant at 310 in the first quarter of 2019 compared to the first quarter of 2018.
Our operating revenues from each of our segments, and their relative percentages of our total revenues, consisted of the following (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Completion & Remedial Services
|
|
$
|
76.8
|
|
39%
|
|
|
|
$
|
117.6
|
|
50%
|
|
|
Well servicing
|
|
60.5
|
|
31%
|
|
|
|
57.0
|
|
24%
|
|
|
Water Logistics
|
|
55.6
|
|
28%
|
|
|
|
56.5
|
|
24%
|
|
|
Other Services
|
|
4.3
|
|
2%
|
|
|
|
3.6
|
|
2%
|
|
|
Total revenues
|
|
$
|
197.2
|
|
100%
|
|
|
|
$
|
234.7
|
|
100%
|
|
During 2018 and the first quarter of 2019, oil prices have stayed relatively stable. We expect our customers' capital programs to remain relatively steady during the remainder of 2019.
We believe that the most important performance measures for our business segments are as follows:
•
Completion
& 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;
•
Water Logistics —
trucking hours, segment revenue, pipeline volumes, and segment profits as a percent of revenues; and
•
Other Services
— 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 the Company, see “Segment Overview” below.
Selected Acquisitions
and Divestitures
During the year ended December 31, 2018 and through the first three months of 2019, we did not enter into or complete any business acquisitions or divestitures.
Segment Overview
Completion & Remedial Services
During the first three months of 2019, our Completion & Remedial Services segment represented approximately 39% of our revenues. Revenues from our Completion & Remedial Services segment are generally derived from a variety of services designed to complete and stimulate oil and natural gas production or place cement slurry within the wellbores. Our Completion & Remedial Services segment includes pumping services, rental and fishing tool operations, coiled tubing services, nitrogen services, snubbing and underbalanced drilling.
Our pumping services concentrate on providing single truck, lower-horsepower cementing and acidizing services, as well as various fracturing services in selected markets. Our total HHP capacity for our pumping services was approximately 489,000 horsepower at March 31, 2019.
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.
The following is an analysis of our Completion & Remedial Services segment for each of the quarters in 2018, the full year ended December 31, 2018 and the quarter ended March 31, 2019 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
FRAC
|
|
|
|
Segment
|
|
|
|
HHP
|
|
HHP
|
|
Revenues
|
|
Profits %
|
|
2018:
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
522,565
|
|
413,300
|
|
$
|
117,597
|
|
24%
|
|
|
Second Quarter
|
|
516,465
|
|
407,800
|
|
$
|
126,948
|
|
21%
|
|
|
Third Quarter
|
|
516,465
|
|
386,050
|
|
$
|
115,978
|
|
21%
|
|
|
Fourth Quarter
|
|
513,000
|
|
386,050
|
|
$
|
108,933
|
|
21%
|
|
|
Full Year
|
|
513,000
|
|
386,050
|
|
$
|
469,456
|
|
22%
|
|
|
2019:
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
489,270
|
|
360,800
|
|
$
|
76,834
|
|
17%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in Completion & Remedial Services revenue to $76.8 million in the first quarter of 2019 from $108.9 million in the fourth quarter of 2018 resulted primarily from pricing pressures in our coiled tubing and fracing operations. Segment profits as a percentage of revenue decreased to 17% in the first quarter of 2019 from 21% in fourth quarter of 2018 due to increased costs and sustained pricing pressures in our pressure pumping operations.
Well Servicing
During the first three months of 2019, our Well Servicing segment represented 31% of our revenues. Revenue in our Well Servicing segment is derived from maintenance, workover, completion 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 typically 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. We measure the activity level of our well servicing rigs on a weekly basis by calculating a rig utilization rate based on a 55-hour work week per rig.
