ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
In November 2020, the U.S. Securities and Exchange Commission (the “SEC”) adopted the final rule under SEC Release No. 33-10890, Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information, to modernize and simplify Management’s Discussion and Analysis and certain financial disclosure requirements. The final rule became effective on February 10, 2021 and must be applied in a registrant’s first fiscal year ending on or after August 9, 2021. Under the amendments to Item 303 of Regulation S-K contained in SEC Release No. 33-10890, we have the option, in discussing any material changes in our results of operations with respect to either the most recent quarter for which a statement of comprehensive income (loss) is provided and the corresponding quarter for the preceding fiscal year or, in the alternative, the most recent quarter for which a statement of comprehensive income is provided and the immediately preceding sequential quarter. We have elected the latter alternative, as management believes that comparing current quarter results to those of the immediately preceding quarter is more useful in identifying current business trends and provides a more meaningful comparison.
Management Overview and Recent Developments in Market Conditions — We are a Houston, Texas-based oilfield services company that primarily owns and operates one of the largest fleets of land-based drilling rigs in the United States and a large fleet of pressure pumping equipment.
Our contract drilling business operates in the continental United States and internationally in Colombia and, from time to time, we pursue contract drilling opportunities in other select markets. Our pressure pumping business operates primarily in Texas and the Appalachian region. We also provide a comprehensive suite of directional drilling services in most major producing onshore oil and gas basins in the United States, and we provide services that improve the statistical accuracy of directional and horizontal wellbores. We have other operations through which we provide oilfield rental tools in select markets in the United States. We also service equipment for drilling contractors, and we provide electrical controls and automation to the energy, marine and mining industries, in North America and other select markets. In addition, we own and invest, as a non-operating working interest owner, in oil and natural gas assets that are primarily located in Texas and New Mexico.
Reduced demand for crude oil and refined products related to the COVID-19 pandemic led to a significant reduction in crude oil prices and demand for drilling and completion services in 2020 and early 2021. However, market fundamentals are now strong, as demand has increased for drilling and completions equipment and services in 2022, and industry supply remains constrained. We expect the strong demand for our services to continue. The current demand for equipment and services and strong pricing environment remain dependent on macro conditions, including commodity prices, geopolitical environment, response to the COVID-19 pandemic (including any resurgences and/or lockdowns in the United States and abroad) and continued focus by exploration and production companies and service companies on capital discipline. Oil prices averaged $93.18 per barrel in the third quarter of 2022, as compared to $108.72 per barrel in the second quarter of 2022.
Due to improving activity levels, supply chain disruptions and increasing tightness in the overall labor market, we continue to see general oilfield cost inflation across our segments, including increases in the cost of labor, services and supplies. Supply chain disruptions and the increasing challenge of attracting and retaining employees are increasing the complexity of reactivating equipment.
Pricing for all our services has increased in 2022 due in part to the limited supply of readily available, high-quality drilling and completion equipment.
Our average active rig count in the United States for the third quarter of 2022 was 128 rigs. This was an increase from our average active rig count for the second quarter of 2022 of 121. Based on contracts in place in the United States as of October 25, 2022, we expect an average of 81 rigs operating under term contracts during the fourth quarter of 2022 and an average of 56 rigs operating under term contracts during the four quarters ending September 30, 2023.
Our average active spread count was 12 spreads in the third quarter, consistent with the second quarter of 2022. We calculated average active spreads as the average number of spreads that were crewed and actively marketed during the period. We expect to end the fourth quarter with 12 active pressure pumping spreads.
We have increased our 2022 capital expenditures forecast to approximately $425 million.
Recent Developments in Financial Matters and Merger and Acquisition Activity — On October 1, 2021, we completed the acquisition of Pioneer Energy Services Corp. (“Pioneer”) by acquiring 100% of its equity interests. Total consideration for the acquisition included the issuance of approximately 26.3 million shares of our common stock and payment of $30 million cash, which based on the closing price of our common stock of $9.44 on October 1, 2021, valued the transaction at approximately $278 million.
24
Pioneer provided land-based contract drilling services and production services to a diverse group of oil and gas exploration and production companies in the United States and internationally in Colombia. Through the Pioneer acquisition, we acquired Pioneer’s 100% pad-capable drilling rig fleet consisting of 17 AC-powered rigs in the United States and eight SCR rigs in Colombia and production services assets consisting of 123 well servicing rigs and 72 wireline services units.
On December 31, 2021, we completed the sale of the acquired well servicing rig business and wireline business, to Clearwell Dynamics, LLC. The sale price was $43.0 million in cash consideration, subject to customary purchase price adjustments at closing for cash and working capital. The results of operations of these businesses were presented as a discontinued operation during the fourth quarter of 2021.
On December 30, 2021, we repaid the final $50 million of borrowings under the 2019 Term Loan Agreement (“Term Loan Agreement”), and as a result had no remaining borrowings under the Term Loan Agreement as of December 31, 2021.
Impact on our Business from Oil and Natural Gas Prices and Other Factors — Our revenues, profitability and cash flows are highly dependent upon prevailing prices for oil and natural gas and upon our customers’ ability to access capital to fund their operating and capital expenditures. During periods of improved oil and natural gas prices, the capital spending budgets of oil and natural gas operators tend to expand, which generally results in increased demand for our services. Conversely, in periods when oil and natural gas prices are relatively low or when our customers have a reduced ability to access capital, the demand for our services generally weakens, and we experience downward pressure on pricing for our services. Even during periods of historically moderate or high prices for oil and natural gas, companies exploring for oil and natural gas may cancel or curtail programs or reduce their levels of capital expenditures for exploration and production for a variety of reasons, which could reduce demand for our services. We may also be impacted by delayed customer payments and payment defaults associated with customer liquidity issues and bankruptcies.
The North American oil and natural gas services industry is cyclical and at times experiences downturns in demand. During these periods, there has been substantially more oil and natural gas service equipment available than necessary to meet demand. As a result, oil and natural gas service contractors have had difficulty sustaining profit margins and, at times, have incurred losses during the downturn periods. We cannot predict either the future level of demand for our oil and natural gas services or future conditions in the oil and natural gas service businesses.
