UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________________________________________
Form 10-K
(Mark One)
| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31 |
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 No. 001-34037
Commission Company Name: SUPERIOR ENERGY SERVICES INC
______________________________________________________________________________________________
SUPERIOR ENERGY SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware |
| |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
1001 Louisiana Street, Suite 2900 | ||
Houston, TX | 77002 | |
Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (713) (713) 654-2200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol | Name of each exchange on which registered |
None | N/A | None |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨No No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨No No x
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 xYes No ¨
IndicateIndicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted 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 and post such files). YesYes x 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ¨ No x
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
There is 0no market for the registrant’s securities.
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 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 x No ¨
At March 24, 2021 there were 19,967,898The number of shares of the registrant’sregistrant's Class A Common Stock outstanding.common stock outstanding on March 1, 2023 was 19,998,695
______________________________________________________________________________________________The number of shares of the registrant's Class B common stock outstanding on March 1, 2023 was 152,030
DOCUMENTS INCORPORATED BY REFERENCE
Not applicable.
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 2020
TABLE OF CONTENTS
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PART I | |||
Item 1 |
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Item 1A |
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Item 1B | 22 | ||
Item 2 | 22 | ||
Item 3 | 22 | ||
Item 4 |
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PART II | |||
Item 5 |
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Item 7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 7A |
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Item 8 |
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Item 9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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Item 9A |
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Item 9B |
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Item 9C | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | ||
PART III | |||
Item 10 |
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Item 11 |
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Item 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Item 13 | Certain Relationships and Related Transactions, and Director Independence |
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Item 14 |
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PART IV | |||
Item 15 |
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (the “Form 10-K”) and other documents filed by us with the Securities and Exchange Commission (the SEC)“SEC”) contain, and future oral or written statements or press releases by us and our management may contain, forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Generally, the words “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks” and “estimates,” variations of such words and similar expressions identify forward-looking statements, although not all forward-looking statements contain these identifying words. All statements other than statements of historical fact included in this Annual Report on Form 10-K or such other materials regarding our financial position, financial performance, liquidity, strategic alternatives, market outlook, future capital needs, capital allocation plans, business strategies and other plans and objectives of our management for future operations and activities are forward-looking statements. These statements are based on certain assumptions and analyses made by our management in light of itstheir experience and prevailing circumstances on the date such statements are made. Such forward-looking statements, and the assumptions on which they are based, are inherently speculative and are subject to a number of risks and uncertainties that could cause our actual results to differ materially from such statements. Such risks and uncertainties include, but are not limited to:
the likelihood that our historical financial information may no longer be indicative of our future performance; and our implementation of fresh start accounting;
$120.0 million asset-based secured revolving credit facility (the Credit Facility)Facility (as defined below) could limit our growth and our ability to finance our operations, fund our capital needs, respond to changing conditions and engage in other business activities that may be in our best interests;
the possibility that our new Board of Directors may have a different strategy and plan for our future;
(OPEC+(“OPEC+”) to agree on and to maintain crude oil price and production controls;
necessary capital financing may not be available at economic rates or at all;
risks and uncertainties associated with our international operations;laws, regulations or practices in foreign countriesoperations could materially restrict our operations or expose us to additional risks;
may be subject tofrom potential cyber-attacks;
(BOEM)(“BOEM”) security and bonding requirements for offshore platforms;
• These risks and other uncertainties related to our business are described in detail below in Part I, Item 1A of this 3 above-listed factors, our assumptions or otherwise, any of which could or will affect our results. For all these reasons, actual events and results may differ materially from those anticipated, estimated, projected or implied by us in our forward-looking statements. We undertake no obligation to update any of our forward-looking statements for any reason, notwithstanding any changes in our assumptions, changes in our business plans, our actual experience, or other changes. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. 4 PART I Item 1. Business General From drilling equipment rentals to oilfield services, our portfolio of global companies provides highly specialized solutions for maintaining safety, efficiency, profitability, and ESG compliance. Products and Services Combining financial Rentals Our rentals services brands offer value-added products and services to meet a wide range of project needs. With a long history of delivering maximum value, these brands help customers and vendor partners achieve safety, efficiency and sustainability goals. Our rental segment operates with low labor intensity and a substantial catalog of product offerings. Well Services Our Well Services brands provide specialized solutions for drilling, production, completion and decommissioning. They have a proven track record of meeting operators’ expectations and delivering the products and expertise success demands. Among our customers and vendor partners, these brands have a history of strong, collaborative relationships. The products and service offerings of Well Services are Emergence from Voluntary Reorganization On December Class“Class A Common Stock)Stock”), for which there is no public market; andthe Stockholders Agreement (as defined below)our stockholders agreement may prevent certain transactions that could otherwise be beneficial to our stockholders. Annual Report on Form 10-K. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Investors are cautioned that many of the assumptions on which our forward-looking statements are based are likely to change after such statements are made, including for example the market prices of oil and gas and regulations affecting oil and gas operations, which we cannot control or anticipate. Further, we may make changes to our business strategies and plans (including our capital spending and capital allocation plans) at any time and without notice, based on any changes in theWe provideSuperior Energy Services is a wide variety of services and products to the energy industry. We serve major, national and independent oil and natural gas exploration and production companies around the world and we offerglobal oilfield products and services company with respecta portfolio of premier rental and well servicing brands providing customers with robust inventory, expedient delivery, engineered solutions and expert consultative service — all aligned with enterprise-wide Shared Core Values for safe, sustainable operations, corporate citizenship and a commitment to the various phases of a well’s economic life cycle. We report our operating results in four business segments: Drilling Productsfree cash flow generation and Services; Onshore Completion and Workover Services; Production Services; and Technical Solutions. We also provide supplemental segment revenue information in three geographic areas: U.S. land; U.S. offshore; and International.value creation.For information about our operating segmentsinformation by operating segment and geographic area, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 of this Annual Reportdiscipline with corporate services expertise, Superior maintains a strategy focused on Form 10-K and note 9businesses critical to our consolidated financial statements included in Part II, Item 8customers' success. We support our portfolio of this Annual Reportbrands with the necessary resources and leadership so they can add value to our customers’ operations with an emphasis on Form 10-K.quality, safety, and sustainability.Recent DevelopmentsThe products and service offerings of Rentals are;Underunder Chapter 11 of the U.S. Bankruptcy Code4,7, 2020, Superior Energy Services, Inc. (the Former Parent, which is now known as SESI Holdings, Inc.) and certain of itsour direct and indirect wholly-owned domestic subsidiaries (together with(the “Affiliate Debtors”) filed petitions for reorganization under the Former Parent, the Affiliate Debtors) entered into an Amended and Restated Restructuring Support Agreement (the Amended RSA) that amended and restated in its entirety the Restructuring Support Agreement (the RSA), dated September 29, 2020, with certain holdersprovisions of SESI, L.L.C.’s (SESI) outstanding (i) 7.125% senior unsecured notes due 2021 (the 7.125% Notes) and (ii) 7.750% senior unsecured notes due 2024 (the 7.750% Notes). The parties to the Amended RSA agreed to the principal terms of a proposed financial restructuringChapter 11 of the Affiliate Debtors, which was implemented through the Plan (as defined below).On December 7, 2020, the Affiliate Debtors filed the Chapter 11 Cases under the Bankruptcy Code in the Bankruptcy Court, and, in connection therewith, the Affiliate Debtors filed with the Bankruptcy Court the proposed Joint Prepackaged Plan of Reorganization under the Bankruptcy Code (as amended, modified or supplemented from time to time, the Plan). On January 19, 2021, the Bankruptcy Court entered an order, Docket No. 289, confirming and approving the Plan (the Confirmation Order)“Plan”). On February 2, 2021 (the Effective Date)“Emergence Date”), the conditions to the effectiveness of the Plan were satisfied or waived and we emerged from Chapter 11.
In addition, pursuantAs used herein, “Superior,” “we,” “us,” “our” and similar terms refer to (i) prior to the Plan, among other things:
Administrative expense claims, priority tax claims, other priority claims, and other secured claims will be or have been paid in full in the ordinary course (or receive such other treatment rendering such claims unimpaired);
General unsecured creditors for the Affiliate Debtors remained unimpaired and received payment in cash, in full, in the ordinary course;
Each holder of a Former Parent guarantee received its pro rata share of a $125,000 parent recovery cash pool;
Eligible holders of the claims arising as a result of holding either the 7.125% Notes or the 7.750% Notes against the Affiliate Debtors received their pro rata share of:
A payment equal to 2% of the principal amount of 7.125% Notes or 7.750% Notes held by all holders who did not opt of receiving a cash payout; or
solely to the extent that such a holder timely and validly elected to opt out of receiving the cash payout, (A) 100% of the Class A Common Stock issued and outstanding on the EffectiveEmergence Date, subject to dilution, and (B), to the extent such holder was an “accredited investor” or “qualified institutional buyer” within the meaning of the SEC’s rules, subscription rights to participate in an equity rights offering (the Equity Rights Offering); and
The Affiliate Debtors conducted the Equity Rights Offering through an offering of subscription rights for the purchase of Class A Common Stock on a pro rata basis, as described below.
As a result of certain related internal restructurings, effective as of the Effective Date, the entity nowSESI Holdings, Inc. (formerly known as Superior Energy Services, Inc. became the successor reporting company to the Former Parent pursuant to Rule 15d-5 of the Securities Exchange Act of 1934, as amended (the Exchange Act).
The costs of our efforts to restructure our capital, prior to and during the Chapter 11 Cases, along with all other costs incurred in connection with the Chapter 11 Cases, have been significant. During 2020, the Former Parent incurred $47.1 million of such costs prior to the commencement of the Chapter 11 Cases and $21.6 million during the pendency of the Chapter 11 Cases.
On the Effective Date, pursuant to the terms of the Plan, we filed an Amended and Restated Certificate of Incorporation (the Certificate of Incorporation) and a Certificate of Amendment of Amended and Restated Certificate of Incorporation (the Certificate of Amendment).
Also, on the Effective Date, and pursuant to the terms of the Plan, we adopted the Amended and Restated Bylaws (the Bylaws). The descriptions of the Certificate of Incorporation and the Bylaws are qualified in their entirety by reference to the full texts of the Certificate of Incorporation, Bylaws, and Certificate of Amendment which are incorporated by reference herein.
Credit Facility
On the Effective Date, pursuant to the Plan, the Former Parent and SESI entered into a Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders and letter of credit issuers named therein providing for the Credit Facility, all of which is available for issuing letters of credit. On the Effective Date, the Credit Facility replaced the Senior Secured Debtor-in-Possession Credit Facility (the DIP Credit Facility) and approximately $46.6 million of undrawn letters of credit outstanding under the former DIP Credit Facility were deemed outstanding under the Credit Facility. All accrued and unpaid fees and other amounts outstanding thereunder were paid in full as well. The Credit Facility will mature on December 9, 2024. The borrowing base under the Credit Facility is determined by reference to SESI’s and the subsidiary guarantors’ billed and unbilled eligible accounts receivable, eligible inventory, until the earlier of December 9, 2022 and the Former Parent) (“Predecessor”) and its wholly-owned subsidiaries’ unrestricted cash being less than $75 million, eligible premium rental drill pipe and, so long as there are no loans outstanding at such time, certain cash of SESI and the subsidiary guarantors, less reserves established by the administrative agent in its permitted discretion.
Availability under the Credit Facility will be the lesser of (i) the commitmentssubsidiaries and (ii) after the borrowing base. SubjectEmergence Date, Superior Energy Services, Inc. (formerly known as Superior Newco, Inc.) and its subsidiaries (“Successor”). Additionally, the use the following terms refer to certain conditions, upon request and with the consent of the participating lenders, the total commitments under the Credit Facility may be increased to $170.0 million. SESI’s obligations under the Credit Facility are guaranteed by the Former Parent and all of SESI’s material domestic subsidiaries and secured by substantially all of the Former Parent’s, SESI’s and the subsidiary guarantors’ assets, other than real property.our operations:
Any borrowings under the Credit Facility will bear interest, at SESI’s option, at either an adjusted LIBOR rate plus an applicable margin ranging from 3.00% to 3.50% per annum, or an alternate base rate plus an applicable margin ranging from 2.00% to 2.50% per annum, in each case on the basis of the consolidated fixed charge coverage ratio. In addition, SESI is required to pay (i) a letter of credit fee, (ii) to the issuing lender of each letter of credit, a fronting fee and (iii) commitment fees.
The Credit Facility requires compliance with various covenants, including, but not limited to, limitations on the incurrence of indebtedness, permitted investments, liens on assets, making distributions, transactions with affiliates, mergers, consolidations, dispositions of assets and other provisions customary in similar types of agreements. The Credit Facility also requires compliance with a fixed charge coverage ratio of 1.0 to 1.0 if (a) an event of default has occurred and is continuing or (b) availability under the Credit
"Predecessor Period" January 1, 2021 through February 2, 2021 "Successor Period" February 3, 2021 through December 31, 2021 Facility is less than the greater of $20.0 million or 15% of the lesser of the aggregate commitments and the borrowing base. The covenants and other restrictions of the Credit Facility significantly restrict the ability to incur borrowings other than letters of credit.The foregoing description of the Credit Facility is a summary only and is qualified in its entirety by reference to the Credit Facility agreement evidencing it, which is incorporated herein by reference.DDTL Commitment LetterOn the Effective Date, that certain Commitment Letter, dated as of September 29, 2020, with certain consenting noteholders terminated in accordance with its terms upon the effectiveness of the Credit Facility without the establishment of the delayed-draw term loan facility.Stockholders AgreementOn the Effective Date, in order to implement the governance related provisions reflected in the Plan, the Stockholders Agreement (the Stockholders Agreement) was executed, to provide for certain governance matters. Other than obligations related to Confidential Information (as defined in the Stockholders Agreement), the rights and preferences of each stockholder under the Stockholders Agreement will terminate when such stockholder ceases to own any shares of Class A Common Stock.The foregoing description of the Stockholders Agreement is qualified in its entirety by the full text of the document, which is incorporated herein by reference.Resignation of Executive OfficersOn March 22, 2021, the Company announced the resignation of David D. Dunlap, President and Chief Executive Officer and a member of the Board of Directors, and Westervelt T. Ballard, Jr., Executive Vice President, Chief Financial Officer and Treasurer. Neither of the resignations resulted from any disagreement with the Company regarding any matter related to the Company’s operations, policies, or practices. Michael Y. McGovern, the Chairman of the Company's Board of Directors, was appointed as Executive Chairman of the Board of Directors and assumed the functions of the Company's principal executive officer, and James W. Spexarth, the Company’s Chief Accounting Officer, has been appointed interim Chief Financial Officer.Departure and Appointment of DirectorsPursuant to the Plan, as of the Effective Date, the following directors ceased to serve on the Former Parent’s board of directors: Terence E. Hall, Peter D. Kinnear, Janiece M. Longoria, Michael M. McShane, James M. Funk and W. Matt Ralls. All officers immediately prior to the Effective Date were retained in their existing positions upon the Effective Date, subject to the terms of the Plan.Pursuant to the Plan and the Stockholders Agreement, our current Board of Directors consists of the following six members:Joseph CitarrellaDaniel E. FloresMichael Y. McGovernJulie J. RobertsonKrishna ShivramTimothy J. WinfreySenior NotesAs part of the transactions undertaken pursuant to the Plan, the record holders of certain of the 7.125% Notes and the 7.750% Notes contributed all of their allowed claims described in the Plan in exchange for either (i) a cash payout to be entirely funded by an equity rights offering in connection with the Plan discussed elsewhere in this Annual Report on Form 10-K (the Equity Rights Offering), or (ii) shares of the Class A Common Stock. On the Effective Date, all outstanding obligations under the 7.125% Notes and the 7.750% Notes, were cancelled, and the applicable agreements governing such obligations were terminated. Furthermore, all existing shares of common stock of the Former Parent were cancelled pursuant to the Plan, and we are in the process of issuing shares of Class A Common Stock to such noteholders, subject to dilution on account of the Class B Common Stock to be issued to our management under a management equity incentive plan. The Class A Common Stock issued to such holders is exempt from registration under the Securities Act of 1933, as amended (the Securities Act), pursuant to Section 1145 of the Bankruptcy Code (which generally exempts from such registration requirements the issuance of securities under a plan of reorganization).Prior to the Effective Date, the Equity Rights Offering was completed in accordance with the Plan, which resulted in the issuance of 735,189 shares of Class A Common Stock. The Class A Common Stock issued in the Equity Rights Offering was exempt from registration under the Securities Act pursuant to section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder.
COVID-19 Pandemic and Market Conditions
Our operations continue to be disrupted due to the circumstances surrounding the COVID-19 pandemic. The significant business disruption resulting from the COVID-19 pandemic has impacted customers, vendors and suppliers in all geographical areas where we operate. The closure of non-essential business facilities and restrictions on travel put in place by governments around the world have significantly reduced economic activity. Also, the COVID-19 pandemic has impacted and may further impact the broader economies of affected countries, including negatively impacting economic growth, the proper functioning of financial and capital markets, foreign currency exchange rates, and interest rates. For example, the continued spread of COVID-19 has led to disruption and volatility in the global capital markets, which increases the cost of capital and adversely impacts access to capital. Additionally, recognized health risks associated with the COVID-19 pandemic have altered the policies of companies operating around the world, resulting in these companies instituting safety programs similar to what both domestic and international governmental agencies have implemented, including stay at home orders, social distancing mandates, and other community oriented health objectives. We are complying with all such ordinances in our operations across the globe. Management believes it has proactively addressed many of the known operational impacts of the COVID-19 pandemic to the extent possible and will strive to continue to do so, but there can be no guarantee the measures will be fully effective.
Furthermore, the oil and gas industry experienced unprecedented price disruptions during 2020, which are continuing in 2021, due in part to significantly decreased demand as a result of the COVID-19 pandemic, as activity declined in the face of depressed crude oil pricing. The U.S. oil and gas rig count fell by more than 50% in the second half of 2020. The number of oil and gas rigs outside of the U.S. and Canada fell by more than 25% in the second half of 2020 to an average of 697 rigs from 954 rigs in the first half of 2020. These market conditions have significantly impacted our business, with 2020 revenue decreasing to $851.3 million, as compared to $1,425.4 million in 2019, or 40%. As customers continue to revise their capital budgets in order to adjust spending levels in response to lower commodity prices, we have experienced significant pricing pressure for our products and services.
Low oil prices and industry volatility are likely to continue through the near and long-term. The recent widespread escalation of COVID-19 cases remains a significant factor impacting oil demand. Vaccination campaigns are underway; however, several regions, including areas of the United States, have been and continue to deal with a rebound in the pandemic resulting in tighter mobility constraints and less travel. There is also concern about whether vaccines will be effective against different strains of the virus that have developed and may develop in the future.
As the global outbreak of the COVID-19 pandemic continues to evolve, management expects it to continue to materially and adversely affect our revenue, financial condition, profitability, and cash flow for an indeterminate period of time. We will continue to take certain actions to address challenges posed by the COVID-19 pandemic and deliver on our commitment to emerge stronger from this crisis.
New York Stock Exchange Delisting
On September 17, 2020, the Former Parent was notified by the New York Stock Exchange (the NYSE) that it was no longer in compliance with the NYSE continued listing standards. Trading of the Former Parent’s common stock on the NYSE was suspended effective as of approximately 4:00 p.m. Eastern Time on September 17, 2020. The Former Parent’s common stock was subsequently delisted from trading on the NYSE and removed from registration under Section 12(b) of the Exchange Act.
On September 18, 2020, the Former Parent’s common stock commenced trading on the OTCQX marketplace. In connection with the Chapter 11 Cases, the Former Parent’s common stock was removed from the OTCQX marketplace on December 10, 2020 and commenced trading on the OTC Pink Sheets during the pendency of the Chapter 11 Cases. In connection with the Chapter 11 Cases, the Former Parent’s common stock was canceled. The shares of our Class A Common Stock are not listed on a national securities exchange.
Products and Services
We offer a wide variety of specialized oilfield services and equipment generally categorized by their typical use during the economic life of a well. A description of the products and services offered by each of our four segments is as follows:
Drilling Products and Services – Includes downhole drilling tools and surface rentals.
Downhole drilling tools – Includes rentals of tubulars, such as primary drill pipe strings, landing strings, completion tubulars and associated accessories, and manufacturing and rentals of bottom hole tools, including stabilizers, non-magnetic drill collars and hole openers.
Surface rentals – Includes rentals of temporary onshore and offshore accommodation modules and accessories.
Onshore Completion and Workover Services – Includes fluid management and workover services.
Fluid management – Includes services used to obtain, move, store and dispose of fluids that are involved in the exploration, development and production of oil and gas, including mobile piping systems, specialized trucks, fracturing tanks and other assets that transport, heat, pump and dispose of fluids.
Workover services – Includes a variety of well completion, workover and maintenance services, including installations, completions, sidetracking of wells and support for perforating operations.
Production Services – Includes intervention services.
Intervention services – Includes services to enhance, maintain and extend oil and gas production during the life of the well, including coiled tubing, cased hole and mechanical wireline, hydraulic workover and snubbing, pressure control services, production testing and optimization.
Technical Solutions – Includes products and services that generally address customer-specific needs with their applications, which typically require specialized engineering, manufacturing or project planning expertise. Most operations requiring our technical solutions are generally in offshore environments during the completion, production and decommissioning phase of an oil and gas well. These products and services primarily include completion tools and services and well control services.
Completion tools and services – Provides products and services used during the completion phase of an offshore well to control sand and maximize oil and gas production, including sand control systems, well screens and filters, and surface-controlled sub surface safety valves.
Well control services – Mitigates and resolves well control and pressure control problems through firefighting, consulting, engineering and well control training.
The Technical Solutions segment also includes revenues from oil and gas production related to our 51% ownership interest in our sole federal offshore oil and gas property (which we refer to in this Annual Report on Form 10-K as the oil and gas property) and related assets.
Customers
Our customers are the major and independent oil and gas companies that are active in the geographic areas in which we operate. There were no customers that exceeded 10% of our total revenues in 2020, 20192022, 2021 or 2018.2020. A reduction in sales to any of our existing large customers could have a material adverse effect on our business and operations.
Competition
We provide products and services worldwide in highly competitive markets, with competitors comprised of both small or regionally focused companies in our Rentals segment, and large companies.or international companies in our Well services segment. Our revenues and earnings can be affected by several factors, including but not limited to changes in competition, fluctuations in drilling and completion activity, perceptions of future prices of oil and gas, government regulation, disruptions caused by factors such as weather, pandemics, and geopolitics, and general economic conditions. We believe that the principal competitive factors are price, performance, product and service quality, safety, response time and breadth of products and services.
Potential Liabilities and Insurance
Our operations involve a high degree of operational risk and expose us to significant liabilities. An accident involving our services or equipment, or the failure of a product sold by us, could result in personal injury, loss of life, and damage to property, equipment or the environment. Litigation arising from a catastrophic occurrence, such as fire, explosion, well blowout or vessel loss, may result in substantial claims for damages.
As is customary in our industry, our contracts generally provide that we will indemnify and hold harmless our customers from any claims arising from personal injury or death of our employees, damage to or loss of our equipment, and pollution emanating from our equipment and services. Similarly, our customers generally agree to indemnify and hold us harmless from any claims arising from personal injury or death of their employees, damage to or loss of their equipment or property, and pollution caused from their equipment or the well reservoir (including uncontained oil flow from a reservoir). Nonetheless, our indemnification arrangements may not protect us in every case.
We maintain a liability insurance program that covers against certain operating hazards, including product liability, property damage and personal injury claims, as well as certain limited environmental pollution claims for damage to a third party or its property arising out of contact with pollution for which we are liable, but well control costs are not covered by this program. These policies include primary and excess umbrella liability policies with limits of $200 million per occurrence, including sudden and accidental pollution incidents. All of the insurance policies we purchase contain specific terms, conditions, limitations and exclusions and are subject to either deductibles or self-insured retention amounts for which we are responsible. There can be no assurance that the nature and amount of insurance we maintain will be sufficient to fully protect us against all liabilities related to our business.
Government Regulation
Our business is significantly affected by federal, state and local laws and other regulations. These laws and regulations relate to, among other things:
Numerous permits are required for the conduct of our business and operation of our various facilities and equipment, including our underground injection wells, trucks and other heavy equipment. These permits can be revoked, modified or renewed by issuing authorities based on factors both within and outside our control.
6
We cannot predict the level of enforcement of existing laws and regulations or how such laws and regulations may be interpreted by enforcement agencies or court rulings in the future. We also cannot predict whether additional laws and regulations will be adopted, including changes in regulatory oversight, increase of federal, state or local taxes, increase of inspection costs, or the effect such changes may have on us, our businesses or our financial condition.
Environmental Matters
Our operations, and those of our customers, are subject to extensive laws, regulations and treaties relating to air and water quality, generation, storage and handling of hazardous materials, and emission and discharge of materials into the environment. We believe we are in substantial compliance with all regulations affecting our business. Historically, our expenditures in furtherance of our compliance with these laws, regulations and treaties have not been material, and we do not expect the cost of compliance to be material in the future.
Numerous federal, state and local governmental agencies, such as the U.S. Environmental Protection Agency (the “EPA”), issue laws and regulations that often require difficult and costly compliance measures that carry substantial administrative, civil and criminal penalties and may result in injunctive obligations for non-compliance. These laws and regulations may require the acquisition of a permit before commencing operations, restrict the types, quantities and concentrations of various substances that can be released into the environment in connection with our operations, limit or prohibit construction or drilling activities on certain lands lying within wilderness, wetlands, ecologically or seismically sensitive areas and other protected areas, require action to prevent or remediate pollution from current or former operations, such as plugging abandoned wells or closing pits, result in the suspension or revocation of necessary permits, licenses and authorizations, require that additional pollution controls be installed and impose substantial liabilities for pollution resulting from our operations or related to our owned or operated facilities. Liability under such laws and regulations is often strict (i.e., no showing of “fault” is required) and can be joint and several. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances, hydrocarbons or other waste products into the environment. Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent and costly pollution control or waste handling, storage, transport, disposal or cleanup requirements could materially adversely affect our operations and financial position, as well as the oil and natural gas industry and infrastructure industry in general. We have not experienced any material adverse effect from compliance with these environmental requirements. This trend, however, may not continue in the future.
Climate Change
In recent years, federal, state and local governments have taken steps to reduce emissions of carbon dioxide, methane and other greenhouse gases, collectively referred to as greenhouse gasses (“GHGs”). For example, the Inflation Reduction Act of 2022 (“IRA”) includes billions of dollars in incentives for the development of renewable energy, clean hydrogen, clean fuels, electric vehicles, investments in advanced biofuels and supporting infrastructure and carbon capture and sequestration. These incentives could accelerate the transition of the economy away from the use of fossil fuels towards lower- or zero-carbon emissions alternatives, which could decrease demand for oil and gas and consequently adversely affect the business of our customers thereby reducing demand for our services. In addition, the IRA imposes the first ever federal fee on the emission of GHGs through a methane emissions charge. Specifically, the IRA amends the Clean Air Act to impose a fee on the emission of methane that exceeds an applicable waste emissions threshold from sources required to report their GHG emissions to the EPA, including sources in the offshore and onshore petroleum and natural gas production and gathering and boosting source categories. The methane emissions charge would start in calendar year 2024 at $900 per ton of methane, increase to $1,200 in 2025 and be set at $1,500 for 2026 and each year after. Calculation of the fee is based on certain thresholds established in the IRA.
The EPA has also finalized a series of GHG monitoring, reporting and emissions control rules for the oil and natural gas industry, and almost half of the states have already taken measures to reduce emissions of GHGs primarily through the development of GHG emission inventories and/or regional GHG cap-and-trade programs. Also, states have imposed increasingly stringent requirements related to the venting or flaring of gas during oil and gas operations. While we are subject to certain federal GHG monitoring and reporting requirements, our operations currently are not adversely impacted by existing federal, state and local climate change initiatives.
At the international level, in December 2015, the United States participated in the 21st Conference of the Parties of the United Nations Framework Convention on Climate Change in Paris, France. The resulting Paris Agreement calls for the parties to undertake “ambitious efforts” to limit the average global temperature, and to conserve and enhance sinks and reservoirs of GHGs. The Agreement went into effect on November 4, 2016. The Paris Agreement establishes a framework for the parties to cooperate and report actions to reduce GHG emissions. Although the United States withdrew from the Paris Agreement effective November 4, 2020, President Biden issued an executive order on January 20, 2021 to rejoin the Paris Agreement, which went into effect on February 19, 2021. On April 21, 2021, the United States announced that it was setting an economy-wide target of reducing its greenhouse gas emissions by 50 to 52 percent below 2005 levels in 2030. In November 2021, in connection with the 26th Conference of the Parties in Glasgow, Scotland, the United
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States and other world leaders made further commitments to reduce greenhouse gas emission, including reducing global methane emissions by at least 30% by 2030. Furthermore, many state and local leaders have stated their intent to intensify efforts to support the international commitments.
Restrictions on emissions of methane or carbon dioxide that may be imposed could adversely affect the oil and natural gas industry by reducing demand for hydrocarbons and by making it more expensive to develop and produce hydrocarbons, either of which could have a material adverse effect on future demand for our services. At this time, it is not possible to accurately estimate how potential future laws or regulations addressing GHG emissions would impact our business.
In addition, there have also been efforts in recent years to influence the investment community, including investment advisors and certain sovereign wealth, pension and endowment funds promoting divestment of fossil fuel equities and pressuring lenders to limit funding to companies engaged in the extraction of fossil fuel reserves. Such environmental activism and initiatives aimed at limiting climate change and reducing air pollution could interfere with our business activities, operations and ability to access capital. Furthermore, claims have been made against certain energy companies alleging that GHG emissions from oil and natural gas operations constitute a public nuisance under federal and/or state common law. As a result, private individuals or public entities may seek to enforce environmental laws and regulations against certain energy companies and could allege personal injury, property damages or other liabilities. While our business is not a party to any such litigation, we could be named in actions making similar allegations. An unfavorable ruling in any such case could significantly impact our operations and could have an adverse impact on our financial condition.
Moreover, climate change may cause more extreme weather conditions such as more intense hurricanes, thunderstorms, tornadoes and snow or ice storms, as well as rising sea levels and increased volatility in seasonal temperatures. Extreme weather conditions can interfere with our productivity and increase our costs and damage resulting from extreme weather may not be fully insured. However, at this time, we are unable to determine the extent to which climate change may lead to increased storm or weather hazards affecting our operations.
Raw Materials
We purchase various raw materials and component parts in connection with delivering our products and services. These materials are generally, but not always, available from multiple sources and may be subject to price volatility. While we generally do not experience significant long-term shortages of these materials, we have from time to time experienced temporary shortages of particular raw materials. We are always seeking ways to ensure the availability of resources, as well as manage costs of raw materials.
Seasonality
Seasonal weather and severe weather conditions can temporarily impair our operations and reduce demand for our products and services. Examples of seasonal events that negatively affect our operations include high seas associated with cold fronts during the winter months and hurricanes during the summer months in the Gulf of Mexico, and severe cold during winter months in the U.S. land market area.
Employees
Human Capital
At
As of December 31, 2020,2022, we had approximately 3,3002,200 employees. Approximately 12% of ourOur employees in Argentina are subject to union contracts allwhich represents approximately 22.0% of which are in international locations.our total employee base. We believe that we have good relationships with our employees. We strive to employ a dynamic workforce to complement our core values. Our hiring policy forbids the discrimination in employment on the basis of age, culture, gender, national origin, sexual orientation, physical appearance, race or religion. We are an inclusive company with people of various backgrounds, experience, culture, styles and talents. We are committed to the health, safety and wellness of our employees, and we pride ourselves on workplace safety. We track and maintain several key safety metrics, which senior management reviews periodically and are included in the determination of their compensation and we evaluate management on their ability to provide safe working conditions on job sites and to create a safety culture.
Facilities
Our principal executive offices are located at 1001 Louisiana Street, Suite 2900, Houston, Texas, 77002. We own or lease a large number of facilities in the U.S. and in various areas in which we operateother countries throughout the world. Our international operations are primarily focused in Latin America, Asia-Pacific and the Middle East/North Africa regions. As of December 31, 2022, we owned 9 properties classified as held for sale.
Intellectual Property8
We seek patent and trademark protections throughout the world for our technology when we deem it prudent, and we aggressively pursue protection of these rights. We believe our patents and trademarks are adequate for the conduct of our business, and that no single patent or trademark is critical to our business. In addition, we rely to a great extent on the technical expertise and know-how of our personnel to maintain our competitive position.
Other Information
We have our principal executive offices at 1001 Louisiana Street, Suite 2900, Houston, Texas 77002. Our telephone number is (713) 654-2200. We also have a website at http://www.superiorenergy.com.
Our Shared Core Values at Work (Code of Conduct) applies to all of our directors, officers and employees. This Code of Conduct is publicly available on the Corporate Governance page in the About Us section of our website at http://www.superiorenergy.com. Any waivers granted to directors or executive officers and any material amendment to our Code of Conduct will be posted promptly on our website and/or disclosed in a current report on Form 8-K.
Copies of the annual, quarterly and current reports we file with or furnish to the SEC, and any amendments to those reports, as well as our Code of Conduct, are available on our website free of charge soon after such reports are filed with or furnished to the SEC. The information posted on our website is not incorporated into this Annual Report on Form 10-K. Alternatively, you may access these reports at the SEC’s website at http://www.sec.gov/.
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Item 1A.1A. Risk Factors
The following information should be read in conjunction with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Part II, Item 7 of this Annual Report on Form 10-K, the consolidated financial statements and related notes contained in Part II, Item 8 of this Annual Report on Form 10-K and the matters contained under the caption “Forward-Looking Statements” at the beginning of this Annual Report on Form 10-K.
The following discussion of “risk factors” identifies the most significant risks or uncertainties that could (i) materially and adversely affect our business, financial condition, results of operations, liquidity or prospects, as well as the market value of our securities, or (ii) cause our actual results to differ materially from our anticipated results or other expectations. These risks are not the only risks that we face. Our business operations could also be affected by additional factors that apply to all companies operating in the U.S. and globally, as well as other risks that are not presently known to us or that we currently consider to be immaterial to our operations. These risks include:
General Risk Factors
From time to time, we are subject to various claims, litigation and other proceedings that could ultimately be resolved against us, requiring material future cash payments or charges, which could impair our financial condition or results of operations.
The size, nature and complexity of our business make us susceptible to various claims, both in litigation and binding arbitration proceedings. We may in the future become subject to various claims, which, if not resolved within amounts we have accrued, could have a material adverse effect on our financial position, results of operations or cash flows. Similarly, any claims, even if fully indemnified or insured, could negatively impact our reputation among our customers and the public, and make it more difficult for us to compete effectively or obtain adequate insurance in the future.
Changes in tax laws or tax rates, adverse positions taken by taxing authorities and tax audits could impact our operating results.
We are subject to the jurisdiction of a significant number of domestic and foreign taxing authorities. Changes in tax laws or tax rates, the resolution of tax assessments or audits by various tax authorities could impact our operating results. In addition, we may periodically restructure our legal entity organization. If taxing authorities were to disagree with our tax positions in connection with any such restructurings, our effective income tax rate could be impacted. The final determination of our income tax liabilities involves the interpretation of local tax laws, tax treaties and related authorities in each taxing jurisdiction, as well as the significant use of estimates and assumptions regarding future operations and results and the timing of income and expenses. We may be audited and receive tax assessments from taxing authorities that may result in assessment of additional taxes that are ultimately resolved with the authorities or through the courts. We believe these assessments may occasionally be based on erroneous and even arbitrary interpretations of local tax law. Resolution of any tax matter involves uncertainties and there are no assurances that the outcomes will be favorable. If U.S. or other foreign tax authorities change applicable tax laws, our overall taxes could increase, and our business, financial condition or results of operating may be adversely impacted.
We are affected by global economic factors and political events.
Our financial results depend on demand for our services and products in the U.S. and the international markets in which we operate. Declining economic conditions, or negative perceptions about economic conditions, could result in a substantial decrease in demand for our services and products. World political events could also result in further U.S. military actions, terrorist attacks and related unrest. Military action by the U.S. or other nations could escalate and further acts of terrorism may occur in the U.S. or elsewhere. Such acts of terrorism could lead to, among other things, a loss of our investment in the country, impairment of the safety of our employees, extortion or kidnapping, and impairment of our ability to conduct our operations. Such developments have caused instability in the world’s financial and insurance markets in the past, and many experts believe that a confluence of worldwide factors could result in a prolonged period of economic uncertainty and slow growth in the future. In addition, any of these developments could lead to increased volatility in prices for oil and gas and could affect the markets for our products and services. Insurance premiums could also increase and coverages may be unavailable.
Uncertain economic conditions and instability make it particularly difficult for us to forecast demand trends. The timing and extent of any changes to currently prevailing market conditions is uncertain and may affect demand for many of our services and products. Consequently, we may not be able to accurately predict future economic conditions or the effect of such conditions on demand for our services and products and our results of operations or financial condition.
Our operations may be subject to cyber-attacks that could have an adverse effect on our business operations.
Like most companies, we rely heavily on information technology networks and systems, including the Internet, to process, transmit and store electronic information, to manage or support a variety of our business operations, and to maintain various records, which may
include information regarding our customers, employees or other third parties, and the integrity of these systems are essential for us to conduct our business and operations. We make significant efforts to maintain the security and integrity of these types of information and systems (and maintain contingency plans in the event of security breaches or system disruptions). However, we cannot provide assurance that our security efforts and measures will prevent security threats from materializing, unauthorized access to our systems, loss or destruction of data, account takeovers, or other forms of cyber-attacks or similar events, whether caused by mechanical failures, human error, fraud, malice, sabotage or otherwise. Cyber-attacks include, but are not limited to, malicious software, attempts to gain unauthorized access to data, unauthorized release of confidential or otherwise protected information and corruption of data. The frequency, scope and sophistication of cyber-attacks continue to grow, which increases the possibility that our security measures will be unable to prevent our systems’ improper functioning or the improper disclosure of proprietary information. Any failure of our information or communication systems, whether caused by attacks, mechanical failures, natural disasters or otherwise, could interrupt our operations, damage our reputation, or subject us to claims, any of which could materially adversely affect us.
Risks Related to the Chapter 11 Cases
Despite having emerged from bankruptcy on February 2, 2021, we continue to be subject to the risks and uncertainties associated with residual Chapter 11 bankruptcy proceedings.
As discussed below (see Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations), we emerged from bankruptcy on the EffectiveEmergence Date. It is possible that having filed for bankruptcy and our recent emergence from the bankruptcy could adversely affect our business and relationships with customers, vendors, employees, service providers and suppliers. Due to uncertainties, many risks exist, including the following:
distracted from performance of their duties or more easily attracted to other employment opportunities; and
Because of the residual risks and uncertainties associated with the Chapter 11 Cases, the ultimate impact that events that occurred during, or that may occur subsequent to, these proceedings will have on our business, financial condition and results of operations cannot be accurately predicted or quantified. WeWhile we believe the passage of time will reduce these risks, we cannot assure you that having been subject to bankruptcy protection will not adversely affect our operations going forward.
Risks Related to Our Business
Our business depends on conditions in the oil and gas industry, especially oil and natural gas prices and capital expenditures by oil and gas companies.
Our business depends on the level of oil and natural gas exploration, development and production activity of, and the corresponding capital spending by, oil and gas companies worldwide. The Chapter 11 Caseslevel of exploration, development and production activity is directly affected by trends in oil and natural gas prices, which historically have had,been volatile and difficult to predict and are likely to continue to be volatile. Oil and natural gas prices are subject to large fluctuations in response to relatively minor changes in supply and demand, economic growth trends, market uncertainty and a variety of other factors beyond our control. Price volatility continued throughout part of 2022, primarily due to the impact of Russia's invasion of Ukraine and the macroeconomic effects resulting from the related sanctions. In addition, oil prices are particularly sensitive to actual and perceived threats to global political stability and to changes in production from OPEC+ member states. The ongoing conflict, and the continuation of, or any increase in, the conflict between Russia and Ukraine, has led and may continue to lead to an increase in the volatility of global oil and gas prices, which could have a corresponding negative impact on the capital expenditure of oil and gas companies as a result of the higher perceived risk. In addition, the imposition of comprehensive sanctions against Russia (including in relation to the Russian energy sector) as well as the announcement of prohibitions on Russian oil and gas imports by certain members of the European Union, the United Kingdom, the United States, and certain other countries, as of March 2022, including additional countries that may enforce prohibitions of a similar nature in the future, has led to and is expected to continue to lead to an increase in the price of global oil and gas prices. Lower oil and natural gas prices generally lead to decreased spending by our customers, while higher oil and natural gas prices generally lead to increased spending up to a point. Our customers may also consider the volatility of oil and natural gasprices and other risk factors and require higher returns for individual projects if there is higher perceived risk. Any of these factors could significantly affect the demand for oil and natural gas, which could
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affect the level of capital spending by our customers and in turn could have a material adverse impacteffect on our business, financial condition, results of operations, financial condition and cash flows. In addition, the consummation of the Plan resulted in the cancellation and exchange of the Former Parent’s equity securities.flow.
The Chapter 11 Casesavailability of quality drilling prospects, exploration success, relative production costs, expectations about future oil and natural gas demand and prices, the stage of reservoir development, the availability of financing, and political and regulatory environments are also expected to affect levels of exploration, development, and production activity, which would impact the demand for our services. Any prolonged reduction of oil and natural gas prices, as well as anticipated declines, could also result in lower levels of exploration, development, and production activity.
The demand for our services may be affected by numerous factors, including the following:
The oil and gas industry has historically experienced periodic downturns, which have been characterized by significantly reduced demand for oilfield services and downward pressure on the prices we charge. Sustained lower oil and natural gas prices have led to a significant decrease in spending by our customers over the past several years, which have led to significantly decreased revenues. Further decreases in oil and natural gas prices could lead to further cuts in spending and potential lower revenues for us. Moreover, weakness in the oil and gas industry may adversely impact the financial position of our customers, which in turn could cause them to fail to pay amounts owed to us in a timely manner or at all. We expect continued volatility in both crude oil and natural gas prices (including the possibilities that such prices could remain at current levels or decline further for an extended period of time), as well as in the level of drilling and production related activities as a result of decisions of OPEC+ and other oil exporting nations regarding production, and the other factors listed above. Any of these events have affected, and could further affect, the demand for oil and natural gas and has and could further have a material adverse effect on our business, financial condition, liquidity, results of operations, and cash flows. Some significant risks include or relate to the following:
the effects of the filing of the Chapter 11 Cases on our business and the interests of various constituents, including our stockholders;
the potential material adverse effects of claims that were not discharged in the Chapter 11 Cases; and
uncertainties and continuing risks associated with our ability to achieve our stated goals.
Because of the risks and uncertainties associated with the Chapter 11 Cases, we cannot predict or quantify the ultimate impact that the Chapter 11 Cases may have on our business, cash flows, liquidity, financial condition and results of operations.cash flow.
Our actual financial results since we emerged from bankruptcy are not comparablebusiness may also be affected by new sanctions and export controls targeting Russia and other responses to the Former Parent’s historical financial information asRussia’s invasion of Ukraine.
As a result of the implementationRussia’s invasion of Ukraine, certain members of the PlanEuropean Union, the United Kingdom and the transactions contemplated therebyUnited States, among others, have developed coordinated sanctions and our adoption of fresh start accounting.export-control measure packages.
In connection with the disclosure statement filed with the Bankruptcy Court,
Based on actions taken and the hearingother public statements to consider confirmation of the Plan, projecteddate, these packages may include:
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vary significantly from those contemplated
As the invasion of Ukraine continues, there can be no certainty regarding whether such governments or other governments will impose additional sanctions, export-controls or other economic or military measures against Russia. Although, we have minimal operational exposure in Russia, representing less than $0.1 million of our revenues for the year ended December 31, 2022, and we do not intend to commit further capital towards projects in Russia, the impact the invasion of Ukraine, including economic sanctions and export controls or additional war or military conflict, as well as potential responses to them by Russia, is currently unknown and they could adversely affect oil and gas companies, including many of which are our customers, as well as the projections. The failureglobal supply chain. In addition, the continuation of any such results, or anythe invasion of Ukraine by Russia could lead to other developments contemplated by the Plan, to materialize, or of any such results or developments todisruptions, instability and volatility in global markets and industries, which could have the anticipateda material adverse effect on us and our subsidiaries or our business, orresults of operations, could materially adversely impact our business and prospects as a post-emergence company.
In addition, as a result of our emergence from bankruptcy, we will adopt fresh start accounting and adjust our assets and liabilities to fair values and our accumulated deficit will be restated to zero and reflected in our financial statements for the quarter ending March 31, 2021. Fresh start accounting will result in the Company becoming a new entity for financial reporting purposes on February 2, 2021, the Effective Date. Accordingly, our financial condition and results of operations following our emergence from bankruptcy will not be comparable to the financial condition and results of operations reflected in historical financial statements. Implementation of the Plan and the transactions contemplated thereby may materially change the amounts and classifications reported in our consolidated historical financial statements.cash flow.
Our long-term liquidity requirements and the adequacy of our capital resources are difficult to predict at this time.
We
While we have a significant cash balance currently, we face uncertainty regarding the adequacy of our liquidity and capital resources over the long-term and have extremely limited, if any, access to additional financing. In addition to the cash requirements necessary to fund our ongoing operations, we have incurred significant professional fees and other costs in connection with the Chapter 11 Cases. We cannot assure you that cash on hand, letters of credit under the Credit Facility, and cash flow from operations will be sufficient to continue to fund our operations and allow us to satisfy our obligations related toover the Chapter 11 Cases.long-term.
Furthermore, turmoil in the credit and financial markets could adversely affect financial institutions, inhibit lending and limit our access to funding through borrowings under the Credit Facility or obtaining other financing in the public or private capital markets on terms we believe to be reasonable. Prevailing market conditions could be adversely affected by the ongoing disruptions in domestic or overseas sovereign or corporate debt markets, low commodity prices or other factors impacting our business, contractions or limited growth in the economy or other similar adverse economic developments in the U.S. or abroad. Instability in the global financial markets has from time to time resulted in periodic volatility in the capital markets. In addition, there has been a relatively recent increased focus of debt and equity capital providers on environmental, social and governance (“ESG”) investing, and the energy industry faces growing negative sentiment in the market. This volatility, as well as this increased focus on ESG investing and growing negative sentiment, could limit our access to the credit markets, leading to higher borrowing costs or, in some cases, the inability to obtain financing on terms that are acceptable to us, or at all. Any such failure to obtain additional financing could jeopardize our ability to repay, refinance or reduce our debt obligations, or to meet our other financial commitments.
Restrictive covenants in the Credit Facility could limit our growth and our ability to finance our operations, fund our capital needs, respond to changing conditions and engage in other business activities that may be in our best interests.
The Credit Facility imposes operating and financial restrictions. TheseUnless all loans are paid off and letters of credit outstanding are cash collateralized and the Credit Agreement terminated, these restrictions limit the ability to, among other things:things, subject to permitted exceptions:
The restrictions contained in the Credit Facility could:
enter into acquisitions or to engage in other business activities that would be in our interest.
The Credit Facility includes provisions that require mandatory prepayment of outstanding borrowings and/or a borrowing base redetermination when there are asset dispositions over a certain threshold, which could limit the ability to generate liquidity from asset sales. Also, the Credit Facility requires compliance with a specified financial ratio if triggered by an event of default or availability beneath specified thresholds. The ability to comply with this ratio may be affected by events beyond our control and, as a result, this ratio may not be met.met in circumstances when it is tested. This financial ratio restriction could limit the ability to obtain future financings, make needed capital expenditures, withstand a continued downturn in our business or a downturn in the economy in general or otherwise conduct necessary corporate activities. Declines in oil and natural gas prices could result in failure to meet one or more of the financial
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covenants under the Credit Facility, which could require refinancing or amendment of such obligations resulting in the payment of consent fees or higher interest rates or require a capital raise at an inopportune time or on terms not favorable.
A breach of any of these covenants or the inability to comply with the required financial ratios or financial condition tests could result in a default under the Credit Facility. A default under the Credit Facility, if not cured or waived, could result in acceleration of all indebtedness outstanding thereunder which in turn would trigger cross-acceleration and cross-default rights.and/or a requirement to cash collateralize letters of credit issued thereunder.
Upon emergence from bankruptcy, the composition of our Board of Directors changed significantly.
Under the Plan, the composition of our Board of Directors changed significantly. Our new directors have different backgrounds, experiences and perspectives from those individuals who previously served on the Former Parent’s board of directors and, thus, may have different views on the issues that will determine our future. As a result, our future strategy and plans may differ materially from those of the past.
The ability of the new directors to quickly expand their knowledge of our business plans, operations and existing strategies in a timely manner will be critical to their ability to make informed decisions about our strategy, operations and future strategies.
The COVID-19 pandemic continues to adversely affect our business, and the ultimate effect on our operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted.
The COVID-19 pandemic has had, and continues to have, a material impact on businesses around the world and the economic environments in which they operate. A number of jurisdictions in which we operate have implemented severe restrictions on the movement of their respective populations. As a result, there has been a significant reduction in demand for, and prices of, crude oil, which has directly affected our business. The COVID-19 pandemic and efforts to mitigate its effect have had a substantial negative impact on the global economy and demand for oil. Although oil prices are back to pre-pandemic levels, driven by global vaccine distribution, an unfolding demand recovery, OPEC+ agreement on production volume, and a declining production base, if the negative trend in the demand for or price of crude oil resumes or continues for a prolonged period, or the demand for or price of crude oil does not further increase, our business, financial condition, results of operation and liquidity may be further materially and adversely affected. Our operations also may be further adversely affected if significant portions of our workforce continue to be unable to work effectively due to illness, quarantines, government actions or other restrictions in connection with the COVID-19 pandemic.
Management expects industry activity levels and spending by customers to remain depressed in 2021 as demand destruction from the COVID-19 pandemic continues despite recent improvements in oil and gas prices and the significant changes we have implemented to respond to the current environment. We believe that the well-known impacts described above and other potential impacts include, but are not limited to, the following:
disruption to our supply chain for materials essential to our business, including restrictions on importing and exporting products;
customers may attempt to cancel or delay projects or may attempt to invoke force majeure clauses in certain contracts resulting in a decreased or delayed demand for our products and services;
customers may also seek to delay payments, may default on payment obligations and/or seek bankruptcy protection that could delay or prevent collections of certain accounts receivable;
a need to preserve liquidity and volatility in the financial markets;
reduction of our global workforce to adjust to market conditions, including severance payments, retention issues, and an inability to hire employees when market conditions improve;
liabilities resulting from operational delays due to decreased productivity resulting from stay-at-home orders affecting the work force or facility closures resulting from the COVID-19 pandemic;
liabilities resulting from an inability to perform services due to limited manpower availability or an inability to travel to perform the services;
other contractual or other legal claims from our customers resulting from the COVID-19 pandemic; and
infections and quarantining of our employees and the personnel of our customers, suppliers and other third parties.
At this time, it is not possible to quantify these risks, but the combination of these factors could have a further material impact on our financial results. The ultimate extent to which the COVID-19 pandemic adversely affects our business, financial condition, results of operation and liquidity will depend on future developments, which are highly uncertain and cannot be predicted. These future developments include, but are not limited to, the scope and duration of the COVID-19 pandemic and actions taken by governmental authorities and other third parties in response to the COVID-19 pandemic. Disruptions and/or uncertainties related to the COVID-19 pandemic for a sustained period of time will result in, and have resulted to date in, delays or modifications to our strategic plans and initiatives and will hinder our ability to achieve our strategic goals. The COVID-19 pandemic, and the volatile regional and global economic conditions stemming from the COVID-19 pandemic, will likely have the effect of heightening many of the other risks included in this Annual Report on Form 10-K. However, because the COVID-19 situation is unprecedented and continuously evolving, the other potential impacts to our risk factors are uncertain.
Risks Related to Our Business
Our business depends onmay be materially and adversely impacted by U.S. and global market and economic conditions, including impacts relating to inflation and supply chain disruptions.
Our revenue is derived from the services and products that we offer to major, national and independent oil and natural gas exploration and production companies around the world for the various phases of their respective well’s economic life cycles. Given the concentration of our business activities in the oil and gas industry, especially oilwe will be particularly exposed to certain economic downturns. United States and natural gas pricesglobal market and capital expenditures by oil and gas companies.
Our business depends on the level of oil and natural gas exploration, development and production activity of, and the corresponding capital spending by, oil and gas companies worldwide. The level of exploration, development and production activity is directly affected by trends in oil and natural gas prices, which historicallyeconomic conditions have been, volatile and difficult to predict and are likely to continue to be, volatile. Oildisrupted and natural gas prices are subjectvolatile due to largemany factors, including the ongoing COVID-19 pandemic, component shortages and related supply chain challenges, geopolitical developments such as the conflict between Ukraine and Russia, and increasing inflation rates and the responses by central banking authorities to control such inflation, among others.
General business and economic conditions that could affect us and our customers include fluctuations in response to relatively minor changes in supply and demand, economic growth, trends, market uncertaintydebt and a variety of other factors beyond our control. Price volatility continued throughout 2019 and, partially due to the emergenceequity capital markets, liquidity of the COVID-19 pandemicglobal financial markets, the availability and failurecost of OPEC+credit, investor and other major producers to agree on production cuts, became more extremeconsumer confidence, and the strength of the economies in 2020. Lower oilwhich we and natural gas prices generally lead to decreased spending by our customers. While higher oil and natural gas prices generally lead to increased spending by our customers sustained high energy prices can also be an impediment tooperate. A weak economic growth and can therefore negatively impact spending by our customers. Our customers may also take into account the volatility of oil and natural gasprices and other risk factors and require higher returns for individual projects if there is higher perceived risk. Any of these factorsenvironment could significantly affect the demand for oil and natural gas, which could affect the level of capital spending by our customers andresult in turn could have a material effect on our business, results of operations, financial condition and cash flow.
The availability of quality drilling prospects, exploration success, relative production costs, expectations about future oil and natural gas demand and prices, the stage of reservoir development, the availability of financing, and political and regulatory environments are also expected to affect levels of exploration, development, and production activity, which would impact thesignificant decreases in demand for our services. Any prolonged reductionproducts and services, including the delay or cancellation of oilcurrent or anticipated projects. In particular, rising inflation rates in the United States have begun to affect businesses across many industries, including ours, by increasing the costs of labor, equipment, parts, consumables and natural gas prices, as well as anticipated declines,shipping. A high inflationary environment may also cause customers to defer or decrease their expenditures on the services and products that we provide. In addition, supply chain disruptions and delays, could also result in lower levels of exploration, development, and production activity.
The demand foradversely affect our ability to provide our services may be affected by numerous factors, including the following:
the cost of exploring for, producing and delivering oil and natural gas;
demand for energy, which is affected by worldwide economic activity, population growth and market expectations regarding future trends;
the ability of OPEC+ and other key oil-producing countries to set and maintain production levels for oil;
the level of excess production capacity;
the discovery rate of new oil and natural gas reserves;
domestic and global political and economic uncertainty, socio-political unrest and instability, terrorism or hostilities;
weather conditions and changes in weather patterns, including summer and winter temperatures that impact demand;
the availability, proximity and capacity of transportation facilities;
oil refining capacity and shifts in end-customer preferences toward fuel efficiency;
the level and effect of trading in commodity futures markets, including trading by commodity price speculators and others;
demand for and availability of alternative, competing sources of energy;
the extent to which taxes, tax credits, environmental regulations, auctions of mineral rights, drilling permits, drilling concessions, drilling moratoriums or other governmental regulations, actions or policies affect the production, cost of production, price or availability of petroleumdeliver our products and alternative energy sources; and
technological advances affecting energy exploration, production and consumption.
The oil and gas industry has historically experienced periodic downturns, which have been characterized by significantly reduced demand for oilfield services and downward pressure on the prices we charge. Sustained lower oil and natural gas prices have led to a significant decrease in spending by our customers over the past several years, which have led to significantly decreased revenues. Further decreases in oil and natural gas prices could lead to further cuts in spending and potential lower revenues for us. Several large oil and gas exploration and production companies have recently announced reductions in their previously announced planned capital expenditures during 2020 in light of declining global oil and natural gas prices. Moreover, weakness in the oil and gas industry may adversely impact the financial position of our customers, which in turn could cause them to fail to pay amounts owed to us in a timely manner, which could impair our ability to meet customer demand and result in lost sales, increased supply chain costs or at all. We expect continued volatility in both crude oil and natural gas prices (including the possibilities that such prices could remain at current levels or decline further for an extended period of time), as well as in the level of drilling and production related activities as a result of the continuing COVID-19 pandemic, decisions of OPEC+ and other oil exporting nations regarding production, and the other factors listed above.damage to our reputation. Any of foregoing these events have affected, andeconomic conditions could further affect, the demand for oil and natural gas and has and could further have a material adverse effect on our business, results of operations, financial condition, and cash flow.
Necessary capital financing may not be available at economic rates or at all.
Turmoil in the credit and financial markets could adversely affect financial institutions, inhibit lending and limit our access to funding through borrowings under the Credit Facility or obtaining other financing in the public or private capital markets on terms we believe to be reasonable. Prevailing market conditions could be adversely affected by the ongoing disruptions in domestic or overseas sovereign or corporate debt markets, low commodity prices or other factors impacting our business, contractions or limited growth in the economy or other similar adverse economic developments in the U.S. or abroad. Instability in the global financial markets has from time to time resulted in periodic volatility in the capital markets. This volatility could limit our access to the credit markets, leading to higher borrowing costs or, in some cases, the inability to obtain financing on terms that are acceptable to us, or at all. Any such failure to obtain additional financing could jeopardize our ability to repay, refinance or reduce our debt obligations, or to meet our other financial commitments.
