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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to             
Commission File Number 001-32693
____________________________________________________________________________________________________
BASIC ENERGY SERVICES, INC.
(Exact name of registrant as specified in its charter)
____________________________________________________________________________________________________

Delaware 54-2091194
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
801 Cherry Street, Suite 2100, Fort Worth, Texas
76102
(Address of principal executive offices) (Zip code)
(817) 334-4100
(Registrant’s telephone number, including area code)
______________________________________________________________________________________________________________________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol Name of each exchange on which registered
Common stock, par value $0.01 per share BASX* The OTCQX Best Market*
* Until December 2, 2019, Basic Energy Services, Inc.’s common stock traded on the New York Stock Exchange under the symbol “BAS”. On December 3, 2019, Basic Energy Service, Inc.’s common stock began trading on the OTCQX® Best Market tier of the OTC Markets Group Inc. Deregistration under Section 12(b) of the Act became effective on March 16, 2020.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filer Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No ☒ 
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒No☐
There were 24,938,700 shares of the registrant’s common stock outstanding as of August 7, 2020.




BASIC ENERGY SERVICES, INC.
Index to Form 10-Q 
 
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Item 5. Other Information 
Item 6. Exhibits 

i


CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report contains certain statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are subject to risks and uncertainties. These statements may relate to, but are not limited to, information or assumptions about us, our capital and other expenditures, dividends, financing plans, capital structure, cash flows, pending legal or regulatory proceedings and claims, future economic performance, operating income, costs savings and management's plans, strategies, goals and objectives for future operations and goals. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including, among other things, the risk factors discussed in this quarterly report, and in our most recent Annual Report on Form 10-K and other factors, most of which are beyond our control.

The words “believe,” “estimate,” “expect,” “anticipate,” “project,” “intend,” “plan,” “seek,” “could,” “should,” “may,” “potential” and similar expressions are intended to identify forward-looking statements. All statements other than statements of current or historical fact contained in this quarterly report are forward-looking statements. Although we believe that the forward-looking statements contained in this quarterly report are based upon reasonable assumptions, the forward-looking events and circumstances discussed in this quarterly report may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements.
Important factors that may affect our expectations, estimates or projections include:
the recent sustained decline in, or substantial volatility of, oil and natural gas prices, and any related changes in expenditures by our customers;
our ability to successfully execute, manage and integrate acquisitions, including the recent acquisition of C&J Well Services, Inc.;
our ability to satisfy our liquidity needs, including our ability to generate sufficient liquidity or cash flow or to obtain sufficient financing to fund our operations or otherwise meet our obligations as they come due in the future;
local and global impacts of the COVID-19 pandemic;
negative impacts of the delisting of our common stock from the New York Stock Exchange;
competition within our industry;
the effects of future acquisitions or dispositions on our business;
uncertainties about our ability to successfully execute our business and financial plans and strategies;
our access to current or future financing arrangements, including ability to raise funds in the capital market or from other financing sources;
changes in customer requirements in markets or industries we serve;
availability and cost of equipment;
our ability to maintain acceptable pricing for our services;
our ability to reduce administrative and capital expenses;
general economic and market conditions;
operating hazards and other risks incidental to our services;
energy efficiency and technology trends;
our ability to replace or add workers at economic rates;
our borrowing capacity, covenant compliance under instruments governing any of our existing or future indebtedness and cash flows; and
environmental and other governmental regulations.
Our forward-looking statements speak only as of the date of this quarterly report. Unless otherwise required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements included herein are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.
ii


PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Basic Energy Services, Inc.
(in thousands, except share and per share data)
June 30, 2020 December 31, 2019
ASSETS
(Unaudited)
Current assets:
Cash and cash equivalents $ 10,957    $ 36,217   
Trade accounts receivable, net of allowances of $6,633 and $2,208, for June 30, 2020, and December 31, 2019, respectively
70,933    99,626   
Inventories, net 10,214    20,262   
Prepaid expenses 6,115    6,407   
Assets held for sale 13,415    55,149   
Other current assets 2,602    2,727   
Total current assets 114,236    220,388   
Property and equipment, net 249,648    297,113   
Operating lease right of use assets 11,567    14,540   
Deferred debt costs, net of amortization 1,066    2,198   
Goodwill 8,309    —   
Intangible assets, net of amortization 6,424    2,603   
Other assets 15,594    13,632   
Total assets $ 406,844    $ 550,474   
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 52,765    $ 58,022   
Accrued expenses 44,160    41,962   
Current portion of long-term debt 17,606    18,738   
Derivative liability 12,763    —   
Accrued short-term insurance reserves 17,238    15,002   
Operating lease right-of-use liabilities, current portion 4,336    4,906   
Liabilities associated with assets held for sale   1,009    5,248   
Other current liabilities 1,817    4,306   
Total current liabilities 151,694    148,184   
Long-term debt, net of discounts and deferred financing costs of $25,513 and $8,795, at June 30, 2020, and December 31, 2019, respectively
300,405    308,365   
Accrued long-term insurance reserves 24,445    20,204   
Deferred compensation 11,056    10,838   
Operating lease right-of-use liabilities, long-term portion 7,573    9,634   
Asset retirement obligations 10,614    9,044   
Deferred tax liability 628    —   
Other long-term liabilities 2,482    3,082   
Total liabilities 508,897    509,351   
Series A Participating Preferred Stock; $0.01 par value; 5,000,000 authorized and 118,805 and zero shares outstanding at June 30, 2020, and December 31, 2019, respectively
22,000    —   
Stockholders' equity:
Common stock; $0.01 par value; 198,805,000 and 80,000,000 shares authorized at June 30, 2020, and December 31, 2019, respectively; 27,912,059 and 27,912,059 shares issued and 24,938,700 and 24,904,485 shares outstanding at June 30, 2020, and December 31, 2019, respectively
279    279   
Additional paid-in capital 493,649    472,594   
Retained deficit (612,648)   (423,169)  
Treasury stock, at cost, 2,973,359 and 3,007,574 shares at June 30, 2020, and December 31, 2019, respectively
(5,333)   (8,581)  
 Total stockholders' equity (124,053)   41,123   
Total liabilities and stockholders' equity $ 406,844    $ 550,474   
See accompanying notes to unaudited consolidated financial statements.
1




