Item 8.01. Other Events.
We operate in the commodity-driven, cyclical oil and gas industry. From 2011 through mid-2014, the industry operated in an environment where crude oil prices were relatively stable and, except for comparatively short intervals, generally traded at prices at, or in excess of, $100 per barrel. During the second half of 2014, oil prices declined dramatically resulting in a significant reduction in the land-based drilling rig count in the United States. The downward trend in both oil prices and rig count continued throughout 2015 and into 2016. Many oil and natural gas exploration and production companies, including our customers, reduced their drilling-related activity and simultaneously sought and received significant price reductions from us and our competitors during this time. As such, we were faced with sharp declines in both utilization and pricing. Revenues for the year ended December 31, 2016 declined significantly compared to revenues for the year ended December 31, 2015 due primarily to decreased activity and pricing. In 2016, our decision to exit the directional drilling business and temporarily reduce our presence in the northeast to achieve operational efficiencies also contributed to the decline in revenues year-over-year.
During mid-2016, we began to see the price of oil and the drilling rig count stabilize and then slowly increase. In conjunction with these changes, we began to see increases in the demand for and utilization of our equipment, particularly equipment related to our surface rental product line. Although our activity level has picked up since mid-2016, we have not been able to significantly increase pricing to our customers and, in some cases, we have cut pricing even further to retain business.
Despite significant declines in revenue in 2016 when compared to 2015, we were successful at improving the efficacy of our sales organization, operating more efficiently, and implementing multiple rounds of cost cuts. We worked with multiple advisors during 2016, including Greg Price who has subsequently been appointed as President and Chief Operating Officer, to focus continuously on cost cutting initiatives. By the end of 2016, we had cut variable costs and fixed costs significantly by reducing headcount and fixed salaries, among other things.
When comparing the fourth quarter of 2016 to the first quarter of 2016, revenues declined almost 50%, but the decline in revenue was more than offset by a decrease in variable and fixed costs (excluding the impact of non-cash and non-recurring items). We meaningfully decreased our cost of services as a percentage of revenue and we decreased selling, general and administrative expenses, excluding non-cash and non-recurring items, by over 50%. Although we have seen significant improvements in certain financial measures during the second half of 2016 when compared to the first half of 2016, market conditions are still depressed and there is no assurance that conditions will continue to improve.
Our cash balance as of January 31 was approximately $0.6 million. In addition, we have incremental borrowing availability of approximately $0.2 million under our revolving line of credit. The terms of our new credit agreement include minimal monthly interest payments and only require principal payments when free cash flow is available. In addition, the credit facility has no financial covenants, which makes it highly likely we will stay in compliance with our credit agreement even if market conditions do not improve further.
Due to the pick-up in activity we are experiencing, a meaningful reduction in cost structure, and a restructured balance sheet, we believe that our cash flow from operations in 2017 will be sufficient to make interest payments on our indebtedness, fund our working capital needs and fund required capital expenditures. However, there is still a significant amount of uncertainty related to market conditions and there is no assurance that we will retain our current level of activity.
Micki Hidayatallah, the Chairman and CEO of the Company stated: “In 2016, Aly Energy felt the impact of the greatest and longest recession in oilfield activity in the last 20 years. We stayed true to our vision and survived the intense volatility of the cycle. We initiated a 3-prong strategy of cutting costs, maintaining market share, and preserving liquidity.
We never sought protection from our creditors through a bankruptcy proceeding and, thanks to the loyal support of our investors, a related party was formed to buy our senior secured debt and leases from Tiger. In conjunction with this transaction, we simplified our balance sheet through the conversion of all outstanding preferred stock, subordinated debt and contingency payments into common equity. Today, all of our debt is held by a related party and we have cash in the bank to meet our commitments in 2017 even if we do not see further improvements in the market until 2018. In 2018, we believe that our customers’ costs will be lowered sufficiently by new technology which will result in increased activity in all forms of drilling, completion and production in the domestic shale basins.
Our long-term business strategy still includes growth through the acquisition of other businesses. Currently, we believe that there are numerous acquisition candidates which would be attractive to us and would add value to the Company and we are considering all of these options.
It is a great privilege for me to be part of the management of Aly Energy and I want to thank the entire management team and all our dedicated and committed employees for their integrity and, most of all, their loyalty. The acquisition of the senior secured debt and capital leases by a related party and the financial restructuring of the Company would not have been possible without the determination and creativity of the entire Aly Energy team.”