In addition to the dependence on oil and natural gas prices and demand for our services, we are highly impacted by operational risks, competition, labor issues, weather, the availability, from time to time, of products used in our pressure pumping business, supplier delays and various other factors that could materially adversely affect our business, financial condition, cash flows and results of operations, including as a result of the COVID-19 pandemic. Please see Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
For the three months ended September 30, 2022 and June 30, 2022 and nine months ended September 30, 2022 and 2021, our operating revenues consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
September 30, |
|
|
June 30, |
|
|
September 30, |
|
|
September 30, |
|
|
2022 |
|
|
2022 |
|
|
2022 |
|
|
2021 |
|
Contract drilling |
$ |
356,044 |
|
|
|
48.9 |
% |
|
$ |
304,586 |
|
|
|
49.0 |
% |
|
$ |
917,270 |
|
|
|
49.3 |
% |
|
$ |
433,158 |
|
|
|
48.6 |
% |
Pressure pumping |
|
287,664 |
|
|
|
39.5 |
% |
|
|
238,376 |
|
|
|
38.3 |
% |
|
|
715,630 |
|
|
|
38.5 |
% |
|
|
340,464 |
|
|
|
38.2 |
% |
Directional drilling |
|
58,871 |
|
|
|
8.1 |
% |
|
|
54,825 |
|
|
|
8.8 |
% |
|
|
157,030 |
|
|
|
8.4 |
% |
|
|
76,267 |
|
|
|
8.6 |
% |
Other operations |
|
24,924 |
|
|
|
3.5 |
% |
|
|
24,451 |
|
|
|
3.9 |
% |
|
|
69,186 |
|
|
|
3.8 |
% |
|
|
40,699 |
|
|
|
4.6 |
% |
|
$ |
727,503 |
|
|
|
100.0 |
% |
|
$ |
622,238 |
|
|
|
100.0 |
% |
|
$ |
1,859,116 |
|
|
|
100.0 |
% |
|
$ |
890,588 |
|
|
|
100.0 |
% |
Contract Drilling
We have addressed our customers’ needs for drilling horizontal wells in shale and other unconventional resource plays by improving the capabilities of our drilling fleet during the last several years. The U.S. land rig industry has in recent years referred to certain high specification rigs as “super-spec” rigs, which we consider to be at least a 1,500 horsepower, AC-powered rig that has at least a 750,000-pound hookload, a 7,500-psi circulating system, and is pad-capable. Due to evolving customer preferences, we refer to certain premium rigs as “Tier-1, super spec” rigs, which we consider as being a super-spec rig that also has a third mud pump and raised drawworks that allow for more clearance underneath the rig floor. As of September 30, 2022, our rig fleet included 172 super-spec rigs, of which 118 were Tier-1, super-spec rigs.
We maintain a backlog of commitments for contract drilling services under term contracts, which we define as contracts with a duration of six months or more. Our contract drilling backlog in the United States as of September 30, 2022 was approximately $710
25
million. Approximately 32% of the total contract drilling backlog in the United States at September 30, 2022 is reasonably expected to remain at September 30, 2023. See Note 3 of Notes to unaudited condensed consolidated financial statements for additional information on backlog.
Pressure Pumping
As of September 30, 2022, we had approximately 1.2 million horsepower in our pressure pumping fleet. We provide pressure pumping services to oil and natural gas operators primarily in Texas and the Appalachian region. Substantially all the revenue in the pressure pumping segment is from well stimulation services, such as hydraulic fracturing, for completion of new wells and remedial work on existing wells. We also provide cementing services through the pressure pumping segment.
Directional Drilling
We provide a comprehensive suite of directional drilling services in most major producing onshore oil and gas basins in the United States. Our directional drilling services include directional drilling, measurement-while-drilling and supply and rental of downhole performance motors. We also provide services that improve the statistical accuracy of directional and horizontal wellbores.
Other Operations
Our oilfield rentals business, with a fleet of premium oilfield rental tools, along with the results of our ownership, as a non-operating working interest owner, in oil and gas assets located in Texas and New Mexico, provide the largest revenue contributions to our other operations. Other operations also includes the results of our electrical controls and automation business and the results of our drilling equipment service business.
Results of Operations
The following tables summarize results of operations by business segment for the three months ended September 30, 2022 and June 30, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, |
|
|
June 30, |
|
|
|
|
Contract Drilling |
|
2022 |
|
|
2022 |
|
|
% Change |
|
|
|
(dollars in thousands) |
|
|
Revenues |
|
$ |
356,044 |
|
|
$ |
304,586 |
|
|
|
16.9 |
% |
Direct operating costs |
|
|
227,063 |
|
|
|
196,269 |
|
|
|
15.7 |
% |
Adjusted gross margin (1) |
|
|
128,981 |
|
|
|
108,317 |
|
|
|
19.1 |
% |
Selling, general and administrative |
|
|
1,703 |
|
|
|
1,694 |
|
|
|
0.5 |
% |
Depreciation, amortization and impairment |
|
|
83,851 |
|
|
|
84,905 |
|
|
|
(1.2 |
)% |
Other operating income, net |
|
|
(6 |
) |
|
|
(2 |
) |
|
|
200.0 |
% |
Operating income |
|
$ |
43,433 |
|
|
$ |
21,720 |
|
|
|
100.0 |
% |
Operating days - U.S. (2) |
|
|
11,767 |
|
|
|
11,015 |
|
|
|
6.8 |
% |
Average revenue per operating day - U.S. |
|
$ |
28.67 |
|
|
$ |
25.90 |
|
|
|
10.7 |
% |
Average direct operating costs per operating day - U.S. |
|
$ |
18.20 |
|
|
$ |
16.50 |
|
|
|
10.3 |
% |
Average adjusted gross margin per operating day - U.S. (3) |
|
$ |
10.47 |
|
|
$ |
9.39 |
|
|
|
11.5 |
% |
Average rigs operating - U.S. (2) |
|
|
128 |
|
|
|
121 |
|
|
|
5.7 |
% |
Capital expenditures |
|
$ |
67,564 |
|
|
$ |
50,165 |
|
|
|
34.7 |
% |
(1)Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.
(2)A rig is considered to be operating if it is earning revenue pursuant to a contract on a given day. Average rigs operating is defined as operating days divided by the number of days in the period.
(3)Average adjusted gross margin per operating day is defined as adjusted gross margin divided by operating days.
Revenues increased primarily due to an increase in operating days and improved pricing. Average revenue per operating day increased primarily due to improved pricing.
Direct operating costs increased due to an increase in operating days as well as inflationary pressure on labor and supplies. Average direct operating costs per operating day increased primarily due to cost inflation.