There are operating hazards inherent in the oil and gas industry that could expose us to substantial liabilities.
Our operations are subject to hazards inherent in the oil and gas industry that may lead to property damage, personal injury, death or the discharge of hazardous materials into the environment. Many of these events are outside of our control. Typically, we provide products and services at a well site whereWhile our personnel and equipment are located togetherhas decreased significantly as a result of divestitures in connection with personnel and equipment of our customer and other service providers. Fromthe Transformation Project, from time to time, personnel are injured or equipment or property is damaged or destroyed as a result of accidents, failed equipment, faulty products or services, failure of safety measures, uncontained formation pressures or other dangers inherent in oil and natural gas exploration, development and production. Any of these events can be the result of human error or purely accidental, and it may be difficult or impossible to definitively determine the ultimate cause of the event or whose personnel or equipment contributed thereto. All of these risks expose us to a wide range of significant health, safety and environmental risks and potentially substantial litigation claims for damages. With increasing frequency, our products and services are deployed in more challenging exploration, development and production locations. From time to time, customers and third parties may seek to hold us accountable for damages and costs incurred as a result of an accident, including pollution, even under circumstances where we believe we did not cause or contribute to the accident. Our insurance policies are subject to exclusions, limitations and other conditions, and may not protect us against liability for some types of events, including events involving a well blowout, or against losses from business interruption. Our insurance also may not cover losses associated with pandemics such as the COVID-19 pandemic. Moreover, we may not be able to maintain insurance at levels of risk coverage or policy limits that we deem adequate or on terms that we deem commercially reasonable.reasonable, or at all. Any damages or losses that are not covered by insurance, or are in excess of policy limits or subject to substantial deductibles or retentions, could adversely affect our financial condition, results of operations and cash flows.
We may not be fully indemnified against losses incurred due to catastrophic events.
As is customary in our industry, our contracts generally provide that we will indemnify and hold harmless our customers from any claims arising from personal injury or death of our employees, damage to or loss of our equipment, and pollution emanating from our equipment and services. Similarly, our customers generally agree to indemnify and hold us harmless from any claims arising from personal injury or death of their employees, damage to or loss of their equipment or property, and pollution caused from their equipment or the well reservoir (including uncontained oil flow from a reservoir). Our indemnification arrangements may not protect us in every case. For example, from time to time we may enter into contracts with less favorable indemnities or perform work without a contract
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that protects us. In addition, our indemnification rights may not fully protect us if we cannot prove that we are entitled to be indemnified or if the customer is bankrupt or insolvent, does not maintain adequate insurance or otherwise does not possess sufficient resources to indemnify us. In addition, our indemnification rights may be held unenforceable in some jurisdictions.
Our customers’ changing views on risk allocation could cause us to accept greater risk to win new business or could result in us losing business if we are not prepared to take such risks. To the extent that we accept such additional risk, and insure against it, our insurance premiums could rise.
The credit risks of our customer base could result in losses.
Many of our customers are oil and gas companies that are facingfrom time to time face liquidity constraints in light ofas the current commodity price environment.environment changes. These customers impact our overall exposure to credit risk as they are also affected by prolonged changes in economic and industry conditions. If a significant number of our customers experience a prolonged business decline or disruptions, we may incur increased exposure to credit risk and bad debts.
We are subject to environmental and worker health and safety laws and regulations, which could reduce our business opportunities and revenue, and increase our costs and liabilities.
Our business is significantly affected by a wide range of environmental and worker health and safety laws and regulations in the areas in which we operate, including increasingly rigorous environmental laws and regulations governing air emissions, water discharges and waste management. Generally, these laws and regulations have become more stringent and have sought to impose greater liability on a larger number of potentially responsible parties. The Macondo well explosion in 2010 resulted in additional regulation of our offshore operations, and similar onshore or offshore accidents in the future could result in additional increases in regulation. Failure to comply with these laws and regulations may result in a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, imposition of remedial requirements, permit revocations, requirements for additional pollution controls, and issuanceinjunctions limiting or prohibiting some or all of injunctions as to future compliance.our operations.
Environmental laws and regulations may provide for “strict liability” for remediation costs, damages to natural resources or threats to public health and safety as a result of our conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, prior owners or operators or other third parties. Strict liability can render a party liable for damages without regard to negligence or fault on the part of the party. Some environmental laws provide for joint and several strict liability for remediation of spills and releases of hazardous substances. For example, our well service and fluids businesses routinely involve the handling of significant amounts of waste materials, some of which are classified as hazardous substances. We also store, transport and use radioactive and explosive materials in certain of our operations. In addition, many of our current and former facilities are, or have been, used for industrial purposes. Accordingly, we could become subject to material liabilities relating to the containment and disposal of hazardous substances, oilfield waste and other waste materials, the use of radioactive materials, the use of underground injection wells, and to claims alleging personal injury or property damage as the result of exposures to, or releases of, hazardous substances. In addition, stricter enforcement of existing laws and regulations, new domestic or foreign laws and regulations, the discovery of previously unknown contamination or the imposition of new or increased requirements could require us to incur costs or become the basis of new or increased liabilities that could reduce our earnings and our cash available for operations.
In addition, we and our customers may need to apply for or amend facility permits or licenses from time to time with respect to storm water or wastewater discharges, waste handling, or air emissions relating to manufacturing activities or equipment operations, which subjects us and our customers to new or revised permitting conditions that may be onerous or costly to comply with.
Climate change legislation or regulations restricting emissions of greenhouse gases or incentivizing zero-carbon energy sources could result in increased operating costs and reduced demand for the oil and natural gas our customers produce.
Increasing concerns that emissions of carbon dioxide, methane and other greenhouse gases (GHGs)(“GHGs”) may endanger public health and produce climate changes with significant physical effects, such as increased frequency and severity of storms, floods, droughts and other climatic events, have drawn significant attention from government agencies, and environmental advocacy groups.groups and technological initiatives aimed at reducing the use of hydrocarbons. In response, additional costly requirements and restrictions have been imposed on the oil and gas industry to regulate and reduce the emission of GHGs.GHGs and transition to a global low carbon economy.
For example, the Inflation Reduction Act of 2022 (“IRA”) includes billions of dollars in incentives for the development of renewable energy, clean hydrogen, clean fuels, electric vehicles, investments in advanced biofuels and supporting infrastructure and carbon capture and sequestration. These incentives could accelerate the transition of the economy away from the use of fossil fuels towards lower- or zero-carbon emissions alternatives, which could decrease demand for oil and gas and consequently adversely affect the business of our
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customers, thereby reducing demand for our services. In addition, the IRA imposes the first ever federal fee on the emission of GHGs through a methane emissions charge. Specifically, the EPA has adopted regulations under existing provisions ofIRA amends the federal Clean Air Act whichto impose a fee on the emission of methane that exceeds an applicable waste emissions threshold from sources required to report their GHG emissions to the EPA, including sources in the offshore and onshore petroleum and natural gas production and gathering and boosting source categories. The methane emissions charge would start in calendar year 2024 at $900 per ton of methane, increase operational costs by requiringto $1,200 in 2025 and be set at $1,500 for 2026 and each year after. Calculation of the monitoring and annual reportingfee is based on certain thresholds established in the IRA.
The EPA has also finalized a series of GHG monitoring, reporting and emissions fromcontrol rules for the oil and natural gas production, processing, transmissionindustry, and storage facilities inalmost half of the United States. Although, the U.S. Congress has considered legislationstates have already taken measures to reduce emissions of GHGs significant legislation has not yet been adopted to reduce GHG emissions at the federal level. In the absence of such federal climate legislation, a number of state and regional efforts have emerged that are aimed at tracking and/or reducing GHG emissionsprimarily through the completiondevelopment of GHG emissionsemission inventories and through cap and trade programs that typically require major sourcesand/or regional GHG cap-and-trade programs. Also, states have imposed increasingly stringent requirements related to the venting or flaring of GHG emissions to acquire and surrender emission allowances in return for emitting GHGs. Given the long-term trend towards increasing regulation, future federal GHG regulations of thegas during oil and gas industry remain a possibility.operations. While we are subject to certain federal GHG monitoring and reporting requirements, our operations currently are not adversely impacted by existing federal, state and local climate change initiatives.
Climate change, environmental, social and governance, and sustainability are growing global movements. Continuing political and social attention to these issues has resulted
At the international level, in both existing and pending international agreements and national, regional or local legislation and regulatory measures, as well as society pressure in some areas, to limit GHG emissions and has been stated in the U.S. to be a priority of the new Biden Administration, as well as other initiatives. In December 2015, the United States joined the international community atparticipated in the 21st Conference of the Parties of the United Nations Framework Convention on Climate Change in Paris, France that proposed an agreement requiring member countriesFrance. The resulting Paris Agreement calls for the parties to reviewundertake “ambitious efforts” to limit the average global temperature, and “representto conserve and enhance sinks and reservoirs of GHGs. The Agreement went into effect on November 4, 2016. The Paris Agreement establishes a progression” in their intended nationally determined contributions, which setframework for the parties to cooperate and report actions to reduce GHG emission reduction goals every five years beginning in 2020. This agreement was signed byemissions. Although the United States in April 2016 and entered into force in November 2016. The United States is one of over 120 nations having ratified or otherwise consented to the agreement; however this agreement does not create any binding obligations for nations to limit their GHG emissions, but rather includes pledges to voluntarily limit or reduce future emissions. Although the prior administration formally withdrew the United States from the Paris Agreement effective November 4, 2020, the new administrationPresident Biden issued an executive order on January 20, 2021 to rejoin the Paris climate agreementAgreement, which went into effect on January 20,February 19, 2021. On April 21, 2021, the United States announced that it was setting an economy-wide target of reducing its greenhouse gas emissions by 50 to 52 percent below 2005 levels in 2030. In November 2021, in connection with the 26th Conference of the Parties in Glasgow, Scotland, the United States and other world leaders made further commitments to reduce greenhouse gas emission, including reducing global methane emissions by at least 30% by 2030. Furthermore, many state and local leaders have stated their intent to intensify efforts to support the international commitments.
Restrictions on emissions of methane or carbon dioxide that may be imposed could adversely affect the oil and natural gas industry by reducing demand for hydrocarbons and by making it more expensive to develop and produce hydrocarbons, either of which could have a material adverse effect on future demand for our services.
In addition, to governmental regulations, our customers are also requiring additional equipment upgrades to address the growing concerns of GHG emission and climate change which result in higher operational costs for service providers such as us. Despite taking additional
measures to reduce GHG emissions, there is the possibility that the demand for fossil fuels may nevertheless decrease due to such concerns.
Furthermore,In addition, there have also been efforts in recent years aimed atto influence the investment community, including investment advisors and certain sovereign wealth, pension and endowment funds public pension funds, universities and other groups, promoting the divestment of fossil fuel equities as well as to pressureand pressuring lenders and other financial services companies to limit or curtail activities withfunding to companies engaged in the extraction of fossil fuel reserves. If these efforts are successful,Such environmental activism and initiatives aimed at limiting climate change and reducing air pollution could interfere with our abilitybusiness activities, operations and the ability of our customers to access capital marketscapital. Furthermore, claims have been made against certain energy companies alleging that GHG emissions from oil and natural gas operations constitute a public nuisance under federal and/or state common law. As a result, private individuals or public entities may seek to enforce environmental laws and regulations against certain energy companies and could allege personal injury, property damages or other liabilities. While our business is not a party to any such litigation, we could be limited.named in actions making similar allegations. An unfavorable ruling in any such case could significantly impact our operations and could have an adverse impact on our financial condition.
At this stage, we cannot predict the impact of these or other initiatives on our or our customerscustomers’ operations, nor can we predict whether, or which of, other currently pending GHG emission proposals will be adopted, or what other actions may be taken by domestic or international regulatory bodies. The potential passage of climate change regulationlaws or regulations may curtail production and demand for fossil fuels such as oil and gas in areas of the world where our customers operate and thus adversely affect future demand for our products and services, which may in turn adversely affect future results of operations.
Continuing or worsening inflationary pressures and associated changes in monetary policy have resulted in and may result in additional increases to our operating costs, which in turn have caused and may continue to cause our capital expenditures and operating costs to rise.
The U.S. inflation rate increased in 2021 and 2022 and may continue to increase in 2023. These inflationary pressures have resulted in and may result in additional increases to our operating costs, which in turn have caused and may continue to cause our capital expenditures and operating costs to rise. Sustained levels of high inflation have likewise caused the Federal Reserve and other central banks to increase interest rates, which could have the effects of raising the cost of capital and depressing economic growth, either of which - or the combination thereof - could hurt the financial and operating results of our business.
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Adverse and unusual weather conditions may affect our operations.
Our operations may be materially affected by severe weather conditions in areas where we operate. Severe weather, such as hurricanes, high winds and seas, blizzards and extreme temperatures may cause evacuation of personnel, curtailment of services and suspension of operations, inability to deliver materials to jobsites in accordance with contract schedules, loss of or damage to equipment and facilities and reduced productivity. In addition, variations from normal weather patterns can have a significant impact on demand for oil and natural gas, thereby reducing demand for our services and equipment.
Our inability to retain key employees and skilled workers could adversely affect our operations.
Our performance could be adversely affected, especially in light of our emergence from bankruptcy, if we are unable to retain certain key employees and skilled technical personnel. Our ability to continue to expand the scope of our services and products depends in part on our ability to increase the size of our skilled labor force. The loss of the services of one or more of our key employees or the inability to employ or retain skilled technical personnel could adversely affect our operating results. In the past, the demand for skilled personnel has been high and the supply limited. We have experienced increases in labor costs in recent years and may continue to do so in the future. Furthermore, these internal and external factors may also be impacted by our recent emergence from bankruptcy, the uncertainties currently facing us and the business environment and changes we may make to the organizational structure to adjust to changing circumstances.
We face significant competition in attracting and retaining talented employees. Further, managing succession for, and retention of, key executives is critical to our success, and our failure to do so could adversely affect our future performance.
Our ability to attract and retain qualified and experienced employees is essential to meet our current and future goals and objectives. There is no guarantee we will be able to attract and retain such employees or that competition among potential employers will not result in increased salaries or other benefits. If we are unable to retain existing employees or attract additional employees, we could experience a material adverse effect on our business and results of operations. We may not be able to locate or employ on acceptable terms a qualified replacementreplacements for the CEO or other key executives if their services are no longer available. Furthermore, our business could be affected adversely if suitable replacement personnel are not recruited quickly or effectively. Our failure to adequately plan for succession of senior management and other key management roles or the failure of key employees to successfully transition into new roles including any potential future CEO candidate, could have a material adverse effect on our businesses and results of operations.
Our international operations and revenue are affected by political, economic and other uncertainties worldwide.
During 2020, the Former Parent conducted business in more than 50 countries.
Our international operations are subject to varying degrees of regulation in each of the foreign jurisdictions in which we provide services. Local laws and regulations, and their interpretation and enforcement, differ significantly among those jurisdictions, and can change significantly over time. Future regulatory, judicial and legislative changes or interpretations may have a material adverse effect on our ability to deliver services within various foreign jurisdictions.
In addition to these international regulatory risks, our international operations are subject to a number of other risks inherent in any business operating in foreign countries, including, but not limited to, the following:
assets;assets, or other governmental actions;
• 16 These and the other risks outlined above could cause us to curtail or terminate operations, result in the loss of personnel or assets, disrupt financial and commercial markets and generate greater political and economic instability in some of the geographic areas in which we operate. International areas where we operate that have significant risk include the Middle East, Indonesia, Nigeria and Angola. Laws, regulations or practices in foreign countries could materially restrict our operations or expose us to additional risks. In many countries around the world where we do business, all or a significant portion of the decision making regarding procuring our services and products is controlled by state-owned oil companies. State-owned oil companies or prevailing laws may (i) require us to meet local content or hiring requirements or other local standards, (ii) restrict with whom we can contract or (iii) otherwise limit the scope of operations that we can legally or practically conduct. Our inability or failure to meet these requirements, standards or restrictions may adversely impact our operations in those countries. In addition, our ability to work with state-owned oil companies is subject to our ability to negotiate and agree upon acceptable contract terms, and to enforce those terms. In addition, many state-owned oil companies may require integrated contracts or turnkey contracts that could require us to provide services outside our core businesses. Providing services on an integrated or turnkey basis generally requires us to assume additional risks. Moreover, in order to effectively compete in certain foreign jurisdictions, it is frequently necessary or required to establish joint ventures or strategic alliances with local contractors, partners or agents. In certain instances, these local contractors, partners or agents may have interests that are not always aligned with ours. Reliance on local contractors, partners or agents could expose us to the risk of being unable to control the scope or quality of our overseas services or products, or being held liable under the FCPA, or other anti-corruption laws for actions taken by our strategic or local contractors, partners or agents even though these contractors, partners or agents may not themselves be subject to the FCPA or other applicable anti-corruption laws. Any determination that we have violated the FCPA or other anti-corruption laws could have a material adverse effect on our business, results of operations, reputation or prospects. If we are not able to design, develop, and produce commercially competitive products and to implement commercially competitive services in a timely manner in response to changes in the market, customer requirements, competitive pressures, and technology trends, our business and results of operations could be materially and adversely affected. The market for oilfield services in which we operate is highly competitive and includes numerous small companies capable of competing effectively in our markets on a local basis, as well as several large companies that possess substantially greater financial resources than we do. Contracts are traditionally awarded on the basis of competitive bids or direct negotiations with customers. The market for our services and products is characterized by continual technological developments to provide better and more reliable performance and services. If we are not able to design, develop, and produce commercially competitive products and to implement commercially competitive services in a timely manner in response to changes in the market, customer requirements, competitive pressures, and technology trends, our business and consolidated results of operations could be materially and adversely affected. Likewise, if our proprietary technologies, equipment, facilities, or work processes become obsolete, we may no longer be competitive, and our business and results of operations could be materially and adversely affected. In addition, we may be disadvantagedcivilFCPA)“FCPA”) as well as other anti-corruption laws;•
competitively and financially by a significant movement of exploration and production operations to areas of the world in which we are not currently active.
We depend on particular suppliers and are vulnerable to product shortages and price increases.
Some of the materials that we use are obtained from a limited group of suppliers. Our reliance on these suppliers involves several risks, including price increases, supply chain disruptions, inferior quality and a potential inability to obtain an adequate supply in a timely
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manner. We do not have long-term contracts with most of these sources, and the partial or complete loss of certain of these sources could have a negative impact on our results of operations and could damage our customer relationships. Further, a significant increase in the price of one or more of these materials could have a negative impact on our results of operations.
Estimates of our potential liabilities relating to our oil and natural gas property may be incorrect.
Actual abandonment expenses may vary substantially from those estimated by us and any significant variance in these assumptions could materially affect the estimated liability recorded in our consolidated financial statements. Therefore, the risk exists we may underestimate the cost of plugging wells and abandoning production facilities. If costs of abandonment are materially greater than our estimates, this could have an adverse effect on our financial condition, results of operations and cash flows.
Potential changes of Bureau of Ocean Energy Management security and bonding requirements for offshore platforms could impact our operating cash flows and results of operations.
Federal oil and natural gas leases contain standard terms and require compliance with detailed Bureau of Safety and Environmental Enforcement (BSEE)(“BSEE”) and BOEM regulations and orders issued pursuant to various federal laws, including the Outer Continental Shelf Lands Act. In 2016, BOEM undertook a review of its historical policies and procedures for determining a lessee’s ability to decommission platforms on the Outer Continental Shelf (OCS)(“OCS”) and whether lessees should furnish additional security, and in July 2016, BOEM issued a new Notice to Lessees requiring additional security for decommissioning activities. In January 2017, BOEM extended the implementation timeline for properties with co-lessees by an additional six months, and in June 2017mid-2017 announced that the Notice to Lessees would be stayed while BOEM continued to review its implementation issues and continued industry engagement to gather additional information on the financial assurance program.
During the second half of 2016, BSEE increased its estimates of many offshore operator’s decommissioning costs, including the decommissioning costs at our sole federal offshore oil and gas property, in which our subsidiary owns a 51% non-operating interest. In October 2016, BOEM sent an initial proposal letter to the operator of the oil and gas property, proposing an increase in the supplemental bonding requirement for the property’s sole fixed platform that was eight to ten times higher than the revised supplemental bonding requirement requested for any other deep-water fixed platform in the U.S. Gulf of Mexico. Both the operator and our subsidiary submitted formal dispute notices, asserting that the estimates in the October 2016 proposal letter may be based on erroneous or arbitrary estimates of the potential decommissioning costs, and requesting in-person meetings to discuss the estimate. We asked that BSEE and BOEM reduce the estimate to an amount that more closely approximates actual decommissioning costs, consistent with estimates identified by BSEE and BOEM for similar deep-water platforms. BSEE and BOEM have not yet responded to our dispute notice.
On September 17,October 16, 2020, BOEM issuedpublished a proposed rule addressing OCS oil and gas decommissioning costs (BOEM-2018-0033). The proposed rule contains updated criteria for determining decommissioning costs. Under the proposed rule, BOEM would only require additional security when (1) a lessee or grant holder poses a substantial risk of becoming financially unable to meet its obligations; (2) there is no co-lessee, co-grant holder or predecessor that is liable for those obligations with sufficient financial capacity; and (3) the property is at or near the end of its productive life. BSEE would typically issue orders to predecessors in title in a reverse chronological order. The proposed rule would also require that a party appealing any final decommissioning decision or order provide a surety bond to ensure that funding for decommissioning is available if the order is affirmed and the liable party then defaults. Based on the proposed framework, BOEM estimates its amount of financial assurance would decrease from $3.3 billion to $3.1 billion, although BOEM expects the rule would provide greater protection as the financial assurance would be focused on the riskiest properties.
We cannot predict when these laws and regulations may be adopted or change in the future, particularly as a result of the presidential administrations in January 2021.future. If BOEM withdraws the SeptemberOctober 2020 rule proposal and proceeds to implement a rule or other regulatory action requiring additional security similar to the Notice to Lessees issued in July 2016 and we are unable to obtain the additional required bonds or post other acceptable security to secure of decommissioning obligations, BOEM may suspend or cancel operations at the oil and gas property or otherwise impose monetary penalties. Any of these actions could have a material adverse effect on our financial condition, operating cash flows and liquidity.
Moreover, under existing BOEM and BSEE rules relating to assignment of offshore leases and other legal interests on the OCS, assignors of such interests may be held jointly and severally liable for decommissioning of OCS facilities existing at the time the assignment was approved by BOEM, in the event that the assignee or any subsequent assignee is unable or unwilling to conduct required decommissioning.
Risks Related to Our Class A Common Stock
There may be circumstances in which the interests of our significant stockholders could conflict with the interests of our other stockholders.
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On the EffectiveEmergence Date, in order to implement certain transactions contemplated by the Plan, the Stockholders Agreement was executed with each stockholder who is deemed a party thereto pursuant to the Plan (constituting all of the stockholders on the EffectiveEmergence Date) and all other stockholders party thereto from time to time, to provide for certain of our governance matters relating to the Company. Twomatters. As of March 1, 2023, two groups of these stockholders currently hold approximately 48%, respectively,61.6% of our Class A Common Stock. Furthermore, pursuant to the Stockholders Agreement, these two groups of stockholders have appointed three of our six directors.
Circumstances may arise in which these groups of stockholders may have an interest in pursuing or preventing acquisitions, divestitures or other transactions, including the issuance of additional shares or debt, that, in their judgment, could enhance their investment in us, and their interests may not in all cases be aligned with our interests.
There is no public market for shares of our Class A Common Stock, and we do not expect there to be a market for shares of our Class A Common Stock.
There is no existing trading market for shares of our Class A Common Stock, and no market for our shares may develop in the future. If developed, any such market may not be sustained. In the absence of a trading market, our stockholders may be unable to liquidate an investment in our Class A Common Stock. Upon our emergence from bankruptcy, the Former Parent’sPredecessor’s common stock was canceled and we issued new Class A Common Stock. The Class A Common Stock is not currently traded on a national securities exchange. There is no active market in the Class A Common Stock. No assurance can be given that an active market will develop for our Class A Common Stock or as to the liquidity of the trading market for our Class A Common Stock. Our Class A Common Stock may be traded only infrequently, if at all, and reliable market quotations may not be available. Holders of our Class A Common Stock may experience difficulty in reselling, or an inability to sell, their shares. In addition, if an active trading market does not develop or is not maintained, significant sales of our Class A Common Stock, or the expectation of these sales, could materially and adversely affect the market price of our Class A Common Stock. For so long as our Class A Common Stock is not listed on a national securities exchange, our ability to access equity markets, obtain financing and provide equity incentives could be negatively impaired. Furthermore, certain transfers of our Class A Common Stock require an exemption from the registration requirements of the Securities Act and applicable state securities laws.
Provisions in the Stockholders Agreement could delay or prevent a change in control.
Certain provisions of our Stockholders Agreement may delay, discourage, prevent or render more difficult an attempt to obtain control of the Company,us, whether through a tender offer, business combination, proxy contest or otherwise. These provisions include, among other things, those that:
We do not intend to pay dividends on our Class A Common Stock and ourOur ability to pay dividends on our common stock is restricted.
We currently intenddeclared a special dividend of $12.45 per share of our Class A Common Stock that was paid on December 28, 2022 to retain all available funds and any future earningsour stockholders of record as of the close of business on December 16, 2022. Our Board of Directors continuously evaluates opportunities to financepay dividends in accordance with our operations.evolving strategic outlook. As a result, we do not anticipate declaringour decision to declare or paying any cash dividends on our Class A Common Stock in the foreseeable future.future is unknown. Any decision to declare and pay dividends in the future will be made at the discretion of our Board of Directors and will depend on, among other things, our business prospects, results of operations, financial condition, cash requirements and availability, industry trends and other factors that our Board of Directors may deem relevant. Any such decision will also be subject to compliance with contractual restrictions and covenants in the agreements governing our current and future indebtedness.
We do not have a class of our securities registered under Section 12 of the Exchange Act. Until we do, we will not be required to provide certain reports to our stockholders.
We do not have a class of our securities registered under Section 12 of the Securities Exchange Act.Act of 1934, as amended (the “Exchange Act”). Until we do, we will not be required to provide certain reports to our stockholders. We are currently required to file periodic reports with the SEC by virtue of Section 15(d) of the Exchange Act. However, until we register a class of our securities under Section 12 of the Exchange Act, we are not subject to the SEC’s proxy rules, and large holders of our capital stock will not be subject to beneficial ownership reporting requirements under Sections 13 or 16 of the Exchange Act and their related rules. As a result, our stockholders and
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potential investors may not have available to them as much or as robust information as they may have if and when we become subject to those requirements.
From time to time, we are subject to various claims, litigation and other proceedings that could ultimately be resolved against us, requiring material future cash payments or charges, which could impair our financial condition or results of operations.
The size, nature and complexity of our business make us susceptible to various claims, both in litigation and binding arbitration proceedings. We may in the future become subject to various claims, which, if not resolved within amounts we have accrued, could have a material adverse effect on our financial position, results of operations or cash flows. In addition, during periods of depressed market conditions we may be subject to an increased risk of our customers, vendors, former employees and others initiating legal proceedings against us.
Any litigation or claims, even if fully indemnified or insured, could negatively impact our reputation among our customers and the public, and make it more difficult for us to compete effectively or obtain adequate insurance in the future.
Changes in tax laws or tax rates, adverse positions taken by taxing authorities and tax audits could impact our operating results.
We are subject to taxation in a significant number of domestic and foreign jurisdictions. Changes in tax laws or tax rates, the resolution of tax assessments or audits by various tax authorities could impact our operating results. In addition, we may periodically restructure our legal entity organization. If taxing authorities were to disagree with our tax positions in connection with any such restructurings, our effective income tax rate could be impacted. The final determination of our income tax liabilities involves the interpretation of local tax laws, tax treaties and related authorities in each taxing jurisdiction, as well as the significant use of estimates and assumptions regarding future operations and results and the timing of income and expenses. We may be audited and receive tax assessments from taxing authorities that may result in assessment of additional taxes that are ultimately resolved with the authorities or through the courts. We believe these assessments may occasionally be based on erroneous and even arbitrary interpretations of local tax law. Resolution of any tax matter involves uncertainties and there are no assurances that the outcomes will be favorable. If U.S. or other foreign tax authorities change applicable tax laws, our overall taxes could increase, and our business, financial condition or results of operating may be adversely impacted.
The IRA 2022 imposes a 15% corporate alternative minimum tax (“CAMT”) on the “adjusted financial statement income” of certain large corporations (generally, corporations reporting at least $1 billion average adjusted pre-tax net income on their consolidated financial statements) as well as an excise tax of 1% on the fair market value of certain public company stock repurchases for tax years
beginning after December 31, 2022.
Currently, we do not believe the CAMT, or any of the other tax provisions, will have a material impact on us for 2023, however, we will continue to monitor the future impact to us related to this new law. The U.S. Treasury Department, the Internal Revenue Service and other standard-setting bodies are expected to issue guidance on how the CAMT, stock buyback excise tax and other provisions of the IRA 2022 will be applied or otherwise administered that may differ from our interpretations.
An ownership change could limit our use of net operating losses arising prior to an ownership change.
If we were to experience an “ownership change,” as determined under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), our ability to offset taxable income arising after the ownership change with net operating losses (“NOLs”) arising prior to the ownership change would be limited, possibly substantially. An ownership change would establish an annual limitation on the amount of our pre‑change NOLs we could utilize to offset our taxable income in any future taxable year to an amount generally equal to the value of our stock immediately prior to the ownership change multiplied by the long term tax‑exempt rate. In general, an ownership change will occur if there is a cumulative increase in our ownership of more than 50 percentage points by one or more “5% shareholders” (as defined in the Code) at any time during a rolling three‑year period.
We experienced an “ownership change” on February 2, 2021 due to the Plan that subject certain of our tax attributes, including our NOLs and other carryforwards, to an annual limitation under Section 382 of the Code. However, we do not expect the Section 382 limitation to impact our ability to use U.S. tax attributes. Calculations pursuant to Section 382 of the Code can be very complicated and no assurance can be given that upon further analysis, our ability to take advantage of our NOLs may be limited to a greater extent than we currently anticipate. As of December 31, 2022, we had NOLs of $367.9 million. Future changes in our stock ownership could result in an additional ownership change.
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Our ability to remediate the identified material weakness in our internal control over financial reporting.
In connection with the preparation of our consolidated financial statements as of and for the year ended December 31, 2022, we identified a material weakness in our internal control over financial reporting as we did not design and maintain effective controls to review the reasonableness of assumptions determined by, and accuracy of calculations performed by, our external tax service providers. If we are not able to remediate the material weakness and otherwise to maintain effective internal control over financial reporting, our financial statements may be materially misstated and investors may lose confidence in the accuracy and completeness of our financial reports. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. We are working to remediate the material weakness and are taking steps to strengthen our internal control over financial reporting. While we are undertaking efforts to remediate this material weakness, the material weakness will not be considered remediated until our remediation plan has been fully implemented, the applicable controls operate for a sufficient period of time, and we have concluded, through testing, that the newly implemented and enhanced controls are operating effectively. At this time, we cannot predict the success of such efforts or the outcome of our assessment of the remediation efforts. We cannot assure you that our efforts will remediate this material weakness in our internal control over financial reporting, or that additional material weaknesses will not be identified in the future.
We are affected by global economic factors and political events.
Our financial results depend on demand for our services and products in the U.S. and the international markets in which we operate. Declining economic conditions, negative perceptions about economic conditions, energy costs and supply chain disruptions, could result in a substantial decrease in demand for our services and products. World political events could also result in further U.S. military actions, terrorist attacks and related unrest. Military action by the U.S. or other nations could escalate and further acts of terrorism may occur in the U.S. or elsewhere. Such acts of terrorism could lead to, among other things, a loss of our investment in the country, impairment of the safety of our employees, extortion or kidnapping, and impairment of our ability to conduct our operations. Such developments have caused instability in the world’s financial and insurance markets in the past, and many experts believe that a confluence of worldwide factors could result in a prolonged period of economic uncertainty and slow growth in the future. In addition, any of these developments could lead to increased volatility in prices for oil and gas and could negatively affect the markets for our products and services. Insurance premiums could also increase and coverages may be unavailable.
Uncertain economic conditions and instability make it particularly difficult for us to forecast demand trends. The timing and extent of any changes to currently prevailing market conditions is uncertain and may affect demand for many of our services and products. Consequently, we may not be able to accurately predict future economic conditions or the effect of such conditions on demand for our services and products and our results of operations or financial condition.
Our operations may be subject to cyber-attacks that could have an adverse effect on our business operations.
Like most companies, we rely heavily on information technology networks and systems, including the Internet, to process, transmit and store electronic information, to manage or support a variety of our business operations, and to maintain various records, which may include information regarding our customers, employees or other third parties, and the integrity of these systems are essential for us to conduct our business and operations. We make significant efforts to maintain the security and integrity of these types of information and systems (and maintain contingency plans in the event of security breaches or system disruptions). However, we cannot provide assurance that our security efforts and measures will prevent security threats from materializing, unauthorized access to our systems, loss or destruction of data, account takeovers, or other forms of cyber-attacks or similar events, whether caused by mechanical failures, human error, fraud, malice, sabotage or otherwise. We have office employees who work remotely. Remote work relies heavily on the use of remote networking and online conferencing services that enable employees to work outside of our corporate infrastructure and, in some cases, use their own personal devices, which exposes us to additional cybersecurity risks, including unauthorized access to sensitive information as a result of increased remote access and other cybersecurity related incidents. Cyber-attacks include, but are not limited to, malicious software, attempts to gain unauthorized access to data, unauthorized release of confidential or otherwise protected information and corruption of data. It is possible that our business, financial and other systems could be compromised, which could go unnoticed for a prolonged period of time. While various procedures and controls are being utilized to mitigate exposure to such risk, there can be no assurance that the procedures and controls that we implement, or which we cause third party service providers to implement, will be sufficient to protect our systems, information or other property. Additionally, customers as well as other third parties whom we rely on face similar cybersecurity threats, which could directly or indirectly impact our business and operations. The frequency, scope and sophistication of cyber-attacks continue to grow, which increases the possibility that our security measures will be unable to prevent our systems’ improper functioning or the improper disclosure of proprietary information. Any failure of our
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information or communication systems, whether caused by attacks, mechanical failures, natural disasters or otherwise, could interrupt our operations, damage our reputation, or subject us to claims, any of which could materially adversely affect us.
Item 1B.1B. Unresolved Staff Comments
None.
Item 2.2. Properties
Information on properties is contained in Part I, Item 1 of this Annual Report on Form 10-K.
Item 3.3. Legal Proceedings
From time to time we are involved in various legal actions incidental to our business. Most of our pending legal proceedings were stayed by virtue of the Chapter 11 Cases at the end of 2020. However, based on current circumstances, we do not believe that the ultimate resolution of these proceedings, including any such proceedings described in the following two paragraphs hereof, after considering available defenses and any insurance coverage or indemnification rights, will have a material adverse effect on our financial position, results of operations or cash flows. See note 11the Notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further information.
A subsidiary of ours is involved in legal proceedings with two former employees regarding the payment of royalties for a patentable product paid for by the subsidiary and developed while they worked for the subsidiary. Those former employees have filed two separate lawsuits in the Harris County District Court, in which the former employees allege that the royalty payments they had invoiced at 25% and for which they received payments in the invoiced amounts since 2010, instead should have been paid at a rate of 50%. The first lawsuit (the “First Case”), filed during the second quarter of 2018, sought to recover alleged unpaid royalties from May 2014 through May 2019. The second lawsuit (the “Second Case”) was filed in the same district court against the same subsidiary of ours, brought the same claims, and sought damages post-judgment from the First Case until the discontinuation of the leasing of the product at issue by the subsidiary at the end of 2019.
In both lawsuits, the district court ruled against our subsidiary and entered final judgments, which we fully secured with a bond. We strongly disagreed with the result and believed the district court committed several legal errors that should be corrected by reversal of each of the judgments. Accordingly, we pursued separate appeals in the Fourteenth Court of Appeals
In August 2022, in the appeal from the judgment in the First Case, the Fourteenth Court of Appeals (the "Court of Appeals") ruled in favor of our subsidiary on the plaintiffs’ claims for a combined 50% royalty. The Court of Appeals ruled that because the plaintiffs invoiced our subsidiary for a combined 25% royalty and accepted payments in that amount every month since 2010, the plaintiffs forever waived any claim to any royalties in any amount other than a combined 25% royalty, net of expenses. The Court of Appeals reversed the judgment in the First Case and remanded to the district court to assess damages, if any, owed for royalties between January 2018 and May 2019.
The appeal from the judgment in the Second Case was abated by the Court of Appeals pending the resolution of the appeal in the First Case.
On October 7, 2022, our subsidiary reached a confidential settlement in both the First Case and the Second Case with the plaintiffs to resolve any and all disputes between them. At the request of both parties in the appeals from both the First Case and the Second Case, the Court of Appeals has reversed the respective judgments entered by the district court. The district court has now entered take-nothing judgments in favor of our subsidiary in both cases and has released the supersedeas bonds filed by our subsidiary in both cases. Accordingly, both the First Case and the Second Case are fully and finally resolved.
Our Indian subsidiary, SES Energy Services India Pvt. Ltd (“SES India”), entered into a contract with an Indian oil and gas company to provide an offshore vessel for well stimulation. A dispute arose over the performability of the terms of the contract. The contract was terminated by the customer. Any remaining contingency under this contract was terminated in connection with SES India entering into bankruptcy during 2022.
In October 2022, we had a hearing before the Washington State Board of Tax Appeals (the “Tax Board”) in relation to a dispute arising in April 2019 pertaining to a use tax assessment from 2016 as a result of the construction of a vessel by one of our subsidiaries. As of December 31, 2022, the assessment, including interest, totaled $26.9 million. While we are confident that the assessment is legally insupportable, if the Tax Board upholds the assessment we will be responsible for payment of the full assessment within thirty days of the decision. Although we are unable to estimate the probability of the outcome of this matter or the range of reasonably possible loss, if any, we have reserved an amount we believe to be adequate to cover any final assessment levied by the state.
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For the disclosure of environmental proceedings with a governmental entity as a party pursuant to Item 103(c)(3)(iii) of Regulation S-K, we have elected to disclose matters where we reasonably believe such proceeding would result in monetary sanctions, exclusive of interest and costs, of $1.0 million or more.
Item 4.4. Mine Safety Disclosures
Not Applicable.
23
PART II
Item 5. Market forfor Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common equity consists of common stock that is privately held and there is no established public trading market. As of March 24, 2021,1, 2023, there were 578583 stockholders of record.record for our Class A common stock and seven stockholders of record for our Class B common stock.
Our Board of Directors (the “Board”) and the Compensation Committee of the Board (the “Compensation Committee”) have approved and adopted our Management Incentive Plan, which provides for the grant of share-based and cash-based awards and, in connection therewith, the issuance from time to time of up to 1,999,869 shares of our Class B common stock, par value $0.01 per share.
Item 6. Selected Financial Data
Dividend Policy
Removed and reserved.
On November 16, 2022, we announced that our Board declared a special cash dividend of $12.45 per share of our outstanding Class A common stock. Additionally, the Board determined that, in addition to the special cash dividend to shareholders of our Class A common stock, we would make dividend equivalent payments to each holder of unvested restricted stock units. The special dividend was paid on December 28, 2022.
Item 7.7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our consolidated financial statements and applicable notes to our consolidated financial statements and other information included elsewhere in this Annual Report on Form 10-K, including “Risk Factors” disclosed in Part I, Item 1A. The following information contains forward-looking statements, which are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize, our actual results may differ from those expressed or implied by the forward-looking statements. See “Forward-Looking Statements” at the beginning of this Annual Report on Form 10-K.
Executive Summary
General
We provideSuperior Energy Services is a wide variety of services and products to the energy industry. We serve major, national and independent oil and natural gas exploration and production companies around the world and we offerglobal oilfield products and services company with respecta portfolio of premier rental and well services brands providing customers with robust inventory, responsive delivery, engineered solutions, and expert consultative service — all aligned with enterprise-wide Shared Core Values for safe, sustainable operations and corporate citizenship; and committed to free cash flow generation and value creation.
Superior Energy Services drives true value to its business units by providing enterprise-wide support, financial discipline, capital strength, and strategic focus. Our experienced, knowledgeable leadership within those businesses has excellent latitude to execute their business strategy, determine pricing, allocate inventory, and develop new products and technology. All with a focus on safety, operational excellence, competitive positioning, and financial performance that entrenches our relationships with our customers and elevates our customers' satisfaction.
Our execution of the transformation initiatives set forth in 2021 continued to be validated in 2022 with positive results. The transformation weighted our product offerings toward businesses critical to our customer’s oil and gas operations. These businesses have limited competition with the three largest global oilfield service companies; require deep technical expertise, notably in premium drill pipe and bottom hole assembly rentals; and have strong cash flow generating capacity as was delivered in our 2022 results.
Our ongoing strategy of focusing operations on businesses with solid market positions along with the strength of our brands, their leaders, and teams contributed in no small part to our positive performance, margin expansion, and strong competitive position in 2022 overcoming labor market and supply chain challenges and being an early mover on effective pricing strategies to address cost inflation and margin expansion.
As we strive to be good stewards of our resources, we paid a $250 million distribution and a return of capital to shareholders in December 2022.
Our portfolio of companies operate in two segments, Rentals and Well Services, to provide highly specialized solutions to the various phasesupstream oil and gas industry.
Rentals Segment
Our rental services include premium downhole tubulars and drill pipe, design, engineering and manufacturing of a well’s economic life cycle. We currently report our operating results in four business segments: Drilling Productsbottomhole assembly accessories, and Services; Onshore Completionoffshore accommodation units. Collaborating closely with customers and Workover Services; Production Services; and Technical Solutions. Westrategic suppliers, we also provide supplemental segment revenue information in three geographic areas: U.S. land; U.S. offshore; and International.engineered solutions to meet their challenges.
Bankruptcy Accounting and Financial ReportingWorkstrings International ("WSI")
The consolidated financial statements have been preparedWSI is a global leader in accordance with ASC 852, Reorganizations (ASC 852), for the period subsequent to the commencement of our Chapter 11 Cases. ASC 852 requires that the consolidated financial statements distinguish transactionsoilfield equipment rentals providing high-quality, premium connection drill strings, tubing, completion tubulars, and events that are directly associated with the Chapter 11 Cases from the ongoing operationshandling accessories and has one of the business.industry’s most extensive inventories of highly specialized landing string designed for deep water applications.
Reorganization expensesWorkstrings’ long-tenured leadership assures a high level of knowledge and skill in providing quality service and engineering expertise to develop complementary innovation and new technologies for our long-term major customers.
We have incurred costs associatedWSI is strategically positioned to respond globally with the Chapter 11 Cases, primarily unamortized debt issuance costs, expenses related to rejected leases, financing costsa focus on U.S. Onshore and postpetition professional fees. In accordanceOffshore Gulf of Mexico, and International Offshore opportunities with applicable guidance, costs associated with the bankruptcy proceedings have been recorded as Reorganization expenses within the accompanying consolidated statementa variety of operations for the year ended December 31, 2020. Reorganization expenses totaled $21.6 million for 2020sizes and consisted of the following (in thousands): premium thread configurations complimented by in-house inspection and on-site machining capabilities expediting turnaround and deliveries.
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December 31, 2020 | |||
7.125% Senior unsecured notes - unamortized debt issuance costs | $ | 2,160 | |
7.750% Senior unsecured notes - unamortized debt issuance costs | 5,644 | ||
Credit facility - unamortized debt issuance costs | 2,172 | ||
Debtor in possession credit facility costs | 1,554 | ||
Rejected leases | 8,601 | ||
Professional fees | 1,485 | ||
Total | $ | 21,616 | |
Liabilities Subject to Compromise
The accompanying consolidated balance sheet as of December 31, 2020 includes amounts classified as Liabilities subject to compromise, which represent liabilities which have been allowed as claims in the Chapter 11 Cases. These amounts represent the Affiliate Debtors’ current estimate of known or potential obligations to be resolved in connection with the Chapter 11 Cases and may differ from actual future settlement amounts paid. Differences between liabilities estimated and claims filed, or to be filed, will be investigated and resolved in connection with the claims resolution process.
Liabilities subject to compromise at December 31, 2020 consisted of the following (in thousands):
December 31, 2020 | |||
7.125% Senior unsecured notes due 2021 | $ | 800,000 | |
7.750% Senior unsecured notes due 2024 | 500,000 | ||
Accrued interest on senior notes | 35,794 | ||
Total | $ | 1,335,794 | |
Financial Results
During 2020, we continued to manage challenging market dynamics asWSIs' depth of inventory resulting from consistent investments through the cycles, seasoned field experience, in-house engineering expertise and long standing relationships with strategic suppliers enables customer relationships that make it a divergence of operating resultsleading provider in the U.S.GOM and international markets remained prevalent. We generated $851.3 million of revenue in 2020, which representswith a 40% decrease from $1,425.4 million of revenue generated during 2019. The decrease in revenuefocus on continued innovation that is largely attributabledifficult to replicate. Capital expenditures over the next year to maintain our existing fleet is expected to be similar to our U.S. land market area, in which revenue decreased by 59% during 2020.2022 capital expenditures assuming that the second half 2022 activity levels and current drilling and completion practices continue throughout 2023.
In North America,
unprecedented price disruptionsStabil Drill
Stabil Drill provides comprehensive Bottom Hole Assembly (BHA) support, ranging from custom component engineering and fabrication to rental drilling tools and repairs. With an inventory of more than 50,000 downhole tools, extensive experience, state-of-the-art facilities, and cutting-edge solutions, Stabil Drill helps operators optimize performance on the most challenging drilling operations.
With significant decreaseUS Land capabilities deployable to Offshore and International markets, Stabil Drill serves customers worldwide and is poised for growth opportunities with existing customers and through geographic expansion of product offerings.
In-house manufacturing, repair services, and efficient fleet management practices effectively mitigated supply chain challenges and maintained leading market share positions in demand asUS Land and select Latin American regions.
HB Rentals
HB Rentals’ offerings span a resultwide breadth of offshore rentals, from single living quarters to complete multi-module complexes and support infrastructure.
Their comprehensive support for offshore services includes initial consulting and design, project management, engineering, custom fabrication, logistics planning, installation, and commissioning. HB Rentals has opportunities for fleet expansion within the COVID-19 pandemic continued to impact the demand for our completionUS wind market and defense projects along with plug and abandonment (“P&A”) opportunities in GOM.
Well Services Segment
Our well services during 2020include long standing, industry leading brands with a long history of strong, collaborative relationships with customers and suppliers.. The decrease in revenue generated in the U.S. land market area was primarily due to decreased revenues from our fluid
Services include risk management, well servicing rigs,control and rentals of our premium drill pipetraining, hydraulic workover and bottom hole assemblies.
Revenue in our international market areas decreased 15% during 2020, as compared to 2019, as the international rig count declined 25% during 2020. The decrease in revenue generated in our international market areas was primarily driven by decreased revenue from electric line services, well control services,snubbing, engineering, and rentalsmanufacturing of premium drill pipe, even though we did experience revenue growthcompletion tools including the Multi-zone, single trip (MST) sand control system. The Well Services segment also provides cementing, wireline, and coil tubing services with our cementing and stimulation activities. We experienced revenue growthoperations in our Middle East and African regions, but this was offset by a decrease in revenue in our Latin America and Asia Pacific regions. Revenue generated from the U.S. offshore market decreased 31%, primarily due to decreased revenues from our completion toolsKuwait.
Wild Well Control ("WWC")
WWC provides advanced engineering solutions, unconventional intervention, personnel, equipment, and well control training. WWC provides IADC well control training for operators and students worldwide. Additional WWC services pluginclude assisting operators in risk management, planning, preparedness, prevention, and abandonment activities, and electric lineresponse services.
In 2020,
As a leading global provider of onshore and offshore well control emergency response, pressure control, relief well planning, engineering, and well control training services, with the largest team of dedicated professionals and inventory of well control equipment staged for deployment around the world, WWC responds to the majority of the well control emergency responses worldwide.
WWC continues to develop opportunities by leveraging its global Subsea Capping response consortium WellCONTAINED. WWC also continues to pursue additional engineering capabilities and capacity and has brought its well control expertise to consult and advise on future carbon capture projects through its industry relationships with major oil companies.
Superior Completion Services
Superior Completion Services provides strategic solutions and expertise in downhole completion services primarily focused on offshore sand control applications, including deep water Gulf of Mexico and Brazil projects utilizing its Multi-zone single trip system (“MST”).
26
Capabilities beyond multi-zone single-trip systems include intelligent completions, gravel and frac pack systems to HPHT packers, screens, flow, and barrier valves.
International Snubbing Services ("ISS")
Comprised of two geographical operating divisions: USA and Australia, ISS include manufacturing facilities in both locations with operational activity in 2023 shifting to a heavier weighting on P&A, which is seen as a growth market. Additional growth opportunities as Premier fixed-platform and Bass Strait P&A service provider in Australia and increasing well pull work onshore and P&A work in the GOM will be explored in 2023.
Strategic Outlook
We engaged Evercore as our loss from operations was $172.0 million, as comparedfinancial advisor nearly a year ago to assist management and our 2019 income from operationsBoard in exploring alternatives to enhance shareholder value, including through potential merger or acquisition opportunities. As part of $18.4 million. Despitethis process, we remain in and continue to pursue preliminary or exploratory dialogue with various potential counterparties. We are allocating resources accordingly should strategic alternatives to grow shareholder value, including meaningful consolidation opportunities, become actionable in 2023. Such opportunities may include, but are not limited to, an acquisition by or merger with a publicly traded company, one or more acquisitions of or mergers with private energy service companies, or growth through the challenging year,acquisition of an additional strategic product line, either in connection with or following an exchange listing by us. Our Board has not set a timetable or made any decisions related to further actions or potential strategic alternatives at this time. Additionally, any potential transaction would depend upon entry into definitive agreements with a potential counterparty on terms acceptable to us. There can be no assurance that we generated $95.0 million in adjusted earnings before interest, taxes, depreciationwill enter any such transaction or consummate or pursue any transaction or other strategic alternative.
As we focus our financial strength, flexibility, and amortization (EBITDA), which represents a significant decrease of 60% from $235.4 million of adjusted EBITDA generated during 2019. In addition, during 2020, we generated aleading market position on converting operating margins to free cash flow deficit of $45.4 million, as compared to the $5.9 million of free cash flow we generated during 2019. Refer to the “Non-GAAP Financial Measures” section below for a further discussion and a reconciliation of adjusted EBITDA to net loss from continuing operations and a reconciliation of free cash flow to cash flows from operating activities.
During 2020, we focused on maintaining our cash balance and reducing capital expenditures. Our capital expenditures decreased by 66% during 2020, while our cash, cash equivalents and restricted cash balance decreased by 3% as of December 31, 2020 compared to December 31, 2019. Under the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), the Company received a refund of $30.5 million in July 2020 related to the carryback of the 2018 net operating loss. In January of 2020, we received the remaining payment of $24.0 million relating to an asset sale which occurred during the fourth quarter of 2019.
During 2021,generation, we expect to limit capital spending withincontinue to deliver what we believe are compelling returns and stewardship. We will maintain focus on executing the final phases of the transformation strategies accomplished in 2022 by reducing our geographic footprint and streamlining our operational support function to align with the current size of our operations. An opportunistic and disciplined approach to growth and strategic capital expenditure allocations are intended to ensure that our market-leading brands have the support and resources needed to meet the industry’s highest expectations and unlock opportunities enterprise-wide, while maintaining the highest standards of excellence and safety.
We focus on building a sustainable future through our commitment to Environmental, Social, and Governance (ESG) performance. Our Shared Core Values are critical to achieving our ESG goals and helping our customers, suppliers, and business partners achieve theirs. We continue to advance our ESG performance for the benefit of stakeholders with plans to publish our ESG performance with transparency starting in 2024 with our inaugural 2023 Sustainability Report.
We will persist in advancing our strategic focus on efficiency, capital discipline, and sustainable performance characterized by cash flow levelsgeneration, safe operations, reliable service delivery, and fair, responsible dealings in alignment with our Shared Core Values central to generate free cash flow and allocate capital to businesses with higher returns on invested capital. Additionally, we intend to carefully manage our liquidity by continuously monitoring cash flow and capital spending.Superior’s culture.
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Industry Trends
The oil and gas industry is both cyclical and seasonal. The level of spending by oil and gas companies is highly influenced by current and expected demand as well as future prices of oil and natural gas. Changes in spending resulted in an increased or decreased demand for our services and products. Rig count iscounts are an indicator of the level of spending by oil and gas companies. Crude oil prices traded within a wide range during 2020. After averaging $58 a barrel in January 2020, West Texas Intermediate prices fell to an average of $17 a barrel in April 2020, the lowest monthly average price since March 1999. The low prices were the result of significant declines in oil consumption that caused a sharp rise in global oil inventories. However, West Texas Intermediate prices increased through much of the rest of 2020 as rising oil demand and reduced production caused global oil inventories to fall. Prices rose to a monthly average of $47 a barrel in December 2020 due to expectations of future economic recovery based on the roll out of multiple COVID-19 vaccines. In the early part of January 2021, West Texas Intermediate prices reached their highest levels in 11 months after Saudi Arabia announced a one-month unilateral cut in its crude oil production for February and March that is in addition to its OPEC+ commitments. Oil prices are back to pre-pandemic levels, driven by global vaccine distribution, an unfolding demand recovery, OPEC+ agreement on production volume, and a declining production base. However, the surge in COVID-19 infections globally and the expected gradual return of spare production capacity make us cautious about near term recovery.
Our financial performance is significantly affected by the rig count in the U.S. land and offshore market areas as well as oil and natural gas prices and worldwide rig count, which are summarized in the table below.
2020 to 2019 | 2019 to 2018 | |||||||||||||
2020 | 2019 | Change | 2018 | Change | ||||||||||
Worldwide Rig Count (1) | ||||||||||||||
U.S.: | ||||||||||||||
Land | 417 | 920 | -55% | 1,013 | -9% | |||||||||
Offshore | 16 | 23 | -30% | 19 | 21% | |||||||||
Total | 433 | 943 | -54% | 1,032 | -9% | |||||||||
International (2) | 825 | 1,098 | -25% | 988 | 11% | |||||||||
Worldwide Total | 1,258 | 2,041 | -38% | 2,020 | 1% | |||||||||
Commodity Prices (average) | ||||||||||||||
Crude Oil (West Texas Intermediate) | $ | 39.16 | $ | 56.98 | -31% | $ | 65.23 | -13% | ||||||
Natural Gas (Henry Hub) | $ | 2.03 | $ | 2.57 | -21% | $ | 3.15 | -18% | ||||||
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|
|
|
| 2022 to 2021 |
|
|
|
| 2021 to 2020 | ||||
|
| 2022 |
|
|
| 2021 |
|
| % Change |
| 2020 |
|
| % Change | ||||
Worldwide Rig Count (1) |
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|
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| ||||
U.S.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Land |
|
| 708 |
|
|
|
| 464 |
|
| 52.6% |
|
| 417 |
|
| 11.3% | |
Offshore |
|
| 15 |
|
|
|
| 14 |
|
| 7.1% |
|
| 16 |
|
| (12.5%) | |
Total |
|
| 723 |
|
| - |
|
| 478 |
|
| 51.3% |
|
| 433 |
|
| 10.4% |
International (2) |
|
| 851 |
|
|
|
| 755 |
|
| 12.7% |
|
| 825 |
|
| (8.5%) | |
Worldwide Total |
|
| 1,574 |
|
| - |
|
| 1,233 |
|
| 27.7% |
|
| 1,258 |
|
| (2.0%) |
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|
|
|
|
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|
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|
|
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| ||||
Commodity Prices (average) |
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|
|
|
|
| ||||
Crude Oil (West Texas Intermediate) |
| $ | 94.90 |
|
|
| $ | 68.14 |
|
| 39.3% |
| $ | 39.16 |
|
| 74.0% | |
Natural Gas (Henry Hub) |
| $ | 6.42 |
|
|
| $ | 3.91 |
|
| 64.2% |
| $ | 2.03 |
|
| 92.6% | |
(2)
Overview of our business segments28
We attribute revenue to major geographic regions based on the location where services are performed or the destination of the rental or sale of products. The following table compares our revenues generated from major geographic regions (in thousands).
Revenue | |||||||||||||
2020 | % | 2019 | % | Change | |||||||||
U.S. Land | $ | 289,519 | 34% | $ | 698,305 | 49% | $ | (408,786) | |||||
U.S. Offshore | 233,580 | 27% | 340,565 | 24% | (106,985) | ||||||||
International | 328,208 | 39% | 386,499 | 27% | (58,291) | ||||||||
Total | $ | 851,307 | 100% | $ | 1,425,369 | 100% | $ | (574,062) | |||||
The Drilling Products and Services segment is moderately capital intensive with higher operating margins relative to our other segments as a result of relatively low operating expenses. The largest fixed cost is depreciation as there is little labor associated with our drilling products and services businesses. In 2020, 28% of segment revenue was derived from U.S. land market area (down from 43% in 2019), while 40% of segment revenue was from the U.S. offshore market area (up from 30% in 2019) and 32% of segment revenue was from international market areas (up from 26% in 2019). Premium drill pipe accounted for approximately 70% of this segment’s revenue in 2020, while bottom hole assemblies accounted for approximately 20% of this segment’s revenue in 2020.