Basic Energy Services, Inc.
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Revenues:
Well Servicing $ 47,318    $ 58,518    $ 105,459    $ 120,502   
Water Logistics 33,254    51,031    77,635    106,632   
Completion & Remedial Services 9,065    38,426    34,946    74,031   
Total revenues 89,637    147,975    218,040    301,165   
Expenses: —    —   
Well Servicing 39,385    46,162    90,202    94,970   
Water Logistics 25,582    35,529    58,701    72,828   
Completion & Remedial Services 9,646    27,369    30,828    52,385   
General and administrative, including stock-based compensation of $78 and $3,329 in the three months ended June 30, 2020 and 2019, respectively, and $1,414 and $6,604 in the six months ended June 30, 2020 and 2019, respectively
30,445    30,186    65,515    61,941   
Impairments —    —    99,628    —   
Depreciation and amortization 12,853    17,296    27,619    33,478   
(Gain) loss on disposal of assets (474)   580    (511)   1,277   
Total expenses 117,437    157,122    371,982    316,879   
Operating loss (27,800)   (9,147)   (153,942)   (15,714)  
Other income (expense):
Interest expense (12,775)   (10,358)   (23,393)   (20,972)  
Interest income —    114    62    360   
Gain (loss) on derivative 502    —    (3,050)   —   
Other income 40    48    70    345   
Loss from continuing operations before income taxes (40,033)   (19,343)   (180,253)   (35,981)  
Income tax (expense) benefit 308    28    4,099    1,879   
Loss from continuing operations (39,725)   (19,315)   (176,154)   (34,102)  
Loss from discontinued operations (4,873)   (8,462)   (13,325)   (21,151)  
Net loss $ (44,598)   $ (27,777)   $ (189,479)   $ (55,253)  
Net loss from continuing operations per share, basic and diluted $ (1.59)   $ (0.71)   $ (7.06)   $ (1.26)  
Net loss from discontinued operations per share, basic and diluted $ (0.20)   $ (0.31)   $ (0.53)   $ (0.78)  
Net loss per share of common stock, basic and diluted $ (1.79)   $ (1.02)   $ (7.59)   $ (2.04)  

See accompanying notes to unaudited consolidated financial statements.




2



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, 2019 27,912,059    $ 279    $ 472,594    3,007,574    $ (8,581)   $ (423,169)   $ 41,123   
Issuances of restricted stock —    —    —    —    —    —    —   
Amortization of equity-classified share-based compensation —    —    1,336    —    —    —    1,336   
Treasury stock, net —    —    (3,263)   (72,879)   3,256    —    (7)  
Capital contribution —    —    22,904    —    —    —    22,904   
Net loss —    —    —    —    —    (144,881)   (144,881)  
Balance - March 31, 2020 (unaudited) 27,912,059    $ 279    $ 493,571    2,934,695    $ (5,325)   $ (568,050)   $ (79,525)  
Issuances of restricted stock —    —    —    —    —    —    —   
Amortization of equity-classified share-based compensation —    —    78    —    —    —    78   
Treasury stock, net —    —    —    38,664    (9)   —    (9)  
Net loss —    —    —    —    —    (44,598)   (44,598)  
Balance - June 30, 2020 (unaudited) 27,912,059    $ 279    $ 493,649    2,973,359    $ (5,333)   $ (612,648)   $ (124,053)  
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)   —    —    —    —   
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   
Issuances of restricted stock 644,160      (6)   —    —    —    —   
Amortization of equity-classified share-based compensation —    —    3,329    —    —    —    3,329   
Treasury stock, net —    —    —    596,194    (1,340)   —    (1,340)  
Exercise of stock options —    —    —    —    —    —    —   
Net loss —    —    —    —    —    (27,777)   (27,777)  
Balance - June 30, 2019 (unaudited) 27,912,059    $ 279    $ 470,696    906,743    $ (5,355)   $ (296,524)   $ 169,096   
See accompanying notes to unaudited consolidated financial statements.
3


Basic Energy Services, Inc.
(Unaudited)
(in thousands)
Six Months Ended June 30,
2020 2019
Cash flows from operating activities:
Net loss $ (189,479)   $ (55,253)  
Adjustments to reconcile net loss to net cash (used in) provided by operating activities
Depreciation and amortization 27,619    56,489   
Asset impairment 97,115    —   
Inventory and other write-downs 4,846    —   
Loss on derivative 3,050    —   
Accretion on asset retirement obligation 998    172   
Change in allowance for doubtful accounts 4,425    322   
Amortization of deferred financing costs 2,251    1,155   
Amortization of debt discount 2,181    525   
Non-cash compensation 1,233    6,851   
Loss on disposal of assets 2,297    1,797   
Deferred income taxes (3,984)   —   
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable 62,963    9,228   
Inventories 2,903    4,554   
Prepaid expenses and other current assets 2,192    4,778   
Other assets 651    46   
Accounts payable (14,130)   (21,548)  
Income tax receivable —    891   
Other liabilities (4,901)   (3,068)  
Accrued expenses (7,842)   4,311   
Net cash (used in) provided by operating activities (5,612)   11,250   
Cash flows from investing activities:
Purchase of property and equipment (5,947)   (33,359)  
Proceeds from sale of assets 44,952    5,009   
Payments for other long-term assets (768)   —   
Payments for businesses, net of cash acquired (59,350)   —   
Net cash used in investing activities (21,113)   (28,350)  
Cash flows from financing activities:
Proceeds from debt 38,000    —   
Repayments of debt (34,770)   (17,334)  
Change in treasury stock including restricted stock issuances (16)   (1,683)  
Deferred loan costs and other financing activities (1,749)   (469)  
Net cash (used in) provided by financing activities 1,465    (19,486)  
Net decrease in cash, cash equivalents and restricted cash (25,260)   (36,586)  
Cash and cash equivalents - beginning of period 36,217    90,300   
Cash and cash equivalents - end of period $ 10,957    $ 53,714   
Noncash investing and financing activity:
Capital leases and notes issued for equipment $ 498    $ 7,588   
Change in accrued property and equipment (131)   1,348   
Issuance of Series A Participating Preferred Stock 22,000    —   
Issuance of derivative liability 9,713    —   
Change in asset retirement obligations $   $ 108   
See accompanying notes to unaudited consolidated financial statements.
4


BASIC ENERGY SERVICES, INC.
June 30, 2020 (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 the Company'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, 2019. 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  
The Company provides a wide range of wellsite services to oil and natural gas drilling and producing companies, including Well Servicing, Water Logistics and Completion & Remedial Services. These services are primarily provided by the Company's fleet of equipment. The Company’s operations are concentrated in major United States onshore oil and natural gas producing regions located in Texas, California, New Mexico, Oklahoma, Arkansas, Kansas, Louisiana, Wyoming, North Dakota and Colorado. The Company's scope of operations was expanded effective beginning March 9, 2020, with the acquisition of C&J Well Services, Inc. See Note 2. Acquisition, for further discussion.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company's subsidiaries, for which the Company holds a majority voting interest. All intercompany transactions and balances have been eliminated.
Other Reclassifications
Certain reclassifications have been made to prior period amounts to conform to the current period presentation. A majority of the reclassifications were related to discontinued operations. These reclassifications do not impact net income (loss) and do not reflect a material change to the information previously presented in our consolidated financial statements. See Note 3. Discontinued Operations for further discussion on amounts included in loss from discontinued operations.
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 impairments of long-lived assets, certain financial instruments, acquisition purchase price allocation, litigation, and self-insured risk reserves. For further discussion of impairments of long-lived assets, see Note 13. Impairments.
Inventories
For rental and fishing tools, inventories consisting mainly of grapples and controls are stated at lower of cost or net realizable value. Other inventories, consisting mainly of manufacturing raw materials, rig components, repair parts, drilling and completion materials and gravel, are held for use in the operations of the Company and are stated at lower of cost or net realizable value, with cost being determined on the first-in, first-out method.
In addition to comparing the carrying amount of inventory to its market value, the Company also makes a comparison between volume of inventory and demand for the ultimate production into which inventory will be
5