26
The increase in capital expenditures was primarily due to rig reactivations and upgrading of certain rig components.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, |
|
|
June 30, |
|
|
|
|
Pressure Pumping |
|
2022 |
|
|
2022 |
|
|
% Change |
|
|
|
(dollars in thousands) |
|
|
|
|
Revenues |
|
$ |
287,664 |
|
|
$ |
238,376 |
|
|
|
20.7 |
% |
Direct operating costs |
|
|
211,704 |
|
|
|
191,455 |
|
|
|
10.6 |
% |
Adjusted gross margin (1) |
|
|
75,960 |
|
|
|
46,921 |
|
|
|
61.9 |
% |
Selling, general and administrative |
|
|
2,265 |
|
|
|
2,117 |
|
|
|
7.0 |
% |
Depreciation, amortization and impairment |
|
|
24,746 |
|
|
|
24,713 |
|
|
|
0.1 |
% |
Operating income |
|
$ |
48,949 |
|
|
$ |
20,091 |
|
|
|
143.6 |
% |
Average active spreads (2) |
|
|
12 |
|
|
|
11 |
|
|
|
9.1 |
% |
Fracturing jobs |
|
|
146 |
|
|
|
142 |
|
|
|
2.8 |
% |
Other jobs |
|
|
189 |
|
|
|
146 |
|
|
|
29.5 |
% |
Total jobs |
|
|
335 |
|
|
|
288 |
|
|
|
16.3 |
% |
Average revenue per fracturing job |
|
$ |
1,933.07 |
|
|
$ |
1,654.75 |
|
|
|
16.8 |
% |
Average revenue per other job |
|
$ |
28.76 |
|
|
$ |
23.30 |
|
|
|
23.4 |
% |
Average revenue per total job |
|
$ |
858.70 |
|
|
$ |
827.69 |
|
|
|
3.7 |
% |
Average direct operating costs per total job |
|
$ |
631.95 |
|
|
$ |
664.77 |
|
|
|
(4.9 |
)% |
Average adjusted gross margin per total job (3) |
|
$ |
226.75 |
|
|
$ |
162.92 |
|
|
|
39.2 |
% |
Adjusted gross margin as a percentage of revenues (3) |
|
|
26.4 |
% |
|
|
19.7 |
% |
|
|
34.2 |
% |
Capital expenditures |
|
$ |
46,653 |
|
|
$ |
34,554 |
|
|
|
35.0 |
% |
(1)Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.
(2)Average active spreads is the average number of spreads that were crewed and actively marketed during the period.
(3)Average adjusted gross margin per total job is defined as adjusted gross margin divided by total jobs. Adjusted gross margin as a percentage of revenues is defined as adjusted gross margin divided by revenues.
Generally, the revenues in our pressure pumping segment are most impacted by the number and design of fracturing jobs (including whether or not we provide proppant and other materials). Direct operating costs are also impacted by these same factors. Our average revenue per fracturing job is largely dependent on the pricing terms of our pressure pumping contracts and the size of the jobs.
Revenues increased primarily due to improved pricing for our higher revenue fracturing jobs and continued improvement in asset utilization and efficiency. Direct operating costs increased primarily due to an increase in the number of higher cost fracturing jobs as well as inflationary pressure on labor and supplies.
Our average revenue per total job increased primarily as a result of improved pricing from our higher revenue fracturing jobs. This increase was partially offset by a higher volume of lower revenue other jobs. Average direct operating costs per total job decreased primarily as a result of a higher volume of lower cost other jobs, which was partially offset by inflationary pressure on labor and supplies.
The increase in capital expenditures was primarily due to the activation of our twelfth spread, equipment purchases and increased maintenance capital expenditures.
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, |
|
|
June 30, |
|
|
|
|
Directional Drilling |
|
2022 |
|
|
2022 |
|
|
% Change |
|
|
|
(dollars in thousands) |
|
|
|
|
Revenues |
|
$ |
58,871 |
|
|
$ |
54,825 |
|
|
|
7.4 |
% |
Direct operating costs |
|
|
48,445 |
|
|
|
45,438 |
|
|
|
6.6 |
% |
Adjusted gross margin (1) |
|
|
10,426 |
|
|
|
9,387 |
|
|
|
11.1 |
% |
Selling, general and administrative |
|
|
1,920 |
|
|
|
1,500 |
|
|
|
28.0 |
% |
Depreciation, amortization and impairment |
|
|
4,056 |
|
|
|
3,859 |
|
|
|
5.1 |
% |
Operating income |
|
$ |
4,450 |
|
|
$ |
4,028 |
|
|
|
10.5 |
% |
Capital expenditures |
|
$ |
5,110 |
|
|
$ |
4,036 |
|
|
|
26.6 |
% |
(1)Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.
Directional drilling revenue increased primarily due to improved pricing. We averaged 46 jobs per day for each of the periods.
Direct operating costs were higher by $3.0 million, or 6.6%, primarily due to labor and cost inflation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, |
|
|
June 30, |
|
|
|
|
Other Operations |
|
2022 |
|
|
2022 |
|
|
% Change |
|
|
|
(dollars in thousands) |
|
|
|
|
Revenues |
|
$ |
24,924 |
|
|
$ |
24,451 |
|
|
|
1.9 |
% |
Direct operating costs |
|
|
13,409 |
|
|
|
13,738 |
|
|
|
(2.4 |
)% |
Adjusted gross margin (1) |
|
|
11,515 |
|
|
|
10,713 |
|
|
|
7.5 |
% |
Selling, general and administrative |
|
|
673 |
|
|
|
610 |
|
|
|
10.3 |
% |
Depreciation, depletion, amortization and impairment |
|
|
8,212 |
|
|
|
6,803 |
|
|
|
20.7 |
% |
Operating income |
|
$ |
2,630 |
|
|
$ |
3,300 |
|
|
|
(20.3 |
)% |
Capital expenditures |
|
$ |
6,466 |
|
|
$ |
7,189 |
|
|
|
(10.1 |
)% |
(1)Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, depletion, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.
Other operations revenue increased primarily due to a $2.3 million increase in the volume of services provided by our oilfield rentals business and improved pricing. The increase was partially offset by a $1.3 million decline in oil and natural gas revenues primarily as a result of lower crude oil market prices. The average WTI-Cushing price for the third quarter of 2022 was $93.18 per barrel as compared to $108.72 per barrel in the second quarter of 2022.
Depreciation, depletion, amortization and impairment increased primarily due to a $2.6 million impairment in our oil and natural gas business recorded in the third quarter of 2022 as compared to a $0.8 million impairment recorded in the second quarter of 2022.