The Onshore Completion and Workover Services segment consists primarily of services used in the completion and workover of oil and gas wells on land. These services include well service rigs and fluid management services. All of this segment’s revenue is derived in the U.S. land market areas. Demand for these services in the U.S. land market can change quickly and is highly dependent on the number of oil and natural gas wells drilled and completed. Given the cyclical nature of these drilling and completion activities in the U.S. land market, coupled with the high labor intensity of these services, operating margins can fluctuate widely depending on supply and demand at a given point in the cycle. Fluid management and well service rigs accounted for 66% and 34%, respectively, of this segment’s revenue in 2020.
The Production Services segment consists of intervention services primarily used to maintain and extend oil and gas production during the life of a producing well. These services are labor intensive and margins fluctuate based on how much capital our customers allocate towards enhancing existing oil and gas production from mature wells. In 2020, 22% of segment revenue was derived from the U.S. land market area (down from 34% in 2019), while 14% of segment revenue was from the U.S. offshore market area (down from 18% in 2019) and 64% of this segment’s revenue was from international market areas (up from 48% in 2019). Hydraulic workover and snubbing services represented 32% of this segment’s revenue in 2020. Pressure control and cementing and stimulation activities accounted for 26% and 20%, respectively, of this segment’s revenue in 2020.
The Technical Solutions segment consists of products and services that address customer-specific needs and include offerings such as completion tools and services, well control services, subsea well intervention and the production and sale of oil and gas. Given the project-specific nature associated with several of the service offerings in this segment and the seasonality associated with Gulf of Mexico
activity, revenue and operating margins in this segment can have significant variations from quarter to quarter. In 2020, revenue derived from the U.S. land market area was 11% of segment revenue (down from 15% in 2019), while 51% of segment revenue was from the U.S. offshore market area (down from 53% in 2019) and 37% of segment revenue was from international market areas (up from 32% in 2019). Completion tools and products accounted for approximately 45% of this segment’s revenue in 2020, while well control services represented 34% of this segment’s revenue in 2020.
The Successor Period and the Predecessor Period are distinct reporting periods as a result of our emergence from bankruptcy. References in these results of operations to changes in comparison to year ended December 31, 2022 (the “Current Period") combine the Successor Period and Predecessor Period results for year ended December 31, 2021 (the “Combined Period”) in order to provide some comparability of such information. While this combined presentation is not presented according to generally accepted accounting principles in the United States of America (“GAAP”) and no comparable GAAP measures are presented, management believes that providing this financial information is the most relevant and useful method for making comparisons to the Current Period as reviewing the Successor Period results in isolation would not be useful in identifying trends in or reaching conclusions regarding our overall operating performance.
|
| Successor |
|
|
| Predecessor |
|
| Non-GAAP |
|
| Change | |||||||||||
|
| Year Ended December 31, 2022 |
|
| For the Period |
|
|
| For the Period |
|
| For the Combined Year Ended December 31, 2021 |
|
| $ |
|
| % | |||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Rentals |
| $ | 402,942 |
|
| $ | 268,695 |
|
|
| $ | 18,339 |
|
| $ | 287,034 |
|
| $ | 115,908 |
|
| 40.4% |
Well Services |
|
| 481,018 |
|
|
| 380,059 |
|
|
|
| 27,589 |
|
|
| 407,648 |
|
|
| 73,370 |
|
| 18.0% |
Total revenues |
|
| 883,960 |
|
|
| 648,754 |
|
|
|
| 45,928 |
|
|
| 694,682 |
|
|
| 189,278 |
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Rentals |
|
| 137,626 |
|
|
| 105,373 |
|
|
|
| 7,839 |
|
|
| 113,212 |
|
|
| 24,414 |
|
| 21.6% |
Well Services |
|
| 339,325 |
|
|
| 316,879 |
|
|
|
| 21,934 |
|
|
| 338,813 |
|
|
| 512 |
|
| 0.2% |
Total cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 476,951 |
|
|
| 422,252 |
|
|
|
| 29,773 |
|
|
| 452,025 |
|
|
| 24,926 |
|
|
|
Depreciation, depletion, amortization and accretion |
|
| 98,060 |
|
|
| 219,859 |
|
|
|
| 8,358 |
|
|
| 228,217 |
|
|
| (130,157 | ) |
| (57.0%) |
General and administrative expenses |
|
| 128,294 |
|
|
| 117,575 |
|
|
|
| 11,052 |
|
|
| 128,627 |
|
|
| (333 | ) |
| (0.3%) |
Restructuring expenses |
|
| 6,375 |
|
|
| 22,952 |
|
|
|
| 1,270 |
|
|
| 24,222 |
|
|
| (17,847 | ) |
| (73.7%) |
Other (gains) and losses, net |
|
| (29,134 | ) |
|
| 16,726 |
|
|
|
| - |
|
|
| 16,726 |
|
|
| 5 |
|
| ** |
Income (loss) from operations |
|
| 203,414 |
|
|
| (150,610 | ) |
|
|
| (4,525 | ) |
|
| (155,135 | ) |
|
| 312,684 |
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest income, net |
|
| 11,713 |
|
|
| 2,331 |
|
|
|
| 202 |
|
|
| 2,533 |
|
|
| 9,180 |
|
| 362.4% |
Reorganization items, net |
|
| - |
|
|
| - |
|
|
|
| 335,560 |
|
|
| 335,560 |
|
|
| (335,560 | ) |
| (100.0%) |
Other income (expense) |
|
| (1,804 | ) |
|
| (7,128 | ) |
|
|
| (2,105 | ) |
|
| (9,233 | ) |
|
| 7,429 |
|
| ** |
Income (loss) from continuing operations before income taxes |
|
| 213,323 |
|
|
| (155,407 | ) |
|
|
| 329,132 |
|
|
| 173,725 |
|
|
| (6,267 | ) |
|
|
Income tax (expense) benefit |
|
| 77,719 |
|
|
| 33,298 |
|
|
|
| (60,003 | ) |
|
| (26,705 | ) |
|
| 104,424 |
|
| (391.0%) |
Net income (loss) from continuing operations |
|
| 291,042 |
|
|
| (122,109 | ) |
|
|
| 269,129 |
|
|
| 147,020 |
|
|
| 98,157 |
|
|
|
Income (loss) from discontinued operations, net of income tax |
|
| (4,577 | ) |
|
| (40,069 | ) |
|
|
| (352 | ) |
|
| (40,421 | ) |
|
| 35,844 |
|
| (88.7%) |
Net income (loss) |
| $ | 286,465 |
|
| $ | (162,178 | ) |
|
| $ | 268,777 |
|
| $ | 106,599 |
|
| $ | 134,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
** Not a meaningful percentage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
We reported net income from continuing operations for the Current Period of $291.0 million on revenues of $884.0 million and $147.0 million on revenues of $694.7 million for the Combined Period. Net income from continuing operations for the Combined Period was driven primarily by a $335.6 million gain in reorganization items, net primarily due to debt forgiveness as part of our emergence from bankruptcy.
For 2020,
Revenues and Cost of Revenues
Revenues from our revenue was $851.3 million, a decrease of $574.1Rentals segment increased $115.9 million, or 40%40.4%, in the Current Period as compared to the Combined Period. Cost of revenues also increased $24.4 million, or 21.6%, as compared to 2019. Net loss from continuing operations was $281.3 million, orthe Combined Period. The increase in commodity prices led to an increase in capital expenditures by our customers which had an impact on rig count between periods. Additionally, greater utilization and higher pricing for both premium drill pipe and bottom hole assembly accessories, which allowed for a $18.98 loss per share. Net loss was $396.2 million, or a $26.73 loss per share. Included inhigher gross margin of 65.8% for the results for 2020 were pre-tax charges of $47.1 million related to prepetition restructuring expenses, $26.9 million related to a reduction in value of assets, and $21.6 million related to postpetition reorganization expenses. For 2019, our revenue was $1,425.4 million, resulting in a loss from continuing operations of $77.8 million, or a $5.05 loss per share. Net loss was $255.7 million, or a $16.61 loss per share. Included in the results for 2019 was a pre-tax charge of $17.2 million related to a reduction in value of assets.
The following table compares our operating results for 2020 and 2019 (in thousands). Cost of revenues excludes depreciation, depletion, amortization and accretion for each of our business segments.
Revenue | Cost of Revenues | ||||||||||||||||||||||
2020 | 2019 | Change | % | 2020 | % | 2019 | % | Change | |||||||||||||||
Drilling Products and | |||||||||||||||||||||||
Services | $ | 281,397 | $ | 411,573 | $ | (130,176) | -32% | $ | 97,894 | 35% | $ | 154,503 | 38% | $ | (56,609) | ||||||||
Onshore Completion and | |||||||||||||||||||||||
Workover Services | 130,798 | 341,297 | (210,499) | -62% | 123,443 | 94% | 274,162 | 80% | (150,719) | ||||||||||||||
Production Services | 276,329 | 405,830 | (129,501) | -32% | 230,939 | 84% | 328,527 | 81% | (97,588) | ||||||||||||||
Technical Solutions | 162,783 | 266,669 | (103,886) | -39% | 127,853 | 79% | 167,890 | 63% | (40,037) | ||||||||||||||
Total | $ | 851,307 | $ | 1,425,369 | $ | (574,062) | -40% | $ | 580,129 | 68% | $ | 925,082 | 65% | $ | (344,953) | ||||||||
Operating Segments:
Drilling Products and Services Segment
Revenue for our Drilling Products and Services segment decreased 32% to $281.4 million for 2020,Current Period as compared to $411.6 million60.6% for 2019. Cost of revenues as a percentage of revenue decreased to 35% of segment revenue in 2020, as compared to 38% in 2019. Revenue decreased in each geographic market area for this segment: 56% in the U.S. land market area, 17% in the International market area, and 10% in the U.S. offshore market area. The decrease in revenue was a result of decreased revenue from rentals of premium drill pipe, bottom hole assemblies, and accommodations, as demand for these rental products decreased along with the decrease in rig count in each geographic area.Combined Period.
Onshore Completion and Workover Services Segment29
Revenue for our Onshore Completion and Workover Services segment decreased 62% to $130.8 million for 2020, as compared to $341.3 million in 2019. All of this segment’s revenue is derived from the U.S. land market area, in which rig count was down 55%. Cost of revenues as a percentage of revenue increased to 94% of segment revenue in 2020, as compared to 80% in 2019.
Production Services Segment
Revenue for our Production Services segment decreased 32% to $276.3 million for 2020, as compared to $405.8 million in 2019. Cost of revenues as a percentage of revenues increased to 84% of segment revenue in 2020, as compared to 81% in 2019. Revenue from the U.S. land market area decreased 56%, primarily due to decreased activity in coiled tubing services and pressure control activities. Revenue from international market areas decreased 9% primarily due to decreased activity from electric line, coiled tubing, and hydraulic workover and snubbing services, partially offset by increased activity in cementing and stimulation activities. Revenue derived from the U.S. offshore market area decreased 49%, primarily due to a decrease in electric line, slickline, and hydraulic workover and snubbing services. Although we experienced an increase in demand for international cementing and stimulation activities, overall segment revenue declined along with the decrease in rig count in each geographic area.
Technical Solutions Segment
Revenue for our Technical Solutions segment decreased 39% to $162.8 million for 2020, as compared to $266.7 million in 2019. Cost of revenues as percentage of revenue increased to 79% in 2020, as compared to 63% in 2019. Revenue derived from the U.S. offshore
market area decreased 41%
Revenues from our Well Services segment increased $73.4 million, or 18.0%, primarilyin the Current Period. Cost of revenues increased $0.5 million, or 0.2%, in the Current Period as compared to the Combined Period. Gross margin for the Current Period increased to 29.5% as compared to 16.9% for the Combined Period due to a declinechanges in revenue mix in our completions applications, increases in service revenues with higher margins and a reduction in pass through and mobilization projects with lower margins. Additionally, the strategic shift from completion toolsour more labor-intensive service businesses to U.S. offshore and products. Revenue frominternational operations reduces our exposure to the most significant wage inflation pressures in this segment given our lower U.S. land market area decreased 54%, primarily due to a decline in revenue from well control services. Revenue from international market areas decreased 28%, primarily due to a decrease in subsea intervention and well control services, partially offset by an increase in completion tools and products. Although we experienced an increase in demand for international completion tools and products, overall segment revenue declined along with the decrease in rig count in each geographic area.headcount.
Depreciation, Depletion, Amortizationand Accretion
Depreciation, depletion, amortization and accretion expense for the December 31, 2022 decreased $130.2 million, or 57.0%, as compared to $146.8the Combined Period. Depreciation expense, primarily in the Combined Period, has been impacted by the valuation process under fresh start accounting, where certain fully depreciated assets were assigned a new estimated fair value and a new remaining useful life of less than 36 months.
Restructuring Expenses
Restructuring expenses were $6.4 million and $24.2 million during 2020 from $196.5the December 31, 2022 and the Combined Period, respectively. This decrease is a result of severance expenses and costs related to executive officers that resigned during the Combined Period as well as professional fees associated with the Transformation Project (defined below) that were not as prevalent in the Current Period. In addition to Transformation Project costs, Current Period restructuring expenses also include legal and other professional fees related to certain tax and shareholder distribution matters.
Other (gains) and losses, net
Other gains, net for the Current Period were $29.1 million compared to other losses, net of $16.7 million in 2019. Depreciationthe Combined Period. Other (gains) and amortization expense decreased forlosses, net primarily relate to charges recorded as part of our Drilling Productsstrategic disposal of low margin assets in line with our efforts to reconfigure our organization both operationally and financially (the “Transformation Project”) and includes gains and losses on the disposal of assets, as well as impairments related to long-lived assets.
In the Current Period, other gains, net includes $23.6 million related to our Well Services segment, including a gain of $17.4 million from revisions to our decommissioning program to a reef-in-place program which significantly reduced the estimated costs associated with decommissioning our oil and gas property and $5.2 million related to our Rentals segment.
In the Combined Period, other losses, net comprised $13.1 million related to our Well Services segment, including approximately $11.7 million from exit activities related to SES Energy Services India Pvt. Ltd ("SES India"), and $3.6 million related to our Rentals segment. SES India was admitted into bankruptcy during the Current Period.
Interest Income, net
Interest income, net for December 31, 2022 was $11.7 million compared to $2.5 million for the Combined Period. The increase in interest income was driven by $22.5interest derived on overnight money market accounts primarily in Argentina and the United States.
Other income (expense)
Other income (expense) primarily relate to re-measurement gains and losses associated with our foreign currencies and realized and unrealized gains and losses on our investment in common stock of Select Energy Services, Inc. (“Select”).
Losses on foreign currencies during the Current Period and Combined Period were $12.6 million and $10.9 million, respectively. Losses on foreign currencies during the Current Period include an expense of $2.7 million which represents a correction of an immaterial error relating to a period prior to our emergence from bankruptcy. Gains and losses on foreign currencies are primarily related to our operations in Brazil and Argentina.
During the Current Period, we disposed of 4.1 million shares of Select for $34.7 million, and we recognized gains totaling $8.9 million in connection with these transactions. During the Combined Period, we disposed of 0.7 million shares of Select for $4.1 million, and we recognized gains totaling $0.4 million. Unrealized gains during the Combined Period were $2.1 million. As of December 31, 2022, all shares of Select had been disposed.
30
Income Taxes
The effective tax rate on income from continuing operations for the Current Period was a net benefit of 36.4% and a net expense of 21.4% and 18.2% for the Successor Period and the Predecessor Period, respectively. Expected tax in the Current Period would be a $44.8 million expense at the U.S. statutory rate of 21.0%. We recognized a worthless stock deduction for U.S. income tax purposes with an estimated net tax benefit of $104.0 million, the primary driver of the net reported Current Period effective tax benefit of $77.7 million. In addition, there were valuation allowance releases primarily for Brazil deferred tax assets and a portion of U.S. foreign tax credits offset by foreign losses for which no tax benefit was recorded resulting in net tax benefit of $18.5 million. The tax rate for the Combined Period is different from the U.S. federal statutory rate of 21.0% primarily from non-deductible items, foreign losses for which no tax benefit was recorded and the adoption of fresh start accounting during the period.
Our unrecognized tax benefit as of December 31, 2022 was $14.0 million, all of which would impact our effective tax rate if recognized. It is reasonably possible $9.7 million of unrecognized tax benefits could be settled in the next twelve months due to the conclusion of tax audits or statutes of limitations expiration. It is our policy to recognize interest and applicable penalties, if any, related to uncertain tax positions in income tax expense.
Discontinued Operations
Loss from discontinued operations, net of tax, was $4.6 million for the Current Period as compared to $40.4 million for the Combined Period. See Note 17 - Discontinued Operations to our consolidated financial statements for further discussion.
31
Comparison of the Results of Operations for the Years Ended December 31, 2021 and 2020
|
| Successor |
|
|
| Predecessor | Change | ||||||||||||||||
|
|
|
|
|
|
|
|
| Non-GAAP |
|
|
|
|
|
|
|
|
| |||||
|
| For the Period |
|
|
| For the Period |
|
| For the Combined Year Ended December 31, 2021 |
|
| For the Year Ended December 31, 2020 |
|
| $ |
|
| % | |||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Rentals |
| $ | 268,695 |
|
|
| $ | 18,339 |
|
| $ | 287,034 |
|
| $ | 297,835 |
|
| $ | (10,801 | ) |
| (3.6%) |
Well Services |
|
| 380,059 |
|
|
|
| 27,589 |
|
|
| 407,648 |
|
|
| 369,414 |
|
|
| 38,234 |
|
| 10.3% |
Total revenues |
|
| 648,754 |
|
|
|
| 45,928 |
|
|
| 694,682 |
|
|
| 667,249 |
|
| $ | 27,433 |
|
| 4.1% |
Cost of revenues: |
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ||||
Rentals |
|
| 105,373 |
|
|
|
| 7,839 |
|
|
| 113,212 |
|
|
| 109,902 |
|
|
| 3,310 |
|
| 3.0% |
Well Services |
|
| 316,879 |
|
|
|
| 21,934 |
|
|
| 338,813 |
|
|
| 298,229 |
|
|
| 40,584 |
|
| 13.6% |
Total cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 422,252 |
|
|
|
| 29,773 |
|
|
| 452,025 |
|
|
| 408,131 |
|
|
| 43,894 |
|
| 10.8% |
Depreciation, depletion, amortization and accretion |
|
| 219,859 |
|
|
|
| 8,358 |
|
|
| 228,217 |
|
|
| 115,771 |
|
|
| 112,446 |
|
| 97.1% |
General and administrative expenses |
|
| 117,575 |
|
|
|
| 11,052 |
|
|
| 128,627 |
|
|
| 205,773 |
|
|
| (77,146 | ) |
| (37.5%) |
Restructuring expenses |
|
| 22,952 |
|
|
|
| 1,270 |
|
|
| 24,222 |
|
|
| 47,055 |
|
|
| (22,833 | ) |
| (48.5%) |
Other (gains) and losses, net |
|
| 16,726 |
|
|
|
| - |
|
|
| 16,726 |
|
|
| - |
|
|
| 16,726 |
|
| ** |
Reduction in value of assets |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| 23,775 |
|
|
| (23,775 | ) |
| (100.0%) |
Income (loss) from operations |
|
| (150,610 | ) |
|
|
| (4,525 | ) |
|
| (155,135 | ) |
|
| (133,256 | ) |
|
| (21,879 | ) |
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
| |||
Interest income, net |
|
| 2,331 |
|
|
|
| 202 |
|
|
| 2,533 |
|
|
| (92,426 | ) |
|
| 94,959 |
|
| (102.7%) |
Reorganization items, net |
|
| - |
|
|
|
| 335,560 |
|
|
| 335,560 |
|
|
| (19,520 | ) |
|
| 355,080 |
|
| (1819.1%) |
Other income (expense) |
|
| (7,128 | ) |
|
|
| (2,105 | ) |
|
| (9,233 | ) |
|
| (9,229 | ) |
|
| (4 | ) |
| ** |
Income (loss) from continuing operations before income taxes |
|
| (155,407 | ) |
|
|
| 329,132 |
|
|
| 173,725 |
|
|
| (254,431 | ) |
|
| 428,156 |
|
|
|
Income tax (expense) benefit |
|
| 33,298 |
|
|
|
| (60,003 | ) |
|
| (26,705 | ) |
|
| 26,888 |
|
|
| (53,593 | ) |
| (199.3%) |
Net income (loss) from continuing operations |
|
| (122,109 | ) |
|
|
| 269,129 |
|
|
| 147,020 |
|
|
| (227,543 | ) |
|
| 374,563 |
|
|
|
Income (loss) from discontinued operations, net of income tax |
|
| (40,069 | ) |
|
|
| (352 | ) |
|
| (40,421 | ) |
|
| (168,687 | ) |
|
| 128,266 |
|
| (76.0%) |
Net income (loss) |
| $ | (162,178 | ) |
|
| $ | 268,777 |
|
| $ | 106,599 |
|
| $ | (396,230 | ) |
| $ | 502,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
** Not a meaningful percentage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net income from continuing operations for the Combined Period was $106.6 million, which compares to a net loss for the year ended December 31, 2020 (the "Prior Period") of $396.2 million. The Combined Period net income was driven by recognition of a $335.6 million gain in Reorganization items, net primarily due to debt forgiveness as part of our emergence from bankruptcy. Also, the results for the Combined Period include a charge of $24.2 million related to restructuring activities and other losses, net of $16.7 million, which primarily relate to charges associated with asset disposals.
Revenues and Cost of Revenues
Revenue for the Combined Period was $694.7 million, an increase of $27.4 million, or 27%;4.1%, from the Prior Period. Cost of revenues for the Combined Period was $452.0 million, an increase of $43.9 million, or 10.8%, from the Prior Period. Both revenues and cost of revenues in the Prior Period were severely impacted by the effects of COVID-19, and the increase in our Onshore Completionresults in the Combined Period were driven by improvements related to operations in Latin America and Workoverimprovements in our well control services, partially offset by declines in well completion services. Additionally, during the Combined Period, we incurred shut down costs of $8.7 million at certain locations primarily in our Well Services segment by $11.4 million, or 34%; for our Production Services segment by $11.6 million, or 22%;which include costs associated with the severance of personnel and for our Technical Solutions segment by $3.3 million, or 15%. The decrease in depreciation,write-down of inventory at these locations.
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Depreciation, Depletion, Amortization and Accretion
Depreciation, depletion, amortization and accretion was $228.2 million during the Combined Period compared to $115.8 million during the Prior Period. The increase is primarily duerelated to impairmentsboth an increase in the carrying value of long-livedour assets during 2020 and 2019lower average remaining useful lives as a result of fair value adjustments recorded as a part of fresh start accounting. Depreciation expense in addition tothe Combined Period was impacted by the valuation process under fresh start accounting. Certain fully depreciated assets becomingwere assigned an estimated fair value of approximately $197.5 million and a remaining useful life of less than 36 months which significantly increased the amount of depreciation expense recorded in the Combined Period. Depreciation expense for these previously fully depreciated.depreciated assets was $167.5 million for the Combined Period.
Other Operating Items:
General and Administrative Expenses
General and administrative expenses decreased to $222.5expense was $128.6 million during 2020 from $268.2the Combined Period compared to $205.8 million in 2019. Total general and administrative expenses decreased 17% due toduring the Prior Period. The decrease is the result of our continued focus on limiting spending and reducing our cost structure.
Restructuring Expenses
Restructuring expenses during the Combined Period were $24.2 million and primarily relate to severance expenses and costs for executive officers that resigned during the period as well as professional fees associated with our Transformation Project.
Restructuring expenses for the Prior Period were $47.1 million, for the year ended December 31, 2020. These prepetition restructuring expensesand include $31.5$31.5 million of advisory and professional fees relating to the Chapter 11 Cases and $15.6 million related to the RSAa premium paid to certain Consenting Noteholders pursuant toconsenting noteholders in connection with the RSA (the RSA Premium). There were no prepetition charges for the year ended December 31, 2019.bankruptcy.
Reduction in Value of Assets
Other (gains) and losses, net
The reduction
Other losses, net during the Combined Period were $16.7 million and were comprised $13.1 million related to our Well Services segment, which includes approximately $11.7 million from exit activities related to SES Energy Services India Pvt. Ltd, and $3.6 million related to our Rentals segment. Other (gains) and losses, net primarily relate to charges recorded as part of our strategic disposal of low margin assets in valueline with our Transformation Project and includes gains and losses on the disposal of assets, recorded in 2020 was $26.9 million as compared to $17.2 million in 2019. In 2020, the reduction in value of assets waswell as impairments related to impairment of our long-lived assets, primarily in our Technical Solutions and Production Services segments. In 2019, the reduction in value of assets related to impairment of our long-lived assets, primarily in our Onshore Completion and Workover Services and Technical Solutions segments. See note 12 to our consolidated financial statements for further discussion of the reduction in value of assets.
Non-operating Items:
Reorganization Expensesitems, net
Reorganization expensesitems, net were $21.6$335.6 million during the Combined Period.
Interest Income (Expense), net
Interest income was $2.5 million for the year ended December 31, 2020. These postpetition reorganization expenses are comprised primarilyCombined Period ascompared to interest expense of unamortized debt issuance costs, expenses related to rejected leases, and postpetition professional fees related to the Chapter 11 Cases. There were no reorganization expenses$92.4 million for the year ended December 31, 2019.Prior Period. Interest expense for the Prior Period was a result of outstanding debt which was subsequently eliminated as a liability subject to compromise and settled in accordance with the Plan.
Income Taxes
OurThe effective income tax rate for 2020the Successor Period and the Predecessor Period was a 5%21.4%, and 18.2%, respectively.
The tax rate in the Successor Period is different from the blended federal and state statutory rate of 22.5% primarily from non-deductible items and foreign losses for which no tax benefit comparedwas recorded.
The tax rate in the Predecessor Period is different from the blended federal and state statutory rate of 22.5% primarily from the adoption of fresh start accounting during the period. The cancellation of indebtedness income resulting from the restructuring has significantly reduced our US tax attributes, including but not limited to a 6%net operating loss carryforwards. We experienced an ownership change under Sec. 382 of the Internal Revenue Code of 1986, as amended (the “Code”), which is anticipated to limit certain remaining tax attributes.
The effective tax rate for the Prior Period was 10.6%. The tax rate is different from the blended federal and state statutory rate of 22.5% primarily from foreign losses for which no tax benefit for 2019.was recorded.
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Discontinued Operations
Loss from discontinued operations, net of tax, was $114.9$40.4 million for 2020the Combined Period as compared to $177.9$168.7 million for 2019.the Prior Period. See note 13Note 17 - Discontinued Operations to our consolidated financial statements for further discussion of the discontinued operations.discussion.
For 2019, our revenue was $1,425.4 million, a decrease of $53.5 million or 4%, as compared to 2018. Net loss from continuing operations was $77.8 million, or a $5.05 loss per share. Net loss was $255.7 million, or a $16.61 loss per share. Included in the results for 2019 was a pre-tax charge of $17.2 million related to a reduction in value of assets. For 2018, our revenue was $1,478.9 million, resulting in a loss from continuing operations of $427.4 million, or a $27.69 loss per share. Net loss was $858.1 million, or a $55.59 loss per share. Included in the results for 2018 was a pre-tax charge of $322.7 million related to a reduction in value of assets.
The following table compares our operating results for 2019 and 2018 (in thousands). Cost of revenues excludes depreciation, depletion, amortization and accretion for each of our business segments.
Revenue | Cost of Revenue | ||||||||||||||||||||||
2019 | 2018 | Change | % | 2019 | % | 2018 | % | Change | |||||||||||||||
Drilling Products and | |||||||||||||||||||||||
Services | $ | 411,573 | $ | 383,719 | $ | 27,854 | 7% | $ | 154,503 | 38% | $ | 148,019 | 39% | $ | 6,484 | ||||||||
Onshore Completion and | |||||||||||||||||||||||
Workover Services | 341,297 | 406,248 | (64,951) | -16% | 274,162 | 80% | 315,291 | 78% | (41,129) | ||||||||||||||
Production Services | 405,830 | 418,525 | (12,695) | -3% | 328,527 | 81% | 342,420 | 82% | (13,893) | ||||||||||||||
Technical Solutions | 266,669 | 270,365 | (3,696) | -1% | 167,890 | 63% | 164,758 | 61% | 3,132 | ||||||||||||||
Total | $ | 1,425,369 | $ | 1,478,857 | $ | (53,488) | -4% | $ | 925,082 | 65% | $ | 970,488 | 66% | $ | (45,406) | ||||||||
Operating Segments:
Drilling Products and Services Segment
Revenue for our Drilling Products and Services segment increased 7% to $411.6 million for 2019, as compared to $383.7 million for 2018. Cost of revenues as a percentage of revenue decreased to 38% of segment revenue in 2019, as compared to 39% in 2018. Revenue from the U.S. offshore market area increased 24% as a result of increased revenue from rentals of premium drill pipe, bottom hole assemblies and accommodation units, as demand for these rental products increased along with the increase in offshore rig count. Revenue from the U.S. land market area and international market areas remained flat.
Onshore Completion and Workover Services Segment
Revenue for our Onshore Completion and Workover Services segment decreased 16% to $341.3 million for 2019, as compared to $406.2 million in 2018. All of this segment’s revenue is derived from the U.S. land market area, in which rig count was down 9%. Cost of revenues as a percentage of revenue increased to 80% of segment revenue in 2019, as compared to 78% in 2018.
Production Services Segment
Revenue for our Production Services segment decreased 3% to $405.8 million for 2019, as compared to $418.5 million in 2018. Cost of revenues as a percentage of revenues decreased to 81% of segment revenue in 2019, as compared to 82% in 2018. Revenue from the U.S. land market area decreased 29%, primarily due to decreased activity in coiled tubing services. Revenue from international market areas increased 24% primarily due to increased activity from hydraulic workover and snubbing services, electric line and pressure control services. Revenue derived from the U.S. offshore market area increased 11%, primarily due to an increase in hydraulic workover and snubbing activities and electric line services. Increases in the offshore and international rig counts drove higher revenues in those geographic markets, while the decrease in the U.S. land rig count led to lower revenue in that geographic market area.
Technical Solutions Segment
Revenue for our Technical Solutions segment decreased 1% to $266.7 million for 2019, as compared to $270.4 million in 2018. Cost of revenues as percentage of revenue increased to 63% in 2019, as compared to 61% in 2018. Revenue derived from the U.S. offshore market area decreased 12%, primarily due to decline in revenue from subsea intervention services. Revenue from the U.S. land market
area increased 30% primarily due to an increase in demand for completion tools and products. Revenue from international market areas increased 7%, primarily due to an increase in demand for subsea intervention services.
Depreciation, Depletion, Amortizationand Accretion
Depreciation, depletion, amortization and accretion decreased to $196.5 million during 2019 from $278.4 million in 2018. Depreciation and amortization expense decreased for our Drilling Products and Services segment by $28.1 million, or 25%; for our Onshore Completion and Workover Services segment by $34.5 million, or 50%; for our Production Services segment by $15.6 million, or 23%; and for our Technical Solutions segment by $3.0 million, or 12%. The decrease in depreciation, depletion, amortization and accretion is primarily due to assets becoming fully depreciated and impairments of long-lived assets recorded during 2019 and 2018.
Other Operating Items:
General and Administrative Expenses
General and administrative expenses decreased to $268.2 million during 2019 from $276.5 million in 2018. Total general and administrative expenses decreased 3% due to our continued focus on reducing our cost structure and an increase in gains on sales of assets.
Reduction in Value of Assets
The reduction in value of assets recorded in 2019 was $17.2 million as compared to $322.7 million in 2018. In 2019, the reduction in value of assets was related to impairment of our long-lived assets, primarily in our Onshore Completion and Workover Services and Technical Solutions segments. In 2018, the reduction in value of assets was comprised of $251.8 million related to impairment of the remaining goodwill at our Onshore Completion and Workover Services and Production Services segments and $70.8 million impairment related to reduction in value of long-lived assets, primarily in our Onshore Completion and Workover Services and Production Services segments. See note 12 to our consolidated financial statements for further discussion of the reduction in value of assets.
Non-operating Items:
Income Taxes
Our effective income tax rate for 2019 was a 6% tax benefit compared to a 9% tax benefit for 2018. The change in the effective income tax rate was primarily impacted by a deferred tax assets valuation allowance recorded during 2019.
Discontinued Operations
Loss from discontinued operations, net of tax, was $177.9 million for 2019 and represented Pumpco Energy Services, Inc. (Pumpco)’s operating results. Loss from discontinued operations, net of tax, was $430.7 million for 2018 and included operating results for both Pumpco and our subsea construction business which was wound down during 2018. See note 13 to our consolidated financial statements for further discussion of the discontinued operations.
Liquidity and Capital Resources
Our cash
Cash flows depend, to a large degree, on the level of spending by oil and gas companies for exploration, development and production activities. Certain sources and uses of cash, such as our level of discretionary capital expenditures and divestitures of non-core assets, are within our control and are adjusted as necessary based on market conditions.
Before commencing the Chapter 11 Cases, we took a number of steps to improve our position in the market and our capital structure and liquidity needs, without resorting to a comprehensive in-court restructuring, including cutting costs, reducing capital expenditures and managing liquidity. Specifically, in the months leading up to the Chapter 11 Cases, we implemented a number of cost reduction activities to “right size” operations to the current business environment, limit spending, remove structural costs and exercise capital discipline. Beginning in the second quarter and lasting throughout 2020, we implemented actions to reduce our payroll costs through a combination of salary reductions, reductions in force and furloughs. We also limited our expected capital expenditures to no more than $50 million for the full fiscal year 2020. Additionally, we realized cost savings through leveraging governmental relief efforts to defer payroll and other tax payments, resulting in higher future cash flows for 2020. Under the provisions of the CARES Act, the Company received a refund of $30.5 million in July 2020 related to the carryback of the 2018 net operating loss and received a refund of $8.2 million in February 2021 related to the carryback of the 2019 net operating loss.
We believed that even after taking these actions, we did not have sufficient liquidity to satisfy our debt service obligations, meet other financial obligations, comply with our debt covenants and execute our business plan. As a result, we filed for reorganization under Chapter 11 of the Bankruptcy Code.
The filing of the Chapter 11 Cases described above constituted an event of default under each of the following debt instruments (the Debt Instruments). Any efforts to enforce such payment obligations under the Debt Instruments were automatically stayed as a result of the filing of the Petitions.
Indenture, dated December 6, 2011, among SESI, the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (as amended, restated, supplemented, replaced or otherwise modified from time to time).
Indenture, dated August 17, 2017, among SESI, the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (as amended, restated, supplemented, replaced or otherwise modified from time to time).
Fifth Amended and Restated Credit Agreement, dated as of October 20, 2017, among the Company, as parent guarantor, SESI, as borrower, the lenders party thereto from time to time and JPMorgan Chase Bank, N.A., as administrative agent (as amended, restated, supplemented, replaced or otherwise modified from time to time).
On the Effective Date, our obligations under the 7.125% Notes and the 7.750% Notes, including principal and accrued interest, were fully extinguished in exchange for equity in the Company. In addition, the existing Credit Facility prior to the Chapter 11 Cases was restructured into the Credit Facility.
Financial Condition and Sources of Liquidity
Our primary sources of liquidity arehave been cash and cash equivalents, availability under credit facilities, cash generated from operations and proceeds from divestiture of non-core assets. Since the Chapter 11 filings on December 7, 2020,asset sales, and availability under our principal sources of liquidity have been limited to cash flow from operations and the DIP Credit Facility (prior to emergence from bankruptcy) and the Credit Facility (post-emergence from bankruptcy). We are pursuing various alternatives to increase our liquidity. In addition to the cash requirements necessary to fund ongoing operations, we have incurred and continue to incur significant professional fees and other costs in connection with our bankruptcy filing and administration of the Chapter 11 Cases. See Part I Item 1A “Risk Factors.”
Facility. As of December 31, 2020,2022, we had cash, cash equivalents and restricted cash of $268.2$339.1 million. During the Current Period, net cash provided by operating activities was $175.4 million, and $73.0 million of availability remaining under our DIP Credit Facility. During 2020, we generated net cash from operating activities of $2.2 million and received $50.0$85.1 million in cash proceeds from the sale of assets.assets and Select common stock. The primary uses of liquidity are to provide support for operating activities, restructuring activities and capital expenditures. We spent $65.8 million of cash on capital expenditures during the Current Period.
During the pendency of the Chapter 11 Cases, the DIP Credit Facility provided sufficient liquidity. Upon emergence, all outstanding obligations under our unsecured senior notes were cancelled and the applicable agreements governing such obligations were terminated as discussed in Part I, Item 1 of this Annual Report on Form 10-K. The current Credit Facility is a senior secured asset-based revolving credit agreement in an aggregate amount of $120.0 million, as discussed elsewhere in this Annual Report on Form 10-K. The Credit Facility assumed the outstanding DIP Credit Facility letters of credit and currently provides the necessary liquidity to conduct ongoing operations, including the credit lines for letters of credits and working capital needs.
The energy industry faces growing negative sentiment in the market on thewhich may affect our ability to access appropriate amounts of capital and under suitable terms.on terms favorable to us. While we have confidence in the level of support from our lenders, this negative sentiment in the energy industry has not only impacted our customers in North America, it isbut also affectingaffected the availability and the pricing for most credit lines extended to participants in the energy industry. From time to time, we may continue to enter into transactions to dispose of businesses or capital assets that no longer fit our long-term strategy.
Uses of Liquidity
Our primary uses of liquidity areDistributions to provide support for our operating activities, restructuring activities and capital expenditures. We have incurred, and expect to continue to incur, significant costs associated with the Chapter 11 Cases, including fees for legal, financial and restructuring advisors to the Company, and certain of our creditors. We incurred $47.1 million in restructuring expenses during 2020. These expenses Shareholdersinclude $31.5 million of advisory and professional fees relating to the Chapter 11 Cases and $15.6 million related to the RSA Premium. Also related to the RSA is $12.0 million of fees paid in consideration for the commitment by the Backstop Commitment Parties to provide the Delayed-Draw Term Loan Facility upon our emergence from bankruptcy. We spent $47.7 million of cash on capital expenditures during 2020. Capital expenditures of $24.1 million primarily related to the expansion and maintenance of our equipment inventory at our Drilling Products and Services segment; $15.6 million primarily related to the expansion and maintenance of equipment inventory at our Production Services segment and the remaining $8.0 million of capital expenditures
primarily relatedOn November 16, 2022, we announced that our Board declared a special cash dividend of $12.45 per share on our outstanding Class A common stock. The Board determined that, in addition to the maintenancespecial cash dividend, which totaled $250.0 million, to shareholders of our equipment for our Onshore Completion and Workover Services and Technical Solutions segments.Class A common stock, we would make dividend equivalent payments to each holder of unvested restricted stock units. The special dividend was paid on December 28, 2022.
During 2021, we expect to limit capital spending within our operational cash flow levels to generate free cash flow and allocate capital to businesses with higher returns on invested capital.
Included in our future liquidity needs for operating activities are payments for our operating leases, non-qualified deferred compensation plan liabilities, decommissioning liabilities, and certain long-term liabilities. At December 31, 2020, the Former Parent had short-term undiscounted operating lease maturities of $22.3 million and long-term undiscounted operating lease maturities of $62.5 million. The Company maintains a non-qualified deferred compensation plan which allows senior management and non-employee directors to defer certain portions of their compensation. At December 31, 2020, the Former Parent had short-term liabilities of $2.9 million and long-term liabilities of $20.7 million related to the non-qualified deferred compensation plan. The decommissioning liabilities associated with the oil and gas property and its related assets consist of costs related to the plugging of wells, the removal of the related platform and equipment, and site restoration. The Company reviews the adequacy of its decommissioning liabilities whenever indicators suggest that the estimated cash flows and/or relating timing needed to satisfy the liability have changed materially. At December 31, 2020, $3.8 million of these undiscounted decommissioning liabilities are considered short-term, while $195.8 million of the undiscounted decommissioning liabilities are considered to be long-term. The Former Parent had $104.7 million of other long-term liabilities at December 31, 2020.
Debt Instruments
On the EffectiveEmergence Date, pursuant to the Plan, the Former Parentwe entered into a Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders and letter of credit issuers named therein providing for a $120.0 million asset-based secured revolving Credit Facility, all of which is available for the issuingissuance of letters of credit. The issuance of letters of credit which will reduce availability under the Credit Facility dollar-for-dollar. The Credit Facility will mature on December 9, 2024. The
As of December 31, 2022, the borrowing base under the Credit Facility is determined by reference to the Former Parent’s, SESI’swas approximately $120.0 million and the subsidiary guarantors’ billed and unbilled eligible accounts receivable, eligible inventory, until the earlier of December 9, 2022 and the unrestricted cash of the Former Parent and its wholly-owned subsidiaries being less than $75 million, eligible premium rental drill pipe and, so long as there are no loans outstanding at such time, certain cash of the Former Parent, SESI and the subsidiary guarantors, less reserves established by the administrative agent in its permitted discretion.
Availability under the Credit Facility will be the lesser of (i) the aggregate commitments and (ii) the borrowing base. Subject to certain conditions, at the Former Parent’s request and with the consent of the participating lenders, the total commitments under the Credit Facility may be increased to $170.0 million. SESI’s obligations under the Credit Facility are guaranteed by the Former Parent and all of SESI’s material domestic subsidiaries, and secured by substantially all of our, SESI’s and the subsidiary guarantors’ assets, other than real property.
On the Effective Date, the Credit Facility replaced the DIP Credit Facility, and approximately $46.6we had $34.9 million of undrawn letters of credit outstanding that reduced the borrowing availability under the DIP Credit Facility were deemed outstanding under the Credit Facility.revolving credit facility.
Subject to certain exceptions, under the Bankruptcy Code, the Affiliate Debtors rejected approximately $17.6 million in future obligations pursuant to certain leases.
Non-GAAP Financial Measures
We define adjusted EBITDA as net income (loss) before net interest expense, income tax expense (benefit) and depreciation, amortization and depletion, adjusted for reduction in value of assets and other charges, which management does not consider representative of our ongoing operations. We define free cash flow (deficit) as cash flows provided by operating activities less capital expenditures. These non-GAAP measures are not calculated in accordance with, or a substitute for, measures provided in accordance with generally accepted accounting principles (GAAP), and may be different from non-GAAP measures used by other companies. These financial measures are provided to enhance investors’ overall understanding of the Company’s current financial performance.
The following table reconciles net loss from continuing operations, which is the directly comparable financial measure determined in accordance with GAAP, to adjusted EBITDA (in thousands):
Years ended December 31, | ||||||
2020 | 2019 | |||||
Reported net loss from continuing operations | $ | (281,348) | $ | (77,753) | ||
Reduction in value of assets | 26,897 | 17,185 | ||||
Severance and other related costs | 34,252 | 6,035 | ||||
Gain on legal settlement | - | (5,776) | ||||
Merger-related costs | 12,027 | 3,095 | ||||
Restructuring expense | 47,055 | |||||
Reorganization expenses | 21,616 | - | ||||
Interest expense, net | 92,399 | 98,312 | ||||
Other expense | 9,229 | 2,484 | ||||
Income taxes | (13,928) | (4,626) | ||||
Depreciation, depletion, amortization and accretion | 146,793 | 196,459 | ||||
Adjusted EBITDA | $ | 94,992 | $ | 235,415 | ||
The following table reconciles cash provided by operating activities, which is the directly comparable financial measure determined in accordance with GAAP, to free cash flow (deficit) (in thousands):
Years ended December 31, | ||||||
2020 | 2019 | |||||
Net cash provided by operating activities | $ | 2,217 | $ | 146,428 | ||
Less: capital expenditures | (47,653) | (140,465) | ||||
Free cash flow (deficit) | $ | (45,436) | $ | 5,963 | ||
Critical Accounting Policies and Estimates
The accounting policies described below are considered critical in obtaining an understanding of our consolidated financial statements because their application requires significant estimates and judgments by management in preparing our consolidated financial statements. Management’s estimates and judgments are inherently uncertain and may differ significantly from actual results achieved. Management considers an accounting estimate to be critical if the following conditions apply:
It is management’s view that the current assumptions and other considerations used to estimate amounts reflected in our consolidated financial statements are appropriate. However, actual results can differ significantly from those estimates under different assumptions and conditions. The sections below contain information about our most critical accounting estimates.
Bankruptcy.We have applied Accounting Standards Codification 852 “Reorganizations” (ASC 852) in preparing our consolidated financial statements. ASC 852 requires that the financial statements, for periods subsequent to the Chapter 11 filing, distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain revenues, expenses, realized gains and losses and provisions for losses that are realized or incurred in the bankruptcy proceedings are recorded in “Reorganization expenses” in the accompanying Consolidated Statements of Operations. In addition, prepetition obligations that may be impacted by the bankruptcy reorganization process have been classified on our consolidated balance sheets at December 31, 2020 in “Liabilities subject to compromise”. These liabilities are reported at the amounts we anticipate will be allowed by the Bankruptcy Court, even if they may be settled for lesser amounts. See note 2 to our consolidated financial statements for further information.
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Long-Lived Assets Valuation.Valuation We review long-lived assets, such as property, plant and equipment and purchased intangibles subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. We record impairment losses on long-lived assets to be held and used in operations when the fair value of those assets is less than their respective carrying amount. Impairment losses are recorded in the amount by which the carrying amount of such assets exceeds the fair value. Fair value is measured, in part, by the estimated cash
flows to be generated by those assets. Our cash flow estimates are based upon, among other things, historical results adjusted to reflect our best estimate of future market rates, utilization levels and operating performance. Our estimates of cash flows may differ from actual cash flows due to, among other things, changes in economic conditions or changes in an asset’s operating performance. Assets are generally grouped by subsidiary or division for the impairment testing, which represent the lowest level of identifiable cash flows. Assets held for sale are reported at the lower of the carrying amount or fair value less estimated costs to sell. Our estimate of fair value represents our best estimate based on industry trends and reference to market transactions and is subject to variability. The oil and gas industry is cyclical and our estimates of the period over which future cash flows will be generated, as well as the predictability of these cash flows, can have a significant impact on the carrying value of these assets and, in periods of prolonged down cycles, may result in impairment charges. During 2020, we recorded $26.9 million in expense in connection with the reduction in value of long-lived assets in our Drilling Products and Services, Onshore Completion and Workover Services, Production Services and Technical Solutions segments. See note 12 to our consolidated financial statements for further information about these impairments.
Goodwill Valuation.
Decommissioning liability We perform the goodwill impairment test on an annual basis as of October 1 or more often if events or circumstances indicate there may be impairment. Goodwill impairment testingOur decommissioning liability is performed at the reporting unit level, which is consistentassociated with our reporting segments.oil and gas property and include costs related to the plugging of wells, removal of the related platform and equipment and site restoration. We assess whether anyreview the adequacy of our decommissioning liability whenever indicators suggest that the estimated cash flows and/or relating timing needed to satisfy the liability have changed materially. Estimates of impairment exist, which requires a significant amountour decommissioning liability are calculated using the income approach. Estimates of judgment. Such indicators may include a sustained decrease in our stock pricefuture retirement costs are adjusted for an estimated inflation rate over the expected time period prior to retirement and market capitalization; a decline in our expected future cash flows; overall weakness in our industry; and slower growth rates.outflows are discounted by a credit adjusted risk-free rate.
Goodwill impairment exists when the estimated fair value of the reporting unit is below the carrying value. In estimating the fair value of the reporting units, we use a combination of an income approach and a market-based approach.
Income approach – We discount the expected cash flows of each reporting unit. The discount rate used represents the estimated weighted average cost of capital, which reflects the overall level of inherent risk involved in our operations and cash flows and the rate of return an outside investor would expect to earn.
Market-based approach – We use the guideline public company method, which focuses on comparing our risk profile and growth prospects to select reasonably similar publicly traded companies.
We weight the income approach 80% and the market-based approach 20% due to differences between our reporting units and the peer companies’ size, profitability and diversity of operations. In order to validate the reasonableness of the estimated fair values obtained for the reporting units, a reconciliation of fair value to market value of invested capital is performed on the aggregate fair value of the reporting units. A control premium, derived from market transaction data, is used in this reconciliation to ensure that fair values are reasonably stated in conjunction with the Company’s capitalization. A significant amount of judgment is involved in performing these evaluations given that the results are based on estimated future events. In particular, minor changes in the discount rate and revenue growth assumptions used in the income approach could cause significant changes in concluded fair value, making these assumptions sensitive to variation.
During the third quarter of 2020, the Former Parent entered into the RSA as further described in Part I, Item 1 of this Annual Report on Form 10-K. Entry into the RSA, along with changing industry conditions as a result of the COVID-19 pandemic constituted a triggering event that required the Former Parent to perform an interim goodwill impairment review as of September 30, 2020. The result of the goodwill impairment assessment indicated that the fair value of the Drilling Products and Services segment exceeded its net book value and, therefore, no goodwill impairment was recorded. Based on the timing of the third quarter test, along with an increase in sequential revenues and the improving business environment during the fourth quarter of 2020, we determined that no impairment exists as of the annual test date of October 1, 2020.
Income Taxes.Taxes We use the asset and liability method of accounting for income taxes. This method takes into accountconsiders the differences between financial statement treatment and tax treatment of certain transactions. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Our deferred tax calculation requires us to make certain estimates about our future operations. Changes in state, federal and foreign tax laws, as well as changes in our financial condition or the carrying value of existing assets and liabilities, could affect these estimates. The effect of a change in tax rates is recognized as income or expense in the period that the rate is enacted.
Revenue Recognition. Revenues are recognized when performance obligations are satisfied in accordance with contractual terms, in an amount that reflects the consideration expected in exchange for services rendered, rentals provided or products sold. A performance obligation arises under contracts with customers and is the unit of account under Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers. The Company accounts for services rendered and rentals provided separately if they are distinct and the service or rental is separately identifiable from other items provided to a customer and if a customer can benefit from the services rendered or rentals provided on its own or with other resources that are readily available to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. A contract’s standalone selling prices are determined based on the prices charged for its services rendered, rentals provided and products sold. The majority of performance obligations are satisfied over time, which is generally represented by a period of 30 days or less. The payment terms vary by the type of products or services offered. The term between invoicing and when the payment is due is typically 30 days.
The Company maintains its allowance for doubtful accounts at net realizable value. The Company assesses individual customers and overall receivables balances to identify amounts that are believed to be uncertain of collection. The aging of the receivable balance as well as economic factors concerning the customer factor into the Company’s judgment and estimation of allowances, which often involve significant dollar amounts. Adjustments to the allowance in future periods may be made based on changing customer conditions.
Fair Value Measurements.Measurements Fair value is defined as the price that would be received to sell an asset or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date. Inputs used in determining fair value are characterized according to a hierarchy that prioritizes those inputs based on the degree to which they are observable. The Company utilizesWe historically utilized unadjusted quoted prices in the market for measuring the fair value of debt. The Company utilizesWe utilize unadjusted quoted prices for similar assets and liabilities in active markets for measuring the fair value of non-qualified deferred compensation plan assets and liabilities. The Company used management’s own assumptions aboutWe utilized unadjusted quoted prices which are readily determinable for measuring the inputs usedfair value of our investment in pricing the assetsequity securities. We use both cost and market estimates when measuringcalculating fair value for the Company’s long-lived assets that were impaired in 2020.for impairment.
Off-Balance Sheet Arrangements and Hedging Activities
At December 31, 2020, we had no off-balance sheet arrangements and no hedging contracts.
Recently Adopted and Issued Accounting Guidance
See Part II, Item 8, “Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies – New Accounting Pronouncements.”
Item 7A.7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks associated with foreign currency fluctuations and changes in interest rates. A discussion of our market risk exposure in financial instruments follows.
Foreign Currency Exchange Rate Risk
Because we operate in a numberPrior to the Emergence Date, the functional currency of countries throughout the world, we conduct a portionmajority of our business in currencies other thaninternational subsidiaries was US dollars and the U.S. dollar. The functional currency for certain of our international operations, other thansubsidiaries was the local currency.
Commencing on the Emergence Date, as part of adopting a new accounting policy at fresh start accounting, the functional currency of certain operationsinternational subsidiaries changed from the local currency to US dollars. This change brings alignment so that our functional currency is US dollars. Management considered the economic factors outlined in FASB ASC Topic No. 830 - Foreign Currency Matters in the United Kingdom and Europe, is the U.S. dollar, but a portiondetermination of the revenues from ourfunctional currency. Management concluded that the predominance of factors support the use of the US Dollar as the functional currency which resulted in a change in functional currency to US dollars for all international operations is paid in foreign currencies. The effects of foreign currency fluctuations are partly mitigated because local expenses of such international operations are also generally denominated in the same currency. We continually monitor the currency exchange risks associated with all contracts not denominated in the U.S. dollar.subsidiaries.
35
Assets
The change in functional currency is applied on a prospective basis beginning on the Emergence Date and liabilitiestranslation adjustments will continue to remain as a component of certain subsidiaries in the United Kingdom and Europe are translated at end of period exchange rates, while income and expenses are translated at average rates for the period. Translation gains and losses are reported as the foreign currency translation component ofprior periods accumulated other comprehensive loss in stockholders’ equity.loss.
We do not hold derivatives for trading purposes or use derivatives with complex features. When we believe prudent, we enter into forward foreign exchange contracts to hedge the impact of foreign currency fluctuations. We do not enter into forward foreign exchange contracts for trading purposes. At December 31, 2020,2022 and 2021, we had no outstanding foreign currency forward contracts.
Interest Rate Risk
At December 31, 2020,2022 and 2021, we had no variable rate debt outstanding.
Commodity Price Risk
Our revenues, profitability and future rate of growth significantly depend upon the market prices of oil and natural gas. Lower prices may also reduce the amount of oil and gas that can economically be produced. For additional information on the impact of changes in commodities prices on our business and prospects, see Item 1A to this Annual Report on Form 10-K.
Item 8. Financial Statements and Supplementary Data
Consolidated Financial Statements and Notes | Page |
Reports of Independent Registered Public Accounting Firm (PCAOB ID 238) | 38 |
Report of Independent Registered Public Accounting Firm (PCAOB ID 185) | 41 |
42 | |
43 | |
44 | |
Consolidated Statements of Changes in Stockholders' Equity (Deficit) | 45 |
46 | |
47 |
37
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Superior Energy Services, Inc. and its subsidiaries (Debtor In Possession)(Successor) (the Company)“Company”) as of December 31, 20202022 and 2019,2021, and the related consolidated statements of operations, of comprehensive loss,income (loss), of changes in stockholders’stockholders' equity (deficit), and of cash flows for each of the years in the three-year period ended December 31, 2020,2022 and for the period from February 3, 2021 to December 31, 2021, including the related notes and(collectively referred to as the “consolidated financial statement schedule II (collectively, the consolidated financial statements)statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20202022 and 2019,2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020,2022 and for the period from February 3, 2021 to December 31, 2021 in conformity with U.S.accounting principles generally accepted accounting principles.in the United States of America.
Change in
Basis of Accounting Principle
As discussed in Note 41 to the consolidated financial statements, Superior Energy Services, Inc. and certain of its direct and indirect wholly-owned domestic subsidiaries (collectively the “Affiliate Debtors”) filed petitions on December 7, 2020 with the United States Bankruptcy Court for the Southern District of Texas (Bankruptcy Court) for reorganization under the provisions of Chapter 11 of the Bankruptcy Code. The Bankruptcy Court confirmed the Affiliate Debtor’s Joint Prepackaged Plan of Reorganization on January 19, 2021 and the Affiliate Debtor’s emerged from bankruptcy on February 2, 2021. In connection with its emergence from bankruptcy, the Company has changed its method ofadopted fresh start accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Update No. 2016-02, February 2, 2021.
Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’sCompany's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1)that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (2)(ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidatedfinancial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Goodwill impairment analysis
Decommissioning Liabilities Assessment
As described in Note 5 to the consolidated financial statements, the Company has a decommissioning liability associated with oil and gas property related to the plugging of wells, decommissioning of the platform and related equipment and site restoration. Management
38
reviews the adequacy of the decommissioning liability whenever indicators suggest that the estimated cash flows and/or timing needed to satisfy the liability have changed materially. During the second quarter of 2022, the Company undertook an initiative to alter their decommissioning program, whereby they intend to convert the platform into an artificial reef (“reef-in-place”). The reef-in-place program would involve severing the top portion of the structure at a permitted navigation depth and placing the severed structure on the sea floor next to the base of the remaining structure. Converting to a reef-in-place program reduced the estimated costs associated with decommissioning the wells and platform, and also impacted the time required to complete the decommissioning activities. In December 2022, management revised their estimates relating to the timing and the cost of decommissioning the wells. Management now estimates all decommissioning activities, including the decommissioning of the platform, to be completed by the second quarter of 2030. As disclosed by management, the decommissioning liabilities are calculated using the income approach. Estimates of future retirement costs are adjusted for an estimated inflation rate over the expected time period prior to retirement and future cash outflows are discounted by a credit adjusted risk-free rate. As of December 31, 2022, the decommissioning liabilities were approximately $161 million.