converted and increases reserves for excess and obsolete inventory. For further discussion on impairments of inventory see Note 13. Impairments.
Assets Held for Sale
Assets are classified as held for sale when, among other factors, they are identified and marketed for sale in their present condition, management is committed to their disposal, and the sale of the asset is probable within one year. For the quarter ended June 30, 2020, the company classified to assets held for sale $4.2 million of certain rig construction assets, associated with our Taylor manufacturing facility, the majority of which are expected to be sold in the third quarter of 2020. Also included in assets classified as held for sale were certain property, plant and equipment assets of our pressure pumping operations and contract drilling operations that were classified as discontinued operations beginning in late 2019. For further discussion on the pressure pumping and contract drilling assets, see Note 3. Discontinued Operations.
COVID-19 and Commodity Price Collapse Impact on Company Liquidity; Going Concern
Beginning in March 2020, as a result of multiple significant factors impacting supply and demand in the global oil and natural gas markets, including a global outbreak of coronavirus (“COVID-19”), and actions by members of the Organization of the Petroleum Exporting Countries (“OPEC”) and other foreign countries, including Russia, the posted price for West Texas Intermediate oil declined sharply. Oil demand has significantly deteriorated through the first six months of 2020, in part, as a result of outbreak of COVID-19 and corresponding preventative measures taken to mitigate the spread of the virus. This decline in demand coincided with the announcement of price reductions and possible production increases by members OPEC and other oil exporting nations. Although OPEC and other oil exporting nations ultimately agreed to cut production, and commodity prices have improved during early third quarter of 2020, the downward pressure on commodity prices has remained and could continue in the foreseeable future.
Oil and natural gas commodity prices are expected to continue to be volatile. Despite improvements in early third quarter of 2020, the collapse in the demand for oil caused by this unprecedented global health and economic crisis, coupled with oil oversupply, has had a material adverse impact on the demand for our services and the prices we can charge for our services.
The decline in our customers’ demand for our services has also had a material adverse impact on our financial condition, results of operations and cash flows during the first half of 2020. Demand for our products and services will continue to decline if our customers further revise their capital budgets downward and adjust their operations in response to lower oil prices. We cannot predict the duration or effects of these current conditions, but if the price of oil further declines or remains at current levels for a lengthy period, our business, financial condition, results of operations, cash flows, and prospects will continue to be materially and adversely affected. The impact of these conditions on our estimates of future operating cash flows resulted in additional impairments of long-lived and intangible assets as of March 31, 2020. For further discussion of impairments of long-lived assets, see Note 13. Impairments.
Based on our current operating and commodity price forecasts and capital structure, we believe that if certain financial ratios or cash dominion covenants were to come into effect under our debt instruments, we will have difficulty complying with certain of such obligations. Certain covenants, such as consolidated fixed charge coverage ratio and cash dominion provisions in the revolving credit facility (the "ABL Facility") spring into effect under certain triggers defined in the ABL Credit Agreement, as amended, for so long as such applicable trigger period is in effect. Additionally, certain triggers in the ABL Facility increase certain financial and borrowing base reporting requirements for so long as such applicable trigger period is in effect. Failure to comply, for example, with a “springing” consolidated fixed charge coverage ratio requirement under the ABL Facility would result in an event of default under the ABL Facility, which would result in a cross-default under the Senior Notes. If an event of default were to occur, our lenders could, in addition to other remedies such as charging default interest, accelerate the maturity of the outstanding indebtedness, making it immediately due and payable, and we may not have sufficient liquidity to repay those amounts.
We had the $9.4 million minimum availability under the ABL Facility as of June 30, 2020. To maintain compliance with certain of the minimum availability covenant requirements as of June 30, 2020, in early July 2020 we repaid the $2.6 million amount of borrowings that was previously outstanding, and advanced $2.3 million of our available cash balance to the Administrative Agent. During the remainder of July 2020, and as of August 7, 2020, we are currently subject to increased financial and borrowing base information reporting and have made additional advances totaling $10.7 million of our available cash balance to the Administrative Agent as needed to maintain compliance with the minimum availability covenant requirements.
6