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, |
|
|
June 30, |
|
|
|
|
Corporate |
|
2022 |
|
|
2022 |
|
|
% Change |
|
|
|
(dollars in thousands) |
|
|
|
|
Selling, general and administrative |
|
$ |
21,911 |
|
|
$ |
20,158 |
|
|
|
8.7 |
% |
Merger and integration expenses |
|
$ |
24 |
|
|
$ |
182 |
|
|
|
(86.8 |
)% |
Depreciation |
|
$ |
1,285 |
|
|
$ |
1,273 |
|
|
|
0.9 |
% |
Other operating (income) expenses, net |
|
|
|
|
|
|
|
|
|
Net gain on asset disposals |
|
$ |
(150 |
) |
|
$ |
(9,295 |
) |
|
|
(98.4 |
)% |
Legal-related expenses and settlements |
|
|
15 |
|
|
|
64 |
|
|
|
(76.6 |
)% |
Research and development |
|
|
250 |
|
|
|
247 |
|
|
|
1.2 |
% |
Other |
|
|
(218 |
) |
|
|
(252 |
) |
|
|
(13.5 |
)% |
Other operating (income) expenses, net |
|
$ |
(103 |
) |
|
$ |
(9,236 |
) |
|
|
(98.9 |
)% |
Interest income |
|
$ |
58 |
|
|
$ |
14 |
|
|
|
314.3 |
% |
Interest expense |
|
$ |
10,975 |
|
|
$ |
10,658 |
|
|
|
3.0 |
% |
Other expense |
|
$ |
(1,774 |
) |
|
$ |
(2,452 |
) |
|
|
(27.7 |
)% |
Capital expenditures |
|
$ |
562 |
|
|
$ |
426 |
|
|
|
31.9 |
% |
Other operating (income) expenses, net includes net gains associated with the disposal of assets. Accordingly, the related gains or losses have been excluded from the results of specific segments. The $9.3 million net gain on asset disposals in the second quarter of 2022 was primarily due to the release of a $11.5 million cumulative translation adjustment from accumulated other comprehensive income into net income (loss) in our condensed consolidated statements of operations upon substantially completing our exit from our Canadian operations.
The following tables summarize results of operations by business segment for the nine months ended September 30, 2022, and September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
September 30, |
|
|
September 30, |
|
|
|
|
Contract Drilling |
|
2022 |
|
|
2021 |
|
|
% Change |
|
|
|
(dollars in thousands) |
|
|
|
|
Revenues |
|
$ |
917,270 |
|
|
$ |
433,158 |
|
|
|
111.8 |
% |
Direct operating costs |
|
|
600,038 |
|
|
|
291,049 |
|
|
|
106.2 |
% |
Adjusted gross margin (1) |
|
|
317,232 |
|
|
|
142,109 |
|
|
|
123.2 |
% |
Other operating (income) expenses, net |
|
|
(4 |
) |
|
|
17 |
|
|
NA |
|
Selling, general and administrative |
|
|
4,468 |
|
|
|
3,346 |
|
|
|
33.5 |
% |
Depreciation, amortization and impairment |
|
|
250,779 |
|
|
|
297,426 |
|
|
|
(15.7 |
)% |
Operating income (loss) |
|
$ |
61,989 |
|
|
$ |
(158,680 |
) |
|
NA |
|
Operating days - U.S. (2) |
|
|
33,144 |
|
|
|
20,196 |
|
|
|
64.1 |
% |
Average revenue per operating day - U.S. |
|
$ |
26.02 |
|
|
$ |
21.45 |
|
|
|
21.3 |
% |
Average direct operating costs per operating day - U.S. |
|
$ |
16.93 |
|
|
$ |
14.40 |
|
|
|
17.6 |
% |
Average adjusted gross margin per operating day - U.S. (3) |
|
$ |
9.08 |
|
|
$ |
7.04 |
|
|
|
29.0 |
% |
Average rigs operating - U.S. (2) |
|
|
121 |
|
|
|
74 |
|
|
|
64.1 |
% |
Capital expenditures |
|
$ |
169,439 |
|
|
$ |
56,708 |
|
|
|
198.8 |
% |
(1)Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.
(2)A rig is considered to be operating if it is earning revenue pursuant to a contract on a given day. Average rigs operating is defined as operating days divided by the number of days in the period.
(3)Average adjusted gross margin per operating day is defined as adjusted gross margin divided by operating days.
Revenues increased primarily due to an increase in operating days and improved pricing. Average revenue per operating day increased primarily due to improved pricing.
Direct operating costs increased due to an increase in operating days, increased reactivation costs and inflationary pressure on labor and supplies. Average direct operating costs per operating day increased primarily due to a lower portion of our rigs being on standby, increased reactivation costs and inflationary cost pressure beginning in the second half of 2021. Rigs on standby have very little associated cost.
29
Depreciation, amortization and impairment expense decreased primarily due to a lower depreciable asset base during the nine months ended September 30, 2022 as a result of a $220 million impairment charge taken in the fourth quarter of 2021. The impairment charge was related to the abandonment of 43 legacy non-super-spec rigs and equipment.
The increase in capital expenditures was primarily due to rig reactivations, higher maintenance capital expenditures and upgrading of certain rig components.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
September 30, |
|
|
September 30, |
|
|
|
|
Pressure Pumping |
|
2022 |
|
|
2021 |
|
|
% Change |
|
|
|
(dollars in thousands) |
|
|
|
|
Revenues |
|
$ |
715,630 |
|
|
$ |
340,464 |
|
|
|
110.2 |
% |
Direct operating costs |
|
|
560,627 |
|
|
|
313,556 |
|
|
|
78.8 |
% |
Adjusted gross margin (1) |
|
|
155,003 |
|
|
|
26,908 |
|
|
|
476.0 |
% |
Selling, general and administrative |
|
|
6,298 |
|
|
|
5,379 |
|
|
|
17.1 |
% |
Depreciation, amortization and impairment |
|
|
73,244 |
|
|
|
98,963 |
|
|
|
(26.0 |
)% |
Operating income (loss) |
|
$ |
75,461 |
|
|
$ |
(77,434 |
) |
|
NA |
|
Average active spreads (2) |
|
|
11 |
|
|
|
7 |
|
|
|
57.1 |
% |
Fracturing jobs |
|
|
416 |
|
|
|
292 |
|
|
|
42.5 |
% |
Other jobs |
|
|
512 |
|
|
|
591 |
|
|
|
(13.4 |
)% |
Total jobs |
|
|
928 |
|
|
|
883 |
|
|
|
5.1 |
% |
Average revenue per fracturing job |
|
$ |
1,689.21 |
|
|
$ |
1,102.58 |
|
|
|
53.2 |
% |
Average revenue per other job |
|
$ |
25.23 |
|
|
$ |
31.32 |
|
|
|
(19.5 |
)% |
Average revenue per total job |
|
$ |
771.15 |
|
|
$ |
385.58 |
|
|
|
100.0 |
% |
Average direct operating costs per total job |
|
$ |
604.12 |
|
|
$ |
355.10 |
|
|
|
70.1 |
% |
Average adjusted gross margin per total job (3) |
|
$ |
167.03 |
|
|
$ |
30.47 |
|
|
|
448.2 |
% |
Adjusted gross margin as a percentage of revenues (3) |
|
|
21.7 |
% |
|
|
7.9 |
% |
|
|
174.2 |
% |
Capital expenditures |
|
$ |
114,669 |
|
|
$ |
19,457 |
|
|
|
489.3 |
% |
(1)Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.