The principal considerations for our determination that performing procedures relating to the decommissioning liabilities assessment is a critical audit matter are (i) the significant judgment by management when developing the decommissioning liability estimate, (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumption related to future retirement costs, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These proceduresincluded, among others, (i) testing management’s process for developing the decommissioning liability estimate, (ii) evaluating the appropriateness of the cash flow model, (iii) testing the completeness and accuracy of data used by management in the model, and (iv) the involvement of professionals with specialized skill and knowledge to assist in evaluating the reasonableness of management’s significant assumption related to future retirement costs.
Income Tax Benefit Related to a Worthless Stock Deduction
As described in Notes 1 and 11 to the consolidated financial statements, deferred tax assets and liabilities are recognized for the Drilling Productsfuture tax consequences attributable to differences between the financial statement carrying amounts of existing assets and Services reporting unitliabilities and their respective tax bases. For the year ended December 31, 2022, managementrecognized a worthless stock deduction in the U.S. related to deductible outside basis differences in certain domestic subsidiaries, which is the primary driver of the increase in federal deferred tax. The Company executed a transaction through which a worthless stock deduction of approximately $495 million was deducted for income tax purposes resulting in an estimated net tax benefit of $104 million. Management evaluated the deduction and believes it will more likely than not be sustained on its technical merits and have recognized its benefits accordingly.
The principal considerations for our determination that performing procedures relating to the worthless stock deduction is a critical audit matter are (i) the significant judgment by management when determining the technical merits of the worthless stock deduction that was deducted for income tax purposes, (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s determination of the worthless stock deduction, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, (i) evaluating the appropriateness of management’s assessment of the technical merits of the worthless stock deductionand the application of relevant tax laws in the United States and, (ii) the involvement of professionals with specialized skill and knowledge to assist in the evaluation of management’s assessment of the technical merits of the worthless stock deduction and the application of relevant tax laws in the United States, the completeness and accuracy of data used in the assessment, and the evaluation of opinions of third-party tax and legal advisors.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
March 15, 2023
We have served as the Company’s auditor since 2021.
39
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Superior Energy Services, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of operations, of comprehensive income (loss), of changes in stockholders' equity (deficit) and of cash flows of Superior Energy Services, Inc. and its subsidiaries (Predecessor) (the “Company”) for the period from January 1, 2021 through February 2, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the period from January 1, 2021 through February 2, 2021 in conformity with accounting principles generally accepted in the United States of America.
Basis of Accounting
As discussed in Note 1 to the consolidated financial statements, Superior Energy Services, Inc. and certain of its direct and indirect wholly-owned domestic subsidiaries (collectively the “Affiliate Debtors”) filed petitions on December 7, 2020 with the United States Bankruptcy Court for the Southern District of Texas (Bankruptcy Court) for reorganization under the provisions of Chapter 11 of the Bankruptcy Code. The Bankruptcy Court confirmed the Affiliate Debtor’s Joint Prepackaged Plan of Reorganization on January 19, 2021 and the Affiliate Debtors emerged from bankruptcy on February 2, 2021. In connection with its emergence from bankruptcy, the Company has $138.7 million of goodwilladopted fresh start accounting as of December 31, 2020, allFebruary 2, 2021.
Basis for Opinion
These consolidated financial statements are the responsibility of which relatesthe Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Drilling ProductsCompany in accordance with the U.S. federal securities laws and Services (DPS) reporting unit. The Company tests goodwill for impairment on an annual basis as of October 1the applicable rules and more often if events or circumstances indicate there may be impairment. In estimating the fair valueregulations of the reporting units,Securities and Exchange Commission and the Company uses a combination of an income approach and a market-based approach.PCAOB.
We identifiedconducted our audit of these consolidated financial statements in accordance with the evaluationstandards of the income approach used in the goodwill impairment analysis for the DPS reporting unit as a critical audit matter. The discount ratePCAOB. Those standards require that we plan and revenue growth assumptions used in the income approach valuation are sensitive to variation, such that minor changes in the assumptions could cause significant changes in the estimate. Significant auditor judgment was required to evaluate these assumptions because they involve unobservable inputs and forward-looking information. Additionally,perform the audit effort associated with this estimate required specialized skills and knowledge.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of certain internal controls related to the income approach used in the goodwill impairment analysis for the DPS reporting unit. This included certain controls related to the development of the discount rate and revenue growth assumptions. We assessed the Company’s ability to forecast by comparing historical revenue growth projections to actual results. We evaluated management’s revenue growth assumptions by comparing trends in management’s historical and projected revenue with historical and projected rig counts and oil prices obtained from industry experts. We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the discount rate used by comparing it against a discount rate range that was independently developed using publicly available market data for comparable entities and performing sensitivity analysis related to the discount rate to assess the appropriateness of the Company’s determined rate.
Valuation of Pumpco property, plant and equipment
As discussed in Note 13 toobtain reasonable assurance about whether the consolidated financial statements the Company has $47.6 millionare free of assets held for sale, of which $45.4 relatesmaterial misstatement, whether due to property, plant and equipment as of December 31, 2020.error or fraud. The Company records assets heldis not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for sale at the lowerpurpose of expressing an opinion on the effectiveness of the carrying amount or fair value less estimated costs to sell. In estimating the fair value of assets held for sale, the Company considers industry trends and relevant market transactions.Company’s internal control over financial reporting. Accordingly, we express no such opinion.
We identified
Our audit included performing procedures to assess the valuationrisks of property, plantmaterial misstatement of the consolidated financial statements, whether due to error or fraud, and equipment relatedperforming procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the Pumpco business unit as a criticalamounts and disclosures in the consolidated financial statements. Our audit matter. There was a high degree of subjectivityalso included evaluating the accounting principles used and significant auditor judgment inestimates made by management, as well as evaluating the fair valueoverall presentation of the assets, specifically, evaluating market comparable data. Additionally, theconsolidated financial statements. We believe that our audit effort associated with this estimate required specialized skills and knowledge.provides a reasonable basis for our opinion.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of certain internal controls related to the valuation of property, plant, and equipment classified as held for sale. This included controls related to the procurement and reconciliation of market comparable data. We involved valuation professionals with specialized skills and knowledge, who assisted in assessing the reasonableness of the fair value estimated for the Pumpco property, plant and equipment by comparing it against a range of estimated fair values developed independently based on market data.
/s/ KPMG PricewaterhouseCoopers LLP
Houston, Texas
March 21, 2022
We have served as the Company’s auditor since 1996.2021.
Houston, Texas40
March 26, 2021
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES (DEBTOR IN POSSESSION) | |||||
Consolidated Balance Sheets | |||||
(in thousands, except share data) | |||||
December 31, | |||||
ASSETS | 2020 | 2019 | |||
Current assets: | |||||
Cash and cash equivalents | $ | 188,006 | $ | 272,624 | |
Accounts receivable, net of allowance for doubtful accounts of $24,629 and $12,156 at December 31, 2020 and 2019, respectively | 183,964 | 332,047 | |||
Income taxes receivable | 8,891 | 740 | |||
Prepaid expenses | 36,651 | 49,132 | |||
Inventory and other current assets | 96,141 | 117,629 | |||
Assets held for sale | 47,635 | 216,197 | |||
Total current assets | 561,288 | 988,369 | |||
Property, plant and equipment, net of accumulated depreciation and depletion | 542,090 | 664,949 | |||
Operating lease right-of-use assets | 50,192 | 80,906 | |||
Goodwill | 138,677 | 137,695 | |||
Notes receivable | 72,612 | 68,092 | |||
Restricted cash | 80,178 | 2,764 | |||
Intangible and other long-term assets, net of accumulated amortization | 56,042 | 50,455 | |||
Total assets | $ | 1,501,079 | $ | 1,993,230 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | |||||
Current liabilities: | |||||
Accounts payable | $ | 55,873 | $ | 92,966 | |
Accrued expenses | 130,332 | 182,934 | |||
Current portion of decommissioning liabilities | 3,765 | 3,649 | |||
Liabilities held for sale | 4,079 | 44,938 | |||
Total current liabilities | 194,049 | 324,487 | |||
Long-term debt, net | - | 1,286,629 | |||
Decommissioning liabilities | 138,981 | 132,632 | |||
Operating lease liabilities | 40,258 | 62,354 | |||
Deferred income taxes | 5,288 | 3,247 | |||
Other long-term liabilities | 125,356 | 134,308 | |||
Total liabilities not subject to compromise | 503,932 | 1,943,657 | |||
Liabilities subject to compromise | 1,335,794 | - | |||
Stockholders’ equity (deficit): | |||||
Preferred stock of $0.01 par value. Authorized - 5,000,000 shares; 0ne issued | - | - | |||
Common stock of $0.001 par value | |||||
Authorized - 25,000,000, Issued - 15,799,318, Outstanding - 14,826,906 at December 31, 2020 | 16 | 16 | |||
Authorized - 25,000,000, Issued - 15,689,463, Outstanding - 14,717,051 at December 31, 2019 | |||||
Additional paid-in capital | 2,756,889 | 2,752,859 | |||
Treasury stock at cost, 972,412 shares at December 31, 2020 and 2019, respectively | (4,290) | (4,290) | |||
Accumulated other comprehensive loss, net | (67,947) | (71,927) | |||
Accumulated deficit | (3,023,315) | (2,627,085) | |||
Total stockholders’ equity (deficit) | (338,647) | 49,573 | |||
Total liabilities and stockholders’ equity (deficit) | $ | 1,501,079 | $ | 1,993,230 | |
See accompanying notes to consolidated financial statements. | |||||
Report of Independent Registered Public Accounting Firm
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of operations, comprehensive loss, changes in stockholders’ equity (deficit), and cash flows of Superior Energy Services, Inc. and subsidiaries (the Company) for the year ended December 31, 2020 (Predecessor), and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations of the Company and its cash flows for the year ended December 31, 2020 (Predecessor), in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ KPMG LLP
Houston, TX
March 26, 2021, except as to Note 17, as to which the date is March 21, 2022
We served as the Company’s auditor from 1996 to 2021.
41
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES (DEBTOR IN POSSESSION) | ||||||||
Consolidated Statements of Operations | ||||||||
(in thousands, except per share data) | ||||||||
Years Ended December 31, | ||||||||
2020 | 2019 | 2018 | ||||||
Revenues: | ||||||||
Services | $ | 467,548 | $ | 885,252 | $ | 933,029 | ||
Rentals | 241,232 | 376,247 | 380,296 | |||||
Product sales | 142,527 | 163,870 | 165,532 | |||||
Total revenues | 851,307 | 1,425,369 | 1,478,857 | |||||
Costs and expenses: | ||||||||
Cost of services | 388,319 | 698,150 | 699,322 | |||||
Cost of rentals | 102,571 | 128,695 | 136,135 | |||||
Cost of sales | 89,239 | 98,237 | 135,031 | |||||
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) | 580,129 | 925,082 | 970,488 | |||||
Depreciation, depletion, amortization and accretion - services | 80,334 | 121,805 | 175,417 | |||||
Depreciation, depletion, amortization and accretion - rentals | 41,003 | 59,189 | 71,661 | |||||
Depreciation, depletion, amortization and accretion - sales | 25,456 | 15,465 | 31,361 | |||||
General and administrative expenses | 222,465 | 268,226 | 276,468 | |||||
Restructuring expense | 47,055 | - | - | |||||
Reduction in value of assets | 26,897 | 17,185 | 322,713 | |||||
Income (loss) from operations | (172,032) | 18,417 | (369,251) | |||||
Other income (expense): | ||||||||
Interest expense, net (contractual interest $95.8 million in 2020) | (92,399) | (98,312) | (99,477) | |||||
Reorganization expenses | (21,616) | - | - | |||||
Other income (expense): | (9,229) | (2,484) | (1,678) | |||||
Loss from continuing operations before income taxes | (295,276) | (82,379) | (470,406) | |||||
Income taxes | (13,928) | (4,626) | (43,003) | |||||
Net loss from continuing operations | (281,348) | (77,753) | (427,403) | |||||
Loss from discontinued operations, net of income tax | (114,882) | (177,968) | (430,712) | |||||
Net loss | $ | (396,230) | $ | (255,721) | $ | (858,115) | ||
Basic and diluted loss per share: | ||||||||
Net loss from continuing operations | $ | (18.98) | $ | (5.05) | $ | (27.69) | ||
Loss from discontinued operations | (7.75) | (11.56) | (27.90) | |||||
Net loss | $ | (26.73) | $ | (16.61) | $ | (55.59) | ||
Weighted average shares outstanding | 14,822 | 15,393 | 15,437 | |||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share data)
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES (DEBTOR IN POSSESSION) | ||||||||
Consolidated Statements of Comprehensive Loss | ||||||||
Years Ended December 31, | ||||||||
2020 | 2019 | 2018 | ||||||
Net loss | (396,230) | (255,721) | (858,115) | |||||
Change in cumulative translation adjustment, net of tax | 3,980 | 1,250 | (5,750) | |||||
Comprehensive loss | $ | (392,250) | $ | (254,471) | $ | (863,865) | ||
See accompanying notes to consolidated financial statements. | ||||||||
|
| December 31, 2022 |
|
| December 31, 2021 |
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 258,999 |
|
| $ | 314,974 |
|
Accounts receivable, net |
|
| 249,808 |
|
|
| 182,432 |
|
Income taxes receivable |
|
| 6,665 |
|
|
| 5,099 |
|
Prepaid expenses |
|
| 17,299 |
|
|
| 15,861 |
|
Inventory |
|
| 65,587 |
|
|
| 60,603 |
|
Investment in equity securities |
|
| - |
|
|
| 25,735 |
|
Other current assets |
|
| 6,276 |
|
|
| 6,701 |
|
Assets held for sale |
|
| 11,978 |
|
|
| 37,528 |
|
Total current assets |
|
| 616,612 |
|
|
| 648,933 |
|
Property, plant and equipment, net |
|
| 282,376 |
|
|
| 356,274 |
|
Note receivable |
|
| 69,679 |
|
|
| 60,588 |
|
Restricted cash |
|
| 80,108 |
|
|
| 79,561 |
|
Operating lease right-of-use assets |
|
| 18,797 |
|
|
| 25,154 |
|
Noncurrent deferred tax assets |
|
| 97,492 |
|
|
| 1,894 |
|
Other long-term assets, net |
|
| 25,948 |
|
|
| 27,104 |
|
Total assets |
| $ | 1,191,012 |
|
| $ | 1,199,508 |
|
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 31,570 |
|
| $ | 43,080 |
|
Accrued expenses |
|
| 116,575 |
|
|
| 108,610 |
|
Income taxes payable |
|
| 11,682 |
|
|
| 8,272 |
|
Current portion of decommissioning liability |
|
| 9,770 |
|
|
| - |
|
Liabilities held for sale |
|
| 3,349 |
|
|
| 5,607 |
|
Total current liabilities |
|
| 172,946 |
|
|
| 165,569 |
|
Decommissioning liability |
|
| 150,901 |
|
|
| 190,380 |
|
Deferred income taxes |
|
| 3,388 |
|
|
| 12,441 |
|
Operating lease liability |
|
| 14,634 |
|
|
| 19,193 |
|
Other long-term liabilities |
|
| 66,259 |
|
|
| 70,192 |
|
Total liabilities |
|
| 408,128 |
|
|
| 457,775 |
|
|
|
|
|
|
|
| ||
Stockholders’ equity (deficit): |
|
|
|
|
|
| ||
Class A common stock $0.01 par value; 50,000 shares authorized; |
|
| 200 |
|
|
| 200 |
|
Class B common stock $0.01 par value; 2,000 shares authorized; |
|
| 1 |
|
|
| 1 |
|
Class A Additional paid-in capital |
|
| 902,486 |
|
|
| 902,486 |
|
Class B Additional paid-in capital |
|
| 5,896 |
|
|
| 1,224 |
|
Accumulated deficit |
|
| (125,699 | ) |
|
| (162,178 | ) |
Total stockholders’ equity |
|
| 782,884 |
|
|
| 741,733 |
|
Total liabilities and stockholders’ equity |
| $ | 1,191,012 |
|
| $ | 1,199,508 |
|
See accompanying notes to consolidated financial statements.
42
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except share data)
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
| Year Ended December 31, 2022 |
|
| For the Period |
|
|
| For the Period |
|
| Year Ended December 31, 2020 |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Services |
| $ | 386,775 |
|
| $ | 305,699 |
|
|
| $ | 19,234 |
|
| $ | 299,383 |
|
Rentals |
|
| 309,314 |
|
|
| 208,951 |
|
|
|
| 14,434 |
|
|
| 225,363 |
|
Product sales |
|
| 187,871 |
|
|
| 134,104 |
|
|
|
| 12,260 |
|
|
| 142,503 |
|
Total revenues |
|
| 883,960 |
|
|
| 648,754 |
|
|
|
| 45,928 |
|
|
| 667,249 |
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Services |
|
| 268,078 |
|
|
| 236,784 |
|
|
|
| 15,080 |
|
|
| 230,341 |
|
Rentals |
|
| 102,975 |
|
|
| 86,354 |
|
|
|
| 5,876 |
|
|
| 88,535 |
|
Product sales |
|
| 105,898 |
|
|
| 99,114 |
|
|
|
| 8,817 |
|
|
| 89,255 |
|
Total cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 476,951 |
|
|
| 422,252 |
|
|
|
| 29,773 |
|
|
| 408,131 |
|
Depreciation, depletion, amortization and accretion: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Services |
|
| 37,168 |
|
|
| 105,426 |
|
|
|
| 3,500 |
|
|
| 51,754 |
|
Rentals |
|
| 29,724 |
|
|
| 69,443 |
|
|
|
| 2,627 |
|
|
| 38,561 |
|
Product sales |
|
| 31,168 |
|
|
| 44,990 |
|
|
|
| 2,231 |
|
|
| 25,456 |
|
Total depreciation, depletion, amortization and accretion |
|
| 98,060 |
|
|
| 219,859 |
|
|
|
| 8,358 |
|
|
| 115,771 |
|
General and administrative expenses |
|
| 128,294 |
|
|
| 117,575 |
|
|
|
| 11,052 |
|
|
| 205,773 |
|
Restructuring expenses |
|
| 6,375 |
|
|
| 22,952 |
|
|
|
| 1,270 |
|
|
| 47,055 |
|
Other (gains) and losses, net |
|
| (29,134 | ) |
|
| 16,726 |
|
|
|
| - |
|
|
| - |
|
Reduction in value of assets |
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| 23,775 |
|
Income (loss) from operations |
|
| 203,414 |
|
|
| (150,610 | ) |
|
|
| (4,525 | ) |
|
| (133,256 | ) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest income (expense), net |
|
| 11,713 |
|
|
| 2,331 |
|
|
|
| 202 |
|
|
| (92,426 | ) |
Reorganization items, net |
|
| - |
|
|
| - |
|
|
|
| 335,560 |
|
|
| (19,520 | ) |
Other income (expense) |
|
| (1,804 | ) |
|
| (7,128 | ) |
|
|
| (2,105 | ) |
|
| (9,229 | ) |
Income (loss) from continuing operations before income taxes |
|
| 213,323 |
|
|
| (155,407 | ) |
|
|
| 329,132 |
|
|
| (254,431 | ) |
Income tax (expense) benefit |
|
| 77,719 |
|
|
| 33,298 |
|
|
|
| (60,003 | ) |
|
| 26,888 |
|
Net income (loss) from continuing operations |
|
| 291,042 |
|
|
| (122,109 | ) |
|
|
| 269,129 |
|
|
| (227,543 | ) |
Income (loss) from discontinued operations, net of income tax |
|
| (4,577 | ) |
|
| (40,069 | ) |
|
|
| (352 | ) |
|
| (168,687 | ) |
Net income (loss) |
| $ | 286,465 |
|
| $ | (162,178 | ) |
|
| $ | 268,777 |
|
| $ | (396,230 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income (loss) per share - basic: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) from continuing operations |
| $ | 14.53 |
|
| $ | (6.11 | ) |
|
| $ | 18.13 |
|
| $ | (15.35 | ) |
Income (loss) from discontinued operations, net of income tax |
|
| (0.22 | ) |
|
| (2.00 | ) |
|
|
| (0.02 | ) |
|
| (11.38 | ) |
Net income (loss) |
| $ | 14.31 |
|
| $ | (8.11 | ) |
|
| $ | 18.11 |
|
| $ | (26.73 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income (loss) per share - diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) from continuing operations |
| $ | 14.49 |
|
| $ | (6.11 | ) |
|
| $ | 18.06 |
|
| $ | (15.35 | ) |
Income (loss) from discontinued operations, net of income tax |
|
| (0.23 | ) |
|
| (2.00 | ) |
|
|
| (0.03 | ) |
|
| (11.38 | ) |
Net income (loss) |
| $ | 14.26 |
|
| $ | (8.11 | ) |
|
| $ | 18.03 |
|
| $ | (26.73 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted-average shares outstanding - basic |
|
| 20,024 |
|
|
| 19,998 |
|
|
|
| 14,845 |
|
|
| 14,822 |
|
Weighted-average shares outstanding - diluted |
|
| 20,087 |
|
|
| 19,998 |
|
|
|
| 14,905 |
|
|
| 14,822 |
|
See accompanying notes to consolidated financial statements.
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES (DEBTOR IN POSSESSION) | ||||||||||||||||||||
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) | ||||||||||||||||||||
Years Ended December 31, 2020, 2019, and 2018 | ||||||||||||||||||||
(in thousands, except share data) | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
Common | Additional | other | ||||||||||||||||||
stock | Common | paid-in | Treasury | comprehensive | Accumulated | |||||||||||||||
shares | stock | capital | stock | loss, net | deficit | Total | ||||||||||||||
Balances, December 31, 2017 | 153,263,097 | $ | 153 | $ | 2,713,161 | $ | - | $ | (67,427) | $ | (1,513,458) | $ | 1,132,429 | |||||||
Net loss | - | - | - | - | - | (858,115) | (858,115) | |||||||||||||
Foreign currency translation adjustment | - | - | - | - | (5,750) | - | (5,750) | |||||||||||||
Forfeited dividends | - | - | - | - | - | 209 | 209 | |||||||||||||
Stock-based compensation expense, | ||||||||||||||||||||
net of forfeitures | - | - | 24,076 | - | - | - | 24,076 | |||||||||||||
Transactions under stock plans | 1,071,371 | 2 | (5,200) | - | - | - | (5,198) | |||||||||||||
Shares issued under Employee Stock Purchase Plan | 550,950 | - | 3,088 | - | - | - | 3,088 | |||||||||||||
Balances, December 31, 2018 | 154,885,418 | $ | 155 | $ | 2,735,125 | $ | - | $ | (73,177) | $ | (2,371,364) | $ | 290,739 | |||||||
Net loss | - | - | - | - | - | (255,721) | (255,721) | |||||||||||||
Foreign currency translation adjustment | - | - | - | - | 1,250 | - | 1,250 | |||||||||||||
Purchases of treasury stock | - | - | - | (4,290) | - | - | (4,290) | |||||||||||||
Stock-based compensation expense, | ||||||||||||||||||||
net of forfeitures | - | - | 18,459 | - | - | - | 18,459 | |||||||||||||
Transactions under stock plans | 1,187,961 | 2 | (1,677) | - | - | - | (1,675) | |||||||||||||
Shares issued under Employee Stock Purchase Plan | 532,292 | - | 811 | - | - | - | 811 | |||||||||||||
1-for-10 Reverse Stock Split | (140,916,208) | (141) | 141 | - | - | - | - | |||||||||||||
Balances, December 31, 2019 | 15,689,463 | $ | 16 | $ | 2,752,859 | $ | (4,290) | $ | (71,927) | $ | (2,627,085) | $ | 49,573 | |||||||
Net loss | - | - | - | - | - | (396,230) | (396,230) | |||||||||||||
Foreign currency translation adjustment | - | - | - | - | 3,980 | - | 3,980 | |||||||||||||
Stock-based compensation expense, | ||||||||||||||||||||
net of forfeitures | - | - | 4,238 | - | - | - | 4,238 | |||||||||||||
Transactions under stock plans | 109,855 | - | (208) | - | - | - | (208) | |||||||||||||
Balances, December 31, 2020 | 15,799,318 | $ | 16 | $ | 2,756,889 | $ | (4,290) | $ | (67,947) | $ | (3,023,315) | $ | (338,647) | |||||||
See accompanying notes to consolidated financial statements. | ||||||||||||||||||||
43
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES (DEBTOR IN POSSESSION) | ||||||||||
Consolidated Statements of Cash Flows | ||||||||||
(in thousands) | ||||||||||
Years Ended December 31, | ||||||||||
2020 | 2019 | 2018 | ||||||||
Cash flows from operating activities: | ||||||||||
Net loss | $ | (396,230) | $ | (255,721) | $ | (858,115) | ||||
Adjustments to reconcile net loss to net cash provided by operating | ||||||||||
Depreciation, depletion, amortization and accretion | 146,793 | 271,410 | 400,848 | |||||||
Deferred income taxes | 2,041 | 3,247 | (61,058) | |||||||
Reduction in value of assets | 26,897 | 17,186 | 322,714 | |||||||
Reduction in value of assets held for sale | 114,213 | 76,577 | 417,011 | |||||||
Right-of-use assets amortization | 20,224 | 20,613 | - | |||||||
Stock-based compensation expense | 2,628 | 19,814 | 31,451 | |||||||
Bad debt | 12,473 | 76 | (16,957) | |||||||
Reorganization items | 18,087 | - | - | |||||||
Other reconciling items, net | (8,309) | (16,023) | (9,545) | |||||||
Changes in operating assets and liabilities: | ||||||||||
Accounts receivable | 111,948 | 104,462 | (33,159) | |||||||
Inventory and other current assets | 27,933 | (6,137) | (7,559) | |||||||
Accounts payable | (35,170) | (12,278) | 8,912 | |||||||
Accrued expenses | (18,154) | (37,482) | (21,113) | |||||||
Other, net | (23,157) | (39,316) | (8,373) | |||||||
Net cash provided by operating activities | 2,217 | 146,428 | 165,057 | |||||||
Cash flows from investing activities: | ||||||||||
Payments for capital expenditures | (47,653) | (140,465) | (221,370) | |||||||
Proceeds from sales of assets | 50,039 | 110,008 | 33,299 | |||||||
Net cash provided by (used in) investing activities | 2,386 | (30,457) | (188,071) | |||||||
Cash flows from financing activities: | ||||||||||
Delayed draw term loan commitment fee | (12,000) | - | - | |||||||
Debtor in possession credit facility costs | (1,554) | - | - | |||||||
Purchases of treasury stock | - | (4,290) | - | |||||||
Tax withholdings for vested restricted stock units | (208) | (1,677) | (5,199) | |||||||
Other | (432) | 675 | 2,613 | |||||||
Net cash used in financing activities | (14,194) | (5,292) | (2,586) | |||||||
Effect of exchange rate changes on cash | 2,387 | 961 | (3,135) | |||||||
Net change in cash, cash equivalents, and restricted cash | (7,204) | 111,640 | (28,735) | |||||||
Cash, cash equivalents, and restricted cash at beginning of period | 275,388 | 163,748 | 192,483 | |||||||
Cash, cash equivalents, and restricted cash at end of period | $ | 268,184 | $ | 275,388 | $ | 163,748 | ||||
Supplemental Disclosure of Cash Flow Information: | ||||||||||
Cash Payments: | ||||||||||
Interest paid | $ | 72,558 | $ | 99,585 | $ | 101,056 | ||||
Income taxes paid (net of income tax refunds received) | (27,345) | 5,354 | 3,137 | |||||||
Non-cash investing activity: | ||||||||||
Capital expenditures included in accounts payable and accrued expenses | 7,403 | 10,567 | 26,259 | |||||||
See accompanying notes to consolidated financial statements. | ||||||||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES (DEBTOR IN POSSESSION)
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
| Year Ended December 31, 2022 |
|
| For the Period |
|
|
| For the Period |
|
| Year Ended December 31, 2020 |
| ||||
Net income (loss) |
| $ | 286,465 |
|
| $ | (162,178 | ) |
|
| $ | 268,777 |
|
| $ | (396,230 | ) |
Change in cumulative translation adjustment, net of tax |
|
| - |
|
|
| - |
|
|
|
| 67,947 |
|
|
| 3,980 |
|
Comprehensive income (loss) |
| $ | 286,465 |
|
| $ | (162,178 | ) |
|
| $ | 336,724 |
|
| $ | (392,250 | ) |
See accompanying notes to consolidated financial statements.
44
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
For the Three Years Ended December 31, 2022
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
| Accumulated |
|
|
|
|
|
|
| |||||||||||||
|
| Common Stock |
|
| paid-in |
|
|
|
|
| other |
|
|
|
|
|
|
| ||||||||||||||||||||||
|
| Class A |
|
| Class B |
|
| capital |
|
| Treasury |
|
| comprehensive |
|
| Accumulated |
|
|
|
| |||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Class A |
|
| Class B |
|
| stock |
|
| loss, net |
|
| deficit |
|
| Total |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balances, December 31, 2019 (Predecessor) |
|
| 15,689 |
|
| $ | 16 |
|
|
| - |
|
| $ | - |
|
| $ | 2,752,859 |
|
| $ | - |
|
| $ | (4,290 | ) |
| $ | (71,927 | ) |
| $ | (2,627,085 | ) |
| $ | 49,573 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (396,230 | ) |
|
| (396,230 | ) |
Foreign currency translation adjustment |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,980 |
|
|
| - |
|
|
| 3,980 |
|
Transactions under stock plans |
|
| 110 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (208 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (208 | ) |
Stock-based compensation expense, net |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,238 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,238 |
|
Balances, December 31, 2020 (Predecessor) |
|
| 15,799 |
|
|
| 16 |
|
|
| - |
|
|
| - |
|
|
| 2,756,889 |
|
|
| - |
|
|
| (4,290 | ) |
|
| (67,947 | ) |
|
| (3,023,315 | ) |
| $ | (338,647 | ) |
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 268,777 |
|
|
| 268,777 |
|
Foreign currency translation adjustment |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 67,947 |
|
|
| - |
|
|
| 67,947 |
|
Extinguishment of unrecognized compensation expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 988 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 988 |
|
Stock-based compensation expense, net |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 935 |
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| 935 |
| ||
Restricted stock units vested |
|
| 49 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Shares withheld and retired |
|
| (15 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Cancellation of Predecessor equity |
|
| (15,833 | ) |
|
| (16 | ) |
|
| - |
|
|
| - |
|
|
| (2,758,812 | ) |
|
| - |
|
|
| 4,290 |
|
|
| - |
|
|
| 2,754,538 |
|
|
| - |
|
Issuance of Successor Class A common stock |
|
| 19,996 |
|
|
| 200 |
|
|
| - |
|
|
| - |
|
|
| 902,486 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 902,686 |
|
Balances, February 2, 2021 (Predecessor) |
|
| 19,996 |
|
| $ | 200 |
|
|
| - |
|
| $ | - |
|
| $ | 902,486 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 902,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balances, February 3, 2021 (Successor) |
|
| 19,996 |
|
| $ | 200 |
|
|
| - |
|
| $ | - |
|
| $ | 902,486 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 902,686 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (162,178 | ) |
|
| (162,178 | ) |
Stock-based compensation expense, net |
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,710 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,710 |
| |
Common stock issued |
|
| 3 |
|
|
| - |
|
|
| 114 |
|
|
| 1 |
|
|
| - |
|
|
| (1 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Share withheld and retired |
|
| - |
|
|
| - |
|
|
| (38 | ) |
|
| - |
|
|
| - |
|
|
| (1,485 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,485 | ) |
Balances, December 31, 2021 (Successor) |
|
| 19,999 |
|
|
| 200 |
|
|
| 76 |
|
|
| 1 |
|
|
| 902,486 |
|
|
| 1,224 |
|
|
| - |
|
|
| - |
|
|
| (162,178 | ) |
|
| 741,733 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 286,465 |
|
|
| 286,465 |
|
Cash dividends ($12.45 per share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (249,986 | ) |
|
| (249,986 | ) |
Stock-based compensation expense, net |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,807 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,807 |
|
Restricted stock units vested |
|
| - |
|
|
| - |
|
|
| 10 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Share withheld and retired |
|
| - |
|
|
| - |
|
|
| (2 | ) |
|
| - |
|
|
| - |
|
|
| (135 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (135 | ) |
Shares placed in treasury |
|
| - |
|
|
| - |
|
|
| (4 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Balances, December 31, 2022 (Successor) |
|
| 19,999 |
|
| $ | 200 |
|
|
| 80 |
|
| $ | 1 |
|
| $ | 902,486 |
|
| $ | 5,896 |
|
| $ | - |
|
| $ | - |
|
| $ | (125,699 | ) |
| $ | 782,884 |
|
See accompanying notes to consolidated financial statements.
45
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
| Year Ended December 31, 2022 |
|
| For the Period |
|
|
| For the Period |
|
| Year Ended December 31, 2020 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) |
| $ | 286,465 |
|
| $ | (162,178 | ) |
|
| $ | 268,777 |
|
| $ | (396,230 | ) |
Adjustments to reconcile net income (loss) to net cash from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation, depletion, amortization and accretion |
|
| 98,060 |
|
|
| 251,361 |
|
|
|
| 10,499 |
|
|
| 146,793 |
|
Right-of-use assets amortization |
|
| 6,357 |
|
|
| 8,380 |
|
|
|
| 1,372 |
|
|
| 20,224 |
|
Deferred income taxes |
|
| (104,587 | ) |
|
| (48,975 | ) |
|
|
| 54,322 |
|
|
| 2,041 |
|
Stock based compensation expense |
|
| 4,807 |
|
|
| 2,710 |
|
|
|
| 935 |
|
|
| 2,628 |
|
Reorganization items, net |
|
| - |
|
|
| - |
|
|
|
| (354,279 | ) |
|
| 18,087 |
|
Bad debt |
|
| 2,248 |
|
|
| (4,908 | ) |
|
|
| (210 | ) |
|
| 12,473 |
|
Gain on sale of assets and businesses |
|
| - |
|
|
| - |
|
|
|
| 58 |
|
|
| - |
|
Gain on sale of equity securities |
|
| (8,950 | ) |
|
| (383 | ) |
|
|
| - |
|
|
| - |
|
Unrealized gain on investment in equity securities |
|
| - |
|
|
| (2,147 | ) |
|
|
| - |
|
|
| - |
|
Other (gains) and losses, net |
|
| (32,872 | ) |
|
| 30,707 |
|
|
|
| - |
|
|
| 141,110 |
|
Other reconciling items, net |
|
| (3,822 | ) |
|
| 6,687 |
|
|
|
| (355 | ) |
|
| (8,309 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts receivable |
|
| (65,669 | ) |
|
| (28,676 | ) |
|
|
| 3,602 |
|
|
| 111,948 |
|
Prepaid expenses |
|
| (1,096 | ) |
|
| 4,854 |
|
|
|
| (340 | ) |
|
| - |
|
Inventory and other current assets |
|
| (4,568 | ) |
|
| 22,866 |
|
|
|
| (221 | ) |
|
| 27,933 |
|
Accounts payable |
|
| (10,149 | ) |
|
| 735 |
|
|
|
| (2,365 | ) |
|
| (35,170 | ) |
Accrued expenses |
|
| 8,503 |
|
|
| (21,770 | ) |
|
|
| 23,489 |
|
|
| (18,154 | ) |
Income taxes |
|
| 771 |
|
|
| 11,535 |
|
|
|
| 340 |
|
|
| - |
|
Other, net |
|
| (82 | ) |
|
| (11,914 | ) |
|
|
| (241 | ) |
|
| (23,157 | ) |
Net cash from operating activities |
|
| 175,416 |
|
|
| 58,884 |
|
|
|
| 5,383 |
|
|
| 2,217 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Payments for capital expenditures |
|
| (65,784 | ) |
|
| (34,152 | ) |
|
|
| (3,035 | ) |
|
| (47,653 | ) |
Proceeds from sales of assets |
|
| 50,376 |
|
|
| 97,505 |
|
|
|
| 775 |
|
|
| 50,039 |
|
Proceeds from sales of equity securities |
|
| 34,685 |
|
|
| 4,099 |
|
|
|
| - |
|
|
| - |
|
Net cash from investing activities |
|
| 19,277 |
|
|
| 67,452 |
|
|
|
| (2,260 | ) |
|
| 2,386 |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Credit facility costs |
|
| - |
|
|
| (14 | ) |
|
|
| (1,920 | ) |
|
| (1,554 | ) |
Tax withholdings for vested restricted stock units |
|
| (135 | ) |
|
| (1,485 | ) |
|
|
| - |
|
|
| (208 | ) |
Distributions to shareholders |
|
| (249,986 | ) |
|
| - |
|
|
|
| - |
|
|
| - |
|
Other |
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| (12,432 | ) |
Net cash from financing activities |
|
| (250,121 | ) |
|
| (1,499 | ) |
|
|
| (1,920 | ) |
|
| (14,194 | ) |
Effect of exchange rate changes on cash |
|
| - |
|
|
| - |
|
|
|
| 311 |
|
|
| 2,387 |
|
Net change in cash, cash equivalents, and restricted cash |
|
| (55,428 | ) |
|
| 124,837 |
|
|
|
| 1,514 |
|
|
| (7,204 | ) |
Cash, cash equivalents, and restricted cash at beginning of period |
|
| 394,535 |
|
|
| 269,698 |
|
|
|
| 268,184 |
|
|
| 275,388 |
|
Cash, cash equivalents, and restricted cash at end of period |
| $ | 339,107 |
|
| $ | 394,535 |
|
|
| $ | 269,698 |
|
| $ | 268,184 |
|
See accompanying notes to consolidated financial statements.
46
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of and For the Years Ended December 31, 2020, 20192022, 2021 and 20182020
(1) Summary of Significant Accounting Policies
Basis of Presentation
TheAs used herein, “we,” “us,” “our” and similar terms refer to (i) prior to February 2, 2021 (the “Emergence Date”), SESI Holdings, Inc. (formerly known as Superior Energy Services, Inc.) and its subsidiaries (“Predecessor”) and (ii) after the Emergence Date, Superior Energy Services, Inc. (formerly known as Superior Newco, Inc.) and its subsidiaries (“Successor”).
As used herein, the following terms refer to our operations:
"Predecessor Period" | January 1, 2021 through February 2, 2021 |
"Successor Period" | February 3, 2021 through December 31, 2021 |
Our consolidated financial statements include the accounts of Superior Energy Services, Inc. and its subsidiaries (the Company). All significant intercompanyour accounts and those of our wholly-owned subsidiaries. All intercompany transactions areand balances have been eliminated in consolidation.the accompanying consolidated financial statements. Certain previously reported amounts, specifically related to assets held for sale and discontinued operations, have been reclassified to conform to the 2020current year presentation.
Due to the lack of comparability with historical financials, our consolidated financial statements and related footnotes are presented with a “black line” division to emphasize the lack of comparability between amounts presented as of, and after, February 2, 2021 and amounts presented for all prior periods. Our financial results for future periods following the application of fresh start accounting will be different from historical trends and the differences may be material.
Business
The Company provides a wide variety of services and products to the energy industry. The Company servesWe serve major, national and independent oil and natural gas exploration and production companies around the world and offersoffer products and services with respect to the various phases of a well’s economic life cycle. The Company reports its operating results in 4 business segments: Drilling Products and Services; Onshore Completion and Workover Services; Production Services; and Technical Solutions. The Company also provides supplemental segment revenue information in 3 geographic areas: U.S. land; U.S. offshore; and International.
Chapter 11 Cases
Historically, we provided a wide variety of services and products to many markets within the energy industry. Our core businesses focus on products and services that we believe meet the criteria of:
Chapter 11 Accounting
The consolidated financial statements included herein have been prepared as if we wereresult of this approach is a going concernportfolio of business lines grounded in our core mission of providing high quality products and in accordanceservices while maintaining the trust and serving the needs of our customers, with FASB ASC Topic No. 852 - Reorganizations.an emphasis on free cash flow generation and capital efficiency.
Weak industry conditions in 2020 negatively impacted Superior Energy Services, Inc.’s (the Former Parent, which is now known as SESI Holdings, Inc.) results of operations and cash flows and may continue to do so in the future. In order to decrease the Former Parent’s level of indebtedness and maintain the Former Parent’s liquidity at levels sufficient to meet its commitments, the Former Parent undertook a number of actions, including minimizing capital expenditures and further reducing its recurring operating expenses. The Former Parent believed that even after taking these actions, it would not have sufficient liquidity to satisfy its debt service obligations and meet its other financial obligations. As a result, onEmergence from Voluntary Reorganization under Chapter 11
On December 7, 2020, certain of our direct and indirect wholly-owned domestic subsidiaries (the Petition Date) the Affiliate Debtors (as defined in Note 2 – Chapter 11 Reorganization)“Affiliate Debtors”) filed petitions for reorganization under the provisions of Chapter 11 of Title 11 of the United StatesBankruptcy Code (the Bankruptcy Code). On February 2, 2021 (the Effective Date), the conditions to effectiveness ofand, in connection therewith, filed the proposed Joint Prepackaged Plan of Reorganization under the Bankruptcy Code (as amended, modified or supplemented from time to time, the Plan)“Plan”). On the Emergence Date, the conditions to the effectiveness of the Plan were satisfied or waivedand we emerged from Chapter 11.
On the Emergence Date, we qualified for and adopted fresh start accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 852 – Reorganizations, which specifies the accounting and financial reporting requirements for entities reorganizing through Chapter 11 bankruptcy proceedings. The application of fresh start accounting resulted in a new basis of accounting and we became a new entity for financial reporting purposes. As a result of the implementation of the Plan and the Company emerged from bankruptcy.
Restructuring expenses
Any expenses, gains and losses that are realizedapplication of fresh start accounting, our historical financial statements on or incurred before the PetitionEmergence Date and in relation to the Chapter 11 proceedings are recorded under restructuring expenses on the Company’s consolidated statementsnot a reliable indicator of operations. Restructuring expenses were $47.1 million for the year ended December 31, 2020, which primarily consisted of professional fees related to the Chapter 11 proceedings and the RSA premium paid to noteholders that were party to the restructuring support agreement with the Former Parent.
Reorganization expenses
The Former Parent incurred costs after the Petition Date associated with the reorganization, primarily unamortized debt issuance costs, expenses related to rejected leases and postpetition professional fees. In accordance with applicable guidance, costs associated with the bankruptcy proceedings have been recorded as reorganization items within the accompanying consolidated statementour results of operations for the year ended December 31, 2020. Reorganization expenses were $21.6 million for the year ended December 31, 2020, with $1.6 million and $1.0 million representing cash used in financing and operating activities, respectively, during 2020.any period after our adoption of fresh start accounting.
Reorganization expenses were $21.6 million for the year ended December 31, 2020, which consisted of:
| |||
|
|
| |
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
|
| |
Liabilities subject to compromise
Prepetition unsecured and under-secured obligations that may be impacted by the Chapter 11 Cases have been classified as liabilities subject to compromise on the Company’s consolidated balance sheet. These liabilities are reported at the amounts allowed as claims by the Bankruptcy Court.
Liabilities subject to compromise as of December 31, 2020 were $1,335.8 million, which consisted of:
| |||
|
|
| |
|
| ||
|
| ||
|
|
| |
The principal balance on the 7.125% senior unsecured notes due 2021 (the 7.125% Notes) and the 7.750% senior unsecured notes due 2024 (the 7.750% Notes) of $800.0 million and $500.0 million, respectively, has been reclassified from long-term debt to liabilities subject to compromise as of December 31, 2020. See also Note 6 - Debt for further details. Accrued interest on the 7.125% Notes and the 7.750% Notes, respectively, was also reclassified from accrued expenses to liabilities subject to compromise as of December 31, 2020.
Use of Estimates
The preparation ofIn preparing the accompanying financial statements, in conformity with accounting principles generally accepted in the United States of America requires management towe make significantvarious estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the datereported as of the financial statementsdates of the balance sheets and the reported amounts of revenues and expenses duringreported for the reporting period. Actual results could differ from those estimates.periods shown in the income statements and statements of cash flows. All estimates, assumptions, valuations and financial projections related to fresh start accounting, including the fair value adjustments, the enterprise value and equity value projections, are inherently subject to significant uncertainties and the resolution of contingencies beyond our control.
Major Customers and Concentration of Credit Risk
The majority of the Company’sour business is conducted with major and independent oil and gas companies. The Company evaluatesWe evaluate the financial strength of itsour customers and providesprovide allowances for probable credit losses when deemed necessary.
The market for the Company’sour services and products is the oil and gas industry in the U.S. land and Gulf of Mexico areas and select international market areas. Oil and gas companies make capital expenditures on exploration, development and production operations. The level of these expenditures historically has been characterized by significant volatility.
The Company derives
We derive a large amount of revenue from a small number of major and independent oil and gas companies. There were 0no customers that exceeded 10% of the Former Parent’sour total revenues in 2020, 20192022, 2021 or 2018.2020.
The Company’s
Our assets that are potentially exposed to concentrations of credit risk consist primarily of cash, cash equivalents, and trade receivables. The financial institutions inwith which the Company transactswe transact business are large, investment grade financial institutions which are “well capitalized” under applicable regulatory capital adequacy guidelines, thereby minimizing itsour exposure to credit risks for deposits in excess of federally insured amounts.
Cash Equivalents
The Company considersWe consider all short-term investments with a maturity of 90 days or less when purchased to be cash equivalents.
Accounts Receivable and Allowances
Trade accounts receivable are recorded at the invoiced amount or the earned amount but not yet invoiced and do not bear interest. The Company maintains allowancesWe maintain our allowance for estimated uncollectible receivables, including bad debts and other items.doubtful accounts at net realizable value. The allowance for doubtful accounts is based on the Company’sour best estimate of probable uncollectible amounts in existing accounts receivable. We assess individual customers and overall receivables balances to identify amounts that are believed to be uncertain of collection. The Company determinesaging of the receivable balance as well as economic factors concerning the customer factor into the judgment and estimation of allowances, which often involve significant dollar amounts. Adjustments to the allowance in future periods may be made based on historical write-off experiencechanging customer conditions. Our allowance for doubtful accounts as of December 31, 2022 and specific identification.2021 was $
6.1 million and $2.2 million, respectively.
Inventory
As part of the adoption of fresh start accounting and effective upon emergence from bankruptcy, we have adopted new presentations for certain items within our consolidated balance sheets and statement of operations. Prior to emergence from bankruptcy, we recognized bad debt expense within general and administrative expenses. These expenses are now recognized within cost of revenues. During the year ended December 31, 2022 (the "Current Period"), we recognized $2.2 million in bad debt expense. During the Successor Period and Predecessor Period, we recognized $4.9 million and $0.2 million, respectively, in bad debt recoveries. Additionally, in the year ended December 31, 2020 (the "Prior Period"), we recognized bad debt expense of $11.9 million.
Revenue Recognition
Revenues are recognized when performance obligations are satisfied in accordance with contractual terms, in an amount that reflects the consideration we expect to be entitled to in exchange for services rendered, rentals provided or products sold. Taxes collected from customers and remitted to governmental authorities and revenues are reported on a net basis.
48
A performance obligation arises under contracts with customers and is the unit of account under Topic 606. We account for services rendered and rentals provided separately if they are distinct and the service or rental is separately identifiable from other items provided to a customer and if a customer can benefit from the services rendered or rentals provided on their own or with other resources that are readily available to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. A contract’s standalone selling prices are determined based on the prices charged for services rendered, rentals provided or products sold. Our payment terms vary by the type of products or services offered. The term between invoicing and when the payment is due is typically 30 days.
Services revenue: primarily represents amounts charged to customers for the completion of services rendered, including labor, products and supplies necessary to perform the service. Rates for these services vary depending on the type of services provided and are primarily based on a per hour or per day basis.
Inventories
Rentals revenue: primarily priced on a per day, per man hour or similar basis and consists of fees charged to customers for use of rental equipment over the term of the rental period, which is generally less than twelve months.
Product sales: products are stated at the lowergenerally sold based upon purchase orders or contracts with our customers that include fixed or determinable prices but do not include right of costreturn provisions or net realizable value. The Company applies net realizable value and obsolescenceother significant post-delivery obligations. We recognize revenue from product sales when title passes to the gross valuecustomer, the customer assumes risks and rewards of ownership, collectability is reasonably assured and delivery occurs as directed by the inventory. Cost is determined using the first-in, first-out or weighted-average cost methods for finished goods and work-in-process. Supplies and consumables consist principally of products used in the Company’s services provided to its customers. The components of inventory balances are as follows (in thousands):customer.
We expense sales commissions when incurred as the amortization period would have been one year or less.
December 31, 2020 | December 31, 2019 | |||||
Finished goods | $ | 44,123 | $ | 45,127 | ||
Raw materials | 11,345 | 16,130 | ||||
Work-in-process | 6,185 | 9,360 | ||||
Supplies and consumables | 25,070 | 33,322 | ||||
Total | $ | 86,723 | $ | 103,939 | ||
Property, Plant and Equipment
Property, plant and equipment are stated at cost, except for assets for which reduction in value is recorded during the period and assets acquired using purchase accounting, which are recorded at fair value as of the date of acquisition. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets as follows:
Buildings and improvements | 5 | to | 40 | years |
Machinery and equipment | 2 | to | 25 | years |
Automobiles, trucks, tractors and trailers | 3 | to | 10 | years |
Furniture and fixtures | 2 | to | 10 | years |
Machinery and equipment | 3-12 years | |
Buildings, improvements and leasehold improvements | 10-30 years | |
Automobiles, trucks, tractors and trailers | 4-7 years | |
Furniture and fixtures | 3-10 years |
Reduction in Value of Long-Lived Assets
Long-livedWe review long-lived assets, such as property, plant and equipment and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of any such assetsasset may not be recoverable. RecoverabilityThe carrying amount of an asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. We record impairment losses on long-lived assets to be held and used in operations when the fair value of those assets is assessedless than their respective carrying amount. Impairment losses are recorded in the amount by a comparison ofwhich the carrying amount of such assets to theirexceeds the fair value. Fair value calculated,is measured, in part, by the estimated undiscounted future cash flows expected to be generated by thethose assets. CashOur cash flow estimates are based upon, among other things, historical results adjusted to reflect theour best estimate of future market rates, utilization levels and operating performance. EstimatesOur estimates of cash flows may differ from actual cash flows due to, among other things, changes in economic conditions or changes in an asset’s operating performance. Assets are generally grouped by subsidiary or division for the impairment testing, which represent the lowest level of identifiable cash flows. If the asset grouping’s fair value is less than the carrying amount of those items, impairment losses are recorded in the amount by which the carrying amount of such assets exceeds the fair value. Assets to be disposed ofheld for sale are reported at the lower of the carrying amount or fair value less estimated costs to sell. The net carrying value of assets not fully recoverable is reduced to fair value. TheOur estimate of fair value represents theour best estimate based on industry trends and reference to market transactions and is subject to variability. The oil and gas industry is cyclical and our estimates of the period over which future cash flows will be generated, as well as the predictability of these cash flows, can have a significant impact on the carrying valuesvalue of these assets and, in periods of prolonged down cycles, may result in impairment charges. See note 12 for a discussion of
Prior to emergence from bankruptcy, we recognized the reduction in value assets separately on the consolidated statement of long-livedoperations. Reduction in value of assets recorded during 2020, 2019are now recognized within other (gains) and 2018.losses, net as a component of operating income.
Other (gains) and losses, net
Other (gains) and losses, net primarily relate to charges recorded as part of our strategic disposal of low margin assets in line with our efforts to reconfigure our organization both operationally and financially (the “Transformation Project”) and includes gains and losses on the disposal of assets, as well as impairments related to long-lived assets.
The bankruptcy filings on the Petition Date required an assessment whether the carrying amounts of our long-lived assets would be recoverable. Management’s evaluation indicated that no additional impairment was necessary as a direct result of the bankruptcy filings.49
Goodwill
The following table summarizes the Company’s goodwill (in thousands):
Drilling | ||||
Products | ||||
and Services | Total | |||
Balance, December 31, 2018 | $ | 136,788 | $ | 136,788 |
Foreign currency translation adjustment | 907 | 907 | ||
Balance, December 31, 2019 | 137,695 | 137,695 | ||
Foreign currency translation adjustment | 982 | 982 | ||
Balance, December 31, 2020 | $ | 138,677 | $ | 138,677 |
The Company performs the goodwill impairment test on an annual basis as of October 1 or more often if events or circumstances indicate there may be impairment. Goodwill impairment testing is performed at the reporting unit level, which is consistent with the reporting segments. The Company assesses whether any indicators of impairment exist, which requires a significant amount of judgment. Such indicators may include a sustained decrease in the Company’s stock price and market capitalization; a decline in the expected future cash flows; overall weakness in the industry; and slower growth rates.
Goodwill impairment exists when the estimated fair value of the reporting unit is below the carrying value. In estimating the fair value of the reporting units, the Company uses a combination of an income approach and a market-based approach.
Income approach – The Company discounts the expected cash flows of each reporting unit. The discount rate used represents the estimated weighted average cost of capital, which reflects the overall level of inherent risk involved in the Company’s operations and cash flows and the rate of return an outside investor would expect to earn.
Market-based approach – The Company uses the guideline public company method, which focuses on comparing the Company’s risk profile and growth prospects to select reasonably similar publicly traded companies.
The Company weights the income approach 80% and the market-based approach 20% due to differences between the Company’s reporting units and the peer companies’ size, profitability and diversity of operations. In order to validate the reasonableness of the estimated fair values obtainedOther gains, net for the reporting units,Current Period were $29.1 million, and are primarily comprised of gains of $23.6 million related to our Well Services segment, including a reconciliationgain of fair value$17.4 million from revisions in estimates related to market value of invested capital is performedour decommissioning liability, and $5.2 million related to net gains on the aggregate fair valuedisposal of the reporting units. A control premium, derived from market transaction data, is usedassets in this reconciliation to ensure that fair values are reasonably stated in conjunction with the Company’s capitalization. The Company uses all available information to estimate fair value of the reporting units, including discounted cash flows. A significant amount of judgment was involved in performing these evaluations given that the results are based on estimated future events.our Rentals segment.
During the third quarter of 2020, the Former Parent entered into a Restructuring Support Agreement (the RSA) with holders of approximately 69.2% of the 7.125% Notes and the 7.750% Notes. Entry into the RSA, along with changing industry conditions as a result of the COVID-19 pandemic constituted a triggering event that required the Former Parent to perform an interim goodwill impairment review as of September 30, 2020. The result of the goodwill impairment assessment indicated that the fair value of the Drilling Products and Services segment exceeded its net book value and, therefore, 0 goodwill impairment was recorded. Based on the timing of the third quarter test, along with an increase in sequential revenues and the improving business environment during the fourth quarter of 2020, the Former Parent determined that 0 impairment exists as of the annual test date of October 1, 2020.
During the fourth quarter of 2018, the industry climate deteriorated rapidly due to the dramatic decline in crude oil prices and the related large sell-off in the equity markets for issuers in the energy industry. As a result of the adverse changes in the business environment that occurred during the fourth quarter of 2018 and a review of the Former Parent’s expected near-term cash flows from operations, the Former Parent reviewed the goodwill for impairment. It was concluded that at December 31, 2018, the Onshore Completion and Workover Services segment’s goodwill of $583.6 million and the Production Services segment’s goodwill of $85.3 million were fully impaired. The fair value of the Drilling Products and Services segment was substantially in excess of its carrying value. See note 12 for a discussion of the reduction in value of goodwill recorded during 2018. As of each of December 31, 2020 and 2019, the Former Parent’s accumulated reduction in value of goodwill was $2,417.1 million.
Other losses, net in the Successor Period were $
Notes Receivable16.7
million, and are comprised of $
The Company’s wholly owned subsidiary, Wild Well Control, Inc., has decommissioning obligations13.1 million related to its ownership of a single oil and gas property and related assets. Notes receivable consist of a commitmentour Well Services segment, including approximately $11.7 million from the seller of the property’s sole platform towards its eventual abandonment. Pursuant to an agreement with the seller, the Company will invoice the seller $115 million at the completion of decommissioning activities. This obligation was recorded at present value using an effective interest rate of 6.58%. The related discount is amortized to interest income based on the expected timing of the platform’s removal. The Former Parent recorded interest incomeexit activities related to notes receivable of $4.5SES Energy Services India Pvt. Ltd, and $3.6 million $4.2 million and $3.9 million during 2020, 2019 and 2018, respectively.related to our Rentals segment.
Restricted Cash
Restricted cash primarily represents cashas of December 31, 2022 includes approximately $77.3 million held in a collateral account for the payment and performance of secured obligations including the reimbursement of letters of credit. Additionally, we hold cashapproximately $2.8 million in escrow to secure the future decommissioning obligations related to the oil and gas property.
Intangible and Other Long-Term Assets
Intangible assets consist of the following (in thousands):
December 31, | ||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||
Estimated | Gross | Accumulated | Net | Gross | Accumulated | Net | ||||||||||||||
Useful Lives | Amount | Amortization | Balance | Amount | Amortization | Balance | ||||||||||||||
Customer relationships | 17 years | $ | 14,592 | $ | (10,077) | $ | 4,515 | $ | 19,902 | $ | (14,680) | $ | 5,222 | |||||||
Tradenames | 10 years | 9,045 | (6,270) | 2,775 | 8,907 | (5,413) | 3,494 | |||||||||||||
Non-compete agreements | 3 years | 3,478 | (3,478) | - | 3,464 | (3,106) | 358 | |||||||||||||
Total | $ | 27,115 | $ | (19,825) | $ | 7,290 | $ | 32,273 | $ | (23,199) | $ | 9,074 | ||||||||
Amortization expense was $1.8 million, $2.1 million and $5.6 million during 2020, 2019 and 2018, respectively. Based on the carrying values of intangible assets at December 31, 2020, amortization expense for the next five years (2021 through 2025) is estimated to be $1.0 million per year.