The following is an analysis of our well servicing segment for each of the quarters in 2018, the full year ended December 31, 2018 and the quarter ended March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Rig
|
|
Revenue
|
|
|
|
|
|
|
|
Number
|
|
|
|
Utilization
|
|
Per Rig
|
|
Profits Per
|
|
Segment
|
|
|
|
of Rigs
|
|
Rig hours
|
|
Rate
|
|
Hour
|
|
Rig hour
|
|
Profits %
|
|
2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
310
|
|
168,500
|
|
76%
|
|
|
$338
|
|
$62
|
|
18%
|
|
|
Second Quarter
|
|
310
|
|
181,600
|
|
82%
|
|
|
$348
|
|
$83
|
|
24%
|
|
|
Third Quarter
|
|
310
|
|
180,300
|
|
82%
|
|
|
$357
|
|
$76
|
|
21%
|
|
|
Fourth Quarter
|
|
310
|
|
159,600
|
|
72%
|
|
|
$368
|
|
$71
|
|
19%
|
|
|
Full Year
|
|
310
|
|
690,000
|
|
78%
|
|
|
$353
|
|
$73
|
|
21%
|
|
|
2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
310
|
|
165,000
|
|
74%
|
|
|
$367
|
|
$81
|
|
22%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rig utilization was 74% in the first quarter of 2019, up from 72% in the fourth quarter of 2018. The utilization rate in the first quarter of 2019 resulted from a marginal improvement in customer demand and activity on flat pricing, primarily for our 24-hour rig packages. Our segment profit percentage increased to 22% for the first quarter of 2019 compared to 19% in the fourth quarter of 2018, due to improved cost management.
Water Logistics
During the first three months of 2019, our Water Logistics segment represented approximately 28% of our revenues. Revenues in our water logistics segment are earned from the sale, transportation, storage and disposal of fluids used in the drilling, production and maintenance of oil and natural gas wells. Revenues also include water treatment, well site construction and maintenance services. The water logistics segment has a base level of business consisting of transporting and disposing of saltwater produced as a by-product of the production of oil and natural gas. These services are necessary for our customers and have a stable demand but typically produce lower relative segment profits than other parts of our water logistics segment. Water logistics for completion and workover projects typically require fresh or brine water for making drilling mud, circulating fluids or fracturing 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 enable us to generate higher segment profits. The higher segment profits are due to the relatively small incremental labor costs associated with providing these services in addition to our base water logistics operations. 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. Revenue from water treatment services results from the treatment and reselling of produced water and flowback to customers for the purposes of reusing as fracturing water. We typically 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 water logistics operations for each of the quarters in 2018, the full year ended December 31, 2018 and the quarter ended March 31, 2019 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
Trucking
|
|
Pipeline
|
|
|
|
|
|
|
|
Fluid Service
|
|
Truck
|
|
Volumes
|
|
Volumes
|
|
|
|
Segment
|
|
|
|
Trucks
|
|
Hours
|
|
(in bbls)
|
|
(in bbls)
|
|
Revenue
|
|
Profits %
|
|
2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
960
|
|
479,600
|
|
6,414,800
|
|
1,551,000
|
|
$56,509
|
|
28%
|
|
|
Second Quarter
|
|
903
|
|
486,800
|
|
6,912,900
|
|
2,064,000
|
|
$59,679
|
|
26%
|
|
|
Third Quarter
|
|
870
|
|
448,200
|
|
6,898,200
|
|
2,526,000
|
|
$59,539
|
|
28%
|
|
|
Fourth Quarter
|
|
837
|
|
438,500
|
|
6,659,000
|
|
3,221,000
|
|
$55,556
|
|
29%
|
|
|
Full Year
|
|
891
|
|
1,853,100
|
|
26,884,900
|
|
9,362,000
|
|
$231,283
|
|
28%
|
|
|
2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
818
|
|
424,100
|
|
6,620,000
|
|
3,050,000
|
|
$55,601
|
|
33%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue for the water logistics segment remained flat at $55.6 million in the first quarter of 2019 compared to $55.6 million in fourth quarter of 2018 as a result of decreased levels of trucking utilization offset by improved disposal services revenues. Segment profit percentage increased to 33% in the first quarter of 2019 from 29% in the fourth quarter of 2018 primarily due to the an increase in higher margin pipeline revenue.