(2)Average active spreads is the average number of spreads that were crewed and actively marketed during the period.
(3)Average adjusted gross margin per total job is defined as adjusted gross margin divided by total jobs. Adjusted gross margin as a percentage of revenues is defined as adjusted gross margin divided by revenues.
Generally, the revenues in our pressure pumping segment are most impacted by the number and design of fracturing jobs (including whether or not we provide proppant and other materials). Direct operating costs are also impacted by these same factors. Our average revenue per fracturing job is largely dependent on the pricing terms of our pressure pumping contracts and the size of the jobs.
Revenues increased primarily due to an increase in the number of higher revenue fracturing jobs, improved pricing and continued improvement in asset utilization and efficiency. Direct operating costs increased primarily due to an increase in the number of higher cost fracturing jobs as well as inflationary pressure on labor and supplies.
Our average revenue per total job increased primarily as a result of a shift in the mix of total jobs toward higher revenue fracturing jobs. Average revenue per fracturing job increased primarily due to improved pricing. Average direct operating costs per total job increased primarily as a result of a shift toward higher cost fracturing jobs as well as inflationary pressure on labor and supplies.
Depreciation, amortization and impairment expense decreased due to a lower depreciable asset base during the nine months ended September 30, 2022, partially as a result of a $32.2 million impairment charge taken in the fourth quarter of 2021. This impairment charge was related to the abandonment of approximately 0.2 million horsepower within our pressure pumping fleet. Additionally, a portion of the decrease related to certain equipment that reached the end of its useful life during 2022. This decrease in 2022 outpaced incremental depreciation resulting from equipment additions in 2020 and 2021, when our capital expenditures were significantly lower.
The increase in capital expenditures was primarily due to costs associated with reactivating stacked equipment as well as upgrades and the increase in maintenance capital expenditures associated with a higher average number of active spreads.
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
September 30, |
|
|
September 30, |
|
|
|
|
Directional Drilling |
|
2022 |
|
|
2021 |
|
|
% Change |
|
|
|
(dollars in thousands) |
|
|
|
|
Revenues |
|
$ |
157,030 |
|
|
$ |
76,267 |
|
|
|
105.9 |
% |
Direct operating costs |
|
|
130,837 |
|
|
|
67,367 |
|
|
|
94.2 |
% |
Adjusted gross margin (1) |
|
|
26,193 |
|
|
|
8,900 |
|
|
|
194.3 |
% |
Selling, general and administrative |
|
|
4,668 |
|
|
|
3,651 |
|
|
|
27.9 |
% |
Depreciation, amortization and impairment |
|
|
11,259 |
|
|
|
19,863 |
|
|
|
(43.3 |
)% |
Operating income (loss) |
|
$ |
10,266 |
|
|
$ |
(14,614 |
) |
|
NA |
|
Capital expenditures |
|
$ |
12,112 |
|
|
$ |
4,613 |
|
|
|
162.6 |
% |
(1)Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.
Directional drilling revenue increased primarily due to increased job activity and improved pricing. We averaged 45 jobs per day during the nine months ended September 30, 2022 as compared to 28 jobs per day during the nine months ended September 30, 2021.
Direct operating costs were higher by $63.5 million, or 94.2%, primarily due to increased job activity and cost inflation.
Depreciation, amortization and impairment expense decreased due to a lower depreciable asset base during the nine months ended September 30, 2022 as a result of the abandonment of an $11.4 million developed technology intangible asset during the fourth quarter of 2021. Amortization expense associated with the developed technology intangible decreased $8.5 million between the periods as a result of this abandonment.
Capital expenditures increased due to higher levels of activity requiring premium equipment to meet market demands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
September 30, |
|
|
September 30, |
|
|
|
|
Other Operations |
|
2022 |
|
|
2021 |
|
|
% Change |
|
|
|
(dollars in thousands) |
|
|
|
|
Revenues |
|
$ |
69,186 |
|
|
$ |
40,699 |
|
|
|
70.0 |
% |
Direct operating costs |
|
|
39,231 |
|
|
|
31,079 |
|
|
|
26.2 |
% |
Adjusted gross margin (1) |
|
|
29,955 |
|
|
|
9,620 |
|
|
|
211.4 |
% |
Selling, general and administrative |
|
|
1,872 |
|
|
|
1,489 |
|
|
|
25.7 |
% |
Depreciation, depletion, amortization and impairment |
|
|
21,412 |
|
|
|
17,309 |
|
|
|
23.7 |
% |
Operating income (loss) |
|
$ |
6,671 |
|
|
$ |
(9,178 |
) |
|
NA |
|
Capital expenditures |
|
$ |
19,857 |
|
|
$ |
9,006 |
|
|
|
120.5 |
% |
(1)Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, depletion, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.
Other operations revenue increased primarily due to a $13.4 million increase in our oilfield rentals business revenues due to a higher volume of services and improved pricing as well as a $12.8 million increase in oil and natural gas revenues resulting from favorable crude oil market prices and higher production. Average WTI-Cushing prices for the nine months ended September 30, 2022 were $98.96 per barrel as compared to $65.05 per barrel in the nine months ended September 30, 2021.
Direct operating costs increased due to incremental production costs from our oil and natural gas assets as well as a higher volume of services provided by our oilfield rentals business and cost inflation.
Depreciation, depletion, amortization and impairment increased primarily due to a $3.7 million impairment in our oil and natural gas business during the nine months ended September 30, 2022.
The increase in capital expenditures was primarily related to incremental spending in our oilfield rentals and oil and natural gas businesses.