During 2019, the Company recorded $7.6 million of expense related to the reduction in carrying values of intangibles in the Onshore Completion and Workover Services segment (see note 12).
Decommissioning Liabilities
The Company’s decommissioning liabilities associated with the oil and gas property and its related assets consist of costs related to the plugging of wells, the removal of the related platform and equipment, and site restoration. The Company reviews the adequacy of its decommissioning liabilities whenever indicators suggest that the estimated cash flows and/or relating timing needed to satisfy the liability have changed materially.
The following table summarizes the activity for the Company’s decommissioning liabilities (in thousands):
December 31, | ||||||
2020 | 2019 | |||||
Balance at beginning of period | $ | 136,281 | $ | 130,096 | ||
Accretion | 6,945 | 6,332 | ||||
Liabilities settled | (480) | (147) | ||||
Balance at end of period | $ | 142,746 | $ | 136,281 | ||
Income Taxes
The Company accounts for income taxes and the related accounts underWe use the asset and liability method. Deferredmethod of accounting for income taxes reflecttaxes. This method considers the impact of temporary differences between amountsfinancial statement treatment and tax treatment of certain transactions. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial reporting purposesstatement carrying amounts of existing assets and such amounts asliabilities and their respective tax bases. Deferred tax assets and liabilities are measured byusing enacted tax laws and rates that areexpected to apply to taxable income in effect when the years in which those temporary differences are expected to reverse.be recovered or settled. Our deferred tax calculation requires us to make certain estimates about our future operations. Changes in state, federal and foreign tax laws, as well as changes in our financial condition or the carrying value of existing assets and liabilities, could affect these estimates. The effect of a change in tax rates on the deferred income taxes is recognized inas income or expense in the period that the rate is enacted.
We recognize deferred tax assets ("DTAs") to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations. If we determine that we would be able to realize our DTAs in the future in excess of their net recorded amount, we would make an adjustment to the DTA valuation allowance, which would reduce the provision for income taxes.
We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which the change occurs. A valuation allowance is recorded when management believes(1) we determine whether it is more likely than not that at least some portion of any deferred tax asset will not be realized. It is the Company’s policy to recognize interest and applicable penalties related to uncertain tax positions in incomewill be sustained on the basis of the technical merits of the position and (2) for those tax expense.positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
Earnings per Share
Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed in the same manner as basic earnings per share except that the denominator is increased to include the number of additional shares of common stock that could have been outstanding assuming the exercise of stock options and conversion of restricted stock units.
During 2020, 2019 and 2018, the Former Parent incurred losses from continuing operations; as such, the impact of any incremental shares would be anti-dilutive.
Foreign Currency
ResultsThe functional currency of operations for foreign subsidiaries with functional currencies other than the U.S. dollar are translated using average exchange rates during the period. Assets and liabilities of these foreign subsidiaries are translated using the exchange rates in effect at the balance sheet dates, and the resulting translation adjustments are reported as accumulated other comprehensive loss in the Company’s stockholders’ equity.
Forour international subsidiaries where the functional currency is the U.S. dollar, financialdollar. Financial statements of our international subsidiaries are remeasured into U.S. dollars using the historical exchange rate for most ofaffected the long-term assets and liabilities and the balance sheet date exchange rate for most of theaffected current assets and liabilities. An average exchange rate is used for each period for revenues and expenses. These transaction gains and losses, as well as any other transactions in a currency other than the functional currency, are included in other income (expense) in the consolidated statements of operations in the period in which the currency exchange rates change. During 2020, 2019the Current Period, the Successor Period, the Predecessor Period and 2018, the Former ParentPrior Period, we recorded foreign currency losses of $8.9$12.6 million, $0.8$8.8 million, $2.1 million and $1.9$8.9 million, respectively.
Stock-Based Compensation
The Company recordsWe record compensation costs relating to share-based payment transactions and includesinclude such costs in general and administrative expenses in the consolidated statements of operations. The cost is measured at the grant date, based on the calculatedestimated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity award).
Self-Insurance Reserves
The Company is50
We are self-insured, through deductibles and retentions, up to certain levels for losses under itsour insurance programs. The Company accruesWe accrue for these liabilities based on estimates of the ultimate cost of claims incurred as of the balance sheet date. The CompanyWe regularly reviewsreview the estimates of asserted and unasserted claims and providesprovide for losses through reserves. The Company obtainsWe obtain actuarial reviews to evaluate the reasonableness of internal estimates for losses related to workers’ compensation, auto liability and group medical on an annual basis.
Restructuring expenses in our consolidated statement of operations during the Current Period, Successor Period and Predecessor Period were $6.4 million, $23.0 million and $1.3 million, respectively. Restructuring expenses in the Current Period represent costs associated with our Transformation Project, as well as legal and other professional expenses primarily related to certain tax and shareholder distribution matters. Restructuring expenses in the Successor Period and Predecessor Period primarily relate to professional fees and separation costs related to former executives and personnel. Additionally, during the Successor Period, we incurred shut down costs of $8.9 million at certain locations in our Well Services segment. These shut down costs include the write-down of inventory of $6.5 million which is reflected in cost of sales and the severance of personnel and other shut down costs of $2.4 million which is primarily reflected in cost of services.
New Accounting Pronouncements
Recently Issued Accounting Standards
In June 2016, the Financial Accounting Standards Board (FASB)FASB issued ASU 2016-13 - Measurement of Credit LosesLosses on Financial Instruments.Instruments (“ASU 2016-13”). This update improves financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope by using the Current Expected Credit Losses model (CECL).(the “CECL”) model. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses on financial instruments at the time the asset is originated or acquired. This update will apply to receivables arising from revenue transactions. The new standard is effective for the Companyus beginning on January 1, 2023. The Company hasWe have concluded that the adoption of ASU 2016-13 will not have a material impact on itsour consolidated financial statements.
In August 2018,March 2020, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. No. 2020-04, Reference Rate Reform — Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). This update alignsprovides an optional expedient and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract withconcerns about structural risks of interbank offered rates (“IBORs”) and, particularly, the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The capitalized implementation costsrisk of a hosting arrangement that is a service contract will be expensed over the termcessation of the hosting arrangement.London Interbank Offered Rate (“LIBOR”), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-based and less susceptible to manipulation. The Company adoptedASU provides companies with optional guidance to ease the new standard onpotential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. In January 1, 2020 on a prospective basis with respect to all implementation costs incurred after the date of adoption.
In December 2019,2021, the FASB issued ASU 2019-12, SimplifyingNo. 2021-01, which clarifies that certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The amendments in these ASUs are effective for all entities as of March 12, 2020 through December 31, 2022. As our credit agreement allows for alternative benchmark rates to be applied to any borrowings, we do not expect the cessation of LIBOR to have a material impact on our financial position, results of operations, cash flows or disclosures.
(2) Fresh Start Accounting
In connection with the emergence from bankruptcy and in accordance with ASC 852, we qualified for Income Taxes. This update simplifiesand adopted fresh start accounting on the accounting for income taxes by removing the following exceptions:Emergence Date because (1) the incremental approach for intra-period tax allocation when there is a loss from continuing operationsholders of our then existing common shares received less than 50 percent of our new common shares outstanding upon emergence and income or a gain from other items; (2) the requirementreorganization value of our assets immediately prior to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; (3) the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and (40 the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The update also (1) requires an entity to recognize a franchise tax that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax; (2) requires an entity to evaluate when a step up in the tax basis of goodwill should be considered partconfirmation of the business combination in whichPlan of $1,456.8 million was less than the book goodwill was originally recognizedtotal of all post-petition liabilities and when it should be considered a separate transaction; (3) specifies that an entity is not required to allocate the consolidate amountallowed claims of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements; (4) requires an entity to reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date; and (5) makes minor Codification improvements for income taxes related to employee stock ownership plans.$2,076.1 The new standard is effective for the Company beginning on January 1, 2021. The Company is evaluating the effect ASU 2019-12 will have on its consolidated financial statements.million.
Subsequent EventsReorganization Value
In accordance with authoritative guidance,ASC 852, upon adoption of fresh start accounting, the Company has evaluatedreorganization value derived from the enterprise value as disclosed in the Plan was allocated to our assets and disclosed all material subsequent events that occurred afterliabilities based on their fair values (except for deferred income taxes) in accordance with FASB ASC Topic No. 805 - Business Combinations (ASC 805) and FASB ASC Topic No. 820 - Fair Value Measurements (ASC 820). The amount of deferred income taxes recorded due to the balance sheet date, but before the financial statements were issued.fair value adjustments to assets and liabilities was determined in accordance with FASB ASC Topic No. 740 - Income Taxes.
(2) Chapter 11 ReorganizationThe following table reconciles the enterprise value to the reorganization value of our assets that has been allocated to our individual assets as of the Emergence Date (in thousands):
|
| Emergence Date |
| |
Selected Enterprise Value within Bankruptcy Court Range |
| $ | 729,918 |
|
Plus: Cash and cash equivalents |
|
| 172,768 |
|
Plus: Liabilities excluding the decommissioning liabilities |
|
| 380,496 |
|
Plus: Decommissioning liabilities, including decommissioning liabilities classified as held for sale |
|
| 173,622 |
|
Reorganization Value |
| $ | 1,456,804 |
|
OnManagement determined the Petition Date, the Former Parententerprise and certaincorresponding equity value using various valuation methods, including (i) discounted cash flow analysis (“DCF”), (ii) comparable company analysis and (iii) precedent transaction analysis. The use of its direct and indirect wholly-owned domestic subsidiaries (collectively with the Former Parent, the Affiliate Debtors) filed voluntary petitions for relief (the Chapter 11 Cases) under the Bankruptcy Code in the United States Bankruptcy Courteach approach provides corroboration for the Southern District of Texas Houston Division (the Bankruptcy Court) and, in connection therewith, the other approaches.Affiliate Debtors filed the Plan with the Bankruptcy Court. On January 19, 2021, the Bankruptcy Court entered an order confirming and approving the Plan (the Confirmation Order).
In order to estimate the enterprise value using the DCF analysis approach, management’s estimated future cash flow projections, plus a terminal value which was calculated by applying a multiple based on our internal rate of return (“IRR”) of 17.6% and a perpetuity growth rate of 3.0% to the terminal year’s projected earnings before interest, tax, depreciation and amortization (“EBITDA”). These estimated future cash flows were then discounted to an assumed present value using our estimated weighted-average cost of capital, which is represented by our IRR.
The comparable company analysis provides an estimate of our value relative to other publicly traded companies with similar operating and financial characteristics, by which a range of EBITDA multiples of the comparable companies was then applied to management’s projected EBITDA to derive an estimated enterprise value.
Precedent transaction analysis provides an estimate of enterprise value based on recent sale transactions of similar companies, by deriving the implied EBITDA multiple of those transactions, based on sales prices, which was then applied to management’s projected EBITDA.
The enterprise value and corresponding equity value are dependent upon achieving the future financial results set forth in our valuations, as well as the realization of certain other assumptions. All estimates, assumptions, valuations and financial projections, including the fair value adjustments, the enterprise value and equity value projections, are inherently subject to significant uncertainties and the resolution of contingencies beyond our control. Accordingly, we cannot assure you that the estimates, assumptions, valuations or financial projections will be realized, and actual results could vary materially.
Valuation Process
The reorganization value was allocated to the Successor’s reporting segments using the discounted cash flow approach. The reorganization value was then allocated to the Successor’s identifiable assets and liabilities using the fair value principle as contemplated in ASC 820. The specific approach, or approaches, used to allocate reorganization value by asset class are noted below.
Inventory
The fair value of the inventory was determined by using both a cost approach and income approach. Inventory was segregated into raw materials, spare parts, work in process (“WIP”), and finished goods. Fair value of raw materials and spare parts inventory were determined using the cost approach. Fair value of finished goods and WIP inventory were determined by using the net realizable value approach. The fair value of finished goods was measured using an estimate of the costs to sell or dispose of the inventory plus a reasonable profit allowance on those efforts adjusted for holding costs. The fair value of WIP was measured using an estimate of the costs to complete and sell or consume the inventory plus a reasonable profit allowance on those efforts adjusted for holding costs.
Property, Plant and Equipment
Real Property
The fair values of real property locations were estimated using the sales comparison (market) approach and cost approach. As part of the transactions undertaken pursuant tovaluation process, information was obtained on the Plan,Successor’s current usage, building type, year built, and cost history for all properties valued. In determining the Former Parent’s equity interests existingfair value and outstanding prior toremaining useful life for real property assets, functional and economic obsolescence was considered and taken as an adjustment at the Effective Date were cancelled. The record holders of certain of the 7.125% Notes and 7.750% Notes were deemed to have contributed all of the allowed prepetition notes claims described in the Plan against the Affiliate Debtors in exchange for shares of the Company’s Class A Common Stock, par value $0.01 per share (the Class A Common Stock). As a result, effective as of the Effective Date, the entity now known as Superior Energy Services, Inc., became the successor reporting company to the Former Parent pursuant to Rule 15d-5 of the Securities Exchange Act of 1934, as amended.asset level.
Executory Contracts and Leases
Tangible Assets Excluding Real Property and Oil and Gas Assets
On January 19, 2021, the Bankruptcy Court approved the Former Parent’s motion to reject certain executory contracts, which were comprised entirely of corporate guarantees. Upon the rejection of these contracts, the counterparties were included in the general unsecured claims category, of which they are to receive a pro rata share based on their allowed claim of a $125,000 cash payment. On this same date, the Bankruptcy Court also approved the rejection of seven leases. Upon their rejection, the Company reclassified the associated lease liabilities to Liabilities subject to compromise at their allowed claim or settlement amount, with any difference recorded to Reorganization items.52
Credit Facility
On the Effective Date, pursuant to the Plan, the Former Parent entered into a Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders and letter of credit issuers named therein providing for a $120.0 million asset-based secured revolving credit facility (the Credit Facility), as further described in Note 6 herein.
Stockholders Agreement
On the Effective Date, in order to implement certain transactions contemplated by the Plan, the Company entered into a Stockholders Agreement (the Stockholders Agreement), to provide for certain governance matters. Other than obligations related to Confidential Information (as defined in the Stockholders Agreement), the rights and preferences of each stockholder under the Stockholders Agreement will terminate when such stockholder ceases to own shares of the Class A Common Stock.
Senior Notes
As part of the transactions undertaken pursuant to the Plan, the record holders of certain of the 7.125% Notes and the 7.750% Notes contributed all of their allowed claims described in the Plan in exchange for either (i) a cash payout to be entirely funded by an equity rights offering in connection with the Plan discussed elsewhere in this Annual Report on Form 10-K (the Equity Rights Offering), or (ii) shares of the Class A Common Stock. On the Effective Date, all outstanding obligations under the 7.125% Notes and the 7.750% Notes, were cancelled, and the applicable agreements governing such obligations were terminated. Furthermore, all existing shares of common stock of the Former Parent were cancelled pursuant to the Plan, and the Company is in the process of issuing shares of the Class A Common Stock to such noteholders, subject to dilution on account of the Class B Common Stock to be issued to the Company’s management under a management equity incentive plan. The Class A Common Stock issued to such holders is exempt from registration under the Securities Act of 1933, as amended (the Securities Act), pursuant to Section 1145 of the Bankruptcy Code (which generally exempts from such registration requirements the issuance of securities under a plan of reorganization).
By the Effective Date, the Company completed the Equity Rights Offering in accordance with the Plan, which resulted in the issuance of 735,189 shares of Class A Common Stock to accredited cash opt-out noteholders as described in the Plan. The Class A Common Stock issued to the accredited cash opt-out noteholders in the Equity Rights Offering was exempt from registration under the Securities Act pursuant to section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder. The proceeds of approximately $952 thousand from the Equity Rights Offering were used entirely to fund the proceeds provided to the cash opt-in noteholders.
DDTL Commitment Letter
On the Effective Date, that certain Commitment Letter, dated as of September 29, 2020 (the DDTL Commitment Letter), with certain consenting noteholders terminated in accordance with its terms upon the effectiveness of the Credit Facility without the establishment of a delayed-draw term loan facility.
The fair values of our tangible assets were calculated using either the cost or market approach. For most tangible asset categories, a cost approach was utilized relying on purchase year, historic costs, and industry/equipment based trend factors to determine replacement cost new of the assets. Readily available market transaction data was used and adjusted for current market conditions for asset categories with active secondary markets such as heavy trucks and computer equipment. In both approaches, consideration was made for the effects of physical deterioration as well as functional and economic obsolescence in determining both estimates of fair value and the remaining useful lives of the assets.
Oil and Gas Assets
The oil and gas assets were valued using estimates of the reserve volumes and associated income data based on escalated price and cost parameters.
Change in Control
OnInternally-Developed Software
Internally-developed software was valued using the Effective Date, allcost approach in which a replacement cost was estimated based on the software developer time, materials, and other supporting services required to replicate the software.
Decommissioning Liabilities
In accordance with FASB ASC Topic No. 410 – Asset Retirement and Environmental Obligations (“ASC 410”), the decommissioning liabilities associated with our oil and gas assets were valued using the income approach. Estimates of future retirement costs were adjusted for an estimated inflation rate over the expected time period prior to retirement and future cash outflows were discounted by a credit adjusted risk-free rate. We changed our presentation to consolidate the decommissioning liabilities previously issuedrecorded to other long-term liabilities into decommissioning liabilities.
Intangible Assets
Intangible assets were identified apart from goodwill using the guidance provided in ASC 805. Intangible assets that were identified as either separable or arose from contract or other legal rights were valued using either the cost or income approaches. The principal intangible assets identified were trademarks and outstanding equity interestspatents. Trademarks and patents were valued using the relief from royalty method in which the subject intangible asset is valued by reference to the amount of royalty income it could generate if it was licensed in an arm’s length transaction to a third party.
Lease Liabilities and Right of Use Assets
The fair value of lease liabilities was measured as the present value of the remaining lease payments, as if the lease were a new lease as of the Emergence Date. The Successor used its incremental borrowing rate of 5.3% commensurate with the Successor's capital structure as the discount rate in determining the present value of the remaining lease payments.
Consolidated Balance Sheet
The adjustments included in the Company were cancelled. The Company issued Class A Common Stock to Equity Rights Offering participants and holdersfollowing fresh start consolidated balance sheet as of allowed claims arising underFebruary 2, 2021 reflect the Prepetition Notes (in each case subject to dilution on accounteffects of the Class B Common Stock to be issued to management pursuanttransactions contemplated by the Plan and executed by the Successor on the Emergence Date (reflected in the column Reorganization Adjustments), and fair value and other required accounting adjustments resulting from the adoption of fresh start accounting (reflected in the column Fresh Start Adjustments). The explanatory notes provide additional information with regard to the Plan.
The consolidated balance sheet as of the Emergence Date was as follows (in thousands):
53
|
| As of February 2, 2021 |
| |||||||||||||||||
|
|
|
|
| Reorganization |
|
|
|
| Fresh Start |
|
|
|
|
|
| ||||
|
| Predecessor |
|
| Adjustments |
|
|
|
| Adjustments |
|
|
|
| Successor |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 194,671 |
|
| $ | (21,903 | ) |
| (1) |
| $ | - |
|
|
|
| $ | 172,768 |
|
Restricted cash - current |
|
| - |
|
|
| 16,751 |
|
| (2) |
|
| - |
|
|
|
|
| 16,751 |
|
Accounts receivable, net |
|
| 153,518 |
|
|
| 11 |
|
| (3) |
|
| - |
|
|
|
|
| 153,529 |
|
Income taxes receivable |
|
| 9,146 |
|
|
| - |
|
|
|
|
| (170 | ) |
| (16) |
|
| 8,976 |
|
Prepaid expenses |
|
| 31,630 |
|
|
| - |
|
|
|
|
| - |
|
|
|
|
| 31,630 |
|
Inventory and other current assets |
|
| 90,073 |
|
|
| - |
|
|
|
|
| 11,067 |
|
| (17) |
|
| 101,140 |
|
Assets held for sale |
|
| 240,761 |
|
|
| - |
|
|
|
|
| (20,402 | ) |
| (18) |
|
| 220,359 |
|
Total current assets |
|
| 719,799 |
|
|
| (5,141 | ) |
|
|
|
| (9,505 | ) |
|
|
|
| 705,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Property, plant and equipment, net |
|
| 401,263 |
|
|
| - |
|
|
|
|
| 139,587 |
|
| (19) |
|
| 540,850 |
|
Operating lease right-of-use assets |
|
| 32,488 |
|
|
| - |
|
|
|
|
| 1,430 |
|
| (20) |
|
| 33,918 |
|
Goodwill |
|
| 138,934 |
|
|
| - |
|
|
|
|
| (138,934 | ) |
| (21) |
|
| - |
|
Notes receivable |
|
| 72,484 |
|
|
| - |
|
|
|
|
| - |
|
|
|
|
| 72,484 |
|
Restricted cash - non-current |
|
| 80,179 |
|
|
| - |
|
|
|
|
| - |
|
|
|
|
| 80,179 |
|
Intangible and other long-term assets, net |
|
| 52,264 |
|
|
| (10,080 | ) |
| (4) |
|
| (17,964 | ) |
| (22) |
|
| 24,220 |
|
Total assets |
| $ | 1,497,411 |
|
| $ | (15,221 | ) |
|
|
| $ | (25,386 | ) |
|
|
| $ | 1,456,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
| |||||||||||||||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts payable |
| $ | 51,816 |
|
| $ | (700 | ) |
| (5) |
| $ | - |
|
|
|
| $ | 51,116 |
|
Accrued expenses |
|
| 126,768 |
|
|
| 9,042 |
|
| (6) |
|
| 1,406 |
|
| (23) |
|
| 137,216 |
|
Liabilities held for sale |
|
| 39,642 |
|
|
| 1,614 |
|
| (7) |
|
| (3,992 | ) |
| (24) |
|
| 37,264 |
|
Total current liabilities |
|
| 218,226 |
|
|
| 9,956 |
|
|
|
|
| (2,586 | ) |
|
|
|
| 225,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Decommissioning liabilities |
|
| 134,934 |
|
|
| - |
|
|
|
|
| 34,581 |
|
| (25) |
|
| 169,515 |
|
Operating lease liabilities |
|
| 23,584 |
|
|
| - |
|
|
|
|
| (29 | ) |
| (26) |
|
| 23,555 |
|
Deferred income taxes |
|
| 4,853 |
|
|
| 3,100 |
|
| (8) |
|
| 51,569 |
|
| (27) |
|
| 59,522 |
|
Other long-term liabilities |
|
| 121,756 |
|
|
| - |
|
|
|
|
| (45,826 | ) |
| (28) |
|
| 75,930 |
|
Total non-current liabilities |
|
| 285,127 |
|
|
| 3,100 |
|
|
|
|
| 40,295 |
|
|
|
|
| 328,522 |
|
Liabilities subject to compromise |
|
| 1,572,772 |
|
|
| (1,572,772 | ) |
| (9) |
|
| - |
|
|
|
|
| - |
|
Total liabilities |
|
| 2,076,125 |
|
|
| (1,559,716 | ) |
|
|
|
| 37,709 |
|
|
|
|
| 554,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Stockholders’ equity (deficit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Predecessor common stock $0.001 par value |
|
| 16 |
|
|
| (16 | ) |
| (10) |
|
| - |
|
|
|
|
| - |
|
Predecessor Additional paid-in capital |
|
| 2,757,824 |
|
|
| (2,757,824 | ) |
| (11) |
|
| - |
|
|
|
|
| - |
|
Predecessor Treasury stock at cost |
|
| (4,290 | ) |
|
| 4,290 |
|
| (12) |
|
| - |
|
|
|
|
| - |
|
Successor Class A common stock $0.001 par value |
|
| - |
|
|
| 200 |
|
| (13) |
|
| - |
|
|
|
|
| 200 |
|
Successor Additional paid-in capital |
|
| - |
|
|
| 902,486 |
|
| (14) |
|
| - |
|
|
|
|
| 902,486 |
|
Accumulated other comprehensive loss, net |
|
| (67,532 | ) |
|
| - |
|
|
|
|
| 67,532 |
|
| (29) |
|
| - |
|
Accumulated deficit |
|
| (3,264,732 | ) |
|
| 3,395,359 |
|
| (15) |
|
| (130,627 | ) |
| (30) |
|
| - |
|
Total stockholders’ equity (deficit) |
|
| (578,714 | ) |
|
| 1,544,495 |
|
|
|
|
| (63,095 | ) |
|
|
|
| 902,686 |
|
Total liabilities and stockholders’ equity (deficit) |
| $ | 1,497,411 |
|
| $ | (15,221 | ) |
|
|
| $ | (25,386 | ) |
|
|
| $ | 1,456,804 |
|
54
Affiliate Debtor Financial Statements
The following are the condensed combined financial statements for the Affiliate Debtors included in the Chapter 11 Cases:
| ||
| ||
| ||
| ||
| ||
|
| |
| ||
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| ||
| ||
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| ||
| ||
| ||
Reorganization Adjustments (in thousands)
Payment of debtor in possession financing fees | ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| $ | ( | ) | |
| ( | ) | ||
| ( | ) | ||
| (16,751 | ) | ||
|
| |||
| (1,920 |
| ||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
| ||||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
Net |
| |||
|
| |||
| $ |
| ) | |
Transfer from cash for Professional Fee Escrow |
| $ | 16,626 |
|
Transfer from cash for General Unsecured Creditors Escrow |
|
| 125 |
|
Net change in restricted cash - current |
| $ | 16,751 |
|
Write-off of deferred financing costs related to the Delayed-Draw Term Loan | $ | (12,000 | ) | |
Capitalization of debt issuance costs associated with the Credit Facility | 1,920 | |||
Net change in intangibles and other long-term assets | $ | (10,080 | ) |
Payment of professional fees at the Emergence Date | $ | (2,649 | ) | |
Professional fees recognized and payable at the Emergence Date | 1,949 | |||
Net change in accounts payable | $ | (700 | ) |
Payment of debtor in possession financing fees |
| $ | (183 | ) |
Accrual of professional fees |
|
| 6,500 |
|
Accrual for transfer taxes |
|
| 1,900 |
|
Reinstatement of lease rejection liabilities to be settled post-emergence |
|
| 700 |
|
Accrual of general unsecured claims against parent |
|
| 125 |
|
Net change in accrued liabilities |
| $ | 9,042 |
|
55
Prepetition 7.125% and 7.750% notes including accrued interest and unpaid interest |
| $ | 1,335,794 |
|
Rejected lease liability claims |
|
| 4,956 |
|
Allowed Class 6 General Unsecured Claims against Parent |
|
| 232,022 |
|
Liabilities subject to compromise settled in accordance with the Plan |
|
| 1,572,772 |
|
Reinstatement of accrued liabilities for lease rejection claims |
|
| (700 | ) |
Reinstatement of liabilities held for sale for lease rejection claims |
|
| (1,614 | ) |
Payment to settle lease rejection claims |
|
| (400 | ) |
Cash proceeds from rights offering |
|
| 963 |
|
Cash payout provided to cash opt-in noteholders |
|
| (952 | ) |
Cash Pool to settle GUCs against Parent |
|
| (125 | ) |
Issuance of common stock to prepetition noteholders, incremental to rights |
|
| (193 | ) |
Additional paid-in capital attributable to successor common stock issuance |
|
| (869,311 | ) |
Successor common stock issued to cash opt-out noteholders in the rights |
|
| (7 | ) |
Additional paid-in capital attributable to rights offering shares |
|
| (33,175 | ) |
Gain on settlement of liabilities subject to compromise |
| $ | 667,258 |
|
The Equity Rights Offering generated $963 thousand in proceeds used to settle $952 thousand in Cash Opt-in Noteholder claims. The Equity Rights Offering shares were offered at a price of $1.31/share to Cash Opt-out Noteholders. As such, the Equity Rights Offering shares generated the $963 thousand in cash proceeds from the share issuance as well as an implied discount to the Cash Opt-in claimants of $32.2 million, recorded as a loss on share issuance in reorganization items, net. The loss on the Equity Rights Offering share issuance is offset by the gain on share issuance of $32.2 million implied by the issuance of shares to settle Cash Opt-out Noteholder claims at a value of $46.82/share compared to the reorganization value implied share price of $45.14/share.
Extinguishment of APIC related to Predecessor's outstanding equity interests | ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| $ |
| ) | |
Extinguishment of RSUs for the Predecessor's incentive plan | ||||
| ||||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
| ||||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
| ||||
|
| |||
|
| |||
|
| |||
| ||||
|
| |||
|
| |||
|
| |||
|
| |||
Net change in |
| |||
|
| |||
| $ | ( | ) | |
Issuance of successor Class A common stock to prepetition noteholders, |
| $ | 193 |
|
Successor Class A common stock issued to cash opt-out noteholders in |
|
| 7 |
|
Net change in Successor Class A common stock |
| $ | 200 |
|
Additional paid-in capital (Successor Class A common stock) |
| $ | 869,311 |
|
Additional paid-in capital (rights offering shares) |
|
| 33,175 |
|
Net change in Successor additional paid-in capital |
| $ | 902,486 |
|
(3) Revenue56
Revenue Recognition
Revenues are recognized when performance obligations are satisfied in accordance with contractual terms, in an amount that reflects the consideration the Company expects to be entitled to in exchange for services rendered, rentals provided and products sold. Taxes collected from customers and remitted to governmental authorities and revenues are reported on a net basis in the Company’s financial statements.
Gain on settlement of liabilities subject to compromise |
| $ | 667,258 |
|
Accrual for transfer tax |
|
| (1,900 | ) |
Extinguishment of RSUs for Predecessor incentive plan |
|
| (988 | ) |
Adjustment to net deferred tax liability taken to tax expense |
|
| (3,100 | ) |
Professional fees earned and payable as a result of consummation of the Plan of Reorganization |
|
| (8,449 | ) |
Write-off of deferred financing costs related to the Delayed-Draw Term Loan |
|
| (12,000 | ) |
Extinguishment of Predecessor equity (par value, APIC, and treasury stock) |
|
| 2,754,538 |
|
Net change in retained earnings (deficit) |
| $ | 3,395,359 |
|
Performance ObligationsFresh Start Adjustments (in thousands)
Fair value adjustment to inventory - Global Segment |
| $ | 12,137 |
|
Fair value adjustment to other current assets |
|
| (1,070 | ) |
Net change in inventory and other current assets due to the adoption of fresh |
| $ | 11,067 |
|
|
| Successor Fair |
|
|
| Predecessor Book |
| ||
Land, Buildings, and Associated Improvements |
| $ | 117,341 |
|
|
| $ | 205,237 |
|
Machinery and Equipment |
|
| 290,593 |
|
|
|
| 1,103,501 |
|
Rental Services Equipment |
|
| 92,861 |
|
|
|
| 617,762 |
|
Other Depreciable or Depletable Assets |
|
| 35,143 |
|
|
|
| 46,403 |
|
Construction in Progress |
|
| 4,912 |
|
|
|
| 4,912 |
|
|
|
| 540,850 |
|
|
|
| 1,977,815 |
|
Less: Accumulated Depreciation and Depletion |
|
| - |
|
|
|
| (1,576,552 | ) |
Property, Plant and Equipment, net |
| $ | 540,850 |
|
|
| $ | 401,263 |
|
Services revenue: primarily represents amounts charged to customers for the completion of services rendered, including labor, products and supplies necessary to perform the service. Rates for these services vary depending on the type of services provided and can be based on a per job, per hour or per day basis.
Rentals revenue: primarily priced on a per day, per man hour or similar basis and consists of fees charged to customers for use of the Company’s rental equipment over the term of the rental period, which is generally less than twelve months.
Product sales: products are generally sold based upon purchase orders or contracts within the Company’s customers that include fixed or determinable prices but do not include right of return provisions or other significant post-delivery obligations. The Company recognizes revenue from product sales when title passes to the customer,adoption of fresh start accounting.
The Companyfair value changes of $1.4 million to intangibles assets are reflected in the table below:
|
| Successor Fair Value |
|
|
| Predecessor Net Book Value |
| ||
Customer Relationships |
| $ | - |
|
|
| $ | 4,901 |
|
Trademarks |
|
| 4,166 |
|
|
|
| 11 |
|
Patents |
|
| 2,120 |
|
|
|
| - |
|
Intangible Assets, Net |
| $ | 6,286 |
|
|
| $ | 4,912 |
|
57
Fresh start valuation adjustments | $ | (77,376 | ) | |
Adjustment to net deferred tax liability taken to tax expense | (53,251 | ) | ||
Net impact to accumulated other comprehensive loss and accumulated deficit | $ | (130,627 | ) |
Reorganization Items, net
The Predecessor incurred becausecosts associated with the amortization period wouldreorganization, primarily unamortized debt issuance costs, expenses related to rejected leases and post-petition professional fees. In accordance with applicable guidance, costs associated with the Chapter 11 Cases have been one year or less.recorded as reorganization items, net within the accompanying consolidated statement of operations for the Predecessor Period. Reorganization items, net was zero for the Successor Period, with $13.7 million used in operating activities during the Successor Period. Reorganization items, net was $335.6 million for the Predecessor Period, with $3.1 million representing cash used in operating activities during the Predecessor Period, $2.7 million and $0.4 million paid for professional fees and to settle lease rejection damages, respectively.
|
| Predecessor |
| |
|
| For the Period |
| |
Gain on settlement of liabilities subject to compromise |
| $ | 667,258 |
|
Allowed claim adjustment for Class 6 claims |
|
| (232,022 | ) |
Fresh Start valuation adjustments (1) |
|
| (77,376 | ) |
Professional fees |
|
| (16,005 | ) |
Predecessor lease liabilities rejected per the Plan |
|
| 13,347 |
|
Write off of deferred financing costs related to the Delayed-Draw Term Loan |
|
| (12,000 | ) |
Lease rejection damages |
|
| (4,956 | ) |
Extinguishment of RSU's for the Predecessor's incentive plan |
|
| (988 | ) |
Other items |
|
| (1,698 | ) |
Total reorganization items, net |
| $ | 335,560 |
|
(1) Includes approximately $16.4 million in adjustments to assets and liabilities classified as held for sale. See Note 17 - Discontinued Operations.
58
(3) Revenue
Disaggregation of revenueRevenue
The following table presents the Company’s revenues by segment disaggregated by geography (in thousands):
Years Ended December 31, | ||||||||
2020 | 2019 | 2018 | ||||||
U.S. land | ||||||||
Drilling Products and Services | $ | 78,537 | $ | 178,345 | $ | 176,448 | ||
Onshore Completion and Workover Services | 130,798 | 341,297 | 406,248 | |||||
Production Services | 61,532 | 138,300 | 195,363 | |||||
Technical Solutions | 18,652 | 40,363 | 31,137 | |||||
Total U.S. land | $ | 289,519 | $ | 698,305 | $ | 809,196 | ||
U.S. offshore | ||||||||
Drilling Products and Services | $ | 112,583 | $ | 125,104 | $ | 100,855 | ||
Onshore Completion and Workover Services | - | - | - | |||||
Production Services | 37,478 | 73,610 | 66,512 | |||||
Technical Solutions | 83,519 | 141,851 | 160,507 | |||||
Total U.S. offshore | $ | 233,580 | $ | 340,565 | $ | 327,874 | ||
International | ||||||||
Drilling Products and Services | $ | 90,277 | $ | 108,124 | $ | 106,416 | ||
Onshore Completion and Workover Services | - | - | - | |||||
Production Services | 177,319 | 193,920 | 156,650 | |||||
Technical Solutions | 60,612 | 84,455 | 78,721 | |||||
Total International | $ | 328,208 | $ | 386,499 | $ | 341,787 | ||
Total Revenues | $ | 851,307 | $ | 1,425,369 | $ | 1,478,857 | ||
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
| Year Ended December 31, 2022 |
|
| For the Period |
|
|
| For the Period |
|
| For the Twelve Months Ended December 31, 2020 |
| ||||
U.S. land |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rentals |
| $ | 160,742 |
|
| $ | 87,432 |
|
|
| $ | 4,917 |
|
| $ | 78,537 |
|
Well Services |
|
| 24,558 |
|
|
| 20,133 |
|
|
|
| 3,379 |
|
|
| 26,924 |
|
Total U.S. land |
|
| 185,300 |
|
|
| 107,565 |
|
|
|
| 8,296 |
|
|
| 105,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. offshore |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rentals |
|
| 140,881 |
|
|
| 103,646 |
|
|
|
| 8,196 |
|
|
| 129,021 |
|
Well Services |
|
| 122,848 |
|
|
| 93,412 |
|
|
|
| 7,371 |
|
|
| 104,559 |
|
Total U.S. offshore |
|
| 263,729 |
|
|
| 197,058 |
|
|
|
| 15,567 |
|
|
| 233,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
International |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rentals |
|
| 101,319 |
|
|
| 77,617 |
|
|
|
| 5,226 |
|
|
| 90,277 |
|
Well Services |
|
| 333,612 |
|
|
| 266,514 |
|
|
|
| 16,839 |
|
|
| 237,931 |
|
Total International |
|
| 434,931 |
|
|
| 344,131 |
|
|
|
| 22,065 |
|
|
| 328,208 |
|
Total Revenues |
| $ | 883,960 |
|
| $ | 648,754 |
|
|
| $ | 45,928 |
|
| $ | 667,249 |
|
The following table presents the Company’s revenues by segment disaggregated by type (in thousands):
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
| Year Ended December 31, 2022 |
|
| For the Period |
|
|
| For the Period |
|
| For the Twelve Months Ended December 31, 2020 |
| ||||
Services |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rentals |
| $ | 53,029 |
|
| $ | 33,629 |
|
|
| $ | 2,005 |
|
| $ | 45,226 |
|
Well Services |
|
| 333,746 |
|
|
| 272,070 |
|
|
|
| 17,229 |
|
|
| 254,157 |
|
Total Services |
|
| 386,775 |
|
|
| 305,699 |
|
|
|
| 19,234 |
|
|
| 299,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rentals |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rentals |
|
| 299,128 |
|
|
| 197,050 |
|
|
|
| 14,082 |
|
|
| 215,163 |
|
Well Services |
|
| 10,186 |
|
|
| 11,901 |
|
|
|
| 352 |
|
|
| 10,200 |
|
Total Rentals |
|
| 309,314 |
|
|
| 208,951 |
|
|
|
| 14,434 |
|
|
| 225,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Product Sales |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rentals |
|
| 50,786 |
|
|
| 38,016 |
|
|
|
| 2,252 |
|
|
| 37,446 |
|
Well Services |
|
| 137,085 |
|
|
| 96,088 |
|
|
|
| 10,008 |
|
|
| 105,057 |
|
Total Product Sales |
|
| 187,871 |
|
|
| 134,104 |
|
|
|
| 12,260 |
|
|
| 142,503 |
|
Total Revenues |
| $ | 883,960 |
|
| $ | 648,754 |
|
|
| $ | 45,928 |
|
| $ | 667,249 |
|
(4) Inventory
Inventories are stated at the lower of cost or net realizable value. We apply net realizable value and obsolescence to the gross value of inventory. Cost is determined using the first-in, first-out or weighted-average cost methods for finished goods and work-in-process. Supplies and consumables consist principally of products used in the services provided to our customers. The components of inventory balances are as follows (in thousands):
59
|
| December 31, 2022 |
|
|
| December 31, 2021 |
| ||
Finished goods |
| $ | 36,136 |
|
|
| $ | 26,187 |
|
Raw materials |
|
| 8,351 |
|
|
|
| 9,753 |
|
Work-in-process |
|
| 4,718 |
|
|
|
| 4,253 |
|
Supplies and consumables |
|
| 16,382 |
|
|
|
| 20,410 |
|
Total |
| $ | 65,587 |
|
|
| $ | 60,603 |
|
Finished goods inventory includes component parts awaiting assembly of approximately $20.7 million and $15.2 million as of December 31, 2022 and 2021, respectively.
(5) Decommissioning Liability
Years Ended December 31, | ||||||||
2020 | 2019 | 2018 | ||||||
Services | ||||||||
Drilling Products and Services | $ | 45,226 | $ | 69,958 | $ | 54,997 | ||
Onshore Completion and Workover Services | 118,948 | 303,542 | 364,500 | |||||
Production Services | 215,812 | 348,168 | 352,590 | |||||
Technical Solutions | 87,562 | 163,584 | 160,942 | |||||
Total Services | $ | 467,548 | $ | 885,252 | $ | 933,029 | ||
Rentals | ||||||||
Drilling Products and Services | $ | 198,725 | $ | 291,975 | $ | 281,750 | ||
Onshore Completion and Workover Services | 11,850 | 37,755 | 41,748 | |||||
Production Services | 21,462 | 32,402 | 36,568 | |||||
Technical Solutions | 9,195 | 14,115 | 20,230 | |||||
Total Rentals | $ | 241,232 | $ | 376,247 | $ | 380,296 | ||
Product Sales | ||||||||
Drilling Products and Services | $ | 37,446 | $ | 49,640 | $ | 46,972 | ||
Onshore Completion and Workover Services | - | - | - | |||||
Production Services | 39,055 | 25,260 | 29,367 | |||||
Technical Solutions | 66,026 | 88,970 | 89,193 | |||||
Total Product Sales | $ | 142,527 | $ | 163,870 | $ | 165,532 | ||
Total Revenues | $ | 851,307 | $ | 1,425,369 | $ | 1,478,857 | ||
We account for our decommissioning liability under ASC 410 – Asset Retirement Obligations. Our decommissioning liability is associated with our oil and gas property and includes costs related to the plugging of wells, decommissioning of the platform and related equipment and site restoration. We review the adequacy of our decommissioning liability whenever indicators suggest that the estimated cash flows and/or timing needed to satisfy the liability have changed materially.
(4) Leases
AdoptionDuring 2022, we revised our decommissioning program as follows:
The Company adoptedreduction in cost estimates under a reef-in-place program resulted in a reduction in the new standard on January 1, 2019carrying value of our decommissioning liability and usedrelated note receivable as discussed in Note 6 - Note Receivable, as well as impacted the effective datecarrying value of our oil and gas producing assets, such that as of June 30, 2022, our decommissioning liability was reduced by $53.0 million and the daterelated note receivable was increased by $2.6 million. In accordance with ASC 410, the carrying value of initial application. Therefore, prior period financialour oil and gas producing assets was reduced by $38.2 million, which represented the net book value of our oil and gas assets at June 30, 2022. In connection with these changes, we recognized a gain of approximately $17.4 million, which is included in other (gains) and losses, net in our statement of operations.
We now estimate all decommissioning activities, including the decommissioning of the platform, to be reflectedcompleted by the second quarter of 2030. Previously, we had expected final decommissioning activities to be completed by the second quarter of 2031. Due to the upward revision in accordancedecommissioning costs for the wells, and an acceleration in timing to decommission the wells and platform, at December 31, 2022, our decommissioning liability was increased by $13.8 million, the related note receivable was increased by $2.7 million and we recorded an asset retirement cost asset of $11.1 million.
The following table presents the activity during 2022 impacting our decommissioning liability, the related note receivable and oil and gas producing assets:
|
| Balance at December 31, 2021 |
|
| 2022 Activity |
|
| Reef-in-place Adjustment |
|
| Year End 2022 Adjustment |
|
| Balance at December 31, 2022 |
| |||||
Decommissioning Liability |
| $ | 190,380 |
|
| $ | 9,500 |
|
| $ | (53,028 | ) |
| $ | 13,819 |
|
| $ | 160,671 |
|
Note Receivable |
|
| 60,588 |
|
|
| 3,823 |
|
|
| 2,581 |
|
|
| 2,687 |
|
|
| 69,679 |
|
Oil and gas producing assets, net |
|
| 41,582 |
|
|
| (2,790 | ) |
|
| (38,235 | ) |
|
| 11,132 |
|
|
| 11,689 |
|
The following table presents our decommissioning liability as of the periods indicated:
60
|
| December 31, 2022 |
|
| December 31, 2021 |
| ||
Wells |
| $ | 96,171 |
|
| $ | 97,810 |
|
Platform |
|
| 64,500 |
|
|
| 92,570 |
|
Decommissioning Liability |
|
| 160,671 |
|
|
| 190,380 |
|
Less: Note Receivable |
|
| (69,679 | ) |
|
| (60,588 | ) |
Decommissioning Liability, net of Note Receivable |
| $ | 90,992 |
|
| $ | 129,792 |
|
Accretion expense associated with our decommissioning liability during the Current Period, the Successor Period, the Predecessor Period and the Prior Period was $9.5 million was $9.3 million and $0.5 million, and $6.5 million, respectively.
(6) Note Receivable
Our note receivable consist of a commitment from the seller of oil and gas property for costs associated with abandonment. Pursuant to an agreement with the Company’s historical accounting policy. The standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability onseller, we invoice the balance sheet for all leases with a term longer than 12 months.seller an agreed upon amount at the completion of certain decommissioning activities.
As discussed above, changes in estimates regarding the timing and the cost of decommissioning our oil and gas property under a reef-in-place program during the second quarter of 2022 resulted in a $2.6 million increase in the carrying value of our note receivable.
As discussed above, due to revisions in estimates in both costs and timing of decommissioning the wells associated with our oil and gas property, at December 31, 2022, the related note receivable was increased by $2.7 million.
Due to the reduction in estimated costs under the reef-in-place program and revisions to the timing of the expected completion of the platform decommissioning activities, the gross amount of the seller’s obligation is $105.2 million. The carrying value of the note receivable totaled $69.7 million as of December 31, 2022.
The standard provides a numberdiscount on the notes receivable, which is currently based on an effective interest rate of optional practical expedients5.6%, is amortized to interest income over the expected timing of the completion of the decommissioning activities. Interest receivable is considered paid in transition. The Company electedkind and is compounded into the “packagecarrying amount of practical expedients,” which, among other things, allows the Company to carry forward its historical lease classification.note.
The adoption
We recorded non-cash interest income related to the note receivable of this standard resulted$3.8 million, $3.9 million, $0.4 million and $4.5 million related to our notes receivable during the Current Period, the Successor Period, the Predecessor Period and the Prior Period, respectively. Interest income is included in other reconciling items, net in the recordingConsolidated Statements of operating lease assets and operating lease liabilities of approximately $100.0 million as of January 1, 2019, with 0 related impact on the Company’s consolidated statement of equity or consolidated statement of operations. Short-term leases have not been recorded on the balance sheet.Cash Flows.
Accounting Policy for(7) Leases
The Company determinesWe determine if an arrangement is a lease at inception. All of the Company’sour leases are operating leases and are included in ROU assets, accounts payable and operating lease liabilities in the consolidated balance sheet.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligations to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the respective lease term. The Company uses itsWe use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company’sOur lease terms may include options to extend or terminate the lease.
Overview
The Company’sOur operating leases are primarily for real estate, machinery and equipment, and vehicles. Prior period financial information has not been adjusted and continues to be reflected in accordance with the Company’s historical accounting policy. The terms and conditions for these leases vary by the type of underlying asset. Total operating lease expense was as follows (in thousands):
|
|
|
|
| Successor |
|
|
| Predecessor |
| |||||||
|
| Year Ended December 31, 2022 |
|
| For the Period |
|
|
| For the Period |
|
| For the Twelve Months Ended December 31, 2020 |
| ||||
Long-term fixed lease expense |
| $ | 9,761 |
|
| $ | 12,579 |
|
|
| $ | 1,824 |
|
| $ | 18,454 |
|
Long-term variable lease expense |
|
| 2 |
|
|
| - |
|
|
|
| 19 |
|
|
| 10 |
|
Short-term lease expense |
|
| 22,705 |
|
|
| 10,165 |
|
|
|
| 789 |
|
|
| 4,322 |
|
Total operating lease expense |
| $ | 32,468 |
|
| $ | 22,744 |
|
|
| $ | 2,632 |
|
| $ | 22,786 |
|
61
Years Ended December 31, | |||||||||
2020 | 2019 | 2018 | |||||||
Long-term fixed lease expense | $ | 22,855 | $ | 33,577 | $ | 33,642 | |||
Long-term variable lease expense | 385 | 406 | 749 | ||||||
Short-term lease expense | 10,482 | 17,670 | 14,367 | ||||||
Total operating lease expense | $ | 33,722 | $ | 51,653 | $ | 48,758 | |||
Supplemental Balance Sheet Information
Operating leases were as follows (in thousands):
|
|
|
|
|
|
| ||
|
| December 31, 2022 |
|
| December 31, 2021 |
| ||
Operating lease ROU assets |
| $ | 18,797 |
|
| $ | 25,154 |
|
|
|
|
|
|
|
| ||
Accrued expenses |
| $ | 4,033 |
|
| $ | 5,650 |
|
Operating lease liabilities |
|
| 14,634 |
|
|
| 19,193 |
|
Total operating lease liabilities |
| $ | 18,667 |
|
| $ | 24,843 |
|
|
|
|
|
|
|
| ||
Weighted average remaining lease term |
| 18 years |
|
| 15 years |
| ||
Weighted average discount rate |
| 5.33% |
|
| 5.34% |
| ||
|
|
|
|
|
|
| ||
Cash paid for operating leases |
| $ | 7,395 |
|
| $ | 13,591 |
|
ROU assets obtained in exchange for lease obligations |
|
| 5,069 |
|
|
| 2,820 |
|
During the Current Year, cash paid for operating leases totaled $7.4 million and ROU assets obtained in exchange for lease obligation were $5.1 million.
December 31, 2020 | December 31, 2019 | ||||
Operating lease ROU assets | $ | 50,192 | $ | 80,906 | |
Accrued expenses | $ | 18,491 | $ | 21,072 | |
Operating lease liabilities | 40,258 | 62,354 | |||
Total operating lease liabilities | $ | 58,749 | $ | 83,426 | |
Weighted average remaining lease term | 9 years | 9 years | |||
Weighted average discount rate | 6.35% | 6.75% | |||
Cash paid for operating leases | $ | 26,949 | $ | 34,207 | |
ROU assets obtained in exchange for lease obligations | $ | 4,206 | $ | 20,200 | |
Maturities of operating lease liabilities at December 31, 20202022 are as follows (in thousands):
2021 | $ | 22,310 | ||||
2022 | 14,534 | |||||
2023 | 10,997 |
| $ | 5,805 |
| |
2024 | 8,276 |
|
| 4,301 |
| |
2025 | 5,528 |
|
| 3,284 |
| |
2026 |
|
| 1,573 |
| ||
2027 |
|
| 588 |
| ||
Thereafter | 23,172 |
|
| 14,747 |
| |
Total lease payments | 84,817 |
|
| 30,298 |
| |
Less imputed interest | (26,068) |
|
| (11,631 | ) | |
Total | $ | 58,749 |
| $ | 18,667 |
|
(5)(8) Property, Plant and Equipment, Net
A summary of property, plant and equipment, net is as follows (in thousands):
|
| December 31, 2022 |
|
| December 31, 2021 |
| ||
Machinery and equipment |
| $ | 378,907 |
|
| $ | 360,353 |
|
Buildings, improvements and leasehold improvements |
|
| 70,816 |
|
|
| 75,374 |
|
Automobiles, trucks, tractors and trailers |
|
| 6,376 |
|
|
| 6,450 |
|
Furniture and fixtures |
|
| 19,373 |
|
|
| 19,668 |
|
Construction-in-progress |
|
| 5,185 |
|
|
| 6,700 |
|
Land |
|
| 26,695 |
|
|
| 28,671 |
|
Oil and gas producing assets |
|
| 11,714 |
|
|
| 44,700 |
|
Total |
|
| 519,066 |
|
|
| 541,916 |
|
Accumulated depreciation and depletion |
|
| (236,690 | ) |
|
| (185,642 | ) |
Property, plant and equipment, net |
| $ | 282,376 |
|
| $ | 356,274 |
|
December 31, | ||||||
2020 | 2019 | |||||
Machinery and equipment | $ | 2,228,539 | $ | 2,425,526 | ||
Buildings, improvements and leasehold improvements | 227,828 | 255,719 | ||||
Automobiles, trucks, tractors and trailers | 12,395 | 22,727 | ||||
Furniture and fixtures | 34,246 | 40,694 | ||||
Construction-in-progress | 4,793 | 16,661 | ||||
Land | 53,952 | 48,534 | ||||
Oil and gas producing assets | 15,117 | 69,204 | ||||
Total | 2,576,870 | 2,879,065 | ||||
Accumulated depreciation and depletion | (2,034,780) | (2,214,116) | ||||
Property, plant and equipment, net | $ | 542,090 | $ | 664,949 | ||
The CompanyWe had $28.9$7.1 million and $68.4$7.2 million of leasehold improvements at December 31, 20202022 and 2019,2021, respectively. These leasehold improvements are depreciated over the shorter of the life of the asset or the term of the lease using the straight line method. Depreciation expense (excluding depletion, amortizationOil and accretion) was $133.6 million, $180.2 milliongas producing assets include capitalized asset retirement costs associated with our oil and $258.6 million during 2020, 2019 and 2018, respectively.gas property.
(6) Debt Depreciation and depletion expense associated with our property, plant and equipment for the Current Period was $
87.6 million. Depreciation and depletion expense, excluding depreciation related to assets held for sale, for the year ended for the Successor Period, Predecessor Period and the Prior Period was $209.7 million, $7.8 million and $108.0 million, respectively. See Note 17 - Discontinued Operations for a discussion of depreciation expense related to our discontinued operations.
The commencement of the Chapter 11 Cases constituted an event of default with respect to the Prepetition Credit Facility (defined below) and the 7.125% Notes and 7.750% Notes. The enforcement of any obligations under the prepetition debt was automatically stayed as a result of the Chapter 11 Cases throughout 2020. On the Effective Date, obligations under these notes, including principal and accrued interest, were fully extinguished in exchange for equity
As discussed above, depreciation expense in the post-emergence Company. In addition, upon emergenceSuccessor Period was impacted by the Credit Facilityvaluation process under fresh start accounting. Certain fully depreciated assets were assigned an estimated fair value of approximately $197.5 million and a remaining useful life of less than 36 months which significantly increased the amount of depreciation expense recorded in the Successor Period. Depreciation expense for these previously fully depreciated assets was entered, as described in $“Note 2—Chapter 11 Reorganization.”167.5
Reclassification of Debt
The balances outstanding under million for the Former Parent’s 7.125% Notes and 7.750% Notes were classified as liabilities subject to compromise on the accompanying consolidated balance sheets at December 31, 2020.Successor Period.
Prepetition Indebtedness:62
The Former Parent’s outstanding debt was as follows (in thousands) for the periods indicated:
December 31, 2020 | December 31, 2019 | ||||||
Stated Interest Rate (%) | Long-term | ||||||
Senior unsecured notes due September 2024 | 7.750 | $ | 500,000 | $ | 500,000 | ||
Senior unsecured notes due December 2021 | 7.125 | 800,000 | 800,000 | ||||
Total debt, gross | 1,300,000 | 1,300,000 | |||||
Reclassification to liabilities subject to compromise | (1,300,000) | - | |||||
Unamortized debt issuance costs | - | (13,371) | |||||
Total debt, net | $ | - | $ | 1,286,629 | |||
Debt maturities presented as of December 31, 2020 were as follows (in thousands):
2021 | $ | 800,000 |
2022 | - | |
2023 | - | |
2024 | 500,000 | |
2025 | - | |
Thereafter | - | |
Total | $ | 1,300,000 |
Gains and losses on disposals of assets are recognized within other (gains) and losses, net in our statement of operations. Prior to the Emergence Date, we recognized gains and losses on the disposal of assets within general and administrative expenses.
During the second quarter of 2022, changes in estimates regarding the timing and cost of decommissioning our oil and gas property under a reef-in-place program impacted the carrying value of our oil and gas producing assets. In accordance with ASC 410, the carrying value of our oil and gas producing assets, which included capitalized oil and gas reserves and capitalized asset retirement costs, was reduced by $38.2 million, which represented the net book value of all of our oil and gas assets at June 30, 2022.
As discussed above, due to revisions in estimates in both costs and timing of decommissioning the wells associated with our oil and gas property, at December 31, 2022, we recorded capitalized asset retirement costs of $11.1 million.
(9) Debt
Credit Facility
PriorOn the Emergence Date, pursuant to the commencement of the Chapter 11 Cases, the Former Parent had an asset-based revolving credit facility (the Prepetition Credit Facility) which matured in October 2022. The enforcement of any obligations under the Prepetition Credit Facility was automatically stayed as a result of the Chapter 11 Cases throughout 2020. Upon commencement of the Chapter 11 Cases, all amounts outstanding under the Prepetition Credit Facility became outstanding under the DIP Credit Facility (defined below).
The borrowing base under the Prepetition Credit Facility was calculated based on a formula referencing the borrower’s and the subsidiary guarantors’ eligible accounts receivable, eligible inventory and eligible premium rental drill pipe less reserves. Availability under the Prepetition Credit Facility was the lesser of (i) the commitments, (ii) the borrowing base and (iii) the highest principal amount permitted to be secured under the indenture governing the 7.125% Notes.
Senior Unsecured Notes
The indenture governing the 7.750% Notes required semi-annual interest payments on March 15 and September 15 of each year through the maturity date of September 15, 2024. The indenture contained customary events of default and required satisfaction of various covenants.