Management has taken several steps to generate additional liquidity, including through reducing operating and administrative costs through employee headcount reductions, closing operating locations, employee furloughs and other cost reduction measures, and the suspension of growth capital expenditures in our continuing business operations with the goal of preserving margins and improving working capital. Management may implement further similar cost and capital expenditure reductions, as necessary.
Due to the uncertainty of future oil and natural gas prices and the effects the outbreak of COVID-19 will have on our future results of operations, operating cash flows and financial condition, there is substantial doubt as to the ability of the Company to continue as a going concern. Additional steps management would implement to alleviate this substantial doubt would include additional sales of non-strategic assets, obtaining waivers of debt covenant requirements from our lenders, restructuring or refinancing our debt agreements, or obtaining equity financing. There can be no assurances that, if required, the Company would be able to successfully sell assets, obtain waivers, restructure its indebtedness, or complete any strategic transactions in the current environment.
Management has prepared these consolidated financial statements in accordance with U.S. generally accepted accounting principles applicable to a going concern, which contemplates that assets will be realized and liabilities will be discharged in the normal course of business as they become due. These consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported revenues and expenses and balance sheet classifications that would be necessary if the Company was unable to realize its assets and settle its liabilities as a going concern in the normal course of operations. Such adjustments could be material and adverse to the financial results of the Company.
2. Acquisition
On March 9, 2020, the Company entered into a Purchase Agreement (the “Purchase Agreement”) with Ascribe Investments III LLC, a Delaware limited liability company (“Ascribe”), NexTier Holding Co., a Delaware corporation (“Seller”) and C&J Well Services, Inc., a Delaware corporation, and wholly owned subsidiary of Seller (“CJWS”), whereby the Company acquired all of the issued and outstanding shares of capital stock of CJWS, such that CJWS became a wholly-owned subsidiary of the Company. CJWS is the third largest rig servicing provider in the U.S., with a leading footprint in California and a strong customer base. Following the acquisition of CJWS, the Company has expanded its footprint in the Permian, California and other key oil basins.
Pursuant to the Purchase Agreement, among other things, (i) Seller transferred and delivered to the Company and the Company purchased and acquired from Seller, all of the issued and outstanding shares of capital stock of CJWS held by Seller (the "Stock Purchase"); (ii) as a portion of the consideration for the Stock Purchase, Ascribe, on behalf of the Company, conveyed to Seller certain 10.75% senior secured notes due October 2023 (the "Senior Notes") issued by the Company to Ascribe in an aggregate par value amount equal to $34.4 million (the "Ascribe Senior Notes"); and (iii) Ascribe entered into an Exchange Agreement, dated March 9, 2020, with the Company (the "Exchange Agreement") pursuant to which, among other things, Ascribe exchanged the Ascribe Senior Notes for (a) 118,805 shares of newly issued preferred stock, designated as "Series A Participating Preferred Stock," par value $0.01 per share, of the Company (the "Series A Preferred Stock") and, (b) an amount in cash for accrued interest on the Ascribe Senior Notes approximately equal to $1.5 million (the "Exchange Transaction" and, together with the Stock Purchase and the other transactions contemplated by the Purchase Agreement, the "CJWS Transaction"). For further discussion of the Series A Preferred Stock, see Note 9. Series A Participating Preferred Stock.
Pursuant to the Purchase Agreement, at closing Seller received consideration in the aggregate amount of $95.7 million comprised of (a) cash consideration equal to $59.4 million (subject to customary reductions for indebtedness and transaction expenses, as well as post-closing working capital adjustments) and (b) the Ascribe Senior Notes transferred to Seller by Ascribe (on behalf of the Company) as described above. In connection with the CJWS Transaction, pursuant to the Purchase Agreement, Ascribe has certain contingent obligations to the Seller to make Seller whole on the par value of the Ascribe Senior Notes as of the earlier of the first anniversary of the closing of the Stock Purchase, a bankruptcy of the Company, or a change of control of the Company (the "Make-Whole Payment"). Considering this contingent Make-Whole Payment by Ascribe to the Seller, the fair value of the Ascribe Senior Notes issued to the Seller on March 9, 2020, was $36.3 million. If Ascribe is required to pay the Make-Whole Payment to Seller pursuant to the Purchase Agreement, the Company will be required to reimburse to Ascribe the amount of such Make-Whole Payment (such amount, the "Make-Whole Reimbursement Amount") either (i) in cash (a) to the extent the Company has available cash (as determined by an independent committee of the Company's board of directors) and (b) subject to satisfaction of certain "Payment Conditions" set forth in the ABL Credit Agreement (as defined below) or (ii) if the Company is unable to pay the full Make-Whole Reimbursement Amount in cash pursuant to clause "(i)" of this paragraph, in additional Senior Notes as permitted under the Indenture. In consideration of providing the Make-Whole Payment to Seller, the Company paid Ascribe $1 million in
7


cash at the closing of the CJWS Transaction. The Company's obligation to Ascribe associated with the Make-Whole Reimbursement Amount is reflected as a derivative instrument in accordance with Accounting Standards Codification ("ASC") No. 815 "Derivatives and Hedging" ("ASC 815") with an initial fair value of approximately $9.7 million based on a risk-adjusted market differential between the fair value of the Ascribe Senior Notes and their $34.4 million par value as of the March 9, 2020, closing date. Changes in fair value of the Make-Whole Reimbursement Amount each period are "marked to market" and charged or credited to Gain (Loss) on Derivative in the accompanying consolidated statements of operations. The fair value of the Make-Whole Reimbursement Amount liability as of June 30, 2020, is approximately $12.8 million and results in $3.1 million of derivative loss during the six months ended June 30, 2020. The Make-Whole Reimbursement Amount liability is classified as a derivative liability, a current liability in the accompanying balance sheet.
Of the cash consideration paid to the Seller, $15 million was funded from a Senior Secured Promissory Note to Ascribe. For a further discussion of the Exchange Agreement and the Senior Secured Promissory Note, see Note 6. Long-Term Debt and Interest Expense.
The CJWS Transaction was considered an acquisition of a business in accordance with ASC 805 "Business Combinations" and the Company applied the acquisition method of accounting. The Company's preliminary allocation of the purchase price, including preliminary working capital adjustments, to the estimated fair value of the CJWS net assets is as follows (in thousands):
March 9, 2020
Current assets $ 42,061   
Property and equipment 63,418   
Operating lease right of use asset 734   
Other assets 1,859   
Intangible asset 4,000   
Goodwill 18,874   
     Total assets acquired 130,946   
Current liabilities 24,742   
Long-term liabilities 12,051   
     Total liabilities assumed 36,793   
     Net assets acquired $ 94,153   
The allocation of the purchase price to CJWS's net tangible assets and liabilities and identifiable intangible assets as of March 9, 2020, is preliminary and subject to revisions to the fair value calculations for the identifiable assets and liabilities. The final purchase price allocation could differ from the preliminary allocation noted in the summary above. The preliminary allocation of purchase price includes approximately $18.9 million allocated to nondeductible goodwill recorded to our well servicing and water logistics segments based on relative fair values of these acquired lines of business. The acquired property and equipment is stated at fair value, and depreciation on the acquired property and equipment is computed using the straight-line method over the estimated useful lives of each asset. We depreciate our assets over the following depreciable lives:
Buildings
20 to 30 years
Machinery and equipment
3 to 15 years
Automobiles and trucks
3 to 7 years
The acquired intangible assets represent approximately $4 million for the CJWS trade name that is stated at estimated fair value and is amortized on a straight-line basis over the estimated useful life of 15 years.
For the six month period ended June 30, 2020, our revenues and pretax earnings included $65.1 million and $3.4 million (excluding the impact of asset impairments of $35.2 million), respectively, associated with the CJWS acquired operations after the closing on March 9, 2020. In addition, CJWS Transaction-related costs of approximately $9 million were incurred during the six month period ended June 30, 2020, consisting of external legal and consulting fees and due diligence costs. These costs have been recognized in general and administrative expense in the consolidated statements of operations.
The pro forma information presented below has been prepared to give effect to the CJWS Transaction as if it had occurred at the beginning of the periods presented. The pro forma information includes the impact from the allocation of the acquisition purchase price on depreciation and amortization and the impact on interest expense
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associated with acquisition financing. It also excludes the impact of the CJWS Transaction acquisition costs charged to earnings during the 2020 period. The pro forma information is presented for illustration purposes only and is based on estimates and assumptions the Company deemed appropriate. The following pro forma information is not necessarily indicative of the results that would have been achieved if the CJWS Transaction had occurred in the past, and should not be relied upon as an indication of the operating results that the Company would have achieved if the transaction had occurred at the beginning of the periods presented, and our operating results, or the future results that we will achieve, may be different from those reflected in the pro forma information below (in thousands, except per share and average share outstanding information).
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Revenues $ 89,637    $ 253,979    $ 275,845    $ 511,809   
Loss from continuing operations (39,725)   (27,098)   $ (161,227)   $ (48,952)  
Net loss from continuing operations per
Net loss from continuing operations per share, basic and diluted $ (1.59)   $ (1.00)   $ (6.47)   $ (1.81)  
Weighted average shares outstanding, basic and diluted 24,957,478 27,203,635 24,935,693    27,028,041   