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
September 30, |
|
|
September 30, |
|
|
|
|
Corporate |
|
2022 |
|
|
2021 |
|
|
% Change |
|
|
|
(dollars in thousands) |
|
|
|
|
Selling, general and administrative |
|
$ |
64,706 |
|
|
$ |
54,311 |
|
|
|
19.1 |
% |
Merger and integration expenses |
|
$ |
2,069 |
|
|
$ |
2,066 |
|
|
|
0.1 |
% |
Depreciation |
|
$ |
3,947 |
|
|
$ |
4,423 |
|
|
|
(10.8 |
)% |
Other operating (income) expenses, net |
|
|
|
|
|
|
|
|
|
Net gain on asset disposals |
|
$ |
(10,558 |
) |
|
$ |
(5,595 |
) |
|
|
88.7 |
% |
Legal-related expenses and settlements |
|
|
197 |
|
|
|
714 |
|
|
|
(72.4 |
)% |
Research and development |
|
|
742 |
|
|
|
1,121 |
|
|
|
(33.8 |
)% |
Other |
|
|
(942 |
) |
|
|
— |
|
|
NA |
|
Other operating (income) expenses, net |
|
$ |
(10,561 |
) |
|
$ |
(3,760 |
) |
|
|
180.9 |
% |
Interest income |
|
$ |
87 |
|
|
$ |
196 |
|
|
|
(55.6 |
)% |
Interest expense |
|
$ |
32,198 |
|
|
$ |
31,396 |
|
|
|
2.6 |
% |
Other income (expense) |
|
$ |
(2,644 |
) |
|
$ |
840 |
|
|
NA |
|
Capital expenditures |
|
$ |
1,476 |
|
|
$ |
1,053 |
|
|
|
40.2 |
% |
Selling, general and administrative expense increased primarily due to increased personnel costs as a result of higher headcount, wage growth and changes in stock-based compensation.
Other operating (income) expenses, net includes net gains associated with the disposal of assets. Accordingly, the related gains or losses have been excluded from the results of specific segments. The $10.6 million gain on asset disposals during the nine months ended September 30, 2022 was primarily due to the release of a $11.5 million cumulative translation adjustment from accumulated other comprehensive income into net income (loss) in our condensed consolidated statements of operations upon substantially completing our exit from our Canadian operations. The majority of the net gain on asset disposals during the nine months ended September 30, 2021 reflect gains on disposals of buildings and land.
The $3.5 million change in other income (expense) was primarily due to foreign currency adjustments related to our Colombian operations.
Income Taxes
Our effective income tax rate fluctuates from the U.S. statutory tax rate based on, among other factors, changes in pretax income in jurisdictions with varying statutory tax rates, the impact of U.S. state and local taxes, the realizability of deferred tax assets and other differences related to the recognition of income and expense between GAAP and tax accounting.
Our effective income tax rate for the three months ended September 30, 2022 was 3.5%, compared with 7.5% for the three months ended June 30, 2022. The lower effective income tax rate for the three months ended September 30, 2022 was primarily attributable to the impact of valuation allowances between periods.
Our effective income tax rate for the nine months ended September 30, 2022 was 8.3%, compared with 15.7% for the nine months ended September 30, 2021. The lower effective income tax rate for the nine months ended September 30, 2022 was primarily attributable to the impact of valuation allowances between periods. For the period ended September 30, 2022, due to valuation allowances, only certain income tax expense related to Colombia and certain U.S. states was recorded, resulting in a lower overall effective income tax rate.
We continue to monitor income tax developments in the United States and other countries where we have legal entities. We will incorporate into our future financial statements the impacts, if any, of future regulations and additional authoritative guidance when finalized.
32
Liquidity and Capital Resources
Our primary sources of liquidity are cash and cash equivalents, availability under our revolving credit facility and cash provided by operating activities. As of September 30, 2022, we had approximately $253 million in working capital, including $42.7 million of cash and cash equivalents, and $600 million available under our revolving credit facility.
We have an amended and restated credit agreement (the “Credit Agreement”), which is a committed senior unsecured revolving credit facility that permits aggregate borrowings of up to $600 million, including a letter of credit facility that, at any time outstanding, is limited to $150 million and a swing line facility that, at any time outstanding, is limited to $20 million. As of September 30, 2022, we had no borrowings outstanding under our revolving credit facility. We had no letters of credit outstanding under the Credit Agreement at September 30, 2022 and, as a result, had available borrowing capacity of $600 million at that date. Of the revolving credit commitments, $50 million expires on March 27, 2024, and the remaining $550 million expires on March 27, 2025. Subject to customary conditions, we may request that the lenders’ aggregate commitments be increased by up to $300 million, not to exceed total commitments of $900 million. Additionally, we have the option, subject to certain conditions, to exercise one one-year extension of the maturity date.
Loans under the Credit Agreement bear interest by reference, at our election, to the LIBOR rate or base rate, as described in “Item 3” below. If our credit rating is below investment grade at both Moody’s and S&P, we will become subject to a restricted payment covenant. The Credit Agreement also contains a financial covenant that requires our total debt to capitalization ratio, expressed as a percentage, not exceed 50%.
We also have a Reimbursement Agreement (the “Reimbursement Agreement”) with The Bank of Nova Scotia (“Scotiabank”), pursuant to which we may from time to time request that Scotiabank issue an unspecified amount of letters of credit. Under the terms of the Reimbursement Agreement, we will reimburse Scotiabank on demand for any amounts that Scotiabank has disbursed under any letters of credit. We are obligated to pay to Scotiabank interest on all amounts not paid by us on the date of demand or when otherwise due at the LIBOR rate plus 2.25% per annum.
Our outstanding debt at September 30, 2022 was $859 million and consisted of $510 million of 3.95% Senior Notes due 2028 (the “2028 Notes”) and $349 million of 5.15% Senior Notes due 2029 (the “2029 Notes”). We were in compliance with all covenants at September 30, 2022.
For a full description of the Credit Agreement, the Reimbursement Agreement, the 2028 Notes and the 2029 Notes, please see Note 8 of Notes to unaudited condensed consolidated financial statements.
We had $65.0 million of outstanding letters of credit at September 30, 2022, which was comprised of $65.0 million outstanding under the Reimbursement Agreement and no amounts outstanding under the Credit Agreement. We maintain these letters of credit primarily for the benefit of various insurance companies as collateral for retrospective premiums and retained losses which could become payable under terms of the underlying insurance contracts. These letters of credit expire annually at various times during the year and are typically renewed. As of September 30, 2022, no amounts had been drawn under the letters of credit.
Cash Requirements
We believe our current liquidity, together with cash expected to be generated from operations, should provide us with sufficient ability to fund our current plans to maintain and make improvements to our existing equipment, service our debt and pay cash dividends for at least the next 12 months.