Other Services
During the first three months of 2019, our Other Services segment represented approximately 2% of our revenues. Revenues from our Other Services segment are derived from our contract drilling operations, which consists of drilling of new wells, and our rig manufacturing operations.
Within our contract drilling operations, we typically charge our drilling rig customers a daily rate, or a rate based on footage at an established rate per number of feet drilled. Depending on the type of job, we may also charge by the project. 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.
We also manufacture rigs and other related equipment for internal purposes as well as to sell to outside companies. Our rig manufacturing operation also performs large scale refurbishments and maintenance services to used workover rigs.
The following is an analysis of our contract drilling operations for each of the quarters in 2018, the full year ended December 31, 2018 and quarter ended March 31, 2019 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Rig
|
|
|
|
|
|
Contract
|
|
|
|
|
|
Number of
|
|
Operating
|
|
Revenue Per
|
|
Profits Per
|
|
Drilling
|
|
Segment
|
|
|
|
Rigs
|
|
Days
|
|
Drilling Day
|
|
Drilling Day
|
|
Profits %
|
|
Profits %
|
|
2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
11
|
|
175
|
|
$17.3
|
|
$2.7
|
|
16%
|
|
|
(17)%
|
|
|
Second Quarter
|
|
11
|
|
91
|
|
$25.7
|
|
$6.5
|
|
25%
|
|
|
7%
|
|
|
Third Quarter
|
|
11
|
|
129
|
|
$27.7
|
|
$6.5
|
|
24%
|
|
|
(11)%
|
|
|
Fourth Quarter
|
|
11
|
|
184
|
|
$22.1
|
|
$4.8
|
|
23%
|
|
|
11%
|
|
|
Full Year
|
|
11
|
|
579
|
|
$22.4
|
|
$4.9
|
|
22%
|
|
|
(1)%
|
|
|
2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
11
|
|
115
|
|
$24.2
|
|
$5.9
|
|
20%
|
|
|
8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract drilling revenue per drilling day increased to $24,200 in the first quarter of 2019 compared to $22,100 in the fourth quarter of 2018 due to improved pricing. Segment profit percentage decreased to 20% in the first quarter of 2019 compared to segment profit of 23% in the fourth quarter of 2018.
Operating Cost Overview
Our operating costs are comprised primarily of labor costs, including workers’ compensation and health insurance, repair and maintenance, fuel and insurance. A majority of our employees are paid on an hourly basis. We also employ personnel to supervise our activities, sell 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. Insurance is generally a fixed cost regardless of utilization and can vary depending on the number of rigs, trucks and other equipment in our fleet, as well as employee payroll, and our safety record. Compensation for administrative personnel in local operating yards and our corporate office is accounted for as general and administrative expenses.
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 4. "Summary of Significant Accounting Policies
"
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 March 31, 2019 compared to the three months ended March 31, 2018. For additional segment-related information and trends, please read “Segment Overview” above.
Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018
Revenues.
Revenues decreased by 16% to $197.2 million during the first quarter of 2019 from $234.7 million during the same period in 2018. This decrease was primarily due to sustained pricing pressures and competition, particularly in our frac and coiled tubing lines of business, compared to the same period in 2018.
Completion & Remedial Services revenues decreased by 35% to $76.8 million during the first quarter of 2019 compared to $117.6 million in the same period in 2018. The decrease in revenue between these periods was primarily due to competitive pricing pressures, particularly in our frac and coiled tubing lines of business. Total HHP decreased to 489,000 at March 31, 2019 from 523,000 at March 31, 2018. Weighted average HHP decreased to 502,900 for the first quarter of 2019 from 523,000 in the first quarter of 2018.