3. Discontinued Operations
During the third and fourth quarters of 2019, the Company's management decided to divest all of its contract drilling rigs, and a majority of pressure pumping equipment and related ancillary equipment, respectively, assets having a combined net book value of $91.8 million. The majority of the real estate and equipment was sold during late 2019 and the first half of 2020, with the remaining pumping and related assets classified as Assets Held for Sale on our Consolidated Balance Sheet. The Company is pursuing additional transactions to divest the remainder of these non-strategic assets later during 2020, however the Company recorded an impairment on the remaining assets of $2.3 million at March 31, 2020. A complete summary of our discontinued operations is included in Note 2. Discontinued Operations of the Financial Statements and Supplementary Data in our most recent Annual Report on Form 10-K.
The operating results of the pressure pumping operations and contract drilling operations, which were historically included in the Completions & Remedial Services and Other Services segments, respectively, have been reclassified as discontinued operations in the Consolidated Statement of Operations for the three and six month periods ended June 30, 2020 and 2019, and are detailed in the table below (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Revenues $ 25    $ 41,872    $ 120    $ 85,884   
Direct expenses 892    34,105    2,411    74,824   
General and administrative 4,203    4,615    6,168    8,383   
Depreciation and amortization —    11,694    —    23,010   
Impairment expense —    —    2,330   
Loss (gain) on disposal of assets (84)   (237)   2,671    521   
Total expenses 5,011    50,177    13,580    106,738   
Operating loss (4,986)   (8,305)   (13,460)   (20,854)  
Other income (expense):
Interest expense —    (159)   —    (302)  
Interest income —    —    —    —   
Other income 113      135     
Loss from discontinued operations $ (4,873)   $ (8,462)   $ (13,325)   $ (21,151)  
Interest expense in discontinued operations is related to interest expense on finance lease assets that operated in the discontinued Completions & Remedial Services and Other Services segments. Impairment expense was recorded during the three month period ended March 31, 2020, associated with certain non-strategic assets with
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carrying values that were in excess of current estimated selling price. General and administrative expense consisted primarily of bad debt expense recorded on customer receivables from discontinued operations.
During the six month period ended June 30, 2020, a portion of the assets identified as of December 31, 2019, were disposed. Remaining assets and liabilities related to the divested operations are included in the consolidated balance sheets and consist as follows (in thousands):
June 30, 2020 December 31, 2019
Assets-held-for-sale
Inventories $ —    $ 2,069   
Right of use assets 1,001    1,659   
Property, plant and equipment, net 7,744    50,496   
  Total assets-held-for-sale-future-use $ 8,745    $ 54,224   
Liabilities related to Assets-held-for-sale
Right of use liabilities $ 1,009    $ 1,659   
Capital leases —    3,589   
  Total Liabilities related to Assets-held-for-sale discontinued operations $ 1,009    $ 5,248   
Applicable Consolidated Statements of Cash Flow information related to the discontinued operations for the six months ended June 30, 2020, and 2019 are detailed in the table below (in thousands):
Six Months Ended June 30,
2020 2019
Cash Flows from Discontinued Operations
Net cash provided (used) by operating activities $ (8,188)   $ 2,980   
Net cash provided (used) in investing activities $ 40,514    $ (6,743)  
Cash capital expenditures and finance lease additions related to discontinued operations were $8.3 million and $1.5 million, respectively, for the six months ended June 30, 2019. The Company did not have any cash or lease additions related to discontinued operations for the six months ended June 30, 2020. Proceeds from sale of assets related to discontinued operations totaled $40.5 million and $1.5 million for the six months ended June 30, 2020 and 2019, respectively.
4. Property and Equipment
The following table summarizes the components of property and equipment (in thousands):
June 30, 2020 December 31, 2019
Land $ 22,902    $ 15,682   
Buildings and improvements 39,196    30,902   
Well service units and equipment 59,337    130,318   
Disposal facilities 89,213    87,763   
Fluid services equipment 80,839    79,024   
Rental equipment 47,825    60,886   
Pumping equipment 35,303    47,083   
Light vehicles 17,244    26,630   
Fracturing/test tanks 6,266    6,153   
Brine and fresh water stations 5,341    4,340   
Other 4,483    3,948   
Software 924    896   
Property and equipment, gross 408,873    493,625   
Less accumulated depreciation and amortization (159,225)   (196,512)  
Property and equipment, net $ 249,648    $ 297,113   
 The Company 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
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and related accumulated amortization recorded under finance leases and included above (in thousands):
June 30, 2020 December 31, 2019
Fluid services equipment $ 33,061    $ 34,499   
Pumping equipment 10,671    16,576   
Light vehicles 8,996    19,563   
Rental equipment 878    1,130   
Well service units and equipment 193    —   
Property and equipment under finance lease, cost 53,799    71,768   
Less accumulated amortization (19,894)   (27,727)  
Property and equipment under finance lease, net $ 33,905    $ 44,041   
During the six month period ended June 30, 2020, and due to significant factors impacting supply and demand in the global oil and natural gas markets, the Company assessed certain of its Property and Equipment assets for impairment. For further discussion, see Note 13. Impairments.
5. Goodwill and Intangible Assets
In connection with the March 9, 2020 acquisition of CJWS, the Company recorded goodwill of $18.9 million, which was initially allocated to its Well Servicing and Water Logistics reporting units based on their respective fair values. Activity during the period ended June 30, 2020, associated with goodwill by reporting units is as follows (in thousands):
Well Servicing Water Logistics Completion & Remedial Total
Balance as of December 31, 2019 $ —    $ —    $ —    $ —   
Additions to goodwill 10,565    8,309    —    18,874   
Goodwill impairments (10,565)   —    —    (10,565)  
Balance as of June 30, 2020 $ —    $ 8,309    $ —    $ 8,309   
The Company had trade names of $7.2 million and $3.2 million as of June 30, 2020, and December 31, 2019, respectively. In connection with the CJWS Transaction, the Company recorded intangible assets for CJWS trade name and Goodwill. Trade names have a 15-year life and are tested for impairment when triggering events are identified.
During the six month period ended June 30, 2020, and due to significant factors impacting supply and demand in the global oil and natural gas markets, the Company assessed certain of its intangible assets and goodwill for impairment. For further discussion, see Note 13. Impairments.
The Company’s intangible assets subject to amortization were as follows (in thousands):
June 30, 2020 December 31, 2019
Trade names $ 7,230    $ 3,230   
Other intangible assets 48    48   
Intangible assets 7,278    3,278   
Less accumulated amortization (854)   (675)  
Intangible assets subject to amortization, net $ 6,424    $ 2,603   
Amortization expense of intangible assets for the three and six months ended June 30, 2020 and 2019, was as follows (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Intangible asset amortization expense $ 123    $ 60    $ 179    $ 119   