The indenture governing the 7.125% Notes required semi-annual interest payments on June 15 and December 15of each year through the maturity date of December 15, 2021. The indenture contained customary events of default and required satisfaction of various covenants.
The enforcement of any obligations under the prepetition debt was automatically stayed as a result of the Chapter 11 Cases throughout 2020.
Postpetition Indebtedness:
DIP Credit Facility
In connection with the Chapter 11 Cases, the Affiliate Debtors filed a motion for approval of a debtor-in-possession financing facility, and on December 8, 2020, the Bankruptcy Court approved such motion and entered into an order approving the financings (the DIP Order). In accordance with the DIP Order, on December 9, 2020, the Former Parent, as guarantor and SESI, as borrower,Plan, we entered into a $120 million Senior Secured Debtor-in-Possession Credit Agreement (the DIP Credit Facility) with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto. On the effective dateand letter of the DIPcredit issuers named therein providing for a $120.0 million asset-based secured revolving Credit Facility, all of the outstanding undrawn letters of credit under the Prepetition Credit Facility were deemed outstanding under the DIP Credit Facility.
Credit Facility
On the Effective Date, in accordance with the Plan, the Former Parent, as guarantor and SESI, as borrower, entered into the Credit Facility providing for a $120.0 million asset-based secured revolving credit facility, which is available for the issuingissuance of letters of credit.credit (the “Credit Facility”). The Credit Facilityissuance of letters of credit will mature on December 9, 2024. The borrowing basereduce availability under the Credit Facility will be determined by reference to SESI’s and the subsidiary guarantors’ (i) eligible accounts receivable, (ii) eligible inventory, (iii) solely during the period from the Effective Date until the earlierdollar-for-dollar.
As of December 9,31, 2022, and the date that unrestricted cash of the Former Parent and its wholly- owned subsidiaries is less than $75 million, eligible premium rental drill pipe and (iv) so long as there are no loans outstanding at such time, certain cash of SESI’s and the subsidiary guarantors, less reserves established by the administrative agent in its permitted discretion.
Availability under the Credit Facility at any time will be the lesser of (i) the aggregate commitments under the Credit Facility and (ii) the borrowing base at such time. As of the Effective Date, the borrowing base under the Credit Facility was approximately $95.0$120.0 million (excluding Eligible Cash as defined inand we had $34.9 million of letters of credit outstanding that reduced the Credit Facility), and may increase or decrease as a result of, among other things, changes inborrowing availability under the Former Parent’s and its subsidiaries’ accounts receivable and inventory. The liquidity position is further supported by approximately $242 million in total cash as of the Effective Date (with $72 million held by non-guarantors). Subject to certain conditions, upon request and with the consent of the participating lenders, the total commitmentsrevolving credit facility. We had no outstanding borrowings under the Credit Facility as of December 31, 2022.
(10) Stock-Based Compensation Plans
2021 Management Incentive Plan
Our Board of Directors (the “Board”) and the Compensation Committee of the Board (the “Compensation Committee”) have approved and adopted our Management Incentive Plan (“MIP”), which provides for the grant of share-based and cash-based awards and, in connection therewith, the issuance from time to time of up to 1,999,869 shares of our Class B common stock, par value $0.01 per share. To date, grants under the MIP have been in the form of shares of Class B common stock ("RSAs"), restricted stock units which will be settled in Class B common stock upon the satisfaction of time-based vesting conditions ("RSUs") and performance stock units which will be settled in Class B common stock upon the satisfaction of time-based vesting conditions and performance-based vesting conditions ("PSUs").
The RSAs vest over a period of three years, subject to earlier vesting and forfeiture on terms and conditions set forth in the applicable award agreement. RSUs granted in 2022 generally vest in three equal annual installments over the three-year period, subject generally to continued employment and the other terms and conditions set forth in the forms of the RSU award agreements. RSUs granted in 2021 vest in full in the first quarter of 2023, subject generally to continued employment and the other terms and conditions set forth in the forms of the RSU award agreements. PSUs may be increasedearned between 25% and 100% of the target award based on achievement of share price goals set forth in the forms of the PSU award agreements and will vest to $170.0 million. SESI’s obligationsthe extent that share price goals are achieved based on the terms and conditions set forth in the forms of the PSU award agreements.
The following sets forth issuances under the Credit FacilityMIP:
In June 2021, we issued 76,269 RSAs with a grant date fair value of $39.53 per share. During the Current Period, 42,389 RSAs vested and 3,904 RSAs were forfeited and placed in treasury. The unamortized estimated grant date fair value as of December 31, 2022 was approximately $0.8 million.
During the third quarter of 2021, we granted 50,596 RSUs with a grant date fair value of $39.53 per share. During the Current Period, 10,437 shares vested and 2,212 shares were forfeited. The unamortized estimated grant date fair value as of December 31, 2022 was immaterial. All RSUs granted in 2021 are guaranteed byscheduled to vest in the Former Parentfirst quarter of 2023.
In March 2022, we granted 72,050 RSUs and all of SESI’s material domestic subsidiaries,288,199 PSUs which was intended to satisfy stock awards for the next three years. Additional grants may be issued for new hires and secured by substantially allpromotions. The grant date fair value of the Former Parent’s, SESI’s and the subsidiary guarantors’ assets, other than real property.RSUs was estimated to be $58.80 per share. The unamortized estimated grant date fair value as of December 31, 2022 was $3.1 million.
On the Effective Date, the Credit Facility replaced the previous DIP Credit Facility, and approximately $46.6 million of undrawn letters of credit issued under the DIP Credit Facility were deemed issued under the Credit Facility. All accrued and unpaid fees and other amounts thereunder were paid in full as well.63
Borrowings under the Credit Facility will bear interest, at SESI’s option, at either an adjusted LIBOR rate plus an applicable margin ranging from 3.00% to 3.50% per annum, or an alternate base rate plus an applicable margin ranging from 2.00% to 2.50% per annum, in each case on the basis of the consolidated fixed charge coverage ratio. In addition, SESI is required to pay (i) a letter of credit fee ranging from 3.00% to 3.50% per annum on the basis of the consolidated fixed charge coverage ratio on the aggregate face amount of all outstanding letters of credit,(ii) to the issuing lender of each letter of credit, a fronting fee of no less than 0.25% per annum on the outstanding amount of each such letter of credit and (iii) commitment fees of 0.50% per annum on the daily unused amount of the Credit Facility, in each case quarterly in arrears.July 2022, we granted
The Credit Facility contains various covenants requiring compliance, including, but not limited to, limitations on the incurrence of indebtedness, permitted investments, liens on assets, making distributions, transactions with affiliates, mergers, consolidations, dispositions of assets and other provisions customary in similar types of agreements. The Credit Facility requires compliance88,215 RSUs with a fixed charge coverage ratiogrant date fair value of 1.0 to 1.0 if (a) an event$58.80 per share. The unamortized estimated grant date fair value as of default has occurred and is continuing or (b) availability under the Credit Facility is less than the greater of $20.0 million or 15% of the lesser of the aggregate commitments and the borrowing base. The covenant and other restrictions of the Credit Facility significantly restrict our ability to incur borrowings other than letters of credit.December 31, 2022 was $4.2 million.
(7) Stock-BasedDuring the Current Period we recognized $4.8 million in compensation expense associated with grants of RSAs and Long-Term Incentive CompensationRSUs. We are currently not amortizing the PSUs as we have not concluded that it is probable that the performance condition will be achieved.
During the Predecessor Period and the Successor Period, we recognized $0.2 million and $2.7 million, respectively, in compensation cost associated with grants of restricted stock and RSUs.
As discussed in “Note 2—Chapter 11 Reorganization,” ona result of the Effective Date and pursuant to the termsconsummation of the Plan, all of the Former Parent’s common stock (and any share-based compensation based on such common stock) was canceled. The Former Parent's share-based compensation plans were also terminated on the Effective Date. Accordingly, the following discussion relates solely to the Former Parent’s share-based compensation plan and share-based compensation issued and outstanding prior to such cancellation. On September 28, 2020, the Board of Directors of the Former Parent approved the implementation of a Key Employee Retention Program (the KERP), which was designed to retain key employees in their current roles over the near term while providing them with financial stability. The KERP payments were in lieu of any outstanding unvested awards under the Former Parent’s long-term equity-based incentive plans (other than any cash-based performance units (which we refer to as PSUs) granted in 2018 and 2019) and any 2020 annual bonuses that would otherwise be payable to the KERP participants. The KERP provided for one-time retention payments equal to approximately $7.3 million in the aggregate to the 6 executive officers of the Company, including its named executive officers. The KERP further provided for approximately $2.4 million of retention payments to other non-executive employees.
In 2020, the Former Parent was authorized to grant restricted stock units stock options, performance share units and other cash and stock awards as part of its Long-Term Incentive Program (LTIP).
Total stock-based compensation expense andissued prior to the associated tax benefits are as follows (in thousands):
Years ended December 31, | |||||||||
2020 | 2019 | 2018 | |||||||
Stock options | $ | 94 | $ | 2,743 | $ | 4,247 | |||
Restricted stock units | 4,144 | 15,716 | 19,828 | ||||||
Cash restricted stock units | (56) | 298 | - | ||||||
Cash-based PSUs | (1,554) | 935 | 6,912 | ||||||
Total compensation expense | 2,628 | 19,692 | 30,987 | ||||||
Related income taxes | 610 | 4,569 | 7,189 | ||||||
Total compensation expense, net of income taxes | $ | 2,018 | $ | 15,123 | $ | 23,798 | |||
Total stock-based compensation expense is reflected in general and administrative expensesEmergence Date were canceled for zero consideration. Reorganization items, net in the consolidated statements of operations.Predecessor Period include $
0.9
Stock Options
The Former Parent’s stock option grants generally vestedmillion in equal installments over three years and expired in ten years from the grant date. Non-vested stock options were generally forfeited upon termination of employment.
Compensation expense for stock option grants was recognized based on the fair value at the date of grant using the Black-Scholes-Merton option pricing model. Historical data, among other factors, was used to estimate the expected volatility and the expected life of the stock options. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant for the expected life of the stock option. The dividend yield was based on our historical and projected dividend payouts.
The Former Parent did 0t grant any stock options during the year ended December 31, 2020. The weighted average fair values of stock options granted in 2019 and 2018, and the assumptions used in estimating those fair values were as follows:
Years ended December 31, | |||||||
2019 | 2018 | ||||||
Weighted average fair value of stock options granted | $ | 24.60 | $ | 56.12 | |||
Black-Scholes-Merton Assumptions: | |||||||
Risk free interest rate | 2.57 | % | 2.43 | ||||
Expected life (years) | 6 | 6 | |||||
Volatility | 56.62 | % | 51.21 | ||||
The following table summarizes stock option activity for 2020:
Number of Options | Weighted Average Option Price | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | |||||||
Outstanding at beginning of period | 669,360 | $ | 169.11 | 4.7 | $ | - | ||||
Granted | 0 | $ | 0 | |||||||
Exercised | 0 | $ | 0 | |||||||
Forfeited | (56,056) | $ | 63.18 | |||||||
Expired | (145,057) | $ | 249.23 | |||||||
Outstanding at end of period | 468,247 | $ | 156.97 | 4.5 | $ | - | ||||
Exercisable at end of period | 468,247 | $ | 156.97 | 4.5 | $ | - | ||||
Options expected to vest at end of period | - | $ | - | - | $ | - | ||||
There were 0t any stock option exercises during the past three years. As of December 31, 2020, all stock options were fully vested. The Chapter 11 Cases resulted incosts associated with the cancellation of the pre-Emergence outstanding restricted stock options.units.
Restricted Stock Units
RSUs granted as part of the Former Parent’s LTIP generally vested in equal annual installments over three years. On the vesting date, each RSU would be converted to one share of common stock having an aggregate value determined by the closing stock price on the vesting date. Holders of RSUs were not entitled to any rights of a stockholder, such as the right to vote shares.
The following table summarizes RSU activity for 2020. All KERP participants surrendered their RSU awards as a condition to participation in the KERP:
Number of RSUs | Weighted Average Grant Date Fair Value | ||||
Non-vested at beginning of period | 413,966 | $ | 78.32 | ||
Granted | - | $ | - | ||
Vested | (149,529) | $ | 93.11 | ||
Forfeited | (130,201) | $ | 59.33 | ||
Non-vested at end of period | 134,236 | $ | 80.27 | ||
At December 31, 2020, there were $1.2 million of unrecognized compensation expense related to unvested RSUs, which the Company expects to recognize in the first quarter of 2021, upon reflecting the cancellation of these awards as part of the Plan.
Liability-Classified AwardsCompensation
Performance Share Units
In 2020, as part of the Former Parent’s LTIP, PSUs were issued providing for a three year performance period. The 2020 PSU grants were surrendered as a condition to participation in the KERP.
At December 31, 2020, there were 210,398 PSUs outstanding (96,522 and 113,876 related to performance periods ending December 31, 2020 and 2021, respectively). Both current and long-term liabilities for this liability-based compensation award have been recorded.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan (ESPP) terminated in accordance with its terms in 2019. In 2019 and prior years, eligible employees were allowed to purchase shares of the Former Parent’s common stock at a discount during six month offering periods beginning on January 1st and July 1st of each year and ending on June 30 and December 31 of each year, respectively.
The following table summarizes ESPP activity during 2019 and 2018 (in thousands except shares):
Years ended December 31, | ||||||
2019 | 2018 | |||||
Cash received for shares issued | $ | 689 | $ | 2,625 | ||
Compensation expense | $ | 122 | $ | 463 | ||
Shares issued | 532,292 | 550,950 | ||||
401(k)/Profit Sharing Plan
The Company maintainsWe maintain a defined contribution profit sharing plan for employees who have satisfied minimum service requirements. Employees may contribute up to 75%75% of their eligible earnings to the plan subject to the contribution limitations imposed by the Internal Revenue Service. The Company providesWe provide a nondiscretionary match of 100%100% of an employee’s contributions to the plan, up to 4%4% of the employee’s salary. The Former ParentWe made contributions of $6.2$3.1 million, $10.5$2.6 million, $0.4 million and $10.0$6.2 million during December 31, 2022, the Successor Period, the Predecessor Period and in 2020, 2019 and 2018, respectively.
Non-Qualified Deferred Compensation Plan
The Company maintains a non-qualified deferred compensation plan which allows senior management to defer up to 75% of their base salary, up to 100% of their bonus, up to 100% of the cash portion of their PSU compensation and up to 100% of the vested RSUs to the plan. The Company also maintains a non-qualified deferred compensation plan for its non-employee directors which allows each director to defer up to 100% of their cash compensation paid by the Company. Payments are made to participants based on their annual enrollment elections and plan balances.
The following table summarizes deferred compensation balances (in thousands):
December 31, | ||||||||
Balance sheet location | 2020 | 2019 | ||||||
Deferred compensation assets | Intangible and other long-term assets, net | $ | 15,013 | $ | 15,499 | |||
Deferred compensation liabilities, short-term | Accounts payable | $ | 2,869 | $ | 1,372 | |||
Deferred compensation liabilities, long-term | Other long-term liabilities | $ | 20,697 | $ | 23,466 | |||
Supplemental Executive Retirement Plan
The Company hasWe have a supplemental executive retirement plan (SERP)(“SERP”). The SERP provides retirement benefits to the Company’sour executive officers and certain other designated key employees. The SERP is an unfunded, non-qualified defined contribution retirement plan, and all contributions under the plan are unfunded credits to a notional account maintained for each participant. Prior to January 1, 2020, under the SERP, the Former Parentwe made annual contributions to a retirement account based on age and years of service. The participants in the plan received contributions ranging from 5%5% to 35%35% of salary and annual cash bonus, which totaled $0 million, $1.1 million and $1.2$0 million during 2020, 2019 and 2018, respectively. During 2020, 2019 and 2018, the Former Parent paid $0, $2.3 million and $0, respectively,2020. We made payments to eligible participants in the SERP.SERP of $
(11) Income Taxes
The income tax provision is as follows:
| Successor |
|
|
| Predecessor |
| ||||||||||
In thousands: | For the Year Ended December 31, 2022 |
|
| Period |
|
|
| Period |
|
| For the Year Ended December 31, 2020 |
| ||||
Current income tax expense/(benefit) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Federal | $ | (50 | ) |
| $ | (1,106 | ) |
|
| $ | - |
|
| $ | (36,506 | ) |
State |
| 945 |
|
|
| (307 | ) |
|
|
| - |
|
|
| 635 |
|
Foreign |
| 23,738 |
|
|
| 6,220 |
|
|
|
| 3,314 |
|
|
| 8,497 |
|
Total current income tax expense/(benefit) |
| 24,633 |
|
|
| 4,807 |
|
|
|
| 3,314 |
|
|
| (27,374 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Deferred income tax expense/(benefit) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Federal |
| (83,420 | ) |
|
| (42,904 | ) |
|
|
| 55,015 |
|
|
| 4,593 |
|
State |
| 165 |
|
|
| 2,633 |
|
|
|
| (182 | ) |
|
| (638 | ) |
Foreign |
| (19,097 | ) |
|
| 2,166 |
|
|
|
| 1,856 |
|
|
| (3,469 | ) |
Total deferred income tax expense/(benefit) |
| (102,352 | ) |
|
| (38,105 | ) |
|
|
| 56,689 |
|
|
| 486 |
|
Total income tax expense/(benefit) | $ | (77,719 | ) |
| $ | (33,298 | ) |
|
| $ | 60,003 |
|
| $ | (26,888 | ) |
For the year ended December 31, 2022, we recognized a worthless stock deduction in the U.S. related to deductible outside basis differences in certain domestic subsidiaries, which is the primary driver of the increase in federal deferred tax. We executed a transaction through which a worthless stock deduction of approximately $495.2 million was deducted for income tax purposes resulting in an estimated net tax benefit of $104.0 million. Consistent with our policy, we evaluated the deduction and believe it will more likely than not be sustained on its technical merits and have recognized its benefits accordingly.
(8) Income TaxesDuring the Current Period, U.S. rental income and foreign tax from foreign jurisdictions increased. Additionally, income in a few of our foreign operations improved. In these jurisdictions, namely Brazil, we benefitted from the release of a valuation allowance due to a pattern of sustained profitability such that it is viewed as more likely than not that the deferred income tax assets will be realized.
The components of loss from continuing operations before income taxes are as follows (in thousands):
Years ended December 31, | |||||||||
2020 | 2019 | 2018 | |||||||
Domestic | $ | (260,117) | $ | (81,443) | $ | (448,575) | |||
Foreign | (35,159) | (936) | (21,831) | ||||||
$ | (295,276) | $ | (82,379) | $ | (470,406) | ||||
The components of income tax benefit are as follows (in thousands):
Years ended December 31, | ||||||||||
2020 | 2019 | 2018 | ||||||||
Current: | ||||||||||
Federal | $ | (36,506) | $ | - | $ | - | ||||
State | 1,033 | 1,573 | 2,118 | |||||||
Foreign | 8,498 | (3,359) | 14,856 | |||||||
(26,975) | (1,786) | 16,974 | ||||||||
Deferred: | ||||||||||
Federal | 17,155 | 1,792 | (66,039) | |||||||
State | (638) | 1,622 | (4,161) | |||||||
Foreign | (3,470) | (6,254) | 10,223 | |||||||
13,047 | (2,840) | (59,977) | ||||||||
$ | (13,928) | $ | (4,626) | $ | (43,003) | |||||
A reconciliation of the U.S. statutory federal tax rate to the consolidated effective tax rate is as follows (in thousands):
Years ended December 31, | |||||||||
2020 | 2019 | 2018 | |||||||
Computed expected tax benefit | $ | (62,008) | $ | (17,513) | $ | (98,785) | |||
Increase (decrease) resulting from | |||||||||
State and foreign income taxes | 12,604 | 10,970 | 10,437 | ||||||
Reduction in value of assets | - | (233) | 27,680 | ||||||
Valuation allowance | 32,890 | 21,353 | - | ||||||
Other | 2,586 | (19,203) | 17,665 | ||||||
Income tax benefit | $ | (13,928) | $ | (4,626) | $ | (43,003) | |||
Certain of the restructuring transactions contemplated by the Chapter 11 Cases and the Plan may have a material impact on the Company’s tax attributes, the full extent of which is currently unknown. Cancellation of indebtedness income resulting from such restructuring transactions may significantly reduce the Company’s tax attributes, including but not limited to net operating loss carryforwards. Further, the Company experienced an ownership change under Section 382 of the Internal Revenue Code of 1986, as amended (the Code), upon confirmation of the Plan by the Bankruptcy Court which will subject certain remaining tax attributes to an annual limitation under Section 382 of the Code.
On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), a tax relief and spending package intended to provide economic stimulus to address the impact of the COVID-19 pandemic. The CARES Act allows corporations with net operating losses generated in 2018, 2019 and 2020 to elect to carryback those losses for a period of five years and relaxes the limitation for business interest deductions for 2019 and 2020. Under the provisions of the CARES Act, the Former Parentwe received a refund of $30.5$30.5 million in July 2020 related to the carryback of the 2018 net operating loss and received a refund of $8.2$8.2 million in February 2021 related to the carryback of the 2019 net operating loss.
During 2018,Effective in tax year 2022, the Former Parent recordedTax Cuts and Jobs Act of 2017 eliminates the option to deduct research and development expenditures in the current period and requires taxpayers to capitalize and amortize them over five or fifteen years pursuant to Internal Revenue Code Section 174. The legislation did not have a $668.9 million reductionmaterial impact in value of goodwill relating to its Onshore Completionour business, operating results, and Workover Services and Production Services segments. For tax purposes, the goodwill impairment generated a reduction to the permanent book-tax basis difference of $548.8 million and a reduction to the book-tax temporary basis difference of $102.0 million net of current year amortization expense of $18.0 million. The 2018 effective tax rate was significantly impacted by the permanent adjustment related to the reduction in value of assets caused by the goodwill impairment.financial condition
A reconciliation of the U.S. statutory federal tax rate to the consolidated effective tax rate is as follows:
| Successor |
|
|
| Predecessor |
| ||||||||||
Continuing Operations (in thousands): | For the Year Ended December 31, 2022 |
|
| Period |
|
|
| Period |
|
| For the Year Ended December 31, 2020 |
| ||||
Computed expected tax expense/(benefit) | $ | 44,798 |
|
| $ | (32,635 | ) |
|
| $ | 69,125 |
|
| $ | (53,431 | ) |
State and foreign income taxes |
| (350 | ) |
|
| (17,893 | ) |
|
|
| 6,217 |
|
|
| 5,026 |
|
Valuation allowance |
| (13,140 | ) |
|
| - |
|
|
|
| (46,208 | ) |
|
| 19,024 |
|
Gain on Settlement of Liabilities Subject to Compromise |
|
|
|
| - |
|
|
|
| (89,905 | ) |
|
| - |
| |
Reduction in Deferred Tax Assets |
|
|
|
| 19,154 |
|
|
|
| 87,316 |
|
|
| - |
| |
Fresh Start Adjustments |
|
|
|
| - |
|
|
|
| 29,099 |
|
|
| - |
| |
Worthless stock deduction |
| (103,992 | ) |
|
| - |
|
|
|
| - |
|
|
| - |
|
Foreign Tax Credit |
| (5,161 | ) |
|
| - |
|
|
|
| - |
|
|
| - |
|
Other |
| 126 |
|
|
| (1,924 | ) |
|
|
| 4,359 |
|
|
| 2,493 |
|
Total income tax expense/(benefit) | $ | (77,719 | ) |
| $ | (33,298 | ) |
|
| $ | 60,003 |
|
| $ | (26,888 | ) |
For the year ended December 31, 2022, the total tax provision differs from the tax computed using the standard tax rate primarily due to the worthless stock deduction of $104.0 million previously discussed. In addition, due to increased profitability, we released several valuation allowances including a $14.5 million related our U.S. foreign tax credit (“FTC”) carryforward and $8.7 million related to Brazil deferred tax assets primarily consisting of NOL carryforward.
For the year ended December 31, 2021, we evaluated the tax impact resulting from our emergence from Chapter 11 Bankruptcy on February 2, 2021 and the Plan. As part of the debt restructuring, a substantial portion of our pre-petition debt was extinguished. Absent an exception, a taxpayer recognizes cancellation of indebtedness income (“CODI”) upon discharge of its outstanding indebtedness for an amount of consideration that is less than its adjusted issue price. A taxpayer in bankruptcy may exclude CODI from taxable income but must first reduce its tax attributes by the amount of CODI realized. When the debt was extinguished, we realized CODI for U.S. federal income tax purposes of approximately $433.0 million. The CODI exclusion resulted in a partial elimination of our federal net operating loss carryforwards, as well as a partial reduction in tax effectsbasis in assets, primarily property, plant and equipment. The CODI also eliminated $19.2 million of temporary differences that give risestate NOL deferred tax asset which resulted in a corresponding reduction in the state valuation allowance.
Section 382 of the Internal Revenue Code of 1986 provides an annual limitation with respect to significantthe ability of a corporation to utilize its tax attributes, as well as certain built-in-losses, against future U.S. taxable income in the event of a change in ownership. We experienced an ownership change on February 2, 2021, as defined in Section 382, due to the Plan. The limitation under Section 382 is based on the value of the corporation as of the Emergence Date. Currently, we do not expect the Section 382 limitation to impact our ability to use U.S. NOLs and FTC carryover tax attributes due to qualification for relief under Section 382.
66
Significant components of our deferred income tax assets and liabilities are as follows (in thousands):follows:
December 31, | |||||||||||||
2020 | 2019 | ||||||||||||
In thousands: | December 31, 2022 |
|
| December 31, 2021 |
| ||||||||
Deferred tax assets: |
|
|
|
| |||||||||
Allowance for doubtful accounts | $ | 1,713 | $ | 1,291 | $ | 1,374 |
|
| $ | 1,046 |
| ||
Operating loss and tax credit carryforwards | 150,426 | 136,647 |
| 157,395 |
|
|
| 84,684 |
| ||||
Compensation and employee benefits | 27,625 | 35,532 |
| 7,376 |
|
|
| 8,832 |
| ||||
Decommissioning liabilities | 30,960 | 29,405 |
| 39,328 |
|
|
| 39,328 |
| ||||
Goodwill and other intangible assets |
| 369 |
|
|
| 772 |
| ||||||
Operating leases | 2,792 | 1,002 |
| 126 |
|
|
| 197 |
| ||||
Other | 34,578 | 24,903 | |||||||||||
248,094 | 228,780 | ||||||||||||
Valuation allowance | (139,106) | (84,741) | |||||||||||
Net deferred tax assets | 108,988 | 144,039 | |||||||||||
Other Asset |
| 52,345 |
|
|
| 30,749 |
| ||||||
Total gross deferred tax assets |
| 258,313 |
|
|
| 165,608 |
| ||||||
Less: Valuation allowance |
| (80,280 | ) |
|
| (90,781 | ) | ||||||
Total deferred tax assets | $ | 178,033 |
|
|
| 74,827 |
| ||||||
|
|
|
| ||||||||||
Deferred tax liabilities: |
|
|
|
| |||||||||
Property, plant and equipment | 69,510 | 114,024 | $ | 64,571 |
|
| $ | 64,721 |
| ||||
Notes receivable | 12,977 | 12,977 |
| 17,812 |
|
|
| 17,812 |
| ||||
Goodwill and other intangible assets | 23,920 | 20,285 | |||||||||||
Other | 7,869 | - | |||||||||||
Deferred tax liabilities | 114,276 | 147,286 | |||||||||||
Net deferred tax liability | $ | 5,288 | $ | 3,247 | |||||||||
Other Liability |
| 1,546 |
|
|
| 1,287 |
| ||||||
Total deferred tax liabilities | $ | 83,929 |
|
| $ | 83,820 |
| ||||||
|
|
|
|
| |||||||||
Net deferred tax assets (liabilities) | $ | 94,104 |
|
| $ | (8,993 | ) | ||||||
Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the tax basis of an asset or liability and its reported amount in the consolidated financial statements. The measurement of deferred tax assets and liabilities is based on enacted tax laws and rates currently in effect in each of the jurisdictions in which we have operations. In recording deferred income tax assets, we consider whether it is more likely than not that some portion or all of the deferred income tax assets will be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income of the appropriate character during the periods in which those deferred income tax assets would be deductible. We consider all available positive and negative evidence, including scheduled reversal of deferred income tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations for this determination.
The ultimate realization of deferred tax assets for the U.S. FTC carryovers is dependent on the generation of future taxable income of the appropriate character during the FTC carryforward period. We previously considered FTC credit carryforwards to be unrealizable primarily due to our cumulative history of losses in the U.S. and Sec. 382 tax attribute utilization limits resulting from bankruptcy. During 2022, we determined there is now enough positive evidence to realize a portion of the tax benefit related to U.S. FTC carryforwards. This is due to a pattern of sustained profitability in the U.S. since we emerged from bankruptcy and capacity relief under Section 382. The amount of valuation allowance released recognizes the FTC deferred tax assets we estimate will offset U.S. taxes in the next 2-3 years before expiration. We have $40.0 million of U.S. FTC deferred tax assets that continue to have a valuation allowance against them, including $5.2 million in 2022 FTCs that carryforward up to 10 years. We will continue to evaluate the realizability of U.S. FTCs in future years.
At
A valuation allowance has been placed on the state net operating losses. Similarly, with the exception of Brazil, the deferred tax assets on the majority of our foreign operation jurisdictions continue to require a valuation allowance.
The amount of our net deferred tax assets considered realizable could be adjusted if projections of future taxable income are reduced or objective negative evidence in the form of a three-year cumulative loss is present or both. Should we no longer have a level of sustained profitability, excluding non-recurring charges, we will have to rely more on our future projections of taxable income to determine if we have an adequate source of taxable income for the realization of our deferred tax assets, namely NOL, interest limitation, and tax credit carryforwards. This may result in the need to record a valuation allowance against all or a portion of our deferred tax assets.
The amount of U.S. consolidated net operating losses available as of December 31, 2020, the Former Parent had $2742022, after attribute reduction, is estimated to be approximately $367.9 million, in U.S. net operating loss carryforwards, which are available to reduce future taxable income. The expiration date for utilizationincome, of the U.S. loss carryforwards is 2037 for losses generated before 2018. Losses generatedwhich $20.4 million have a 20-year carryforward period and expire after 20172036 and $347.5 million have an indefinite carryforward that isbut are limited to 80%offsetting 80% of taxable income each year. At December 31, 2020, the Former Parent2022, we also had various state net operating loss carryforwards with expiration dates from 2020 to 2038. Astarting in 2022. The state net operating losses net deferred tax asset of $15.4$19.6 million reflects the expected future tax benefit for the state loss carryforwards.has a full valuation allowance. At December 31, 2020, the Former Parent2022, we also had a U.S. foreign tax credit carryforward of $54.5$59.7 million with expiration dates from 20252024 to 2027.2032. A partial valuation
67
Management evaluates whether sufficient future taxable incomeallowance was setup against the foreign tax credit carryforward in the amount of $40.0 million, which will be generated to permit use of the existing deferred tax assets. The Former Parent has incurred a cumulative loss over the three-year period ended December 31, 2020. Such evidence limits the ability to consider other projections of future growth. After considering all available evidence at December 31, 2020, the Company determined that a portion of the deferred tax assets would not be realized. Accordingly, the Company increased the valuation allowance by $54 million.more-likely-than-not expire before being utilized.
The Company hasWe have not provided additional US income tax expense on foreign earnings of its foreign subsidiaries, since the Company has reinvested or expects to reinvest undistributed earnings outside the U.S. indefinitely.affiliates. At December 31, 2020, the Company’s2022 our foreign subsidiaries had an overall accumulated deficit in earnings. The Company doesWe are repatriating from foreign subsidiaries and the distributions are not intend to repatriate the earnings of its profitable foreign subsidiaries. The Company has not provided U.S. income taxes for such earnings. These earnings could become subject to U.S. income tax if repatriated. Itincremental US taxation because they represent either 1) return of basis where there is not practicable to estimate the amount of taxes that might be payable on such undistributed earnings.
The Company filescurrent or accumulated earnings and profits, 2) previously taxed earnings and profits or 3) foreign earnings exempt from incremental US tax. We file income tax returns in the U.S., including federal and various state filings, and certain foreign jurisdictions. The number of years that are open under the statute of limitations and subject to audit varies depending on the tax jurisdiction. The Company remainsWe remain subject to U.S. federal tax examinations for years after 2017.2018.
The Former Parent had unrecognized tax benefits of $13.2 million, $13.2 million and $30.6 million as of December 31, 2020, 2019 and 2018, respectively, all of which would impact the Company’s effective tax rate if recognized.
The activity in unrecognized tax benefits is as follows (in thousands):follows:
| Successor |
|
|
| Predecessor |
| ||||||||||
In thousands: | For the Year Ended December 31, 2022 |
|
| Period |
|
|
| Period |
|
| For the Year Ended December 31, 2020 |
| ||||
Unrecognized tax benefits at beginning of period | $ | 14,973 |
|
| $ | 14,706 |
|
|
| $ | 13,206 |
|
| $ | 13,206 |
|
Additions based on tax positions related to prior years |
| 569 |
|
|
| 2,848 |
|
|
|
| 1,500 |
|
|
| 1,757 |
|
Reductions based on tax positions related to prior years |
| (334 | ) |
|
| (552 | ) |
|
|
| - |
|
|
| - |
|
Additions based on tax positions related to current year |
| 78 |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
Reductions as a result of a lapse of the applicable statute of limitations |
| - |
|
|
| - |
|
|
|
| - |
|
|
| (757 | ) |
Reductions relating to settlements with taxing authorities |
| (1,277 | ) |
|
| (2,029 | ) |
|
|
| - |
|
|
| (1,000 | ) |
Unrecognized tax benefits at end of period | $ | 14,009 |
|
| $ | 14,973 |
|
|
| $ | 14,706 |
|
| $ | 13,206 |
|
We had unrecognized tax benefits of $14.0 million as of December 31, 2022, and $15.0 million as of December 31, 2021, all of which would impact our effective tax rate if recognized. It is reasonably possible that $9.7 million of unrecognized tax benefits could be settled in the next twelve-month period due to the conclusion of tax audits or due to the expiration of statute of limitations. It is our policy to recognize interest and applicable penalties, if any, related to uncertain tax positions in income tax expense.
The amounts above includes accrued interest and penalties of $7.2 million and $6.9 million for periods ended December 31, 2022 and 2021, respectively.
(12) Earnings per Share
Our common equity consists of Class A Common Stock and Class B Common Stock (the “Common Stock”).
Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of shares of Common Stock outstanding during the period. Diluted earnings per share is computed using the weighted average number of Common Stock outstanding during the period plus any potentially dilutive Common Stock, such as restricted stock awards, restricted stock units, and performance-based units calculated using the treasury stock method.
Years ended December 31, | |||||||||
2020 | 2019 | 2018 | |||||||
Unrecognized tax benefits at beginning of period | $ | 13,206 | $ | 30,558 | $ | 30,656 | |||
Additions based on tax positions related to prior years | 1,757 | 2,500 | 1,899 | ||||||
Reductions based on tax positions related to prior years | - | - | (1,864) | ||||||
Reductions as a result of a lapse of the applicable statute of limitations | (757) | - | (133) | ||||||
Reductions relating to settlements with taxing authorities | (1,000) | (19,852) | - | ||||||
Unrecognized tax benefits at end of period | $ | 13,206 | $ | 13,206 | $ | 30,558 | |||
The amounts above include accrued interest and penalties of $5.8 million, $5.0 million and $9.7 million for the years ended December 31, 2020, 2019 and 2018, respectively. During the year ended December 31, 2019, the Former Parent recorded a reduction in unrecognized tax benefits of $19.9 million relating to settlements of income tax audits in foreign countries. Interest and penalties associated with the unrecognized tax benefits are classified as a component of income tax expense in the consolidated statements of operations.
(9) Segment Information
Business Segments
The Drilling Productsproducts and Services segment rentsservice offerings of Rentals are comprised of value-added engineering and sellsdesign services, rental of premium drill strings, tubing, landing strings, completion tubulars and handling accessories, manufacturing and rental of bottom hole assemblies, and rentals of accommodation units.
The products and service offerings of Well Services are comprised of risk management, well control and training solutions, hydraulic workover and snubbing services, engineering and manufacturing of premium drill pipe, tubularssand control tools, and specialized equipment for use with onshore andinternational production services. The Well Services segment also includes the operations of our offshore oil and gas well drilling, completion, production and workover activities. It also provides on-site accommodations and machining services. The Onshore Completion and Workover Services segment provides fluid handling services and workover and maintenance services. The Production Services segment provides intervention services such as coiled tubing, cased hole and mechanical wireline, hydraulic workover and snubbing, production testing and optimization, and remedial pumping services. The Technical Solutions segment provides services typically requiring specialized engineering, manufacturing or project planning, including well containment systems, stimulation and sand control services, and the production and sale of oil and gas.property.
For the years ended December 31, 2020, 2019 and 2018, operating results of Pumpco Energy Services, Inc. (Pumpco) are reported in discontinued operations (see note 13). Previously those operating results were reported within the Onshore Completion and Workover Services segment.
The Company evaluatesWe evaluate the performance of itsour reportable segments based on income or loss from operations excluding allocated corporate expenses.operations. The segment measure is calculated as follows: segment revenues less segment operating expenses, including general and administrative expenses, depreciation, depletion, amortization and accretion expense and reduction in value of assets. The Company usesother (gains) and losses, net. We use this segment measure to evaluate itsour reportable segments becauseas it is the measure that is most consistent with how the Company organizeswe organize and manages itsmanage our business operations. Corporate and other costs primarily include expenses related to support functions, including salaries and benefits for corporate employees and stock-based compensation expense.employees.
Summarized financial information for the Company’sour segments is as follows (in thousands):
2020 | ||||||||||||||||||
Onshore | ||||||||||||||||||
Drilling | Completion | |||||||||||||||||
Products and | and Workover | Production | Technical | Corporate and | Consolidated | |||||||||||||
Services | Services | Services | Solutions | Other | Total | |||||||||||||
Revenues | $ | 281,397 | $ | 130,798 | $ | 276,329 | $ | 162,783 | $ | - | $ | 851,307 | ||||||
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) | 97,894 | 123,443 | 230,939 | 127,853 | - | 580,129 | ||||||||||||
Depreciation, depletion, amortization | ||||||||||||||||||
and accretion | 61,526 | 22,301 | 39,867 | 19,329 | 3,770 | 146,793 | ||||||||||||
General and administrative expenses | 51,332 | 16,326 | 30,292 | 44,660 | 79,855 | 222,465 | ||||||||||||
Restructuring expense | - | - | - | - | 47,055 | 47,055 | ||||||||||||
Reduction in value of assets | 599 | 1,857 | 7,558 | 14,900 | 1,983 | 26,897 | ||||||||||||
Income (loss) from operations | 70,046 | (33,129) | (32,327) | (43,959) | (132,663) | (172,032) | ||||||||||||
Interest income (expense), net | - | - | - | 4,539 | (96,938) | (92,399) | ||||||||||||
Reorganization expenses | - | (1,606) | (490) | - | (19,520) | (21,616) | ||||||||||||
Other income | - | - | - | - | (9,229) | (9,229) | ||||||||||||
Income (loss) from continuing operations | ||||||||||||||||||
before income taxes | $ | 70,046 | $ | (34,735) | $ | (32,817) | $ | (39,420) | $ | (258,350) | $ | (295,276) | ||||||
For the year ended December 31, 2022 (Successor) |
|
|
|
| Well |
|
| Corporate and |
|
| Consolidated |
| ||||
|
| Rentals |
|
| Services |
|
| Other |
|
| Total |
| ||||
Revenues |
| $ | 402,942 |
|
| $ | 481,018 |
|
| $ | - |
|
| $ | 883,960 |
|
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 137,626 |
|
|
| 339,325 |
|
|
| - |
|
|
| 476,951 |
|
Depreciation, depletion, amortization and accretion |
|
| 58,731 |
|
|
| 34,841 |
|
|
| 4,488 |
|
|
| 98,060 |
|
General and administrative expenses |
|
| 28,139 |
|
|
| 45,898 |
|
|
| 54,257 |
|
|
| 128,294 |
|
Restructuring expenses |
|
| - |
|
|
| - |
|
|
| 6,375 |
|
|
| 6,375 |
|
Other (gains) and losses, net |
|
| (5,190 | ) |
|
| (23,575 | ) |
|
| (369 | ) |
|
| (29,134 | ) |
Income (loss) from operations |
| $ | 183,636 |
|
| $ | 84,529 |
|
| $ | (64,751 | ) |
| $ | 203,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
For the Period February 3, 2021 through December 31, 2021 (Successor) |
|
|
|
| Well |
|
| Corporate and |
|
| Consolidated |
| ||||
|
| Rentals |
|
| Services |
|
| Other |
|
| Total |
| ||||
Revenues |
| $ | 268,695 |
|
| $ | 380,059 |
|
| $ | - |
|
| $ | 648,754 |
|
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 105,373 |
|
|
| 316,879 |
|
|
| - |
|
|
| 422,252 |
|
Depreciation, depletion, amortization and accretion |
|
| 152,250 |
|
|
| 61,074 |
|
|
| 6,535 |
|
|
| 219,859 |
|
General and administrative expenses |
|
| 24,812 |
|
|
| 46,780 |
|
|
| 45,983 |
|
|
| 117,575 |
|
Restructuring expenses |
|
| - |
|
|
| - |
|
|
| 22,952 |
|
|
| 22,952 |
|
Other (gains) and losses, net |
|
| 3,609 |
|
|
| 13,117 |
|
|
| - |
|
|
| 16,726 |
|
Income (loss) from operations |
| $ | (17,349 | ) |
| $ | (57,791 | ) |
| $ | (75,470 | ) |
| $ | (150,610 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
For the Period January 1, 2021 through February 2, 2021 (Predecessor) |
|
|
|
| Well |
|
| Corporate and |
|
| Consolidated |
| ||||
|
| Rentals |
|
| Services |
|
| Other |
|
| Total |
| ||||
Revenues |
| $ | 18,339 |
|
| $ | 27,589 |
|
| $ | - |
|
| $ | 45,928 |
|
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 7,839 |
|
|
| 21,934 |
|
|
| - |
|
|
| 29,773 |
|
Depreciation, depletion, amortization and accretion |
|
| 4,271 |
|
|
| 3,666 |
|
|
| 421 |
|
|
| 8,358 |
|
General and administrative expenses |
|
| 2,027 |
|
|
| 4,111 |
|
|
| 4,914 |
|
|
| 11,052 |
|
Restructuring expenses |
|
| - |
|
|
| - |
|
|
| 1,270 |
|
|
| 1,270 |
|
Income (loss) from operations |
| $ | 4,202 |
|
| $ | (2,122 | ) |
| $ | (6,605 | ) |
| $ | (4,525 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
For the year ended December 31, 2020 (Predecessor) |
|
|
|
| Well |
|
| Corporate and |
|
| Consolidated |
| ||||
|
| Rentals |
|
| Services |
|
| Other |
|
| Total |
| ||||
Revenues |
| $ | 297,835 |
|
| $ | 369,414 |
|
| $ | - |
|
| $ | 667,249 |
|
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 109,902 |
|
|
| 298,229 |
|
|
| - |
|
|
| 408,131 |
|
Depreciation, depletion, amortization and accretion |
|
| 63,072 |
|
|
| 48,929 |
|
|
| 3,770 |
|
|
| 115,771 |
|
General and administrative expenses |
|
| 52,718 |
|
|
| 73,200 |
|
|
| 79,855 |
|
|
| 205,773 |
|
Restructuring expenses |
|
| - |
|
|
| - |
|
|
| 47,055 |
|
|
| 47,055 |
|
Reduction in value of assets |
|
| 754 |
|
|
| 21,038 |
|
|
| 1,983 |
|
|
| 23,775 |
|
Income (loss) from operations |
| $ | 71,389 |
|
| $ | (71,982 | ) |
| $ | (132,663 | ) |
| $ | (133,256 | ) |
2019 | ||||||||||||||||||
Onshore | ||||||||||||||||||
Drilling | Completion | |||||||||||||||||
Products and | and Workover | Production | Technical | Corporate and | Consolidated | |||||||||||||
Services | Services | Services | Solutions | Other | Total | |||||||||||||
Revenues | $ | 411,573 | $ | 341,297 | $ | 405,830 | $ | 266,669 | $ | - | $ | 1,425,369 | ||||||
Cost of revenues (exclusive of depreciation, | ||||||||||||||||||
depletion, amortization and accretion) | 154,503 | 274,162 | 328,527 | 167,890 | - | 925,082 | ||||||||||||
Depreciation, depletion, amortization | ||||||||||||||||||
and accretion | 83,999 | 33,699 | 51,370 | 22,665 | 4,726 | 196,459 | ||||||||||||
General and administrative expenses | 60,094 | 25,621 | 29,622 | 59,587 | 93,302 | 268,226 | ||||||||||||
Reduction in value of assets | - | 8,122 | 2,055 | 7,008 | - | 17,185 | ||||||||||||
Income (loss) from operations | 112,977 | (307) | (5,744) | 9,519 | (98,028) | 18,417 | ||||||||||||
Interest income (expense), net | - | - | - | 4,172 | (102,484) | (98,312) | ||||||||||||
Other expense | - | - | - | - | (2,484) | (2,484) | ||||||||||||
Income (loss) from continuing operations | ||||||||||||||||||
before income taxes | $ | 112,977 | $ | (307) | $ | (5,744) | $ | 13,691 | $ | (202,996) | $ | (82,379) | ||||||
2018 | ||||||||||||||||||
Onshore | ||||||||||||||||||
Drilling | Completion | |||||||||||||||||
Products and | and Workover | Production | Technical | Corporate and | Consolidated | |||||||||||||
Services | Services | Services | Solutions | Other | Total | |||||||||||||
Revenues | $ | 383,719 | $ | 406,248 | $ | 418,525 | $ | 270,365 | $ | - | $ | 1,478,857 | ||||||
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) | 148,019 | 315,291 | 342,420 | 164,758 | - | 970,488 | ||||||||||||
Depreciation, depletion, amortization | ||||||||||||||||||
and accretion | 112,111 | 68,183 | 66,993 | 25,653 | 5,499 | 278,439 | ||||||||||||
General and administrative expenses | 53,688 | 24,386 | 41,499 | 57,600 | 99,295 | 276,468 | ||||||||||||
Reduction in value of assets | - | 227,801 | 92,252 | - | 2,660 | 322,713 | ||||||||||||
Income (loss) from operations | 69,901 | (229,413) | (124,639) | 22,354 | (107,454) | (369,251) | ||||||||||||
Interest income (expense), net | - | - | - | 3,915 | (103,392) | (99,477) | ||||||||||||
Other income | - | - | - | - | (1,678) | (1,678) | ||||||||||||
Income (loss) from continuing operations | ||||||||||||||||||
before income taxes | $ | 69,901 | $ | (229,413) | $ | (124,639) | $ | 26,269 | $ | (212,524) | $ | (470,406) | ||||||
|
|
|
|
| Well |
|
| Corporate |
|
| Consolidated |
| ||||
|
| Rentals |
|
| Services |
|
| and Other |
|
| Total |
| ||||
December 31, 2022 |
| $ | 432,437 |
|
| $ | 533,327 |
|
| $ | 225,248 |
|
| $ | 1,191,012 |
|
December 31, 2021 |
|
| 379,453 |
|
|
| 636,256 |
|
|
| 183,799 |
|
|
| 1,199,508 |
|
Identifiable Assets | ||||||||||||||||||
Onshore | ||||||||||||||||||
Drilling | Completion | |||||||||||||||||
Products and | and Workover | Production | Technical | Corporate and | Consolidated | |||||||||||||
Services | Services | Services | Solutions | Other | Total | |||||||||||||
December 31, 2020 | $ | 557,469 | $ | 183,065 | $ | 368,185 | $ | 260,339 | $ | 132,021 | $ | 1,501,079 | ||||||
December 31, 2019 | $ | 659,621 | 467,697 | $ | 421,848 | $ | 377,627 | $ | 66,437 | $ | 1,993,230 | |||||||
December 31, 2018 | $ | 587,264 | $ | 808,037 | $ | 434,430 | $ | 340,161 | $ | 46,070 | $ | 2,215,962 | ||||||
At December 31, 20202022 and 2019, respectively,2021, the Onshore CompletionCorporate and Workover ServicesOther segment included $47.6$12.0 million and $216.2$37.5 million of identifiable assets relating to Pumpco that were classified as assets held for sale onsale. Additionally, the consolidated balance sheet,Corporate and Other segment as of December 31, 2022 includes $97.5 million of non-current deferred tax assets. For further discussion see note 13.Note 17 -
Discontinued Operations
During 2019, the Former Parent sold its drilling rig service line, which was previously included in the Onshore Completion and Workover Services segment. This service line included 12 active U.S. land based drilling rigs and associated equipment with a carrying value of $66.2 million. The Former Parent received $78.0 million in cash proceeds and recognized a $0.2 million loss on sale of assets. In addition, the Former Parent recorded a $7.5 million impairment of the intangibles associated with the disposed assets..
Capital Expenditures
Capital Expenditures | ||||||||||||||||||
Onshore | ||||||||||||||||||
Drilling | Completion | |||||||||||||||||
Products and | and Workover | Production | Technical | Corporate and | Consolidated | |||||||||||||
Services | Services | (1) | Services | Solutions | Other | Total | ||||||||||||
December 31, 2020 | $ | 24,053 | $ | 1,825 | $ | 15,558 | $ | 4,051 | $ | 2,166 | $ | 47,653 | ||||||
December 31, 2019 | $ | 63,252 | $ | 5,830 | $ | 17,009 | $ | 11,377 | $ | 6,254 | $ | 103,722 | ||||||
December 31, 2018 | $ | 46,649 | $ | 39,699 | $ | 8,651 | $ | 16,221 | $ | 2,056 | $ | 113,276 | ||||||
|
|
|
|
| Well |
|
| Corporate |
|
| Consolidated |
| ||||
|
| Rentals |
|
| Services |
|
| and Other |
|
| Total |
| ||||
December 31, 2022 |
| $ | 54,126 |
|
| $ | 10,729 |
|
| $ | 929 |
|
| $ | 65,784 |
|
For the period from February 3, 2021 through December 31, 2021 |
|
| 27,335 |
|
|
| 6,817 |
|
|
| - |
|
|
| 34,152 |
|
For the period from January 1, 2021 through February 2, 2021 (Predecessor) |
|
| 2,429 |
|
|
| 606 |
|
|
| - |
|
|
| 3,035 |
|
December 31, 2020 (Predecessor) |
|
| 24,053 |
|
|
| 19,609 |
|
|
| 3,991 |
|
|
| 47,653 |
|
(1)Excludes capital expenditures related to Pumpco of $36.7 million and $108.1 million for the years ended December 31, 2019, and 2018, respectively.
Geographic SegmentsInformation
The Company attributesWe operate in the U.S. and in various other countries throughout the world. Our international operations are primarily focused in Latin America, Asia-Pacific and the Middle East and North Africa regions. We attribute revenue to various countries based on the location where services are performed or the destination of the drilling products or equipment sold or rented. See Note 3 - Revenues for a detail of our domestic and international revenues. Long-lived assets consist primarily of property, plant and equipment and are attributed to various countries based on the physical location of the asset at the end of a period. The Company’s revenue attributed to the U.S. and to other countries and the value of its long-lived assets by those locations is as follows (in thousands):
Revenues | |||||||||
Years Ended December 31, | |||||||||
2020 | 2019 | 2018 | |||||||
United States | $ | 523,099 | $ | 1,038,870 | $ | 1,137,070 | |||
Other countries | 328,208 | 386,499 | 341,787 | ||||||
Total | $ | 851,307 | $ | 1,425,369 | $ | 1,478,857 | |||
Long-Lived Assets | |||||||||
December 31, | |||||||||
2020 | 2019 | ||||||||
United States | $ | 387,097 | $ | 489,189 | |||||
Other countries | 154,993 | 175,760 | |||||||
Total | $ | 542,090 | $ | 664,949 | |||||
Long-Lived Assets
|
| December 31, 2022 |
|
| December 31, 2021 |
| ||
United States |
| $ | 212,534 |
|
| $ | 231,388 |
|
Other countries |
|
| 69,842 |
|
|
| 124,886 |
|
Total |
| $ | 282,376 |
|
| $ | 356,274 |
|
(10)
(14) Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date. Inputs used in determining fair value are characterized according to a hierarchy that prioritizes those inputs based on the degree to which they are observable. The three input levels of the fair value hierarchy are as follows:
Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities;
Level 2: Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical assets or liabilities in inactive markets or model-derived valuations or other inputs that can be corroborated by observable market data; and
Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.
The following tables provide a summary of the financial assets and liabilities measured at fair value on a recurring basis (in thousands):
|
| December 31, 2022 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Non-qualified deferred compensation assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other long-term assets, net |
| $ | - |
|
| $ | 16,299 |
|
| $ | - |
|
| $ | 16,299 |
|
Accrued expenses |
|
| - |
|
|
| 1,831 |
|
|
| - |
|
|
| 1,831 |
|
Other long-term liabilities |
|
| - |
|
|
| 15,855 |
|
|
| - |
|
|
| 15,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Investment in equity securities |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| December 31, 2021 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Non-qualified deferred compensation assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other long-term assets, net |
| $ | - |
|
| $ | 15,896 |
|
| $ | - |
|
| $ | 15,896 |
|
Accrued expenses |
|
| - |
|
|
| 2,250 |
|
|
| - |
|
|
| 2,250 |
|
Other long-term liabilities |
|
| - |
|
|
| 19,218 |
|
|
| - |
|
|
| 19,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Investment in equity securities |
| $ | 25,735 |
|
| $ | - |
|
| $ | - |
|
| $ | 25,735 |
|
Fair Value at December 31, 2020 | ||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||
Intangible and other long-term assets, net: | ||||||||||||
Non-qualified deferred compensation assets | $ | - | $ | 15,013 | $ | - | $ | 15,013 | ||||
Accounts payable: | ||||||||||||
Non-qualified deferred compensation liabilities | $ | - | $ | 2,869 | $ | - | $ | 2,869 | ||||
Other long-term liabilities: | ||||||||||||
Non-qualified deferred compensation liabilities | $ | - | $ | 20,697 | $ | - | $ | 20,697 | ||||
Total debt | $ | 409,050 | $ | - | $ | - | $ | 409,050 | ||||
Fair Value at December 31, 2019 | ||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||
Intangible and other long-term assets, net: | ||||||||||||
Non-qualified deferred compensation assets | $ | - | $ | 15,499 | $ | - | $ | 15,499 | ||||
Accounts payable: | ||||||||||||
Non-qualified deferred compensation liabilities | $ | - | $ | 1,372 | $ | - | $ | 1,372 | ||||
Other long-term liabilities: | ||||||||||||
Non-qualified deferred compensation liabilities | $ | - | $ | 23,466 | $ | - | $ | 23,466 | ||||
Total debt | $ | 1,021,300 | $ | - | $ | - | $ | 1,021,300 | ||||
The Company’sOur non-qualified deferred compensation plans allow officers, certain highly compensated employees and non-employee directors to defer receipt of a portion of their compensation and contribute such amounts to one or more hypothetical investment funds (see note 7). The Company entered into separate trust agreements, subject to general creditors, to segregate assets of each plan and reports the accounts of the trusts in its consolidated financial statements.funds. These investments are reported at fair value based on unadjusted quoted prices in active markets for identifiable assets and observable inputs for similar assets and liabilities, which represent Levelsa Level 2 in the fair value hierarchy depending on the type of investment. Commencement of the Chapter 11 Cases automatically stayed payments under the non-qualified deferred compensation plans. As a result of the consummation of the Plan, restricted stock units issued prior to the Fresh Start Accounting Date under our stock incentive plans were canceled for zero consideration.
Investment in equity securities related to our ownership in common stock of Select Energy Services, Inc. ("Select"). This investment was reported at fair value based on unadjusted quoted prices which are readily determinable, which represents a Level 1 and 2, respectively, in the fair value hierarchy.
The carrying amount of cash equivalents, accounts receivable, accounts payable and accrued expenses, as reflected in the consolidated balance sheets, approximates fair value due to the short maturities. TheWe historically utilized unadjusted quoted prices in the market for measuring the fair value of the debt instruments debt.is determined by reference to the market value of the instrument as quoted in an over-the-counter market.
(15) Other Income (Expense)
Other income (expense) primarily relate to re-measurement gains and losses associated with our foreign currencies and realized and unrealized gains and losses on our investment in common stock of Select.
The following table reflectsLosses on foreign currencies during the fair value measurements usedCurrent Period, the Successor Period, the Predecessor Period and the Prior Period were $12.6 million, $8.8 million, $2.1 million and $8.9 million, respectively. Losses on foreign currencies during the Current Period include an expense of $2.7 million which represents a correction of an immaterial error relating to a period prior to our emergence from bankruptcy. Gains and losses on foreign currencies are primarily related to our operations in testing the impairment of long-lived assets (in thousands):Brazil and Argentina.