Well Servicing revenues increased by 6% to $60.5 million during the first quarter of 2019 compared to $57.0 million during the same period in 2018. The increase was driven by an increase in 24-hour work and in pricing of our equipment packages, primarily due to an increases in customer demand. Our weighted average number of well servicing rigs remained constant at 310 during the first quarter of 2019 compared to the first quarter of 2018.
Utilization decreased to 74% in the first quarter of 2019, compared to 76% in the comparable quarter of 2018 due to weather and holiday impact. Revenue per rig hour in the first quarter of 2019 was $367, increasing from $338 in the comparable quarter of 2018 due to rate increases to customers.
Water Logistics revenues decreased by 2% to $55.6 million during the first quarter of 2019 compared to $56.5 million in the same period in 2018. Our revenue decrease was mainly due to weather impact in the first quarter of 2019. Pipeline water volumes increased to 3.0 million barrels or 32% of total disposal volumes compared to 1.6 million barrels or 19% of total disposal volumes in the first quarter of 2018.
Our weighted average number of fluid service trucks decreased to 818 during the first quarter of 2019 compared to 960 in the same period in 2018.
Other Services revenues increased by 18% to $4.3 million during the first quarter of 2019 compared to $3.6 million in the same period in 2018. The number of rig operating days decreased to 115 in the first quarter of 2019 from 175 in the first quarter of 2018. The increase in revenue was due to increases in manufacturing revenue.
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 $151.8 million during the first quarter of 2019 from $181.3 million in the same period in 2018, primarily due to decreases in pumping activity and corresponding decreases in employee headcount and wages to adapt to current activity levels.
Direct operating expenses for the Completion & Remedial Services segment decreased by 29% to $63.4 million during the first quarter of 2019 compared to $89.7 million for the same period in 2018 due primarily to decreased activity levels, especially in our pumping and coil tubing services. Segment profits decreased to 17% of revenues during the first quarter of 2019 compared to 24% for the same period in 2018, due to competitive pricing pressures.
Direct operating expenses for the Well Servicing segment increased by 1% to $47.2 million during the first quarter of 2019 compared to $46.5 million for the same period in 2018. The increase in direct operating expenses corresponds to increased workover and plugging activity levels. Segment profits increased to 22% of revenues during the first quarter of 2019 from 18% for the same period in 2018 due to improved cost management.
Direct operating expenses for the Water Logistics segment decreased by 9% to $37.3 million during the first quarter of 2019 compared to $40.9 million for the same period in 2018. Segment profits were 33% of revenues during the first quarter of 2019 compared to 28% for the same period in 2018, due to higher margin pipeline revenues.
Direct operating expenses for the Other Services segment decreased 7% to $3.9 million during the first quarter of 2019 compared to $4.2 million for the same period in 2018, due to decreased drilling activity. Segment profits increased to 8% of revenues during the first quarter of 2019 from a segment loss of 17% during the first quarter of 2018 due to an increase in pricing.
General and Administrative Expenses.
General and administrative expenses decreased by 13% to $35.5 million during the first quarter of 2019 from $41.0 million for the same period in 2018. Stock-based compensation expense was $3.3 million and $6.8 million during the first quarter of 2019 and 2018, respectively. In addition, we incurred certain costs, including accrued consulting fees related to our strategic realignment of approximately $1.7 million and accrued realignment costs of approximately $0.5 million in the first quarter of 2018. In 2019, we incurred a fee of $900,000 from a tax consulting firm that worked on our amended return.
Depreciation and Amortization
Expenses.
Depreciation and amortization expenses were $27.5 million during the first quarter of 2019 compared to $30.2 million for the same period in 2018. Our current capital expenditure has not kept up with depreciation hence our depreciable base is depleting.
Interest Expense.