If we pursue opportunities for growth that require capital, we believe we would be able to satisfy these needs through a combination of working capital, cash flows from operating activities, borrowing capacity under our revolving credit facility or additional debt or equity financing. However, there can be no assurance that such capital will be available on reasonable terms, if at all.
A portion of our capital expenditures can be adjusted and managed by us to match market demand and activity levels. Based on our current outlook for activity, we have increased our 2022 capital expenditures forecast to approximately $425 million.
The majority of these expenditures are expected to be used for normal, recurring items necessary to support our business.
33
During the nine months ended September 30, 2022, our sources of cash flow included:
•$263 million from operating activities, and
•$20.3 million in proceeds from the disposal of property and equipment.
During the nine months ended September 30, 2022, we used $25.9 million to pay dividends on our common stock and $320 million:
•to make capital expenditures for the betterment and refurbishment of drilling and pressure pumping equipment and, to a much lesser extent, equipment for our other businesses,
•to acquire and procure equipment to support our contract drilling, pressure pumping, directional drilling, oilfield rentals and manufacturing operations, and
•to fund investments in oil and natural gas properties on a non-operating working interest basis.
We paid cash dividends during the nine months ended September 30, 2022 as follows:
|
|
|
|
|
|
|
|
|
Per Share |
|
|
Total |
|
|
|
|
|
(in thousands) |
|
Paid on March 17, 2022 |
$ |
0.04 |
|
|
$ |
8,611 |
|
Paid on June 16, 2022 |
|
0.04 |
|
|
|
8,652 |
|
Paid on September 15, 2022 |
|
0.04 |
|
|
|
8,673 |
|
|
$ |
0.12 |
|
|
$ |
25,936 |
|
On October 26, 2022, our Board of Directors approved a cash dividend on our common stock in the amount of $0.08 per share to be paid on December 15, 2022 to holders of record as of December 1, 2022. The amount and timing of all future dividend payments, if any, are subject to the discretion of the Board of Directors and will depend upon business conditions, results of operations, financial condition, terms of our debt agreements and other factors. Our Board of Directors may, without advance notice, reduce or suspend our dividend in order to improve our financial flexibility and position our company for long-term success. There can be no assurance that we will pay a dividend in the future.
We may, at any time and from time to time, seek to retire or purchase our outstanding debt for cash through open-market purchases, privately negotiated transactions, redemptions or otherwise. Such repurchases, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
In September 2013, our Board of Directors approved a stock buyback program. In July 2019, our Board of Directors increased the amount authorized to be repurchased under the program to up to $250 million of our common stock. All purchases executed to date have been through open market transactions. Purchases under the program are made at management’s discretion, at prevailing prices, subject to market conditions and other factors. Purchases may be made at any time without prior notice. There is no expiration date associated with the program. As of September 30, 2022, we had remaining authorization to purchase approximately $130 million of our outstanding common stock under the program. Shares of stock purchased under the program are held as treasury shares. On October 26, 2022, our Board of Directors approved another increase of the authorization under the stock buyback program to allow for an aggregate of $300 million of future share repurchases.
Treasury stock acquisitions during the nine months ended September 30, 2022 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
Shares |
|
|
Cost |
|
Treasury shares at beginning of period |
|
84,128,995 |
|
|
$ |
1,372,641 |
|
Acquisitions pursuant to long-term incentive plan (1) |
|
1,372,101 |
|
|
|
23,237 |
|
Other |
|
3,027 |
|
|
|
28 |
|
Treasury shares at end of period |
|
85,504,123 |
|
|
$ |
1,395,906 |
|
(1)We withheld 1,372,101 shares during the nine months ended September 30, 2022 with respect to exercise price and employees’ tax withholding obligations upon the exercise of stock options and employees’ tax withholding obligations upon the settlement of performance unit awards and the vesting of restricted stock units. These shares were acquired at fair market value. These acquisitions were made pursuant to the terms of the Patterson-UTI Energy, Inc. Amended and Restated 2014 Long-Term Incentive Plan, as amended (the “2014 Plan”) and the Patterson-UTI Energy, Inc. 2021 Long-Term Incentive Plan (the “2021 Plan”), and not pursuant to the stock buyback program.
34
As of September 30, 2022, we had unrecognized compensation costs of $30.1 million and $12.7 million related to our unvested restricted stock units and our unvested Performance Units, respectively. The weighted-average remaining vesting periods for these awards were 1.65 years and 1.45 years, respectively as of September 30, 2022. See Note 11 of Notes to unaudited condensed consolidated financial statements for additional discussion regarding our stock-based compensation.
Commitments — As of September 30, 2022, we had commitments to purchase major equipment totaling approximately $109 million for our drilling, pressure pumping, directional drilling and oilfield rentals businesses. Our pressure pumping business has entered into agreements to purchase minimum quantities of proppants and chemicals from certain vendors. As of September 30, 2022, the remaining minimum obligation under these agreements was approximately $16.1 million.
See Note 9 of Notes to unaudited condensed consolidated financial statements for additional information on our current commitments and contingencies as of September 30, 2022.
Operating lease liabilities totaled $26.0 million at September 30, 2022. There have been no material changes to our operating lease liabilities since December 31, 2021.
Trading and Investing — We have not engaged in trading activities that include high-risk securities, such as derivatives and non-exchange traded contracts. We invest cash primarily in highly liquid, short-term investments such as overnight deposits and money market accounts.