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6. Long-Term Debt and Interest Expense
Long-term debt consisted of the following (in thousands): 
June 30, 2020 December 31, 2019
10.75% Senior Notes due 2023
$ 300,000    $ 300,000   
ABL Facility 2,558    —   
Senior Secured Promissory Note 15,000    —   
Finance leases and other notes 25,966    35,898   
Unamortized discounts and deferred financing costs (25,513)   (8,795)  
     Total long-term debt 318,011    327,103   
Less current portion 17,606    18,738   
    Total non-current portion of long-term debt $ 300,405    $ 308,365   
The Company was in compliance with the debt covenants under its existing debt agreements as of June 30, 2020.
Debt Discounts and Issuance Costs
The following discounts and issuance costs on debt represent the unamortized discount to fair value of the Senior Notes, the Senior Secured Promissory Note, and the unamortized debt issuance costs on Senior Notes (in thousands). For discussion of the change in unamortized discount on Senior Notes, see discussion below.
June 30, 2020 December 31, 2019
Unamortized discount on Senior Notes $ 12,591    $ 2,156   
Unamortized discount on Senior Secured Promissory Note 7,177    —   
Unamortized deferred debt issuance costs 5,745    6,639   
Total unamortized discounts and deferred financing costs $ 25,513    $ 8,795   
Interest Expense
The Company’s interest expense for the three and six months ended June 30, 2020 and 2019, consisted of the following (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Cash payments for interest $ 17,443    $ 18,818    $ 18,671    $ 20,428   
Change in accrued interest (8,024)   (9,334)   196    (1,186)  
Amortization of discounts 1,660    263    2,181    525   
Amortization of deferred debt costs 1,664    591    2,251    1,155   
Commitment and other fees paid 11    13    22    24   
Other 21      72    26   
Interest expense - continuing operations $ 12,775    $ 10,358    $ 23,393    $ 20,972   