Interest expense decreased to $10.8 million during the first quarter of 2019 compared to $11.3 million during the first quarter of 2018. Interest expense decreases were related to interest on the balance outstanding under our Prior ABL Facility which was extinguished in the fourth quarter of 2018.
Income Tax Benefit.
Income tax benefit during the first quarter of 2019 was $1.9 million compared to $59,000 for the same period in 2018. On March 1, 2019, we filed an amended 2007 federal tax return under section 172(f) of the Internal Revenue Code of 1986, as amended which allowed us to carry-back and recover workers’ compensation expenses in years we had Net Operating Losses "NOL" for 10 years. We carried back approximately $5.3 million of expense to 2007, which allowed us to claim a refund of $1.9 million of 2007 taxes. The net effect of this transaction was a tax benefit and a reduction of our NOL of $1.8 million in the quarter ended March 31, 2019. Our effective tax rate during the first quarter of 2019 and 2018 was approximately 6% and 0%, respectively.
Liquidity and Capital Resources
Our current primary capital resources are cash flow from our operations, the availability under our New ABL Facility, the ability to enter into
finance leases,
the ability to incur additional secured indebtedness, and a cash
balance of $63.8 million at March 31, 2019. We had $66.2 million of available borrowing capacity under the New ABL Facility at March 31, 2019.
On October 2, 2018, the Company issued in a private offering $300.0 million aggregate principal amount of 10.75% senior secured notes due 2023 at 99.042% of par and entered into a new $150.0 million senior secured revolving credit facility. For further discussion see Note 4, "Long-Term Debt and Interest Expense".
We have utilized, and expect to utilize in the future, bank and f
inance lease financin
g and sales of equity to obtain capital resources. When appropriate, we will consider public or private debt and equity offerings and non-recourse transactions to meet our liquidity needs.
Net Cash Provided by Operating Activities
Cash provided by operating activities was $1.8 million for the three months ended March 31, 2019, a decrease compared to cash provided by operating activities of $4.5 million during the same period in 2018. Operating cash flow provided in the first three months of 2019 decreased compared to the same period in 2018 due to lower working capital levels as we paid down $20.5 million of accounts payable during the quarter.
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 generate cash flow from operations. Maintaining 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 three months of 2019 were $18.9 million compared to $15.4 million in the same period of 2018. We added $6.1 million of leased assets through our
finance lease
program and other financing arrangements during the first three months of 2019 compared to $3.3 million of leased asset additions in the same period in 2018.
We currently have planned capital expenditures for the full year of 2019 of approximately $69.1 million, including
finance leases
of $8.1 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.
Contractual Obligations
Outside of the normal course of our business, as of March 31, 2019, there have been no material changes to our contractual obligations reported in our Annual Report on Form 10-K for the year ended December 31, 2018.
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 March 31, 2019, we had approximately $809.5 million of NOLs, for federal income tax purposes, which begin to expire in 2032 and $303.6 million of NOLs for state income tax purposes which begin to expire in 2019. NOLs generated after 2017 are carried forward indefinitely and are limited to 80% of taxable income. NOLs generated prior to 2018 continue to be carried forward for 20 years and have no 80% limitation on utilization.
We provide a valuation allowance when it is more likely than not that some portion of the deferred tax assets will not be realized. As of March 31, 2019, a valuation allowance of $177.9 million was recorded against our net deferred tax assets for all jurisdictions that are not expected to be realized.
Recent Accounting Pronouncements
Our consideration of recent accounting pronouncements is included in Note 13. "Recent Accounting Pronouncements" to the consolidated financial statements included in this quarterly report.
Impact of Inflation on Operations
Inflation in the United States has been relatively low in recent years and did not have a material impact on our results of operations for the three months ended March 31, 2019 or the year ended December 31, 2018. Although the impact of inflation has been insignificant in recent years, it is still a factor in the U.S. economy, and we tend to experience inflationary pressure on the cost of our equipment, materials and supplies as increasing oil and natural gas prices also increase activity in our areas of operations.