Non-GAAP Financial Measures
Adjusted EBITDA
Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) is not defined by accounting principles generally accepted in the United States of America (“GAAP”). We define Adjusted EBITDA as net income (loss) plus net interest expense, income tax expense (benefit) and depreciation, depletion, amortization and impairment expense. We present Adjusted EBITDA because we believe it provides to both management and investors additional information with respect to the performance of our fundamental business activities and a comparison of the results of our operations from period to period and against our peers without regard to our financing methods or capital structure. We exclude the items listed above from net income (loss) in arriving at Adjusted EBITDA because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA should not be construed as an alternative to the GAAP measure of net income (loss). Our computations of Adjusted EBITDA may not be the same as similarly titled measures of other companies. Set forth below is a reconciliation of the non-GAAP financial measure of Adjusted EBITDA to the GAAP financial measure of net income (loss).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
September 30, |
|
|
June 30, |
|
|
September 30, |
|
|
2022 |
|
|
2022 |
|
|
2022 |
|
|
2021 |
|
|
(in thousands) |
|
Net income (loss) |
$ |
61,452 |
|
|
$ |
21,886 |
|
|
$ |
54,561 |
|
|
$ |
(292,720 |
) |
Income tax expense (benefit) |
|
2,202 |
|
|
|
1,780 |
|
|
|
4,910 |
|
|
|
(54,586 |
) |
Net interest expense |
|
10,917 |
|
|
|
10,644 |
|
|
|
32,111 |
|
|
|
31,200 |
|
Depreciation, depletion, amortization and impairment |
|
122,150 |
|
|
|
121,553 |
|
|
|
360,641 |
|
|
|
437,984 |
|
Adjusted EBITDA |
$ |
196,721 |
|
|
$ |
155,863 |
|
|
$ |
452,223 |
|
|
$ |
121,878 |
|
35
Adjusted Gross Margin
We define “Adjusted gross margin” as revenues less direct operating costs (excluding depreciation, depletion, amortization and impairment expense). Adjusted gross margin is included as a supplemental disclosure because it is a useful indicator of our operating performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Drilling |
|
|
Pressure Pumping |
|
|
Directional Drilling |
|
|
Other Operations |
|
|
(in thousands) |
|
For the three months ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
356,044 |
|
|
$ |
287,664 |
|
|
$ |
58,871 |
|
|
$ |
24,924 |
|
Less direct operating costs |
|
(227,063 |
) |
|
|
(211,704 |
) |
|
|
(48,445 |
) |
|
|
(13,409 |
) |
Less depreciation, depletion, amortization and impairment |
|
(83,851 |
) |
|
|
(24,746 |
) |
|
|
(4,056 |
) |
|
|
(8,212 |
) |
GAAP gross margin |
|
45,130 |
|
|
|
51,214 |
|
|
|
6,370 |
|
|
|
3,303 |
|
Depreciation, depletion, amortization and impairment |
|
83,851 |
|
|
|
24,746 |
|
|
|
4,056 |
|
|
|
8,212 |
|
Adjusted gross margin |
$ |
128,981 |
|
|
$ |
75,960 |
|
|
$ |
10,426 |
|
|
$ |
11,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
304,586 |
|
|
$ |
238,376 |
|
|
$ |
54,825 |
|
|
$ |
24,451 |
|
Less direct operating costs |
|
(196,269 |
) |
|
|
(191,455 |
) |
|
|
(45,438 |
) |
|
|
(13,738 |
) |
Less depreciation, depletion, amortization and impairment |
|
(84,905 |
) |
|
|
(24,713 |
) |
|
|
(3,859 |
) |
|
|
(6,803 |
) |
GAAP gross margin |
|
23,412 |
|
|
|
22,208 |
|
|
|
5,528 |
|
|
|
3,910 |
|
Depreciation, depletion, amortization and impairment |
|
84,905 |
|
|
|
24,713 |
|
|
|
3,859 |
|
|
|
6,803 |
|
Adjusted gross margin |
$ |
108,317 |
|
|
$ |
46,921 |
|
|
$ |
9,387 |
|
|
$ |
10,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
917,270 |
|
|
$ |
715,630 |
|
|
$ |
157,030 |
|
|
$ |
69,186 |
|
Less direct operating costs |
|
(600,038 |
) |
|
|
(560,627 |
) |
|
|
(130,837 |
) |
|
|
(39,231 |
) |
Less depreciation, depletion, amortization and impairment |
|
(250,779 |
) |
|
|
(73,244 |
) |
|
|
(11,259 |
) |
|
|
(21,412 |
) |
GAAP gross margin |
|
66,453 |
|
|
|
81,759 |
|
|
|
14,934 |
|
|
|
8,543 |
|
Depreciation, depletion, amortization and impairment |
|
250,779 |
|
|
|
73,244 |
|
|
|
11,259 |
|
|
|
21,412 |
|
Adjusted gross margin |
$ |
317,232 |
|
|
$ |
155,003 |
|
|
$ |
26,193 |
|
|
$ |
29,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
433,158 |
|
|
$ |
340,464 |
|
|
$ |
76,267 |
|
|
$ |
40,699 |
|
Less direct operating costs |
|
(291,049 |
) |
|
|
(313,556 |
) |
|
|
(67,367 |
) |
|
|
(31,079 |
) |
Less depreciation, depletion, amortization and impairment |
|
(297,426 |
) |
|
|
(98,963 |
) |
|
|
(19,863 |
) |
|
|
(17,309 |
) |
GAAP gross margin |
|
(155,317 |
) |
|
|
(72,055 |
) |
|
|
(10,963 |
) |
|
|
(7,689 |
) |
Depreciation, depletion, amortization and impairment |
|
297,426 |
|
|
|
98,963 |
|
|
|
19,863 |
|
|
|
17,309 |
|
Adjusted gross margin |
$ |
142,109 |
|
|
$ |
26,908 |
|
|
$ |
8,900 |
|
|
$ |
9,620 |
|
Critical Accounting Estimates
Our consolidated financial statements are impacted by certain estimates and assumptions made by management. A detailed discussion of our critical accounting estimates is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. There have been no material changes in these critical accounting estimates.
Recently Issued Accounting Standards
See Note 1 of Notes to unaudited condensed consolidated financial statements for a discussion of the impact of recently issued accounting standards.
36
Volatility of Oil and Natural Gas Prices and its Impact on Operations and Financial Condition
Our revenue, profitability and cash flows are highly dependent upon prevailing prices for oil and natural gas and expectations about future prices. For many years, oil and natural gas prices and markets have been extremely volatile. Prices are affected by many factors beyond our control. Reduced demand for crude oil and refined products related to the COVID-19 pandemic led to a significant reduction in crude oil prices and demand for drilling and completion services in 2020 and early 2021. However, market fundamentals are now strong, as demand is increasing for drilling and completions equipment and services, and industry supply remains constrained. Oil prices averaged $93.18 per barrel in the third quarter of 2022, as compared to $108.72 per barrel in the second quarter of 2022.
We expect oil and natural gas prices to continue to be volatile and to affect our financial condition, operations and ability to access sources of capital. Higher oil and natural gas prices do not necessarily result in increased activity because demand for our services is generally driven by our customers’ expectations of future oil and natural gas prices, as well as our customers’ ability to access sources of capital to fund their operating and capital expenditures. A decline in demand for oil and natural gas, prolonged low oil or natural gas prices, expectations of decreases in oil and natural gas prices or a reduction in the ability of our customers to access capital would likely result in reduced capital expenditures by our customers and decreased demand for our services, which could have a material adverse effect on our operating results, financial condition and cash flows. Even during periods of historically moderate or high prices for oil and natural gas, companies exploring for oil and natural gas may cancel or curtail programs or reduce their levels of capital expenditures for exploration and production for a variety of reasons, which could reduce demand for our services.