Senior Secured Notes
On October 2, 2018, the Company issued $300 million aggregate principal amount of 10.75% senior secured notes due October 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%. 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 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.
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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% in aggregate principal amount of the outstanding Senior Notes may declare the entire principal, 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% 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% 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% 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.
As discussed in Note 2. Acquisition, pursuant to the Purchase Agreement and as a portion of the consideration for the Stock Purchase, Ascribe, on behalf of the Company, conveyed to Seller Senior Notes with an aggregate par amount equal to $34.4 million (the "Ascribe Senior Notes") and Ascribe entered into an Exchange Agreement dated March 9, 2020, with the Company pursuant to which, among other things, Ascribe exchanged the Ascribe Senior Notes for (a) 118,805 shares of Series A Preferred Stock and (b) an amount in cash for accrued interest on the Ascribe Senior Notes approximately equal to $1.5 million, representing the accrued (but unpaid) interest, from and including the most recent date to which interest had been paid pursuant to the terms of the Senior Notes but excluding the date of the closing of the CJWS Transaction, on the aggregate principal amount of the Ascribe Senior Notes. Pursuant to the Exchange Agreement, the Company issued a Senior Secured Promissory Note on March 9, 2020, in favor of Ascribe in an aggregate principal amount equal to $15 million. See discussion of the Senior Secured Promissory Note below. For further discussion of the Series A Preferred Stock, see Note 9. Series A Participating Preferred Stock.
If Ascribe is required to pay the Make-Whole Payment to Seller, described in Note 2. Acquisitions, pursuant to the Purchase Agreement, the Company will be required to reimburse to Ascribe the amount of such Make-Whole Payment (such amount, the "Make-Whole Reimbursement Amount") either (i) in cash (a) to the extent the Company has available cash (as determined by an independent committee of the Company's board of directors) and (b) subject to satisfaction of certain "Payment Conditions" set forth in the ABL Credit Agreement (as defined below) or (ii) if the Company is unable to pay the full Make-Whole Reimbursement Amount in cash pursuant to clause "(i)" of this paragraph, in additional Senior Notes as permitted under the Indenture.
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The conveyance of the $34.4 million in Ascribe Senior Notes to Seller by Ascribe, along with other aspects of the Exchange Agreement and Purchase Agreement considered in the aggregate, was deemed for accounting purposes to be an effective extinguishment of the existing Ascribe Senior Notes pursuant to ASC 470-50 "Debt - Modifications and Extinguishments" ("ASC 470-50"). and a reissuance of a new issue of Ascribe Senior Notes as of March 9, 2020. The new issue of Ascribe Senior Notes was recorded at its estimated fair value based on the bond market pricing discount of 37% at March 9, 2020, resulting in a net carrying value at time of reissuance of $21.6 million, net of discount. This discount is amortized over the remaining term of the Ascribe Senior Notes through 2023. The deemed reissuance of Ascribe Senior Notes, along with the issuance of the Senior Secured Promissory Note and the Series A Preferred Stock, each also recorded at their estimated fair values, resulted in a net debt extinguishment gain of $22.9 million, net of transaction fees paid to Ascribe. As Ascribe was a beneficial owner of the Company prior to the acquisition, the net extinguishment gain was accounted for as a capital contribution as an adjustment within Additional Paid-In Capital as part of Stockholders' Equity.
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 “Initial ABL Credit Agreement”) among the Company, as borrower (in such capacity, the “Borrower”) and the lenders from time to time party thereto (collectively, the “ABL Lenders”). Pursuant to the ABL Credit Agreement, the ABL Lenders extended to the Borrower a revolving credit facility in the initial maximum aggregate principal amount of $150 million (reduced to $75 million pursuant to the subsequent amendments described below), subject to borrowing base capacity (the “ABL Facility”). The ABL Facility includes a sublimit for letters of credit of up to $50 million in the aggregate, and for borrowings on same-day notice under swingline loans subject to a sublimit of the lesser of (a) $15 million (reduced to $7.5 million pursuant to the subsequent amendments described below) and (b) the aggregate commitments of the ABL Lenders. The ABL Facility also provides capacity for base rate protective advances up to $10 million at the discretion of the Administrative Agent and provisions relating to overadvances.
The Initial ABL Credit Agreement was amended pursuant to a Limited Consent and First Amendment to ABL Credit Agreement (the "First Amendment"), dated as of March 9, 2020, in connection with the CJWS Transaction and which, among other things, reduced aggregate commitments from $150 million to $120 million, and expanded the definition of the borrowing base to also include eligible pledged cash which can be advanced to the Administrative Agent as necessary. The ABL Credit Agreement was further amended pursuant to a Second Amendment to ABL Credit Agreement dated as of June 15, 2020 (the "Second Amendment"), which, among other things, (i) further reduced aggregate commitments from $120 million to $75 million, (ii) made proportionate downward adjustments to certain of the Availability (as defined in the ABL Credit Agreement) thresholds that can trigger certain springing covenants such as consolidated fixed charge coverage ratio and cash dominion provisions, and (iii) included additional requirements for the Company, such as prepayment requirements for cash accumulation over a specified threshold, an increase in the applicable rates on outstanding borrowings, as well as provisions precluding defensive ABL Credit Agreement drawdowns. In connection with the reductions in the aggregate commitment effected by the First Amendment and Second Amendment, certain deferred financing cost assets of $1.1 million were charged to interest expense during the six months ended June 30, 2020. The Initial ABL Credit Agreement, as amended by the First Amendment and the Second Amendment, and as may be further amended, restated, supplemented, or otherwise modified to date, is hereafter defined as the "ABL Credit Agreement."
Borrowings under the 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 LIBOR rate. The applicable rate is fixed from the Second Amendment effective date to July 1, 2020. Following July 1, 2020, 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. The applicable rate was increased as set forth in the Second Amendment.
Principal amounts outstanding under the ABL Facility will be due and payable in full on the maturity date, October 2, 2023, 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. We had the $9.4 million minimum availability under the ABL Facility as of June 30, 2020. To avoid triggering certain of the consolidated fixed charge coverage ratios and cash dominion covenants which spring into effect under certain minimum availability covenant requirements defined in the ABL Credit Agreement, as amended, as of June 30, 2020, in early July 2020 we repaid the $2.6 million amount of borrowings that was previously outstanding, and advanced $2.3 million of our available cash balance to the Administrative Agent. During the remainder of July 2020, and as of August 7, 2020, we are currently subject to increased financial and borrowing base information reporting and we have made additional advances totaling $10.7 million of our available cash balance to the Administrative Agent as needed to maintain compliance with the minimum availability covenant requirements.
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Substantially all of the domestic subsidiaries of the Company guarantee the borrowings under the 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 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 June 30, 2020, the Company had $36.8 million of letters of credit outstanding under the ABL Facility.
The Senior Secured Promissory Note
Pursuant to the Exchange Agreement, the Company issued a Senior Secured Promissory Note on March 9, 2020, in favor of Ascribe in an aggregate principal amount equal to $15 million (the "Senior Secured Promissory Note"). Interest on the Senior Secured Promissory Note is payable monthly, at an initial interest rate of 10% per annum, increasing by an additional 2% per annum beginning on January 1, 2021, and on January 1 of each succeeding year thereafter until the Senior Secured Promissory Note matures on October 15, 2023. The Senior Secured Promissory Note is secured by a lien upon certain of the Company's existing and after-acquired property, which are also secured by the Company's existing Senior Secured Notes. As a part of the Exchange Agreement and pursuant to ASC 470-50, the Senior Secured Promissory Note was recorded at its estimated fair value, resulting in a net carrying value, net of discount, of $7 million at time of issuance. This discount is amortized using the effective interest method over the remaining term of the Senior Secured Promissory Note. The proceeds of the Senior Secured Promissory Note were used to finance a portion of the purchase price consideration paid in connection with the Stock Purchase. Such proceeds were net of approximately $0.5 million of associated fees related to the issuance of the Senior Secured Promissory Note, which were considered in the determination of the $22.9 million net extinguishment gain discussed above.
7. 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, Senior Secured Promissory Note, and the Make-Whole Reimbursement Amount as of June 30, 2020, and December 31, 2019 (in thousands, except hierarchy level):
June 30, 2020 December 31, 2019
 Hierarchy Level Carrying Amount Fair Value Carrying Amount Fair Value
Fair Value of Debt
10.75% Senior Notes due 2023
1 $ 287,409    $ 126,533    $ 297,844    $ 213,246   
Senior Secured Promissory Note 3 $ 7,823    $ 6,159    $ —    $ —   
Fair Value of Derivative Instrument
Make-Whole Reimbursement Amount 3 $ 12,763    $ 12,763    $ —    $ —   
The fair value of the Senior Secured Promissory Note as of June 30, 2020, was calculated in accordance with ASC 820 "Fair Value Measurements" considering its subordination as to security to the Senior Secured Notes as well as the difference between the stated interest rate of the Senior Secured Promissory Note and market rates.
As a result of the CJWS Transaction, the Company has a Make-Whole Reimbursement derivative in place, which is classified as a short-term derivative financial instrument on our consolidated balance sheet. Changes in the fair value of derivative instruments subsequent to the initial measurement are recorded as Loss on Derivative in the accompanying consolidated statement of operations. The estimated fair value of the Company’s derivative liability is determined at discrete points in time derived from the fair value of our Senior Notes, which resulted in the Company classifying the derivative liability as Level 3. The Company recorded a loss of $3.1 million as a result of the change in fair value of the Make-Whole Reimbursement derivative in the six month period ended June 30, 2020.
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. The Company did not have any additional assets or liabilities that were measured at fair value on a recurring basis as of June 30, 2020, or December 31, 2019.
During the six months ended June 30, 2020, our Well Servicing segment recorded certain impairments related to the expected decreased operating cash flows as a result of the impact of low crude oil prices and the corresponding decrease in customer demand for our services as of that date. For further discussion of these impairments, see Note 13. Impairments.
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8. Commitments and Contingencies
Environmental
The Company is subject to various federal, state and local environmental laws and regulations that establish standards and requirements for protection of the environment. The Company cannot predict the future impact of such standards and requirements, which are subject to change and can have retroactive effectiveness. The Company continues to monitor the status of these laws and regulations.
Currently, the Company 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 the Company’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, the Company is a party to litigation or other legal proceedings that the Company considers to be a part of the ordinary course of business. The Company 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.
State Tax
In 2014, the Company 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 the Company will appeal the preliminary report through the redetermination process. Based upon the Company's analysis, the potential liability associated with this audit ranges from $6 million to $24 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 recorded a $3.6 million liability. Interest expense associated with the taxes for the six months ended June 30, 2020, of $0.1 million, is included in approximately $2.0 million of accrued interest on the liability.
On August 15, 2019, the Company was notified by the Oklahoma Tax Commission (the "OTC") that the tax court had issued findings, conclusions, and recommendations in an on-going tax case related to tax years 2006 through 2008. Based on the ruling and the advice of our Oklahoma tax counsel, the Company decided to negotiate a settlement with the OTC. The Company's analysis is that the potential liability associated with the settlement may range from $2.3 million to $3.5 million. The Company recorded $2.5 million of income tax and interest payable, which is included as accrued expenses on our consolidated balance sheets.
Self-Insured Risk Accruals
The Company is self-insured up to retention limits as it relates to workers’ compensation, general liability claims, and medical and dental coverage of its employees. The amount of these accruals as of June 30, 2020, includes $7.5 million of worker's compensation related impact of the March 9, 2020, acquisition of CJWS. The Company 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. The Company has deductibles per occurrence for workers’ compensation, general liability claims, and medical and dental coverage of $2 million, $1 million, and $0.4 million, respectively. The Company has a $1 million deductible per occurrence for automobile liability. The Company maintains accruals in the accompanying consolidated balance sheets related to self-insurance retentions based upon third-party data and claims history.
9. Series A Participating Preferred Stock
In connection with the CJWS Transaction and pursuant to the Exchange Agreement, as partial consideration for the Exchange Transaction, on March 9, 2020, the Company issued to Ascribe 118,805 shares of newly issued preferred stock, designated as "Series A Participating Preferred Stock," par value 0.01 per share, of the Company (the "Series A Preferred Stock"). The Series A Preferred Stock was issued in exchange for the Ascribe Senior Notes having a par value of $34.4 million. The Series A Preferred Stock constituted 83% of the equity interest in the Company. Upon consummation of the Exchange Transaction, the Company's public stockholders owned approximately 14.94% of the equity interests in the Company, and Ascribe held approximately 85.06%.
Each share of Series A Preferred Stock is entitled to (i) dividends in an amount per share equal to 1,000 times the per share amount of each dividend declared on the Company's common stock; (ii) 1,000 votes on all matters
16