Years Ended December 31, | |||||||||||
2020 | 2019 | ||||||||||
Impairment | Fair Value | Impairment | Fair Value | ||||||||
Intangible assets | $ | - | $ | - | $ | 7,556 | $ | - | |||
Property, plant and equipment, net | $ | 26,897 | $ | 13,593 | $ | 9,629 | $ | 25,000 | |||
Fair value is measured asDuring the Current Period, we disposed of 4.1 million shares of Select for $34.7 million, and we recognized gains totaling $8.9 million in connection with these transactions. During the impairment date using Level 3 inputs. See note 12Successor Period, we disposed of 0.7 million shares of Select for discussion$4.1 million, and we recognized gains totaling $0.4 million. Unrealized gains during the Successor Period were $2.1 million. As of reduction in value of assets recorded during 2020 and 2019.
Nonrecurring Fair Value Measurements
Long-lived assets within our assets held for sale were measured at fair value on a nonrecurring basis at December 31, 2020. Fair value2022, all shares of the long-lived assets within assets held for sale was measured using Level 3 inputs and based on an estimated sales price less marketing costs. In 2020, the Company recorded a $114.2 million reduction in value of assets on its assets held for sale. This expense is reported within loss from discontinued operations, net of income tax within the accompanying consolidated statement of operations for the year ended December 31, 2020. See note 13 to our consolidated financial statements for further discussion of the discontinued operations.Select have been disposed.
(11)(16) Contingencies
Due to the nature of the Company’sour business, the Company iswe are involved, from time to time, in various routine litigation or subject to disputes or claims or actions, including those commercial in nature, regarding itsour business activities in the ordinary course of business. Legal costs related to these matters are expensed as incurred. Management is of the opinion that none of the claims and actions will have a material adverse impact on the Company'sour financial position, results of operations or cash flows.
A subsidiary of the Companyours is involved in legal proceedings with 2two former employees regarding the payment of royalties for a patentable product paid for by the subsidiary and developed while they worked for the subsidiary. On April 2, 2018, theThose former employees and their corporationhave filed a lawsuitseparate two lawsuits in the Harris County District Court, allegingin which the former employees allege that the royalty payments they had invoiced at 25%25% and for which they received payments in the invoiced amounts since 2010, instead should have been paid at a rate of 50%50%. InThe first lawsuit (the “First Case”), filed during the second quarter of 2018, sought to recover alleged unpaid royalties from May 2019,2014 through May 2019. The second lawsuit (the “Second Case”) was filed in the jury issued a verdict in favorsame district court against the same subsidiary of ours, brought the same claims, and sought damages post-judgment from the First Case until the discontinuation of the plaintiffs. On October 25, 2019,leasing of the product at issue by the subsidiary at the end of 2019.
In both lawsuits, the district court issued aruled against our subsidiary and entered final judgment against the Companyjudgments, which the Company haswe fully secured with a supersedeas bond. The CompanyWe strongly disagreesdisagreed with the verdictresult and believesbelieved the district court committed several legal errors that should result in abe corrected by reversal or remandof each of the casejudgments. Accordingly, we pursued separate appeals in the Fourteenth Court of Appeals
In August 2022, in the appeal from the judgment in the First Case, the Fourteenth Court of Appeals (the "Court of Appeals") ruled in favor of our subsidiary on the plaintiffs’ claims for a combined 50% royalty. The Court of Appeals ruled that because the plaintiffs invoiced our subsidiary for a combined 25% royalty and accepted payments in that amount every month since 2010, the plaintiffs forever waived any claim to any royalties in any amount other than a combined 25% royalty, net of expenses. The Court of Appeals reversed the judgment in the First Case and remanded to the district court to assess damages, if any, owed for royalties between January 2018 and May 2019.
The appeal from the judgment in the Second Case was abated by the Fourteenth Court of Appeals.Appeals pending the resolution of the appeal in the First Case.
Commencement
On October 7, 2022, our subsidiary reached a confidential settlement in both the First Case and the Second Case with the plaintiffs to resolve any and all disputes between them. At the request of both parties in the appeals from both the First Case and the Second Case, the Fourteenth Court of Appeals has reversed the respective judgments entered by the district court. The district court has now entered take-nothing judgments in favor of our subsidiary in both cases and has released the supersedeas bonds filed by our subsidiary in both cases. Accordingly, both the First Case and the Second Case are fully and finally resolved.
Our Indian subsidiary, SES Energy Services India Pvt. Ltd (“SES India”), entered into a contract with an Indian oil and gas company to provide an offshore vessel for well stimulation. A dispute arose over the performability of the Chapter 11 Cases automatically stayed certain proceedings and actions against the Debtors. These cases continue after the Chapter 11 Cases.
(12) Reduction in Value of Assets
During 2020, 2019 and 2018, the Former Parent recorded $26.9 million, $17.2 million and $322.7 million in expense related to reduction in value of assets, respectively. The componentsterms of the reductions in value of assets are as follows (in thousands):
Years ended December 31, | ||||||||
2020 | 2019 | 2018 | ||||||
Reduction in value of goodwill | $ | - | $ | - | $ | 251,826 | ||
Reduction in value of long-lived assets | 26,897 | 17,185 | 70,887 | |||||
Total reduction in value of assets | $ | 26,897 | $ | 17,185 | $ | 322,713 | ||
Reduction in Value of Long-Lived Assets
During 2020,contract. The contract was terminated by the Former Parent recorded $26.9 millioncustomer. Any remaining contingency under this contract was terminated in connection with the reduction in value of its long-lived assets. The reduction in value of assets was related to reduction in value of long-lived assets primarily in our Technical Solutions and Production Services segments.SES India entering into bankruptcy during 2022.
DuringIn October 2022, we had a hearing before the Washington State Board of Tax Appeals (the “Tax Board”) in relation to a dispute arising in April 2019 pertaining to a use tax assessment from 2016 as a result of the Former Parent recorded $17.2 million in connection withconstruction of a vessel by one of our subsidiaries. As of December 31, 2022, the reduction in valueassessment, including interest, totaled $26.9 million. While we are confident that the assessment is legally insupportable, if the Tax Board upholds the assessment we will be responsible for payment of its long-lived assets. The reduction in valuethe full assessment within thirty days of assets was primarily relatedthe decision. Although we are unable to reduction in valueestimate the probability of certain intangibles in the Onshore Completion and Workover Services segment and long-lived assets inoutcome of this matter or the Technical Solutions segment.range of reasonably possible loss, if any, we have reserved an amount we believe to be adequate to cover any final assessment levied by the state.
During 2018, the Former Parent recorded $70.9 million in connection with the reduction in value of its long-lived assets. The reduction in value of assets was comprised of $41.4 million and $19.8 million related to property, plant and equipment and intangibles, respectively, in the well servicing rigs business in the Onshore Completion and Workover Services segment and $5.1 million related to property, plant and equipment and $1.9 million related to intangibles in the Production Services segment. The reduction in value of assets recorded during 2018 was primarily driven by the decline in demand for these services and the forecast did not indicate a timely recovery sufficient to support the carrying values of these assets. In addition, the Former Parent recorded a $2.6 million reduction in carrying value of its former corporate facility and its related assets.72
Reduction in Value of Goodwill
During 2018, the Former Parent recorded a $251.8 million reduction in value of goodwill relating to its Onshore Completion and Workover Services and Production Services segments. The Company determined that the fair value of its goodwill for the Onshore Completion and Workover Services segment was less than its carrying value and fully wrote-off the related goodwill balances.
(13) Discontinued Operations
On December 10, 2019, the Former Parent’s indirect, wholly owned subsidiary, Pumpco, completed its existing hydraulic fracturing field operations and determined to discontinue, wind down and exit its hydraulic fracturing operations. The Company intends to maintain an adequate number of employees to efficiently wind down Pumpco’s business. The financial results of Pumpco’s operations have historically been included in the Former Parent’s Onshore Completions and Workover Services segment. The Company will continue to sell Pumpco’s fixed assets over time.
(17) Discontinued Operations
The following table summarizes the components of loss from discontinued operations, net of tax for the years ended December 31, 2020, 2019 and 2018 (in thousands):
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
| Year Ended December 31, 2022 |
|
| For the Period |
|
|
| For the Period |
|
| Year Ended December 31, 2020 |
| ||||
Revenues |
| $ | - |
|
| $ | 90,682 |
|
|
| $ | 10,719 |
|
| $ | 184,580 |
|
Cost of services |
|
| - |
|
|
| 85,191 |
|
|
|
| 10,398 |
|
|
| 180,408 |
|
Depreciation, depletion, amortization and accretion |
|
| - |
|
|
| 31,502 |
|
|
|
| 2,141 |
|
|
| 31,022 |
|
General and administrative expenses |
|
| 8,043 |
|
|
| 8,847 |
|
|
|
| 1,119 |
|
|
| 22,035 |
|
Other (gains) and losses, net |
|
| (2,249 | ) |
|
| 15,807 |
|
|
|
| - |
|
|
| - |
|
Reduction in value of assets |
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| 117,335 |
|
Loss from operations |
|
| (5,794 | ) |
|
| (50,665 | ) |
|
|
| (2,939 | ) |
|
| (166,220 | ) |
Other income (expense) |
|
| - |
|
|
| 188 |
|
|
|
| 2,485 |
|
|
| (2,069 | ) |
Loss from discontinued operations before tax |
|
| (5,794 | ) |
|
| (50,477 | ) |
|
|
| (454 | ) |
|
| (168,289 | ) |
Income tax benefit (expense) |
|
| 1,217 |
|
|
| 10,408 |
|
|
|
| 102 |
|
|
| (398 | ) |
Income (loss) from discontinued operations, net of income tax |
| $ | (4,577 | ) |
| $ | (40,069 | ) |
|
| $ | (352 | ) |
| $ | (168,687 | ) |
Years ended December 31, | |||||||||
2020 | 2019 | 2018 | |||||||
Revenues | $ | 521 | $ | 281,452 | $ | 651,408 | |||
Cost of services | 8,410 | 272,248 | 531,616 | ||||||
Loss from discontinued operations before tax | (127,445) | (169,582) | (433,142) | ||||||
Loss from discontinued operations, net of income tax | (114,882) | (177,968) | (430,712) | ||||||
The following summarizes the assets and liabilities related to the business reported as discontinued operations (in thousands):
|
| December 31, 2022 |
|
| December 31, 2021 |
| ||
Assets: |
|
|
|
|
|
| ||
Accounts receivable, net |
| $ | 350 |
|
| $ | 7,469 |
|
Property, plant and equipment, net |
|
| 11,468 |
|
|
| 29,328 |
|
Other assets |
|
| 160 |
|
|
| 731 |
|
Total assets held for sale |
| $ | 11,978 |
|
| $ | 37,528 |
|
|
|
|
|
|
|
| ||
Liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 86 |
|
| $ | 652 |
|
Accrued expenses |
|
| 3,192 |
|
|
| 4,268 |
|
Other liabilities |
|
| 71 |
|
|
| 687 |
|
Total liabilities held for sale |
| $ | 3,349 |
|
| $ | 5,607 |
|
December 31, | |||||
2020 | 2019 | ||||
Current assets: | |||||
Accounts receivable, net | $ | - | $ | 25,106 | |
Other current assets | 2,155 | 6,215 | |||
Total current assets | 2,155 | 31,321 | |||
Property, plant and equipment, net | 45,397 | 179,144 | |||
Operating lease ROU assets | 83 | 5,732 | |||
Total assets | $ | 47,635 | $ | 216,197 | |
Current liabilities: | |||||
Accounts payable | $ | 165 | $ | 14,370 | |
Accrued expenses | 1,326 | 24,751 | |||
Total current liabilities | 1,491 | 39,121 | |||
Operating lease liabilities | 2,588 | 5,415 | |||
Other long-term liabilities | - | 402 | |||
Total liabilities | $ | 4,079 | $ | 44,938 | |
Significant operating non-cash items of Pumpco and cash flows from investing activities for our discontinued operations were as follows (in thousands):
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
| Year Ended December 31, 2022 |
|
| For the Period |
|
|
| For the Period |
|
| Year Ended December 31, 2020 |
| ||||
Cash flows from discontinued operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Reduction in value of assets |
| $ | - |
|
| $ | - |
|
|
| $ | - |
|
| $ | 117,335 |
|
(Gain)/loss on sale of assets |
|
| - |
|
|
| - |
|
|
|
| (43 | ) |
|
| 286 |
|
Other (gains) and losses, net |
|
| (2,249 | ) |
|
| 15,807 |
|
|
|
| - |
|
|
| - |
|
Depreciation, depletion, amortization and accretion |
|
| - |
|
|
| 31,502 |
|
|
|
| 2,141 |
|
|
| 31,022 |
|
Cash flows from discontinued investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Proceeds from sales of assets |
|
| 20,110 |
|
|
| 88,332 |
|
|
|
| 486 |
|
|
| 22,224 |
|
73
Years ended December 31, | |||||||||
2020 | 2019 | 2018 | |||||||
Cash flows from discontinued operating activities: | |||||||||
Depreciation and amortization | $ | - | $ | 75,077 | $ | 122,409 | |||
Reduction in value of assets | 114,213 | 76,577 | 417,011 | ||||||
Cash flows from discontinued investing activities: | |||||||||
Payments for capital expenditures | $ | - | $ | (36,743) | $ | (108,094) | |||
Proceeds from sales of assets | 19,030 | 1,669 | - | ||||||
(14)(18) Supplemental GuarantorCash Flow Information
The table below is a reconciliation of cash, cash equivalents and restricted cash for the beginning and the end of the period for all periods presented:
The Former Parent, along with certain of its direct and indirect 100% owned domestic subsidiaries (the subsidiary guarantors, and together with the Former Parent, the guarantors), entered into guarantees of the outstanding 7.750% Notes (the guarantees). All guarantees provided by the guarantors were full and unconditional, joint and several, except that the guarantee of any subsidiary guarantor could be released under certain customary circumstances, including (i) in connection with a sale or other disposition of all or substantially all of the assets of the applicable subsidiary guarantor (including by way of merger or consolidation) to a person that is not the Issuer, Former Parent or a subsidiary of the Issuer; (ii) in connection with a sale or other disposition of all of the capital stock of such subsidiary guarantor to a person that was not the Former Parent or Issuer or their respective subsidiaries; and (iii) upon legal defeasance or satisfaction and discharge of the indenture that governed the 7.750% Notes. The Former Parent was to be released from its guarantee only in connection with any legal defeasance or satisfaction and discharge of the indenture. Upon emergence in 2021, all outstanding obligations under the outstanding unsecured senior notes were cancelled and the applicable agreements governing such obligations were terminated as discussed in Part I, Item 1 of this Annual Report on Form 10-K.
|
| Successor |
|
|
| Predecessor |
| ||||||||||
|
| Year Ended December 31, 2022 |
|
| For the Period |
|
|
| For the Period |
|
| Year Ended December 31, 2020 |
| ||||
Cash, cash equivalents, and restricted cash, beginning of period |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 314,974 |
|
| $ | 172,768 |
|
|
| $ | 188,006 |
|
| $ | 272,624 |
|
Restricted cash-current |
|
| - |
|
|
| 16,751 |
|
|
|
| - |
|
|
| - |
|
Restricted cash-non-current |
|
| 79,561 |
|
|
| 80,179 |
|
|
|
| 80,178 |
|
|
| 2,764 |
|
Cash, cash equivalents, and restricted cash, beginning of period |
| $ | 394,535 |
|
| $ | 269,698 |
|
|
| $ | 268,184 |
|
| $ | 275,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash, cash equivalents, and restricted cash, end of period |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 258,999 |
|
| $ | 314,974 |
|
|
| $ | 172,768 |
|
| $ | 188,006 |
|
Restricted cash-current |
|
| - |
|
|
| - |
|
|
|
| 16,751 |
|
|
| - |
|
Restricted cash-non-current |
|
| 80,108 |
|
|
| 79,561 |
|
|
|
| 80,179 |
|
|
| 80,178 |
|
Cash, cash equivalents, and restricted cash, end of period |
| $ | 339,107 |
|
| $ | 394,535 |
|
|
| $ | 269,698 |
|
| $ | 268,184 |
|
74
With respect to each guarantor, each guarantee was a general unsecured senior obligation of such guarantor and
ranked equally in right of payment with all existing and future senior unsecured indebtedness of such guarantor;
was senior in right of payment to any future subordinated obligations of such guarantor; and
was effectively subordinated to existing and future secured indebtedness of such guarantor to the extent of the value of the assets securing that indebtedness.
The guarantee obligations of the Former Parent and each subsidiary guarantor were limited as necessary to prevent the guarantee from constituting a fraudulent conveyance under applicable law. If a guarantee was rendered voidable, it could be subordinated by a court to all other indebtedness (including guarantees and other contingent liabilities) of the applicable guarantor, and, depending on the amount of such indebtedness, such guarantor’s liability on its guarantee could have been reduced to zero.
The 7.750% Notes and the guarantees were structurally subordinated to all indebtedness and other obligations of any of the subsidiary guarantors that did not guarantee the 7.750% Notes (the non-guarantor subsidiaries). Such non-guarantor subsidiaries had no obligation, contingent or otherwise, to pay amounts due under the 7.750% Notes or to make funds available to pay those amounts, whether by dividends, distributions, loans or other payments.
The following summarized financial information presents the financial information of the Former Parent, Issuer and the subsidiary guarantors (collectively, the Obligor Group), on a combined basis, after elimination of (i) intercompany transactions and balances among the Former Parent, Issuer and the subsidiary guarantors and (ii) equity in earnings from and investments in any subsidiary of the Former Parent that was not the Issuer or a subsidiary guarantor.
OBLIGOR GROUP | |||||
Summarized Balance Sheets Information | |||||
(in thousands) | |||||
December 31, | |||||
2020 | 2019 | ||||
Current assets | $ | 377,166 | $ | 789,562 | |
Noncurrent assets | 1,079,397 | 1,134,238 | |||
Total assets | $ | 1,456,563 | $ | 1,923,800 | |
Current liabilities | $ | 141,676 | $ | 261,743 | |
Noncurrent liabilities | 4,282,311 | 2,039,138 | |||
Total liabilities | $ | 4,423,987 | $ | 2,300,881 | |
OBLIGOR GROUP | |||||
Summarized Statements of Operations Information | |||||
(in thousands) | |||||
Years ended December 31, | |||||
2020 | 2019 | ||||
Total revenues | $ | 641,216 | $ | 1,126,456 | |
Cost of revenues | 432,363 | 723,451 | |||
Loss from operations before income taxes | (273,825) | (92,731) | |||
Income taxes | (17,602) | 6,102 | |||
Net loss from continuing operations | (256,223) | (98,833) | |||
Loss from discontinued operations, net of tax | (114,882) | (177,968) | |||
Net loss attributable to the Obligor Group | $ | (371,105) | $ | (276,801) | |
Item 9.9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management has established and maintains a system of disclosure controls and procedures are designed to provide reasonable assurancesassurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 (as amended) (the “Exchange Act”) is appropriately recorded, processed, summarized and reported within the time periods specified byin the SEC.SEC's rules and forms. In addition, the disclosure controls and procedures ensureprovide reasonable assurance that such information required to be disclosed,is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. An evaluation was carried out, under the supervision and with the participation of our management, including our Executive Chairman (who has assumed the functions of the Company's principal executive officer)CEO and interim CFO, regarding the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Executive ChairmanCEO and interim CFO have concluded that our disclosure controls and procedures as of December 31, 20202022 were not effective to provide reasonable assurance that information required to be disclosed by us in reports we file withor submit under the SECExchange Act is recorded, processed, summarized and reported within the time periods required byspecified in the SEC’s rules and forms, and is accumulated and communicated to management, including our Executive ChairmanCEO and interim CFO, as appropriate, to allow timely decisions regarding disclosures. Management’s report is included hereinrequired disclosure. See disclosure of a material weakness below under the caption “Management’s Annual Report on Internal Control overOver Financial Reporting.”
There has been no change in our internal control over financial reporting during the three months ended December 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, and for performing an assessment of the effectiveness of our internal control over our financial reporting as of December 31, 2020.2022. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our Executive Chairman was not employed by the Company during the reporting period covered by this report. Likewise, our current interim CFO, was not employed by the Company in the CFO role during the reporting period covered by this report, but served as Chief Accounting Officer during this period. The certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 signed by our Executive ChairmanGAAP and interim CFO filed with this Annual Report on Form 10-K should be read in light of the foregoing.
Our system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. Management recognizes that there areBecause of its inherent limitations, in the effectiveness of any internal control over financial reporting including the possibility of human error and the circumventionmay not prevent or overriding of internal control.detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may bebecome inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, with the participation of our Executive ChairmanCEO and interim CFO, performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 20202022 based upon criteria in Internal Control – Integrated Framework (2013)(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management determined that as of December 31, 2020,2022, our internal control over financial reporting was not effective based on those criteria.due to the material weakness described below.
As of December 31, 2022, management identified a material weakness in our internal control over financial reporting as we did not design and maintain effective controls to review the reasonableness of assumptions determined by, and accuracy of calculations performed by, our external tax service providers. This material weakness resulted in an adjustment to deferred tax benefit and income tax benefit that was recorded in the consolidated financial statements as of and for the year ended December 31, 2022. Additionally, this material weakness could result in misstatements of income tax related balances that would result in a material misstatement to the annual or interim consolidated financial statements which would not be prevented or detected.
Remediation Plan for Material Weakness
In order to address the material weakness described above, management has implemented a remediation plan that includes implementing enhancements to our controls around reviewing the reasonableness of assumptions determined by, and the accuracy of calculations performed by, our external tax service providers.
75
We believe the measures will remediate the material weakness and strengthen our internal control over financial reporting. We are committed to continuing to improve our internal control over financial reporting. As we continue to evaluate and work to improve our internal control over financial reporting, we may determine to take additional measures to address the material weakness.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
On December 7, 2020, the Affiliate Debtors filed voluntary petitions seeking relief under the Bankruptcy Code. On January 31, 2021, the Bankruptcy Court entered the Confirmation Order confirming the Plan under the Bankruptcy Code. On the Effective Date, the Plan became effective in accordance with its terms, and the Affiliate Debtors emerged from the Chapter 11 Cases. The Plan included the appointment of the new Board of Directors as described below. On the Effective Date, the following members of the Former Parent’s board of directors, ceased to serve: Terence E. Hall, Peter D. Kinnear, Janiece M. Longoria, Michael M. McShane, James M. Funk and W. Matt Ralls.None
76
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Board of Directors
Pursuant to the Plan, as of the Effective Date, the following directors ceased to serve on our Board of Directors: Terence E. Hall, Peter D. Kinnear, Janiece M. Longoria, Michael M. McShane, James M. Funk and W. Matt Ralls.
Pursuant to the Plan and the Stockholders Agreement (defined below), our current Board of Directors consists of the following sixseven members:
We currently have an Audit Committee and a Compensation Committee. All directors serve on each committee. The Board expectsbelieves under NYSE listing standards (which we are not currently subject to), that severalall of itsthe directors, wouldexcept for Mr. Moore and Mr. McGovern, may be consideredindependent directors, provided that Mr. Citarrella and Mr. Flores may not be independent for Audit Committee purposes. The Board considers Mr. Shivram to be an Audit Committee financial experts, except for Mr. Citarrella, who is a designated director of Monarch Alternative Capital LP and certain related funds and entities (Monarch), and Mr. Flores and Ms. Robertson, who are the designated directors of Goldentree Asset Management LP and certain related funds and entities (Goldentree). The Board has not made a determination as to whether any of its directors are independent under the listing standards of the NYSE, any other national securities exchange or any inter-dealer quotation system.expert.
Joseph Citarrella, 34,36, is currently a Managing Principal for Monarch Alternative Capital LP (“Monarch”), a private investment firm. From 2008 to 2012,Mr. Citarrella was an Associate at Goldman Sachs in the Global Investment Research equity group covering the integrated oil, exploration and production, and refining sectors. From 2017 to 2018, Mr. Citarrella served as nonexecutive Chairman of the Board of Vanguard Natural Resources, Inc., a Houston based independent oil and gas company. From 2018 to 2019, Mr. Citarrella served as an independent director for Resolute Energy. Mr. Citarrella is a designated director of Monarch. Mr. Citarrella is a valuable member of our board of directors because of his extensive experience in the oil and gas industry.
Daniel E. Flores, 50,52, is currently a Partner at GoldenTree Asset Management LP (“GoldenTree”), an employee-owned global asset management firm. Mr.Flores served as Senior Vice President of Avenue Capital Group from 2008 to 2013. Previously, Mr. Flores worked in the Restructuring and Finance Group at Lehman Brothers and as an analyst at Merrill Lynch. Mr. Flores is a designated director of Goldentree.GoldenTree. Mr. Flores is a valuable member of our board of directors because of his extensive experience in the financial industry.
Michael Y. McGovern, 69,71, is currently theour Executive Chairman of the Company.Chairman. Mr. McGovern also serves as a director of Cactus, Inc., ION Geophysical Corporation, and Nuverra Environmental Solutions, Inc. Mr. McGovern alsopreviously served as a director of GeoMet, Inc., an independent energy company, from September 2010 until December 2018Nuverra Environmental Services and ION Geophysical Corporation.Mr. McGovern has more than 40 years of experience in the energy industry having served as a director and an executive at multiple public and private companies. Mr. McGovern is a valuable member of our board of directors because of his extensive experience in the oil and gas industry.
Julie J. Robertson, 65,67, served as the Executive ChairwomanChair of Noble Corporation and previously served as ChairwomanChair of the Board, President and Chief Executive Officer from January 2018 until her retirement in May 2020. From 2001 to 2018, Ms. Robertson served in various other management roles for Noble Corporation and its subsidiaries. Ms. Robertson served continuously as Corporate Secretary of Noble Corporation from 1993 until assuming the Chairwoman’sChair’s role in 2018.2018 and served as Chair at the time of the filing by Noble Corporation and certain other debtors of voluntary petitions for reorganization pursuant to chapter 11 of the United States Code on July 31, 2020. Ms. Robertson resigned as Chair of Noble Corporation in 2021. Ms. Robertson is also Chair of the Board and Remuneration Committee of Seadrill Limited, a director of EOG Resources, Inc. and a trustee of Spindletop Charities, Inc. In 2020, Ms. Robertson was elected the first female Chair of the International Association of Drilling Contractors. Ms. Robertson serves as the ChairmanChair of our Compensation Committee. Ms. Robertson is a designated director of Goldentree.GoldenTree. Ms. Robertson is a valuable member of our board of directors because of her extensive experience in the oil and gas industry.
Krishna Shivram, 58, is currently the Chief Financial Officer of Katerra, Inc., a modular pre-fabrication company and timber innovator, and60, has over 31 years of experience spread across financial and management positions in the oil and gas industry in the United States, Middle East, Europe and India. Mr. Shivram serves as a director of Allison Transmission Holdings Inc. and Ranger Energy Services Inc. He is also Managing Partner of Veritec Ventures LLC, a venture capital firm focused on making energy transition and climate tech investments. Mr. Shivram served as Chief Executive Officer of Sentinel Energy Services Inc., where he was Chief Executive
Officer from 2017 to 2021.2020. Prior to that, Mr. Shivram served as a director of Gulfmark Offshore from 2017 to 2018 and held executive positions, including CFO and interim CEO at Weatherford International Plc and VP Treasurer at Schlumberger Limited. Mr. Shivram also is a director at Ranger Energy Services, Inc. Mr. Shivram serves as the Chairman of our Audit Committee.
Timothy J. Winfrey, 60,62, is currently a Senior Advisor to LeBaronBrown Industries LLC, an investment organization designed to support the long-termgrowth of industry-leading operating businesses. Mr. Winfrey served as Vice President - Energy Systems and Controls of Roper Technologies Inc. from 2002 to 2015. From 2001 to 2002, Mr. Winfrey served as President of Ingersoll-Rand Company's Commercial and Retail Air Solutions business, prior to which he was Vice President and general manager of Ingersoll-Rand's Reciprocating Compressor division. Prior to that, Mr. Winfrey held various corporate development and general management positions with Owens Corning, Eaton Corporation and British Petroleum Company Plc. Mr. Winfrey is a valuable member of our board of directors because of his extensive experience as a senior executive in the industrial engineering industry.
As discussed above, on
Brian K. Moore, 66, is currently our President and Chief Executive Officer and a member of the Effective Date,Board of Directors since January 2022. Mr. Moore haspreviously served as our Executive Vice President of Corporate Services from April 2016 to January 2022, and as our Senior Executive Vice
77
President of North America Services from February 2012 to March 2016. Prior to that, Mr. Moore held executive positions at Complete Production Services and Integrated Production Services. Mr. Moore is a valuable member of our board of directors because of his extensive experience as a senior executive in order to implement certain transactions contemplated by the Plan, theoil field service industry.
The Company has entered into the Stockholders Agreementa stockholders agreement (the “Stockholders Agreement”) to provide for certain governance matters. Other than obligations related to Confidential Information (as defined in the Stockholders Agreement), the rights and preferences of each stockholder under the Stockholders Agreement will terminate when such stockholder ceases to own shares of the Class A Common Stock and Class B Common Stock. While the initial Board of Directors designees post-emergence were appointed by Goldentree,GoldenTree, Monarch, and the ad hoc noteholders, going forward, at the first annual meeting, pursuant to the Stockholders Agreement, the Board of Directors will consistconsists of seven directors, of whom:
Furthermore, the Board of Directors is given special governance rights in the Stockholders Agreement, including approval rights over certain corporate and other transactions, such as (i) any merger, consolidation, reorganization (including conversion) or any other business combination, (ii) certain acquisitions or dispositions of assets or liabilities, (iii) incurrence of indebtedness (subject to certain monetary thresholds), and (iv) issuances of equity, subject to the limitations therein, among other actions.
The Stockholders Agreement also provides the stockholders certain preemptive rights, drag-along rights, tag-along rights, and registration rights, with respect to the Class A Common Stock, subject, in each case, to the terms and conditions identified in the Stockholders Agreement.
Executive Officers
Set forth below is certain information regarding our current executive officers, including all offices and positions held by each in the past five years.
Name | ||||
Age | ||||
|
| Offices Held and Term of Office | ||
Michael Y. McGovern (1) |
| 71 | Executive Chairman of the Board of Directors since March 2021 | |
|
|
| ||
|
|
| ||
Brian K. Moore |
| 66 | President and Chief Executive Officer since January 2022, Executive Vice President of Corporate Services to January 2022, Senior Executive Vice President of North America Services from February 2012 to March 2016 | |
|
| 55 | Executive Vice President and |
Family Relationships
There are no family relationships among any of our current directors or executive officers.
Code of Conduct
Our Shared Core Values at Work (Code of Conduct) applies to all of our directors, officers and employees. This Code of Conduct is publicly available on the Corporate Governance page in the About Us section of our website at http://www.superiorenergy.com. Any waivers granted to directors or executive officers and any material amendment to our Code of Conduct will be posted promptly on our website and/or disclosed in a current report on Form 8-K. We will provide to any person without charge, upon request, a copy of such
code of ethics. The request may be made via mail to: Superior Energy Services, Inc., 1001 Louisiana Street, Suite 2900, Houston, Texas 77002.
Item 11. Executive Compensation
Compensation Discussion and Analysis
The Compensation Discussion and Analysis (CD&A)(“CD&A”) describes theour executive compensation philosophy and practices that were followed by theapplicable to named executive officers’ compensation committeefor 2022. For 2022, our named executive officers (“NEOs”) were:
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Name | Offices Held | |
Michael Y. McGovern | Executive Chairman, Interim Chief Executive Officer until January 20, 2022 | |
Brian K. Moore | President, Chief Executive Officer | |
James W. Spexarth | Executive Vice President, Chief Financial Officer and Treasurer | |
Michael J. Delahoussaye | President, Workstrings International | |
Bryan M. Ellis | President, Wild Well Control, International Snubbing Services, and International Production Services | |
Deidre D. Toups | President, Stabil Drill, Superior Completion Services, and HB Rentals |
On January 20, 2022, Brian K. Moore, our former Executive Vice President, was appointed President and Chief Executive Officer (“CEO”) and a member of the Former ParentBoard in determiningaccordance with the Stockholders’ Agreement. As a result of Mr. Moore’s appointment, Mr. McGovern no longer performs the functions of our principal executive compensation for 2020.officer but remains with us as Executive Chairman of the Board.
Executive Compensation Philosophy
The compensation committeeCompensation Committee of the Former Parent wasBoard (the “Compensation Committee”) is responsible for designing, implementing and administering our executive compensation program in 2020.program. The primary objective of that program was to: ensure that payis to attract and performance were linked so that executiveretain key personnel. Our Compensation Committee is guided by several key principles to leverage the Company’s ability to motivate key talent. Our Compensation Committee believes compensation was aligned with operating and financial performance; andshould:
Compensation Practices in 20202022
As a resultThe CEO developed recommendations for compensation practices in 2022 that were subject to Compensation Committee approval. The CEO’s recommendations are based on his evaluations of the Chapter 11 Cases, on September 28, 2020, the Board of Directorsperformance of the Former Parent approvedexecutives and are based on several factors, including individual performance, business results, and general market information. The Compensation Committee on its own reviews the implementationperformance and compensation of the CEO and approves his level of compensation.
In 2022, compensation practices were aligned with the Company to address a Key Employee Retention Program (the KERP), which was designednumber of realities, including:
The Compensation Committee regularly reviews and considers the effectiveness of the Company’s existing compensation programs and modifies such programs or develops new programs to better effectuate the Compensation Committee’s compensation objectives. In addition, the Compensation Committee annually evaluates with its independent compensation consultant whether the program is balanced in terms of base pay and incentives, both short-term and long-term.
In 2022, the Compensation Committee engaged Lyons, Benenson & Company Inc. (“LB&Co”) as its independent executive compensation consultant, as it did in 2021. LB&Co is a leading independent compensation consulting firm that advises and counsels boards of directors and their compensation and governance committees on matters related to executive compensation, board compensation and corporate governance. They work collaboratively with directors and top management to develop compensation solutions that are supportive of each client's goals, objectives and long-term plans.
LB&Co advises the Compensation Committee on executive compensation matters and assists in developing and implementing our executive compensation program. LB&Co also informs the Compensation Committee on current roles overtrends to ensure the near term while providing themCompensation Committee is aware of evolving market conditions.
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Brian K. Moore, who served as a member of the Compensation Committee in 2022 was an officer or employee of the Company, and Michael Y. McGovern, who served as a member of our Compensation Committee in 2022 served as interim Chief Executive Officer for part of 2022 and is currently the Company’s Executive Chairman.
None of our executive officers serves or served during the last completed fiscal year as a director or member of the compensation committee of another organization one of whose executive officers serves or served at the same time as a member of either the Board or the Compensation Committee.
In 2022, LB&Co was directed to compile an analysis of compensation for our key executives. Included in this analysis was a review of our “Peer Group”. In establishing the Peer Group, the Compensation Committee sought to include companies in similar industries, with financial stability. The KERP payments wereapplicable revenue scope, similar business characteristics and adequate executive compensation disclosures. For 2022, the Peer Group was made up of the following companies for comparison:
Competitive data was drawn from both the Peer Group and publicly available survey data in returnorder to analyze where the Company’s compensation stands relative to the market in terms of base salary, short-term and long-term incentive targets and the resulting total estimated direct compensation (“TEDC”). Relative to the peer group analyses by position, all of Superior’s executives’ TEDC register at or below the median for the surrenderPeer Group and generally within the range of competitive practice. Target pay may vary from the median based on the executive’s industry experience, company experience and performance in his or her role, internal pay equity among our executives and other factors the Compensation Committee considers relevant, for example the lack of liquidity in the Company’s Class B common stock. Overall, the Compensation Committee believes the compensation program of the Company’s executives to be competitive.
The Change of Control Severance Plan (the “Severance Plan”) was terminated in favor of individual employment agreements for 2022 in consideration of the current size of the Company, the number of participants in the Severance Plan, and to further shareholder value. The former participants in the Severance Plan waived their right to receive any outstanding unvested awardspayments or benefits under the Former Parent’s Long-Term Incentive Program (LTIP) (other than any PSUs granted in 2018 and 2019) and any 2020 annual bonuses that would otherwise be payable to the KERP participants. The KERP provided for one-time retention payments equal to approximately $7.3 million in the aggregate to the six executive officers, including the named executive officers (NEOs). The KERP further provided for approximately $2.4 million of retention payments to other non-executive employees.Severance Plan.
Components of Executive Compensation
During 2022, the issuance of equity based compensation and new employment agreements continued to evolve our executive compensation program in a multi-step process. The initial post-emergence long-term incentive awards in 2021 were to candidates who were heavily engaged in the stabilization and transition of the Company from bankruptcy. The 2022 awards, in conjunction with new employment agreements, identified the future executive leadership, including the CEO, CFO and business unit leaders, of the Company and were intended to provide stability for the organization and alignment with the transformation initiatives and performance objectives for 2022.
The 2022 equity-based compensation program is designed to provide alignment with the executive team and shareholders and is based on key considerations, including:
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The three main components of the 2020 executive compensation program for 2022 were base salary, LTIP grantsannual incentive plan (“AIP”) awards, and aslong-term incentive awards under the year progressed, the KERP. All LTIP grants made to the Company’s NEOs in 2020 were surrendered in connection with the implementation of, and as a condition to their, participation in the KERP.MIP (as defined below).
Base Salary
The primary role of the base salary element of the executive compensation program during 20202022 was to compensate executives for the experience, education, personal qualities and other qualifications that were key for their specific role. In lightroles as well as their level of current industry-wide conditions, includingresponsibility. The Compensation Committee monitors and adjusts salaries for our NEOs over time as necessary to remain competitive with the uncertainty created by the effectsbase salaries of COVID-19 and the significant decline in worldwide oil prices due to the conflict between Saudi Arabia and Russia, the executive management team reduced their base salaries. The former President and Chief Executive Officer, David D. Dunlap, voluntarily reduced his base salary by 20%, and each of the other executive officers voluntarily reduced their base salaries by 15%. Each of these salary reductions was effective asmembers of March 30, 2020.our Peer Group. For additional salary information, see the 2020 summary2022 Summary Compensation Table below.
On March 28, 2022, the Board and the Compensation Committee approved employment agreements for each of Messrs. Moore, Spexarth, Delahoussaye and Ms. Toups, which superseded and replaced their existing employment agreements with the Company, except for Mr. Delahoussaye who was not a party to an employment agreement with the Company, and in Mr. Moore’s case also superseded his binding term sheet with the Company disclosed in the Company’s Current Report on Form 8-K filed on January 24, 2022. The new employment agreements were deemed appropriate by the Compensation Committee due to marketplace compensation table below.trends, the Company’s strategic positioning and plans, and to account for each NEO's experience in their current role and to provide equitable compensation relationships among internal peers.
Below is more information on each NEO’s base salary:
Name |
| 2021 Base Salary at December 31, 2021 |
|
| 2022 Base Salary |
| ||
Mr. McGovern |
| $ | 1,203,904 |
|
| $ | 750,000 |
|
Mr. Moore |
|
| 450,000 |
|
|
| 750,000 |
|
Mr. Spexarth |
|
| 425,000 |
|
|
| 425,000 |
|
Mr. Delahoussaye |
|
| 375,000 |
|
|
| 375,000 |
|
Mr. Ellis |
|
| 260,000 |
|
|
| 325,000 |
|
Ms. Toups |
|
| 350,000 |
|
|
| 350,000 |
|
Mr. McGovern was paid $1,203,904 in 2021 for his services as Chairman and principal executive officer. Mr. Moore’s annual base salary was increased from $450,000 to $750,000 in 2022 given his promotion to, and increased responsibility as, CEO.
The base salaries for each of Messrs. Spexarth and Delahoussaye and Ms. Toups remained the same in 2022 as in 2021 given their respective positions and roles remained unchanged. On July 18, 2022, the Board and the Compensation Committee approved an employment agreement for Mr. Ellis. In connection therewith and as a result of his promotion, Mr. Ellis’ salary was increased from $260,000 to $325,000.
The 2020 LTIP
In February 2020,On July 18, 2022, the compensation committeeBoard and the Compensation Committee approved an executive chairman agreement for Michael Y. McGovern, the Company’s Executive Chairman (the “Executive Chairman Agreement”). The Executive Chairman Agreement provides for an annual base salary of $750,000. Mr. McGovern’s annual base salary is subject to adjustment (upward or downward) if Mr. McGovern’s duties or commitments change during the term of the Former Parent approvedExecutive Chairman Agreement. In addition, Mr. McGovern’s Executive Chairman Agreement provided for a cash lump sum payment in an amount equal to $288,306 to account for the grantannual base salary Mr. McGovern would have been paid since assuming the position of phantom stock unit awardsExecutive Chairman until the effective date of the Executive Chairman Agreement, less any payments received from the Company since assuming the position of Executive Chairman until the effective date. Mr. McGovern’s base salary recognizes his executive seniority and cash retention awards in lieu of its historical practice of granting stock options and restricted stock units. The number of phantom stock unitstenure and the valueCompany’s efforts to retain talent necessary for success.
The target AIP opportunity for each NEO is 70% of base salary, with the retention awards made to eachexception of the NEOs, all ofMr. Moore, for which were surrendered as a condition to participationit is 100% and Mr. McGovern, who does not participate in the KERP, is set forth in the below:AIP.
NEO | Phantom Stock Units | Cash Retention Awards | |||
Mr. Dunlap | 198,970 | $ | 1,062,500 | ||
Mr. Ballard | 66,741 | 356,400 | |||
Mr. Moore | 58,745 | 313,703 | |||
Mr. Masters | 50,786 | 271,201 | |||
Mr. Bernard | 41,634 | 222,328 | |||
Mr. Spexarth | 38,342 | 204,750 | |||
The purpose of the AIP is to reward executives for achievement of annual financial objectives. Furthermore, the AIP is part of a comprehensive compensation program that aligns pay to performance by making a substantial portion of total executive compensation variable, or “at-risk.”
Although the Compensation Committee sets annual incentive target levels that result in target-level payouts when performance objectives are met (subject to the target annual incentive award opportunity provided for in Messrs. Moore’s and Spexarth’s employment agreements), our program may pay out below or above target, contingent upon the Company’s performance relative to the Compensation Committee and Board approved goals, which are set annually based on our operating plan.
At the beginning of each year, our Compensation Committee is responsible for reviewing and recommending for approval by our Board quantifiable corporate performance objectives and the relative weighting of those metrics. At the end of each year, the Compensation Committee reviews the Company’s performance results against these objectives. The 2022 AIP awards were approved by the Compensation Committee in March 2023 based upon metrics set at the beginning of 2022.
AIP Performance Goals for Executives
Under the AIP, our NEOs (other than Mr. McGovern) are eligible to earn a payout based on a target percentage of their base salary. Given the activity in the oil and gas industry, the Compensation Committee also established what it believed was an appropriate EBITDA target of $162.0 million for 2022 given the evolving market landscape. This performance goal was designed to help achieve a balance between stockholder returns and executive compensation and tie a significant portion of compensation directly to our operating and financial performance.
The AIP is designed to focus management’s attention on key financial metrics that drive our performance.
For 2022, 100% of the total payout of the AIP was based on the achievement of the foregoing EBITDA target, and the maximum payout to each eligible NEO (other than Mr. Moore) under the AIP was capped at 140% and at 200% for Mr. Moore.
In February 2020
As noted previously, the compensation committeeCompensation Committee determined to use EBITDA as the primary financial metric for the AIP. As a financial metric, EBITDA is closely linked to cash flow and encourages management to focus on improving efficiency from existing operations. The financial metric provides for threshold, target and maximum payout levels, as a percentage of salary, based upon the achievement of the Former Parent also approved the grant of the following number of PSUs to each of our NEOs. EBITDA target.
The PSUs had a targeted dollar value of $100 per unit, with an actualpossible total award payout range of $0 to $200 per unit. All of the PSUs granted in 2020 were surrenderedlevels for 2022, stated as a condition to participation in the KERP. The numberpercentage of PSUs granted to each of our NEOs in 2020 prior to surrender isNEO’s base salary, are set forth in the table below:below. As Executive Chairman, Mr. McGovern does not participate in the AIP.
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
NEO |
| Threshold |
| Target |
| Maximum |
Mr. McGovern |
| 0% |
| 0% |
| 0% |
Mr. Moore |
| 20% |
| 100% |
| 200% |
Mr. Spexarth |
| 14% |
| 70% |
| 140% |
Mr. Delahoussaye |
| 14% |
| 70% |
| 140% |
Mr. Ellis |
| 14% |
| 70% |
| 140% |
Ms. Toups |
| 14% |
| 70% |
| 140% |
Based on the Company’s EBITDA results all NEOs, including the CEO, received the maximum bonus available under the AIP for 2022, which was paid in 2023.
Retention Bonus
In March 2022, Mr. Ellis was granted a $182,000 retention bonus pursuant to a long-term cash incentive award agreement, which provides for payment of the retention bonus in three substantially equal installments in March 2022, 2023 and 2024, subject to Mr. Ellis’ continued employment with the Company through each applicable payment date. Mr. Ellis was paid the first installment in an amount equal to $60,667 in March 2022.
Management Incentive Plan
On June 1, 2021, the Board and the Compensation Committee approved and adopted our Management Incentive Plan (“MIP”). The purpose of the MIP is to provide a means through which the Company and its affiliates may attract and retain key personnel and to provide a means whereby directors, officers and employees (and prospective directors, officers and employees) can acquire and maintain an equity interest in the Company, or be paid incentive compensation, which may (but need not) be measured by reference to the value
82
of a share of common stock, thereby strengthening their commitment to the welfare of the Company and its affiliates and aligning their interests with those of our stockholders.
Pursuant to the MIP, the Compensation Committee may grant awards with respect to up to 1,999,869 shares of our Class B common stock.
2022 Management Incentive Plan Awards
On March 28, 2022, the Board and the Compensation Committee approved new forms of RSU award agreements and forms of PSU award agreements under the MIP. On July 18, 2022, the Board and the Compensation Committee approved an RSU award agreement under the MIP for Mr. McGovern and granted RSUs and PSUs to Mr. Ellis in connection with his promotion pursuant to the forms of award agreements.
The RSUs provide the right to receive a share of Class B common stock of the Company, subject to a service-based vesting requirement. The RSUs vest in three equal annual installments over a three-year period, subject to earlier vesting upon certain transactions and, generally, continued employment through the applicable vesting date. The PSUs provide the right to receive a share of Class B common stock of the Company, subject to performance-based vesting requirements, as well as a service-based vesting requirement. Subject to an NEOs continued employment through the applicable vesting date, NEOs can earn 25% to 100% of the target PSU award based generally on achievement of share price hurdles set forth in the PSU award agreements following the completion of certain specified corporate transactions that occur prior to March 23, 2025. If such vesting conditions do not occur prior to such date, the PSUs will terminate and be forfeited for no consideration. As of December 31, 2022, no such specified corporate transactions had occurred. Accordingly, none of the PSUs granted pursuant to the PSU award agreements are vested. On November 16, 2022, in connection with its declaration of a special cash dividend of $12.45 per share of the Company’s Class A common stock and Class B common stock (collectively, the “Common Stock”), the share price hurdles provided in the PSU award agreements were proportionally adjusted downward pursuant to the terms of the award agreements.
The mix of equity awards for 2022 was driven by several factors, including U.S. tax consequences and an effort to encourage appropriate risk taking but discourage excessive risk taking. RSUs are widely used in the energy industry to strengthen the link between stockholder and employee interests, while supporting long-term retention goals and encouraging executives to build and maintain meaningful levels of ownership in the Company. The RSUs align the interests of our NEOs with those of our shareholders by delivering payouts in the form of Class B common stock of the Company, subject generally to the NEOs’ continued employment with the Company through the applicable vesting date.
Mr. McGovern received 100% of his long-term incentive awards in the form of RSUs and was not granted PSUs in recognition of the responsibility inherent in his role as Executive Chairman. In addition, in connection entering into the Executive Chairman Agreement, the Board and the Compensation Committee approved accelerated vesting with respect to 15,642 outstanding restricted shares of our Class B common stock granted to Mr. McGovern pursuant to a restricted stock award agreement, dated June 1, 2021, by and between us and Mr. McGovern. The RSU grant to Mr. McGovern and accelerated vesting of his restricted stock award align Mr. McGovern’s interests with those of the shareholders through the ownership of equity.
PSUs help encourage and reward the creation of long-term value for the Company by aligning leadership’s incentives with those of the shareholders, given the PSU vesting schedule is subject to, in addition to the NEOs’ continued employment through the applicable vesting date, achievement of share price hurdles as measured in connection with the consummation of specified corporate transactions. 80% of our NEOs’ (other than Mr. McGovern) equity-based compensation granted in 2022 came in the form of PSUs, which further supports our commitment to paying for performance through achievement of share price hurdles set forth in the PSU award agreements following the completion of certain specified corporate transactions that occur prior to March 23, 2025.
In 2022, we granted equity-based awards in the form of RSUs and PSUs to Mr. Moore, Mr. Spexarth, Mr. Delahoussaye, Ms. Toups and Mr. Ellis, and RSUs to Mr. McGovern, with respect to the following numbers of units (and corresponding shares of Class B common stock of the Company) per award:
NEO |
| RSUs |
|
| PSUs |
| ||
Mr. McGovern |
|
| 79,375 |
|
|
| - |
|
Mr. Moore |
|
| 45,000 |
|
|
| 180,000 |
|
Mr. Spexarth |
|
| 10,300 |
|
|
| 41,199 |
|
Mr. Delahoussaye |
|
| 8,750 |
|
|
| 35,000 |
|
Mr. Ellis |
|
| 8,840 |
|
|
| 35,360 |
|
Ms. Toups |
|
| 8,000 |
|
|
| 32,000 |
|
83
The Compensation Committee considered the competitive data when setting the MIP award values, and consistent with private company practice, made upfront awards covering a multi-year period. Award values were set at the levels the Compensation Committee believed appropriate representing each individual NEO’s position within the Company and contribution to the accomplishment of our strategic objectives. The Compensation Committee believes that long-term equity awards are the strongest link between executive compensation and stockholder interests and therefore comprise the largest component of our executive compensation program. The following table shows the 2020 LTIP2022 MIP grant date award value (denominatedvalues:
NEO |
| Total Value of 2022 RSU Awards |
|
| Total Value of 2022 PSU Awards |
|
| Total Grant Date Value |
| |||
Mr. McGovern |
| $ | 4,667,250 |
|
| $ | - |
|
| $ | 4,667,250 |
|
Mr. Moore |
|
| 2,646,000 |
|
|
| 7,200,000 |
|
|
| 9,846,000 |
|
Mr. Spexarth |
|
| 605,640 |
|
|
| 1,647,960 |
|
|
| 2,253,600 |
|
Mr. Delahoussaye |
|
| 514,500 |
|
|
| 1,400,000 |
|
|
| 1,914,500 |
|
Mr. Ellis |
|
| 519,792 |
|
|
| 1,414,400 |
|
|
| 1,934,192 |
|
Ms. Toups |
|
| 470,400 |
|
|
| 1,280,000 |
|
|
| 1,750,400 |
|
2022 Dividend Equivalent Payments
On November 16, 2022, in connection with its declaration of a special cash dividend of $12.45 per share of the Company’s Common Stock, the Board determined to make dividend equivalent payments to each holder of RSUs that were granted under the Company’s MIP. The Company paid each such RSU holder, including each of our NEOs, $12.45 per outstanding RSU (less any applicable withholdings) at the same time as a percentagethe special dividend was paid on the Company’s Common Stock. The Compensation Committee believed that making the dividend equivalent payments to the RSU holders at the same time as special dividends were received by investors allowed for the continued alignment of annual salary)management and shareholder interests.
Below is the approximate total grant value of the 2020 LTIP grants. dividend equivalent paid to each NEO:
| Total Value |
| |
NEO | of 2022 |
| |
| Dividend Equivalent |
| |
Mr. McGovern | $ | 988,219 |
|
Mr. Moore |
| 560,250 |
|
Mr. Spexarth |
| 285,715 |
|
Mr. Delahoussaye |
| 266,418 |
|
Mr. Ellis |
| 110,058 |
|
Ms. Toups |
| 257,080 |
|
The amounts reflected below reflect the LTIP grant values used at the time to determine award amounts. As described above, all 2020 LTIP awards were surrendered as a condition to participationdividend equivalent payment is included in the KERP.
NEO | 2020 LTIP % of Salary | Total Value Granted as PSUs | Total Value Granted as Phantom Shares | Total Value Granted as Cash Retention | Total Value of 2020 LTIP Awards |
Mr. Dunlap | 500% | $2,125,000 | $1,062,500 | $1,062,500 | $4,250,000 |
Mr. Ballard | 300% | $712,800 | $356,400 | $356,400 | $1,425,600 |
Mr. Moore | 250% | $627,406 | $313,703 | $313,703 | $1,254,812 |
Mr. Bernard | 250% | $444,656 | $222,328 | $222,328 | $889,312 |
Mr. Masters | 250% | $542,403 | $271,201 | $271,201 | $1,084,805 |
Mr. Spexarth | 250% | $409,500 | $204,750 | $204,750 | $819,000 |
Summary Compensation Table below under “All Other Compensation.”
2020
84
2022 Executive Compensation
2020
2022 Summary Compensation Table
The following table summarizes the compensation awarded to, earned by, or paid to each NEO for the years ended December 31, 2020, 20192022, 2021 and 2018. All2020.
Name and Principal Position |
| Year |
| Salary |
|
| Bonus |
|
| Stock |
|
|
| Non-Equity |
|
| All Other |
|
| Total ($) |
| ||||||
Michael Y. McGovern |
| 2022 |
|
| 637,345 |
|
|
| - |
|
|
| 4,667,250 |
|
|
|
| - |
|
|
| 998,925 |
|
|
| 6,303,520 |
|
Executive Chairman |
| 2021 |
|
| 1,203,904 |
|
|
| - |
|
|
| 1,325,006 |
|
|
|
| - |
|
|
| - |
|
|
| 2,528,910 |
|
|
| 2020 |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
Brian K. Moore (7) |
| 2022 |
|
| 723,463 |
|
|
| - |
|
|
| 9,846,000 |
|
|
|
| 1,500,000 |
|
|
| 583,052 |
|
|
| 12,652,515 |
|
President and Chief Executive Officer |
| 2021 |
|
| 423,896 |
|
|
| - |
|
|
| - |
|
|
|
| 900,000 |
|
|
| 33,038 |
|
|
| 1,356,934 |
|
|
| 2020 |
|
| 430,871 |
|
|
| - |
|
|
| - |
|
|
|
| 240,928 |
|
|
| 973,947 |
|
|
| 1,645,746 |
|
James W. Spexarth |
| 2022 |
|
| 425,001 |
|
|
| - |
|
|
| 2,253,600 |
|
|
|
| 595,000 |
|
|
| 309,057 |
|
|
| 3,582,658 |
|
Executive Vice President, |
| 2021 |
|
| 327,495 |
|
|
| 125,000 |
|
|
| 1,000,030 |
|
|
|
| 297,500 |
|
|
| 38,526 |
|
|
| 1,788,551 |
|
Chief Financial Officer and Treasurer |
| 2020 |
|
| 293,580 |
|
|
| - |
|
|
| - |
|
|
|
| 151,200 |
|
|
| 652,570 |
|
|
| 1,097,350 |
|
Michael J. Delahoussaye |
| 2022 |
|
| 375,001 |
|
|
| - |
|
|
| 1,914,500 |
|
|
|
| 525,000 |
|
|
| 308,424 |
|
|
| 3,122,925 |
|
President, |
| 2021 |
|
| 301,077 |
|
|
| - |
|
|
| 500,015 |
|
|
|
| 262,500 |
|
|
| 77,892 |
|
|
| 1,141,484 |
|
Workstrings International |
| 2020 |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
Brian M. Ellis |
| 2022 |
|
| 293,413 |
|
|
| 60,667 |
|
|
| 1,934,192 |
|
|
|
| 455,000 |
|
|
| 142,220 |
|
|
| 2,885,492 |
|
President, |
| 2021 |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
Wild Well Control, International Snubbing Services, and International Production Services |
| 2020 |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
Deidre D. Toups |
| 2022 |
|
| 349,999 |
|
|
| - |
|
|
| 1,750,400 |
|
|
|
| 490,000 |
|
|
| 280,860 |
|
|
| 2,871,259 |
|
President, |
| 2021 |
|
| 315,646 |
|
|
| - |
|
|
| 500,015 |
|
|
|
| 245,000 |
|
|
| 30,781 |
|
|
| 1,091,442 |
|
Stabil Drill, HB Rentals and Completions |
| 2020 |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Option Awards(2) | KERP(3) | Non-Equity Incentive Plan Compensation ($)(4) | All Other Compensation ($)(5) | Total ($) | |||||||||
David D. Dunlap (6) | 2020 | 725,769 | 0 | 0 | 0 | 3,187,500 | 0 | 46,470 | 3,959,739 | |||||||||
President & Chief | 2019 | 850,000 | 0 | 1,111,800 | 637,484 | 2,204,756 | 226,460 | 5,030,500 | ||||||||||
Executive Officer | 2018 | 850,000 | 0 | 1,274,999 | 1,274,998 | 3,092,224 | 195,366 | 6,687,587 | ||||||||||
Westervelt T. Ballard, Jr. (6) | 2020 | 423,118 | 0 | 0 | 0 | 1,069,200 | 0 | 38,070 | 1,530,388 | |||||||||
Executive Vice President, | 2019 | 475,200 | 0 | 372,911 | 213,823 | 646,525 | 97,322 | 1,805,781 | ||||||||||
Chief Financial Officer & Treasurer | 2018 | 433,333 | 0 | 395,998 | 396,003 | 703,462 | 96,281 | 2,025,077 | ||||||||||
Brian K. Moore | 2020 | 430,871 | 0 | 0 | 0 | 941,109 | 0 | 32,838 | 1,404,818 | |||||||||
Executive | 2019 | 501,925 | 0 | 328,221 | 188,215 | 724,163 | 204,298 | 1,946,822 | ||||||||||
Vice President | 2018 | 501,925 | 0 | 376,442 | 376,446 | 988,774 | 206,997 | 2,450,584 | ||||||||||
A. Patrick Bernard | 2020 | 318,784 | 0 | 0 | 0 | 666,984 | 0 | 39,508 | 1,025,276 | |||||||||
Executive | 2019 | 355,725 | 0 | 232,606 | 133,381 | 500,262 | 166,132 | 1,388,106 | ||||||||||
Vice President | 2018 | 355,725 | 0 | 266,792 | 266,795 | 687,353 | 176,990 | 1,753,655 | ||||||||||
William B. Masters | 2020 | 386,358 | 0 | 0 | 0 | 813,603 | 0 | 33,819 | 1,233,780 | |||||||||
Executive Vice | 2019 | 433,922 | 0 | 283,749 | 162,704 | 591,782 | 108,818 | 1,580,975 | ||||||||||
President and General Counsel | 2018 | 409,360 | 0 | 230,260 | 307,021 | 705,464 | 112,157 | 1,764,262 | ||||||||||
James W. Spexarth | 2020 | 293,580 | 0 | 0 | 0 | 614,250 | 0 | 38,320 | 946,150 | |||||||||
Chief Accounting Officer | 2019 | 327,600 | 0 | 214,250 | 122,828 | 292,053 | 78,280 | 1,035,011 | ||||||||||
2018 | 307,208 | 0 | 320,079 | 152,421 | 342,676 | 72,845 | 1,195,229 |
_________________
(1)The amounts reported in this column represent the grant date fair value of the RSUs, PSUs and restricted stock awards that we granted in 2022, 2021 and 2020. RSUs and restricted stock awards were calculated in accordance with FASB ASC Topic 718. The PSUs were deemed to have a grant value of $40.00 for compensation purposes and are subject to termination and forfeiture for no consideration in the Former Parent grantedevent no specified strategic transaction occurs prior to the NEOs for 2018 and 2019.March 23, 2025. For a further discussion of valuation assumptions,share-based awards, see Note 610 to our consolidated financial statements included in Item 8 of this Annual Report. Please see the “Grants of Plan-Based Awards Table During 2020”2022” for more information regarding the LTIPawards that were granted in 2022. No equity awards were granted in 2020.