submitted to a vote of the holders of the Company's common stock; and (iii) upon any liquidation, dissolution or winding up of the Company, an amount equal to 1,000 times the per share amount to be distributed to each share of the Company's common stock. Each share of Series A Preferred Stock is convertible at the option of the Company or the holder into 1,000 shares of Company common stock.
On May 6, 2020, the Company's stockholders, and the holders of common stock voting separately, approved the proposal to increase the number of authorized shares of common stock by 118,805,000, to allow for the conversion of Series A Preferred Stock shares to common shares.
As a result of Ascribe's effective controlling equity interest in the Company, and in accordance with ASC No. 480 "Distinguishing Liabilities from Equity" ("ASC 480"), the Series A Preferred Stock is classified outside of permanent equity in the Company's balance sheet as of June 30, 2020. The Series A Preferred Stock was recorded at the fair value, approximately $22 million as of March 9, 2020, based on the trading price of the Company common shares, plus a control premium.
10. Stockholders' Equity
On May 6, 2020, the Company's stockholders voted to amend the Company's Second Amended and Restated Certificate of Incorporation to, among other items, increase the number of authorized shares of common stock from 80,000,000 shares to 198,805,000 shares.
11. Incentive Plan
During the three month period ended June 30, 2020 and 2019, compensation expenses related to share-based arrangements under the Management Incentive Plan (the "MIP") and Long Term Incentive Plan ("LTIP"), including restricted stock, restricted stock units and stock option awards, were approximately $0.1 million and $3.3 million, respectively.
During the six month period ended June 30, 2020 and 2019, compensation expenses related to share-based arrangements under the MIP and the LTIP, including restricted stock, restricted stock units and stock option awards, were approximately $1.4 million and $6.6 million, respectively.
The Company did not recognize a tax benefit for compensation expense recognized during the three and six month periods ended June 30, 2020 and 2019.
At June 30, 2020, there was $0.5 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.
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12. Revenues and Customer Receivables
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 performance obligations in the contract are complete, such as plugging a well, fishing services, and pad site preparation jobs. Because these jobs are performed on the customer's job site, and the Company 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 as WIP or accounts receivable. Contract Assets are typically invoiced within 30 to 60 days of recognizing revenue.
As of June 30, 2020, accounts receivable related to products and services, net of associated allowance for credit losses, were $70.9 million compared to $99.6 million at December 31, 2019. At June 30, 2020, the Company had $3.4 million of contract assets and $0.7 million of contract liabilities on its consolidated balance sheet compared to $1.0 million of contract assets and $0.9 million of contract liabilities on its consolidated balance sheet at December 31, 2019. Contract assets are included in Trade Accounts Receivables, and contract liabilities are included in Other Current Liabilities on our consolidated balances sheets.
For accounts receivable related to products and services, the Company estimates its expected credit losses by reviewing and monitoring updated customer credit scores and risk ratings provided by third party and internal resources, considering the future impact of the current business and industry environment, and reviewing the historical loss experience by type of customer. During the six month period ended June 30, 2020, the Company considered the impact of the sharp decline in the West Texas Intermediate oil price on the credit quality of its customers and included this impact in its allowance for credit losses as of June 30, 2020. In addition, the Company included in its allowance for credit losses the impact of the approximately $39.5 million of accounts receivable from the acquisition of CJWS as of the March 9, 2020, closing date. The following table presents activity in the allowance for credit losses (in thousands):
Six Months Ended June 30, 2020
Balance as of December 31, 2019 $ 2,208   
Provision for expected credit losses, net of recoveries 4,425   
Initial allowance for expected credit losses on purchased customer receivables —   
Balance as of June 30, 2020 $ 6,633   
The Company 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.
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The following table sets forth certain financial information with respect to the Company’s disaggregation of revenues by geographic location and type (in thousands):
Reportable Segments
Well Servicing Water Logistics Completion & Remedial Services Discontinued Operations Total
Three Months Ended June 30, 2020
Primary Geographical Markets
Central $ 18,945    $ 20,421    $ 3,939    $ 20    $ 43,325   
Western 28,619    14,128    5,729      48,481   
Corporate (Intercompany) (246)   (1,295)   (603)   —    (2,144)  
Total $ 47,318    $ 33,254    $ 9,065    $ 25    $ 89,662   
Major Products or Service Line
Well Servicing 27,291    —    —    —    27,291   
Plugging 12,823    —    —    —    12,823   
Transport/Vacuum —    23,313    —    —    23,313   
Production and Disposal Facilities —    4,357    —    —    4,357   
Hot Oiler —    1,859    —    —    1,859   
RAFT —    —    6,759    —    6,759   
Coiled Tubing —    —    1,451    —    1,451   
Snubbing —    —    334    —    334   
Taylor Industries - Manufacturing 1,914    —    —    —    1,914   
Discontinued Operations —    —    —    25    25   
Other 5,290    3,725    521    —    9,536   
Total $ 47,318    $ 33,254    $ 9,065    $ 25    $ 89,662   

Well Servicing Water Logistics Completion & Remedial Services Discontinued Operations Total
Three Months Ended June 30, 2019
Primary Geographical Markets
Central 51,431    48,146    19,815    42,113    161,505   
Western 11,253    5,528    19,811    770    37,362   
Corporate (Intercompany) (4,166)   (2,643)   (1,200)   (1,011)   (9,020)  
Total $ 58,518    $ 51,031    $ 38,426    $ 41,872    $ 189,847   
Major Products or Service Line
Well Servicing 47,431    —    —    —    47,431   
Plugging 6,868    —    —    —    6,868   
Transport/Vacuum —    29,054    —    —    29,054   
Production and Disposal Facilities