(2)The Black-Scholes option model is used to determine the grant date fair value of the options that the Former Parent granted to the NEOs for 2018 and 2019. For a discussion of valuation assumptions, see Note 6 to our consolidated financial statements included in Item 8 of this Annual Report.
(3)KERP payments were made in October 2020 and resulted in the surrender of all unvested LTIP grants (other than the 2018 and 2019 PSUs) and agreement to forego receipt of any annual bonus for 2020.
PSUs.
| Total Value |
| |
NEO | of 2022 |
| |
| Dividend Equivalent |
| |
Mr. McGovern | $ | 988,219 |
|
Mr. Moore |
| 560,250 |
|
Mr. Spexarth |
| 285,715 |
|
Mr. Delahoussaye |
| 266,418 |
|
Mr. Ellis |
| 110,058 |
|
Ms. Toups |
| 257,080 |
|
85
Name | 401(k) Contributions | Life Insurance Premiums | ArmadaCare | Automobile and Commuting | ||||
David D. Dunlap | $11,400 | $1,278 | $15,792 | $18,000 | ||||
Westervelt T. Ballard, Jr. | $11,400 | $1,278 | $15,792 | $9,600 | ||||
Brian K. Moore | $11,400 | $1,278 | $10,560 | $9,600 | ||||
A. Patrick Bernard | $11,400 | $1,200 | $15,792 | $11,116 | ||||
William B. Masters | $11,400 | $1,278 | $10,560 | $10,581 | ||||
James W. Spexarth | $11,400 | $1,132 | $16,188 | $9,600 |
Name |
| 401(k) |
|
| Life Insurance |
|
| Automobile and |
|
| Relocation |
|
| Dividend Equivalents |
|
| Country Club |
|
| Total |
| |||||||
Mr. McGovern |
| $ | 10,385 |
|
| $ | 321 |
|
| $ | - |
|
| $ | - |
|
| $ | 988,219 |
|
| $ | - |
|
| $ | 998,925 |
|
Mr. Moore |
|
| 12,200 |
|
|
| 1,002 |
|
|
| 9,600 |
|
|
| - |
|
|
| 560,250 |
|
|
| - |
|
|
| 583,052 |
|
Mr. Spexarth |
|
| 12,200 |
|
|
| 1,542 |
|
|
| 9,600 |
|
|
| - |
|
|
| 285,715 |
|
|
| - |
|
|
| 309,057 |
|
Mr. Delahoussaye |
|
| 12,200 |
|
|
| 1,542 |
|
|
| - |
|
|
| 28,264 |
|
|
| 266,418 |
|
|
| - |
|
|
| 308,424 |
|
Mr. Ellis |
|
| 12,200 |
|
|
| 1,375 |
|
|
| 9,600 |
|
|
| - |
|
|
| 110,058 |
|
|
| 8,987 |
|
|
| 142,220 |
|
Ms. Toups |
|
| 12,200 |
|
|
| 1,542 |
|
|
| 10,038 |
|
|
| - |
|
|
| 257,080 |
|
|
| - |
|
|
| 280,860 |
|
(6)Mr. Dunlap resigned his position as President and Chief Executive Officer and a member of the Board of Directors on March 16, 2021. Mr. Ballard resigned his position as Executive Vice President, Chief Financial Officer and Treasurer on March 16, 2021.
Grants of Plan-Based Awards During 20202022
The following table presents additional information regarding the PSU phantom stock units and cash retentionRSU awards granted to NEOs during the year ended December 31, 2020. No option or restricted stock units were issued as part2022. Fractional shares have been rounded to the nearest whole share for purposes of the 2020 LTIP. As a condition to participation in the KERP, each NEO surrendered all PSUs, phantom stock units and cash retention awards awarded as part of the 2020 LTIP and the 2020 LTIP was effectively replaced by the KERP.presentation.
|
|
|
| Estimated Future Payouts Under Non-Equity Incentive Plan Awards |
|
| Estimated Future Payouts Under Equity Incentive Plan Awards (1) |
|
|
|
|
|
|
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Name |
| Grant Date(1) |
| Threshold |
|
| Target |
|
| Maximum |
|
| Threshold |
|
| Target |
|
| Maximum |
|
| Stock Awards: Number of Shares of Stock or Units (#) |
|
| Grant Date Fair Value of Awards |
| ||||||||
Michael Y. McGovern |
| 7/18/2022 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 79,375 |
|
|
| 4,667,250 |
|
Brian K. Moore |
| 3/28/2022 |
|
| 150,000 |
|
|
| 750,000 |
|
|
| 1,500,000 |
|
|
| 45,000 |
|
|
| 180,000 |
|
|
| 180,000 |
|
|
| 45,000 |
|
|
| 9,846,000 |
|
James W. Spexarth |
| 3/28/2022 |
|
| 59,500 |
|
|
| 297,500 |
|
|
| 595,000 |
|
|
| 10,300 |
|
|
| 41,199 |
|
|
| 41,199 |
|
|
| 10,300 |
|
|
| 2,253,600 |
|
Michael J. Delahoussaye |
| 3/28/2022 |
|
| 52,500 |
|
|
| 262,500 |
|
|
| 525,000 |
|
|
| 8,750 |
|
|
| 35,000 |
|
|
| 35,000 |
|
|
| 8,750 |
|
|
| 1,914,500 |
|
Bryan M. Ellis |
| 7/18/2022 |
|
| 45,500 |
|
|
| 227,500 |
|
|
| 455,000 |
|
|
| 8,840 |
|
|
| 35,360 |
|
|
| 35,360 |
|
|
| 8,840 |
|
|
| 1,934,192 |
|
Deidre D. Toups |
| 3/28/2022 |
|
| 49,000 |
|
|
| 245,000 |
|
|
| 490,000 |
|
|
| 8,000 |
|
|
| 32,000 |
|
|
| 32,000 |
|
|
| 8,000 |
|
|
| 1,750,400 |
|
No. of Units | All Other | All Other | ||||||||||||||||
Granted | Stock | Option | ||||||||||||||||
Under | Awards: | Awards: | Grant Date | |||||||||||||||
Non-Equity | Estimate Future Payouts | Number of | Number of | Exercise or | Fair Value | |||||||||||||
Incentive | Under Non-Equity Incentive | Shares of | Securities | Base Price | of Stock | |||||||||||||
Grant | Plan | Plan Awards | Stock | Underlying | of Option | and Option | ||||||||||||
Name | Date(1) | Awards(2) | Threshold | Target | Maximum | or Units | Options | Awards | Awards | |||||||||
David D. Dunlap | ||||||||||||||||||
PSUs | 2/6/2020 | 21,250 | $1,062,500 | $2,125,000 | $4,250,000 | |||||||||||||
Phantom Stock | 2/6/2020 | 198,970 | $5.34 | $1,062,500 | ||||||||||||||
Cash Retention Award | 2/6/2020 | $1,062,500 | ||||||||||||||||
Westervelt T. Ballard, Jr. | ||||||||||||||||||
PSUs | 2/6/2020 | 7,128 | $356,400 | $712,800 | $1,425,600 | |||||||||||||
Phantom Stock | 2/6/2020 | 66,741 | $5.34 | $356,400 | ||||||||||||||
Cash Retention Award | 2/6/2020 | $356,400 | ||||||||||||||||
Brian K. Moore | ||||||||||||||||||
PSUs | 2/6/2020 | 6,274 | $313,700 | $627,400 | $1,254,800 | |||||||||||||
Phantom Stock | 2/6/2020 | 58,745 | $5.34 | $313,700 | ||||||||||||||
Cash Retention Award | 2/6/2020 | $313,703 | ||||||||||||||||
A. Patrick Bernard | ||||||||||||||||||
PSUs | 2/6/2020 | 4,446 | $222,350 | $444,700 | $889,400 | |||||||||||||
Phantom Stock | 2/6/2020 | 41,634 | $5.34 | $222,300 | ||||||||||||||
Cash Retention Award | 2/6/2020 | $222,300 | ||||||||||||||||
William B. Masters | ||||||||||||||||||
PSUs | 2/6/2020 | 5,424 | $271,202 | $542,403 | $1,084,806 | |||||||||||||
Phantom Stock | 2/6/2020 | 50,786 | $5.34 | $271,200 | ||||||||||||||
Cash Retention Award | 2/6/2020 | $271,200 | ||||||||||||||||
James W. Spexarth | ||||||||||||||||||
PSUs | 2/6/2020 | 4,095 | $204,750 | $409,500 | $819,000 | |||||||||||||
Phantom Stock | 2/6/2020 | 38,342 | $5.34 | $204,750 | ||||||||||||||
Cash Retention Award | 2/6/2020 | $204,750 | ||||||||||||||||
_________________
(1)On February 6, 2020, the compensation committee of the Former Parent approvedPhantom Stock and cash retention awards, in order for each NEO. Each award was surrendered by the NEOs as a conditionany PSUs to participation in the KERP.(2)The amounts shown reflect PSU grants under the Former Parent’s 2020 LTIP.Outstanding Equity Awards at 2020 Year-EndThere were no outstanding equity awards held by the NEOs at year end 2020. All were surrenderedvest in connection with their participationan applicable corporate transaction a certain share price must be achieved. The threshold level for the PSUs is based upon vesting at 25% of each of the PSU awards. Target refers to the number of PSUs that will vest if the highest share price is achieved in connection with an applicable corporate transaction. The NEOs are not eligible to earn more than the target award under the PSU award agreements.
77
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
On March 28, 2022, the Board and the Compensation Committee approved (i) new forms of RSU award agreements and forms of PSU award agreements under the MIP and (ii) grants of RSUs and PSUs to Messrs. Moore, Spexarth, Delahoussaye and Ms. Toups. On July 18, 2022, the Board and the Compensation Committee approved the grant of RSUs under the MIP to Messrs. McGovern and Ellis and PSUs under the MIP to Mr. Ellis. Awards made under the forms of RSU award agreements generally vest in three equal annual installments over a three-year period ending on the third anniversary of January 20, 2022, subject to earlier vesting in connection with certain specified corporate transactions (as set forth in the forms of PSU award agreements) and the grantee’s continued employment through the applicable vesting date, and forfeiture on terms and conditions set forth in the forms of RSU award agreements. As disclosed above, the RSU and PSU awards were intended to cover a multi-year period (with the PSUs comprising 80 percent of the total equity award (except with respect to Mr. McGovern)), and the PSUs are subject to termination and forfeiture for no consideration in the event no strategic transaction occurs prior to March 23, 2025.
Awards made under the forms of PSU award agreements may be earned between 25% and 100% of the target award based on achievement of share price hurdles set forth in the forms of PSU award agreements and will vest to the extent that share price goals are achieved following the completion of certain specified corporate transactions that occur prior to March 23, 2025, subject to the grantee’s continued employment through the applicable vesting date and earlier forfeiture on terms and conditions set forth in the forms of PSU award agreements.
On March 28, 2022, the Board and the Compensation Committee approved employment agreements for each of Messrs. Moore, Spexarth, Delahoussaye and Ms. Toups, which superseded and replaced their existing employment agreements with the Company,
86
except for Mr. Delahoussaye who was not a party to an employment agreement with the Company, and in Mr. Moore’s case also superseded his binding term sheet with the Company disclosed in the Company’s Current Report on Form 8-K filed on January 24, 2022. Mr. Moore’s employment agreement provides for an annual base salary of $750,000 and a target annual incentive award opportunity of 100% of his annual base salary. Mr. Spexarth’s employment agreement provides for an annual base salary of $425,000 and a target annual incentive award opportunity of 70% of his annual base salary. Messrs. Delahoussaye’s and Ellis’ and Ms. Toups’ employment agreements provide for an annual base salary no lower than his or her current annual base salary as of the effective date of the applicable employment agreement. Please refer to the CD&A for information on the NEOs annual base salaries for 2022. On July 18, 2022, the Board of Directors and the compensation committee approved an executive chairman agreement for Michael Y. McGovern, the Company’s Executive Chairman. Mr. McGovern’s Executive Chairman Agreement provides for an annual base salary of $750,000, with an initial one-year term that automatically extends for an additional one-year term on the first anniversary of the effective date of the Executive Chairman Agreement unless either party gives 60 days’ prior written notice of non-renewal before expiration of the then-current term. Mr. McGovern’s annual base salary is subject to adjustment (upward or downward) if Mr. McGovern’s duties or commitments change during the term of the Executive Chairman Agreement. Further, in connection with his Executive Chairman Agreement, the Company agreed to accelerate the vesting of Mr. McGovern’s restricted shares of Class B common stock granted under the MIP in 2021. In addition, Mr. McGovern’s Executive Chairman Agreement provides for a cash lump sum payment to made within thirty (30) days of the effective date of the Executive Chairman Agreement in an amount equal to $288,306 to account for the annual base salary Mr. McGovern would have been paid since assuming the position of Executive Chairman until the effective date less any payments received from the Company since assuming such position until the effective date of the Executive Chairman Agreement.
Each NEO’s base salary and bonus for 2022, as a percentage of total compensation varied, depending on the position. For Mr. McGovern, salary and bonus represented approximately 10.1% of total compensation. For Mr. Moore, salary and bonus represented approximately 17.6% of total compensation. For Mr. Spexarth, salary and bonus represented approximately 28.5% of total compensation. For Mr. Delahoussaye, salary and bonus represented approximately 28.8% of total compensation. For Mr. Ellis, salary and bonus represented approximately 28.0% of total compensation. For Ms. Toups, salary and bonus represented approximately 29.3% of total compensation.
Outstanding Equity Awards at 2022 Year-End
The following table sets forth the outstanding equity awards held by our NEOs as of December 31, 2022.
|
|
|
| Stock Awards |
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| Equity Incentive Plan Awards |
| |||||||
Name |
| Grant Date |
| Number of Shares or Units of Stock That Have Not Vested |
|
| Market Value of Shares or Units of Stock That Have Not Vested (1) ($) |
|
| Number of Unearned Shares, Units or Other Rights That Have Not Vested |
|
| Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (1) ($) |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Michael Y. McGovern |
| 7/18/2022 |
|
| 79,375 |
| (2) |
| 4,462,463 |
|
|
|
|
|
|
| ||
Brian K. Moore |
| 3/28/2022 |
|
| 45,000 |
| (2) |
| 2,529,900 |
|
|
|
|
|
|
| ||
|
| 3/28/2022 |
|
|
|
|
|
|
|
| 45,000 |
| (5) |
| 2,529,900 |
| ||
James W. Spexarth |
| 6/1/2021 |
|
| 5,228 |
| (3) |
| 293,918 |
|
|
|
|
|
|
| ||
|
| 7/7/2021 |
|
| 12,649 |
| (4) |
| 711,127 |
|
|
|
|
|
|
| ||
|
| 3/28/2022 |
|
|
|
|
|
|
|
| 10,300 |
| (5) |
| 579,066 |
| ||
|
| 3/28/2022 |
|
| 10,300 |
| (2) |
| 579,066 |
|
|
|
|
|
|
| ||
Michael J. Delahoussaye |
| 8/10/2021 |
|
| 12,649 |
| (4) |
| 711,127 |
|
|
|
|
|
|
| ||
|
| 3/28/2022 |
|
| 8,750 |
| (2) |
| 491,925 |
|
|
|
|
|
|
| ||
|
| 3/28/2022 |
|
|
|
|
|
|
|
| 8,750 |
| (5) |
| 491,925 |
| ||
Bryan M. Ellis |
| 7/18/2022 |
|
| 8,840 |
| (2) |
| 496,985 |
|
|
|
|
|
|
| ||
|
| 7/18/2022 |
|
|
|
|
|
|
|
| 8,840 |
| (5) |
| 496,985 |
| ||
Deidre D. Toups |
| 7/7/2021 |
|
| 12,649 |
| (4) |
| 711,127 |
|
|
|
|
|
|
| ||
|
| 3/28/2022 |
|
| 8,000 |
| (2) |
| 449,760 |
|
|
|
|
|
|
| ||
|
| 3/28/2022 |
|
|
|
|
|
|
|
| 8,000 |
| (5) |
| 449,760 |
| ||
87
Option Exercises and Stock Vested in 20202022
None of the NEOs exercised any stock options in 2020.
The following table sets forth certainpresents information regarding the vesting of RSUsrestricted stock awards held by our NEOs during 2022.
|
| Stock Awards |
| |||||
Name |
| Number of Shares Acquired On Vesting (#) (1) |
|
| Value Realized on Vesting ($) (2) |
| ||
Michael Y. McGovern |
|
| 23,463 |
|
|
| 1,379,624 |
|
Brian K. Moore |
|
| - |
|
|
| - |
|
James W. Spexarth |
|
| 2,614 |
|
|
| 153,703 |
|
Michael J. Delahoussaye |
|
| - |
|
|
| - |
|
Bryan M. Ellis |
|
| - |
|
|
| - |
|
Deidre D. Toups |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
| ||
Stock Awards | ||
Name | Number of Shares | Value Realized |
David D. Dunlap | 14,614 | $77,162 |
Westervelt T. Ballard, Jr. | 4,662 | $24,615 |
Brian K. Moore | 4,313 | $22,773 |
A. Patrick Bernard | 3,057 | $16,141 |
William B. Masters | 2,731 | $14,420 |
James W. Spexarth | 3,010 | $15,893 |
(1)ValueThe value realized is calculated basedby Mr. McGovern on the closing sale priceaccelerated vesting of his restricted shares was computed by determining the fair market value per share on July 18, 2022 in accordance with ASC 718. The value realized by Mr. McGovern and Mr. Spexarth on the vesting date of their restricted shares was computed by determining the awardfair market value per share on April 1, 2022 in accordance with ASC 718.
.
Pension Benefits
2020 Pension Benefits Table
None of the NEOs participated in any defined benefit pension plans in 2020.2022.
Nonqualified Deferred Compensation for 2022
Name |
| Aggregate Earnings in 2022 |
|
| Aggregate |
|
| Aggregate |
| |||
Brian K. Moore |
|
|
|
|
|
|
|
|
| |||
SERP (1) |
|
| 54,703 |
|
|
| - |
|
|
| 1,369,171 |
|
James W. Spexarth |
|
|
|
|
|
|
|
|
| |||
NQDC Plan |
|
| 19,787 |
|
|
| - |
|
|
| 491,426 |
|
SERP (1) |
|
| 3,585 |
|
|
| - |
|
|
| 89,729 |
|
Deidre D. Toups |
|
|
|
|
|
|
|
|
| |||
NQDC Plan |
|
| (181,351 | ) |
|
| - |
|
|
| 1,277,117 |
|
SERP (1) |
|
| 15,411 |
|
|
| - |
|
|
| 385,723 |
|
88
With regard to the NQDC Plan, participant accounts are treated as if invested in one or more investment vehicles selected by the participant. The annual rate of return for these funds for fiscal year 2022 was as follows:
Fund | One Year | |||
Nationwide VIT Money Market V | 1.33 | % | ||
JPMorgan IT Core Bond 1 | (12.58 | )% | ||
Vanguard VIF Total Bond Mkt Idx | (13.21 | )% | ||
Franklin Templeton VIP Global Bond 1 | (4.85 | )% | ||
MFS VIT Value Svc | (6.14 | )% | ||
Fidelity VIP Index 500 Initial | (18.21 | )% | ||
American Funds IS Growth 2 | (29.94 | )% | ||
JPMorgan IT Mid Cap Value 1 | (8.16 | )% | ||
Vanguard VIF Mid Cap Index | (18.82 | )% | ||
Janus Henderson VIT Enterprise Svc | (16.15 | )% | ||
DFA VA U.S. Targeted Value | (4.21 | )% | ||
DWS Small Cap Index VIP A | (20.64 | )% | ||
Vanguard VIF Small Co Gr | (25.35 | )% | ||
Nationwide VIT International Index I | (14.29 | )% | ||
Invesco VI EQV International Equity I | (18.31 | )% | ||
MFS VIT II International Intrinsic Value Svc | (23.75 | )% | ||
Vanguard VIF Real Estate Index | (26.30 | )% | ||
Retirement Benefit Programs
Supplemental Executive Retirement Plan
The Supplemental Executive Retirement Plan (SERP) providesprovided retirement benefits to executive officers and certain other designated key employees. The SERP is an unfunded, non-qualified defined contribution retirement plan and all contributions under the SERP are in the form of credits to a notional account maintained for each participant.
(ii)
Nonqualified Deferred Compensation Plan
The Nonqualified Deferred Compensation Plan (NQDC Plan) provides an income deferral opportunity for executive officers and certain senior managers who qualify for participation.
may choosechose from a variety of investment options to invest their deferrals over the deferral period. Participants earn a rate of return on their NQDC Plan account that approximates the rate of return that would be provided by certain specified mutual funds that participants may designate from a list of available funds selected by the NQDC Plan administrative committee.
89
78
We have not had enrollment periods for the NQDC since 2019.
Potential Payments upon Termination or Change in Control
Nonqualified Deferred Compensation
Because our NEOs became NEOs at different times and Supplemental Executive Retirement Plan Contribution for 2020
Name | Executive | Registrant | Aggregate | Aggregate | Aggregate |
David D. Dunlap
| |||||
NQDC Plan | — | — | $99,428 (3) | $559,110 | |
SERP
| — | $— | $81,561 (4) | — | $1,479,529 |
Westervelt T. Ballard, Jr.
| |||||
NQDC Plan | — | — | — | — | — |
SERP | — | $— | $17,151 (4) | — | $311,174 |
Brian K. Moore
| |||||
NQDC Plan | — | — | — | — | — |
SERP | — | $— | $68,484 (4) | — | $1,242,366 |
A. Patrick Bernard
| |||||
NQDC Plan | — | — | $ (1,270,464) (3) | $7,619,089 | |
SERP | — | $— | $88,640 (4) | — | $1,607,719 |
William B. Masters
| |||||
NQDC Plan | $71,196 | — | $ 122,892 (3) | — | $1,580,809 |
SERP
| — | $— | $45,739 (4) | — | $829,628 |
James W. Spexarth
| |||||
NQDC Plan | — | — | $ 21,915 (3) | — | $467,228 |
SERP
| — | $— | $4,484 (4) | — | $81,419 |
(1)Ofunder different circumstances, the contributions reflectedcompensation and benefits awarded to our individual NEOs in this column, the following contributionevent of termination or a change in control varies. Below is parta description of the total compensation for 2020employment agreements and is included under the Salary columnother arrangements in the “Summary Compensation Table” herein: Mr. Masters — $71,196.place with each of our NEOs.
(2)SERP contributions by the employer were suspended in 2020.
(3)With regard to the NQDC Plan, participant contributions are treated as if invested in one or more investment vehicles selected by the participant. The annual rate of return for these funds for fiscal year 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)Pursuant to the terms of the SERP, aggregate earnings for 2020 were calculated at a rate of interest equal to 5.82%, which was the after-tax long-term borrowing rate.
Executive Employment Agreements. Mr. Moore’s and Severance Program
All of the NEOs are party to the same form ofMr. Spexarth’s employment agreement. Theagreements each have an initial three-year term of each employment agreement is three years and the termthat automatically extends for an additional yearone-year term unless either party gives 60 days’ prior written notice of non-renewal before expiration of the then-current term. Mr. Delahoussaye’s and Ms. Toups’s employment agreements each have an initial two-year term that automatically extends for an additional one-year term unless either party gives 60 days’ prior written notice of non-renewal before expiration of the then-current term.
Pursuant to their employment agreements, Mr. Moore and Mr. Spexarth consented to the termination of the Change of Control Severance Plan and waived their right to receive the severance payments and benefits thereunder. None of our other NEOs participated in the Change of Control Severance Plan, which automatically terminated upon obtaining the requisite consents from the participants.
Mr. Ellis’ employment agreement has an initial two-year term that automatically extends for an additional one-year term unless either party gives 60 days’ prior written notice of non-renewal before expiration of the then-current term.
Executive Chairman Agreement for Mr. McGovern. Mr. McGovern’s Executive Chairman Agreement has an initial one-year term with an automatic extension for an additional one-year term on the secondfirst anniversary of the effective date and each subsequent anniversary thereafter, unless either the Company or Mr. McGovern gives 60 days’ prior written notice not to extendof non-renewal before the term is provided. The employment agreements entitles our NEOs to:
a base salary;
eligibility for annual incentive bonuses and LTIP awards as approved bynext anniversary of the Compensation Committee;effective date.
participation in our retirement and welfare benefit plans; and
participation in our change of control severance plan.
The termination and change in control payments and benefits provided for in the employment agreements and Executive Chairman Agreement for our NEOs are described below.
Termination due to Incapacity, No Cause or Good Reason without a Change ofin Control
the NEO’s base salary through the date of termination, any earned but unpaid cash incentive compensation for the preceding calendar year, any rights under the terms of equity awards and any medical or other welfare benefits required by law (the Accrued Amounts);
a lump sum payment equal to:to the base salary he would have been paid from the date of termination through the then current term of the executive chairman agreement, and (2) Company-paid healthcare continuation benefits through the end of then-current term for himself and his spouse and family.
bonus for the NEO’syear of termination, (2) a pro-rated target annual bonus for the year of termination;termination and
(3) Company-paid healthcare continuation benefits for up to 24 months for himself and his spouse and family.
90
Termination without Cause or for Good Reason in Connection with a Change in Control
The payments and benefits described above (other than the Accrued Amounts) are subject to the NEO’s timely execution of a release of claims in favor of us.
Termination for Without Cause or Good Reason with Change of Control. If the NEO is terminated without cause or if the NEO terminates his employment for good reason and the termination occurs within 6 months before or 24 months after a change of control, then we will be required to pay or provide:
the Accrued Amounts;
a cash severance payment pursuant to the terms of our Change of Control Severance Plan described below;
a lump sum amount equal to the NEO’s pro-rated target annual bonus for the year of termination;
outplacement services for one year after termination at a cost of up to $10,000; and
the Welfare Continuation Benefit.
The payments and benefits described above (other than the Accrued Amounts) are subject to the NEO’s timely execution of a release of claims in favor of us. We do not provide excise tax gross-ups under the employment agreements or Change of Control Severance Plan discussed below.
Termination for Cause, Death or Without Good Reason. If the NEO is terminated for cause, due to the NEO’s death or by the NEO without good reason, then we will only be required to pay to the NEO or the NEO’s estate the Accrued Amounts.
Each employment agreement containsincludes an indefinite confidentiality and protection of information covenant and a mutual one-year non-disparagement covenant for one year aftercovenant. Upon termination of employment. If the NEO is terminatedemployment by us for cause or if the NEO terminates the NEO’s employmentresignation without good reason, theeach NEO will also be bound by a non-competenon-competition and non-solicitation covenant for one year after the date of the NEO’stheir termination.
Change
Equity Awards
2021 RSUs and Restricted Stock Awards
With respect to the RSUs and restricted stock awards granted in 2021, upon the termination of Control Severance Plan. Each NEO participatesan NEO’s employment by the Company without “cause” (as defined in the Change of Control Severance Plan and is eligible to receive certain cash severance payments upon a termination of employment without cause orMIP), by the NEO for good reason that occurs within 6 months before or 24 months after a change of control. The potential severance payments due under the plan are determined as of the date of the change of control, based on a sharing pool that is calculated as a percentage of the transaction value (with the sharing pool increasing or decreasing as the transaction value increases or decreases, respectively). The Company does not provide excise tax gross-ups under our severance plan.
Calculation of change of control severance benefits. The severance benefit is equal to each participant’s portion of the total cash available“good reason” (defined in the sharing pool. Each participant’s severance benefit will be determined based onMIP to mean the dateNEO's written agreement relating to the employment or services of such NEO, if any) or due to the change of control.
Registrants who are subject to Chapter 11 of the Bankruptcy Code are prohibited from paying severance benefits to their executive officers, including potential payouts upon a change of control and resulting termination of employment. Therefore, no such payments would have been made to our NEOsNEO’s “disability” (as defined in the event of a change in control and/or if a termination of employment had occurred on December 31, 2020.
On March 22, 2021,MIP), the Company announced that David Dunlap, the Company’s president and chief executive officer and a member of its board of directors, and Westy Ballard, the Company’s executive vice president, chief financial officer and treasurer, had each resigned from all positions with the Company effective March 16, 2021. Mr. Dunlap and Mr. Ballard resigned from the Company to pursue other opportunities and their departures are not related to any disagreements regarding financial disclosures, accounting matters or other business issues.NEO will vest
91
in a pro rata portion of the NEO’s unvested restricted stock and RSUs. With respect to the RSUs, such pro rata portion will be determined by dividing the number of days elapsed since the grant date through the NEO’s termination date by the number of days from the grant date through the vesting date. With respect to Mr. Spexarth’s restricted stock award, such pro rata portion will be determined by dividing the number of days that elapsed from the vesting date immediately preceding Mr. Spexarth’s termination date (or, if none, the grant date) through the termination date by 365. In addition, an NEO’s outstanding restricted stock and RSU awards will become 100% vested upon his or her death or the occurrence of a “change in control” (as defined in the MIP) (subject to the NEO’s continued employment immediately prior to such change in control).
2022 RSUs and PSUs
The RSUs and PSUs granted to Messrs. Moore, Spexarth, Delahoussaye, Ellis and Ms. Toups do not provide for any accelerated vesting in the event of a termination of the NEO’s employment. With respect to the RSUs granted to Mr. McGovern, in the event that Mr. McGovern’s employment is terminated by the Company without “cause” (excluding due to death or disability (as defined in the Executive Chairman Agreement)) or by Mr. McGovern for “good reason” (as defined in the Executive Chairman Agreement), subject to Mr. McGovern’s timely execution of a release of claims in favor of the Company and continued compliance with his restrictive covenants, the tranche of RSUs scheduled to vest on the next scheduled vesting date following the date of termination (i.e., one third (1/3rd)) will vest. In addition, Mr. McGovern’s RSU award will become 100% vested upon the occurrence of a change in control, subject to Mr. McGovern’s continued employment as of the date of such change in control.
With respect to the PSU award agreement entered into with Mr. Delahoussaye, in the event of a sale of Workstrings International (a “Workstrings Sale”), subject to Mr. Delahoussaye’s continued employment through the consummation of the Workstrings Sale, 100% of Mr. Delahoussaye’s PSUs and RSUs will vest notwithstanding the share price hurdles set forth in the PSU award agreement and, with respect to the PSU award agreement entered into with Ms. Toups, in the event of a sale of Specialized Rental and Services Division (a “SRSD Sale”), subject to Ms. Toups continued employment through the consummation of a SRSD Sale, 100% of the RSUs and PSUs will vest notwithstanding the share price hurdles set forth in the PSU award agreement. With respect to the PSU award agreement entered into with Mr. Ellis, in the event of a sale of Wild Well Control and International Snubbing Services (a “Wild Well Sale”), subject to Mr. Ellis’ continued employment through the consummation of a Wild Well Sale, 100% of the RSUs and PSUs will vest notwithstanding the share price hurdles set forth in the PSU award agreement.
The RSU awards granted to the NEOs (other than Mr. McGovern) do not automatically vest upon a change in control. The RSU awards granted to the NEOs (other than Mr. McGovern) will become 100% vested upon the occurrence of an “applicable corporate transaction” in which the threshold share price hurdle is achieved pursuant to the NEO’s PSU award agreement, or earlier in the event of a Workstrings Sale with respect to Mr. Delahoussaye’s RSUs, a SRSD Sale with respect to Ms. Toups’ RSUs, or a Wild Well Sale with respect to Mr. Ellis’ RSUs.
We do not provide excise tax gross ups under any employment agreement or equity award discussed above. Each of the employment agreements discussed above provides for a “best net” approach in the event that severance and other payments and benefits result in “excess parachute payments” under Internal Revenue Code Section 280G. Under a “best net” approach, the NEO’s payments and benefits will be reduced to avoid triggering excise tax if the reduction would result in a greater after-tax amount for the NEO compared to the amount he or she would receive net of the excise tax if no reduction were made.
Except as otherwise noted, the following table quantifies the potential payments to our NEOs under their employment arrangements and equity awards discussed above and the SERP and the NQDC Plan, as described above, for various scenarios involving a change in control or termination of employment of each of our NEOs in such position at the end of the year, assuming a December 31, 2022 termination date and where applicable, using the estimated fair market value as of December 31, 2022 of $56.22 per share of our Class B common stock. Given that a change in control would likely constitute an “applicable corporate transaction” (as defined in the PSU award agreement) and based on the fact that the estimated fair market value as of December 31, 2022 of $56.22 per share of our Class B common stock is greater than the threshold share price hurdle, we quantified in the table below 100% vesting of RSUs granted in 2022 to Messrs. Moore, Spexarth, Delahoussaye, Ellis and Ms. Toups, and 100% vesting of the PSUs granted in 2022 to Messrs. Moore, Spexarth, Delahoussaye, Ellis and Ms. Toups. Excluded are benefits provided to all employees, such as accrued vacation and benefits provided by third parties under our life and other insurance policies. Also excluded are benefits our NEOs would receive upon termination of employment under our 401(k) plan.
92
Name |
| Termination without Cause |
|
| Resignation for Good Reason |
|
| Termination without Cause / for Good Reason in Connection with a Change of |
|
| Change of Control Alone |
|
| Voluntary Termination |
|
| Death |
|
| Disability |
| |||||||
Michael Y. McGovern |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Severance Pay |
| $ | 406,849 |
|
| $ | 406,849 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
RSU Acceleration |
|
| 1,487,469 |
|
|
| 1,487,469 |
|
|
| 4,462,463 |
|
|
| 4,462,463 |
|
|
| - |
|
|
| - |
|
|
| - |
|
COBRA Payments |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total |
| $ | 1,894,318 |
|
| $ | 1,894,318 |
|
| $ | 4,462,463 |
|
| $ | 4,462,463 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
Brian K. Moore |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Severance Pay |
| $ | 3,000,000 |
|
| $ | 3,000,000 |
|
| $ | 3,000,000 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
Prorated Bonus (at target) |
|
| 750,000 |
|
|
| 750,000 |
|
|
| 750,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
SERP |
|
| 1,369,171 |
|
|
| 1,369,171 |
|
|
| 1,369,171 |
|
|
| - |
|
|
| 1,369,171 |
|
|
| 1,369,171 |
|
|
| 1,369,171 |
|
RSU Acceleration |
|
| - |
|
|
| - |
|
|
| 2,529,900 |
|
|
| 2,529,900 |
|
|
| - |
|
|
| - |
|
|
| - |
|
PSU Acceleration |
|
| - |
|
|
| - |
|
|
| 10,119,600 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
COBRA Payments |
|
| 24,343 |
|
|
| 24,343 |
|
|
| 24,343 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total |
| $ | 5,143,514 |
|
| $ | 5,143,514 |
|
| $ | 17,793,014 |
|
| $ | 2,529,900 |
|
| $ | 1,369,171 |
|
| $ | 1,369,171 |
|
| $ | 1,369,171 |
|
James W. Spexarth |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Severance Pay |
| $ | 1,445,000 |
|
| $ | 1,445,000 |
|
| $ | 1,445,000 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
Prorated Bonus (at target) |
|
| 297,500 |
|
|
| 297,500 |
|
|
| 297,500 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
SERP |
|
| 89,729 |
|
|
| 89,729 |
|
|
| 89,729 |
|
|
| - |
|
|
| 89,729 |
|
|
| 89,729 |
|
|
| 89,729 |
|
NQDC Plan |
|
| 491,426 |
|
|
| 491,426 |
|
|
| 491,426 |
|
|
| - |
|
|
| 491,426 |
|
|
| 491,426 |
|
|
| 491,426 |
|
Restricted Stock Acceleration |
|
| 110,304 |
|
|
| 110,304 |
|
|
| 293,918 |
|
|
| 293,918 |
|
|
| - |
|
|
| 293,918 |
|
|
| 110,304 |
|
RSU Acceleration |
|
| 702,019 |
|
|
| 702,019 |
|
|
| 1,290,193 |
|
|
| 1,290,193 |
|
|
| - |
|
|
| 711,127 |
|
|
| 702,019 |
|
PSU Acceleration |
|
| - |
|
|
| - |
|
|
| 2,316,208 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
COBRA Payments |
|
| 37,358 |
|
|
| 37,358 |
|
|
| 37,358 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total |
| $ | 3,173,336 |
|
| $ | 3,173,336 |
|
| $ | 6,261,332 |
|
| $ | 1,584,111 |
|
| $ | 581,155 |
|
| $ | 1,586,200 |
|
| $ | 1,393,478 |
|
Michael J. Delahoussaye |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Severance Pay |
| $ | 637,500 |
|
| $ | - |
|
| $ | 1,275,000 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
Prorated Bonus (at target) |
|
| 262,500 |
|
|
| - |
|
|
| 262,500 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
RSU Acceleration |
|
| 647,542 |
|
|
| 647,542 |
|
|
| 1,203,052 |
|
|
| 1,203,052 |
|
|
| - |
|
|
| 711,127 |
|
|
| 647,542 |
|
PSU Acceleration |
|
| - |
|
|
| - |
|
|
| 1,967,700 |
|
|
| 1,967,700 |
|
|
| - |
|
|
| - |
|
|
| - |
|
COBRA Payments |
|
| 18,679 |
|
|
| - |
|
|
| 37,358 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total |
| $ | 1,566,221 |
|
| $ | 647,542 |
|
| $ | 4,745,610 |
|
| $ | 3,170,752 |
|
| $ | - |
|
| $ | 711,127 |
|
| $ | 647,542 |
|
Bryan M. Ellis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Severance Pay |
| $ | 570,000 |
|
| $ | - |
|
| $ | 1,105,000 |
|
| $ | 1,105,000 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
Prorated Bonus (at target) |
|
| 227,500 |
|
|
| - |
|
|
| 227,500 |
|
|
| 227,500 |
|
|
| - |
|
|
| - |
|
|
| - |
|
RSU Acceleration |
|
| - |
|
|
| - |
|
|
| 496,985 |
|
|
| 496,985 |
|
|
| - |
|
|
| - |
|
|
| - |
|
PSU Acceleration |
|
| - |
|
|
| - |
|
|
| 1,987,939 |
|
|
| 1,987,939 |
|
|
| - |
|
|
| - |
|
|
| - |
|
COBRA Payments |
|
| 18,679 |
|
|
| - |
|
|
| 37,358 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total |
| $ | 816,179 |
|
| $ | - |
|
| $ | 3,854,782 |
|
| $ | 3,817,424 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
Deidre D. Toups |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Severance Pay |
| $ | 595,000 |
|
| $ | - |
|
| $ | 1,190,000 |
|
| $ | 1,190,000 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
Prorated Bonus (at target) |
|
| 245,000 |
|
|
| - |
|
|
| 245,000 |
|
|
| 245,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
SERP |
|
| 385,723 |
|
|
| 385,723 |
|
|
| 385,723 |
|
|
| - |
|
|
| 385,723 |
|
|
| 385,723 |
|
|
| 385,723 |
|
NQDC Plan |
|
| 1,277,117 |
|
|
| 1,277,117 |
|
|
| 1,277,117 |
|
|
| - |
|
|
| 1,277,117 |
|
|
| 1,277,117 |
|
|
| 1,277,117 |
|
RSU Acceleration |
|
| 702,019 |
|
|
| 702,019 |
|
|
| 1,160,888 |
|
|
| 1,160,887 |
|
|
| - |
|
|
| 711,127 |
|
|
| 702,019 |
|
PSU Acceleration |
|
| - |
|
|
| - |
|
|
| 1,799,040 |
|
|
| 1,799,040 |
|
|
| - |
|
|
| - |
|
|
| - |
|
COBRA Payments |
|
| 18,679 |
|
|
| - |
|
|
| 37,358 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total |
| $ | 3,223,538 |
|
| $ | 2,364,859 |
|
| $ | 6,095,126 |
|
| $ | 4,394,927 |
|
| $ | 1,662,840 |
|
| $ | 2,373,967 |
|
| $ | 2,364,859 |
|
93
CEO Pay Ratio
The following is a reasonable estimatetable below sets forth comparative information regarding the 2022 annual total compensation of Mr. Moore, who filled the pay ratioposition of our CEO beginning on January 20, 2022 and was CEO on the median employee identification date, and the 2022 annual total compensation of the median compensated employee compared to our CEO based on the “2020 Summary Compensation Table” data which includes salary, KERP and all other compensation:employee.
| |||
| |||
|
| ||
CEO Pay Ratio |
| |||
CEO 2022 Annual Total Compensation |
| $ | 12,668,131 |
|
Median Employee 2022 Annual Total Compensation |
|
| 44,722 |
|
Developments during 20202022 required a reexaminationreview of the analysis to determine the median employee for comparison to use indetermine the analysis. To summarize theCEO pay ratio. The methodology used in identifying the 2022 median compensated employee in 2020,was substantially similar to prior period reviews. As we did for 2021, for 2022, no international employees were excluded under the Former Parent5% de minimis exception. We consistently applied the compensation measure of total taxable compensation which included base salary, overtime, bonuses paid in 2022, long-term incentives granted in 2022 and anyall other typetypes of taxable compensation. In the analysis, all part-time and full-time U.S. and non-U.S. employees who were employed by the Former Parentus as of December 31, 20202022 were included. The Former Parent did not exclude any non-US employees under the de minimus exception allowed by the SEC.
Approximately 3,3002,198 part-time and full-time U.S. and non-U.S. employees (other than Mr. Moore but including Mr. McGovern), who were employed as of December 31, 20202022, were included. December 31, 2022 was selected as the date to identify our median compensated employee. Given that we have global operations and employees located in many locations, pay and reporting systems and pay practices vary depending on the region. As a result, assumptions, adjustments and estimates were consistently applied to identify the annual total taxable compensation of the median compensated employee. In addition, anomalies relatedInternational compensation was converted to compensation were excludedUSD for comparison purposes using conversion rates as allowed by the SEC.of December 31, 2020 was selected as the date to identify our median compensated employee.2022. Based on the methodology described above, the median compensated employee is an hourly administrationoperations employee who has worked for the Former Parentus for twenty-three years.approximately a year and a half.
In 2020,2022, the median compensated employee earned an annual total compensation of $55,510.$44,722. The CEO’s2022 annual total compensation for Mr. Moore was $3,959,739.$12,668,131. This amount equals Mr. Moore’s total compensation as reported in the Summary Compensation Table plus an additional amount that reflects the annualization of his increased base salary for 2022, consistent with the applicable guidance from the Securities and Exchange Commission. As a result, the pay ratio between theour CEO’s annual total annual compensation and the median compensated employee’s annual total annual compensation was 71.3:283:1 in 2020. The pay ratio between the CEO’s post-KERP pay and the median compensated employee’s pay was 50:1 in 2019.2022.
2020
Mr. Moore’s 2022 equity-compensation awards were intended to cover a multi-year period and neither Mr. Moore nor any other NEO is expected to receive equity-based compensation in 2023 or 2024. Also, Mr. Moore’s PSUs had a deemed value of $7,200,000 and, as further discussed in our CD&A, Mr. Moore’s PSUs will only vest upon achievement of certain share price hurdles in connection with the consummation certain specified transactions that occur prior to March 23, 2025 or such PSUs will terminate for no consideration.
2022 Director Compensation
In 2020, directors of the Former Parent maintained the 15% reduction of the annual retainer paid to non-management directors that was implemented in 2016 to show alignment with management. During 2020,2022, the non-management directors of the Former Parent received:
annual fee of $20,000 for the chair of the audit committee;Audit Committee;
annual fee of $15,000 foror the chair of the compensation committee;Compensation Committee;
an additional annual fee of $10,000 for the chair of the corporate governance committee;
an additional annual fee of $25,000 for the lead director; and
an additional annual fee of $125,000 for the non-executive chairman of the Board of Directors.
The table below summarizes the compensation for the year ended 2020 of the2022 for non-management directors (regardless of the Former Parent.when earned). All non-management directors were reimbursed for reasonable expenses incurred in attending the Former Parent’s board of directorsBoard and Board committee meetings.
Name |
| Fees Earned or |
|
| Stock |
|
| All Other |
|
| Total |
| ||||
Joseph Citarrella (1) |
| $ | 75,000 |
|
| $ | - |
|
| $ | - |
|
| $ | 75,000 |
|
Daniel E. Flores (2) |
|
| 75,000 |
|
|
| - |
|
|
| - |
|
|
| 75,000 |
|
Julie J. Robertson |
|
| 90,000 |
|
|
| - |
|
|
| - |
|
|
| 90,000 |
|
Krishna Shivram |
|
| 95,000 |
|
|
| - |
|
|
| - |
|
|
| 95,000 |
|
Timothy J. Winfrey |
|
| 75,000 |
|
|
| - |
|
|
| - |
|
|
| 75,000 |
|
Name | Fees Earned or Paid in Cash(1) | All Other Compensation | Total(2) |
James M. Funk | $282,000 | $0 | $282,000 |
Terence E. Hall | $382,000 | $0 | $382,000 |
Peter D. Kinnear | $257,000 | $0 | $257,000 |
Janiece M. Longoria | $267,000 | $0 | $267,000 |
Michael M. McShane | $277,000 | $0 | $277,000 |
W. Matt Ralls | $272,000 | $0 | $272,000 |
(1)Amounts shown reflect fees earned by the directors as retainers or fees for their service on the board of directors of the Former Parent during 2020.94
(2) Pursuant to the Plan, as of the Effective Date, all of these directors ceased to serve on the board of directors of the Former Parent.
There were no additional equity awards to directors in 2022 given the multi-year vesting schedule of the 2021 grants which were intended to compensate the directors for a three year period of service. Director compensation is structured to attract and retain experienced and qualified directors. The compensation reflects the time commitment of the role as well as the qualifications of the directors.
Directors and Officers (“D&O”) insurance insures our individual directors and officers against certain losses that they are legally required to bear as a result of their actions while performing duties on our behalf. Our D&O insurance policy does not break out the premium for directors versus officers and, therefore, a dollar amount cannot be assigned to the coverage provided for individual directors.
Item 12. Security Ownership of Certain Beneficial Owners and ManagementManagement and Related Stockholder Matters
Securities Authorized for Issuance Under Equity Compensation Plans
Plan Category |
| Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants and Rights |
|
| Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights |
|
| Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) |
| |||
Equity Compensation Plans Approved by Security Holders |
|
| - |
|
|
| - |
|
|
| - |
|
Equity Compensation Plans Not Approved by Security Holders |
|
| 551,747 |
|
|
| - |
|
|
| 1,448,122 |
|
Total |
|
| 551,747 |
|
|
| - |
|
|
| 1,448,122 |
|
AllShares were issued under our MIP, discussed above. The Compensation Committee designates participants in the plan, determines the types of cash and share based awards authorized by the plan to be issued to participants, and determines the terms of the Former Parent’s equity compensation plans for 2020 had been previously approved by stockholders. In 2020, there were no securities issuedindividual forms of awards granted under equity compensation plans that were not previously approved by stockholders. As a result of the Chapter 11 Cases, the value of outstanding vested and unvested shares from the 2020 equity compensation plan have a value of $0.00/share subsequentMIP, among other things. Pursuant to the Effective Date. Any future equity grants will be atMIP, the sole discretionCompensation Committee is authorized to grant awards with respect to an aggregate of the newly constituted Board1,999,869 shares of Directors.Class B Common Stock.
95
Principal Stockholders
The following table shows the number of shares of our Class A Common Stock beneficially owned by holders as of March 15, 20211, 2023 known by us to beneficially own more than 5% of the outstanding shares of our common stock as well as our directors and executive officers.
The information in the table is based on information provided to us by the entities listed below as well as our transfer agent. These stockholders acquired their shares of Class A Common Stock in connection with our emergence from bankruptcy discussed elsewhere in this Annual Report on Form 10-K.
We believe, based on information supplied by the stockholders, that except as may otherwise be indicated in the footnotes to the table below, the stockholders have sole voting and dispositive power with respect to the shares of Class A Common Stock reported as beneficially owned by them.
|
| Class A Common Stock |
|
| Class B Common Stock |
|
| Combined |
| |||||||||||||||
Name and Address of Beneficial Owner |
| Number |
|
| Percentage |
|
| Number |
|
| Percentage |
|
| Number |
|
| Percentage (3) |
| ||||||
GoldenTree Asset Management LP (1) |
|
| 9,194,513 |
|
|
| 46.0 | % |
|
| - |
|
|
| - |
|
|
| 9,194,513 |
|
|
| 45.6 | % |
Monarch Energy Holdings (SE) LLC (2) |
|
| 3,115,736 |
|
|
| 15.6 | % |
|
| - |
|
|
| - |
|
|
| 3,115,736 |
|
|
| 15.5 | % |
Glendon Capital Management, L.P. (3) |
|
| 1,804,808 |
|
|
| 9.0 | % |
|
| - |
|
|
| - |
|
|
| 1,804,808 |
|
|
| 9.0 | % |
Madison Avenue Partners, LP (4) |
|
| 1,235,568 |
|
|
| 6.2 | % |
|
| - |
|
|
| - |
|
|
| 1,235,568 |
|
|
| 6.1 | % |
Joseph Citarrella |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Daniel E. Flores |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Julie J. Robertson |
|
| - |
|
|
| - |
|
|
| 11,371 |
|
|
| 7.5 | % |
|
| 11,371 |
|
| * |
| |
Krishna Shivram |
|
| - |
|
|
| - |
|
|
| 11,078 |
|
|
| 7.3 | % |
|
| 11,078 |
|
| * |
| |
Timothy J. Winfrey |
|
| - |
|
|
| - |
|
|
| 14,673 |
|
|
| 9.7 | % |
|
| 14,673 |
|
| * |
| |
Michael Y. McGovern |
|
| - |
|
|
| - |
|
|
| 49,921 |
|
|
| 32.8 | % |
|
| 49,921 |
|
| * |
| |
Brian K. Moore |
|
|
|
|
|
|
|
| 11,313 |
|
|
| 7.4 | % |
|
| 11,313 |
|
| * |
| |||
James W. Spexarth |
|
| - |
|
|
| - |
|
|
| 19,926 |
|
|
| 13.1 | % |
|
| 19,926 |
|
| * |
| |
Michael J. Delahoussaye |
|
| - |
|
|
| - |
|
|
| 8,693 |
|
|
| 5.7 | % |
|
| 8,693 |
|
| * |
| |
Bryan M. Ellis |
|
|
|
|
|
|
|
| 2,132 |
|
|
| 1.4 | % |
|
| 2,132 |
|
| * |
| |||
Deidre D. Toups |
|
| - |
|
|
| - |
|
|
| 10,844 |
|
|
| 7.1 | % |
|
| 10,844 |
|
| * |
| |
All directors and named executive officers as a group |
|
| - |
|
|
| - |
|
|
| 139,951 |
|
|
| 92.1 | % |
|
| 139,951 |
|
|
| 0.7 | % |
Name and Address of Beneficial Owner | Amount and Nature of | Percent of Class A Common Stock(4) |
Glendon Capital Management, L.P.(1) 2425 Olympic Boulevard, Suite 500 E Santa Monica, California 90404 | 1,532,703 | 7.67% |
Goldentree Asset Management LP(2) 300 Park Avenue, 21st Floor New York, New York 10022 | 6,700,598 | 33.56% |
Monarch GP LLC(3) 535 Madison Avenue New York, New York 10022 | 2,951,553 | 14.78% |
(1)
(2) 6,700,5981,235,568 shares of Class A Common Stock held by certain funds and accountsan account managed or advised by Goldentree Asset ManagementMadison Avenue Partners LP. GoldenTree Asset Management LP has sole voting power and sole power of disposition with respect to 6,700,598 shares of Class A Common Stock.
(3) Includes 2,951,553 shares of Class A Common Stock held directly or indirectly by certain funds and accounts managed or advised by Monarch GP LLC. Monarch GP LLC has shared voting and shared dispositive power with respect to 2,951,553 shares of Class A Common Stock.
(4) 19,967,89819,998,695 shares of our Class A common stock and 152,030 shares of our Class B common stock outstanding as of March 15, 2021.1, 2023.
Upon our emergence from Chapter 11 bankruptcy, all existing equity was cancelled and we issued the Class A Common Stock. As a result, our directors and executive officers are not currently beneficial owners of any shares of our outstanding Class A Common Stock. The address of directors and officers is in care of Superior Energy Services, Inc., 1001 Louisiana Street, Suite 2900, Houston, Texas 77002.
Item 13. Certain RelationshipsRelationships and Related Transactions, and Director Independence
Certain Transactions
Our practice has been that any transaction which would require disclosure under Item 404(a) of Regulation S-K of the rules and regulations of the SEC, with respect to a director or executive officer, must be reviewed and approved by the Audit Committee.
On the EffectiveEmergence Date, in order to implement the governance related provisions reflected in the Plan, we entered into a Stockholders Agreement to provide for certain governance matters, which is further discussed in Item 10 in this Annual Report on Form 10-K.
96
Item 14. Principal AccountingAccounting Fees and Services
The following table presents fees for professional audit services rendered by KPMG LLPour Independent Registered Public Accounting Firm for the auditaudits of the Company’sour annual financial statements for 2020, 2019the years ended December 31, 2022, 2021 and 2018,2020, and fees billed for other services rendered byrendered. Our Independent Registered Public Accounting Firm for the years ended December 31, 2022 and 2021 was PricewaterhouseCoopers LLP (“PWC”) and for the year ended December 31, 2020 was KPMG LLP:LLP (“KPMG”). During the year ended December 31, 2021 and 2022, KPMG provided audit services related to the year ended December 31, 2020 due to the recasting of our prior period financial statements for the presentation of assets held for sale and discontinued operations.
Fiscal Year Ended December 31 | |||
2020 | 2019 | 2018 | |
Audit Fees(1) | $ 1,894,500 | $ 3,973,630 | $ 3,254,470 |
Audit-Related Fees(2) | $ 0 | $ 200,000 | $ 0 |
Tax Fees(3) | $ 7,979 | $ 25,827 | $ 122,161 |
All Other Fees | $ 0 | $ 0 | $ 0 |
|
| Fiscal Year Ended December 31 |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Audit Fees (1) |
| $ | 2,700 |
|
| $ | 3,100 |
|
| $ | 1,895 |
|
Audit-Related Fees (2) |
|
| 3 |
|
|
| 3 |
|
|
| - |
|
Tax Fees (3) |
|
| 241 |
|
|
| 29 |
|
|
| 8 |
|
All Other Fees |
|
| - |
|
|
| - |
|
|
| - |
|
(2)Audit fees for professional servicesthe years ended December 31, 2020 also include fees for the audit of internal controls over financial reporting.
services.
Pre-Approval Process
97
Prior to emergence from the Chapter 11 Cases, the audit committee of the Former Parent was required to pre-approve all audit and permissible non-audit services provided by the independent auditor and followed established approval procedures to ensure that the independent auditor’s independence would not be impaired. If services required specific pre-approval, the Chief Accounting Officer (CAO) submitted requests along with a joint statement from the independent auditor as to whether, in the CAO’s view, the request for services was consistent with the SEC’s rules on auditor independence.
The audit committee of the Former Parent delegated pre-approval authority for audit, audit-related, tax services and other services that may be performed by the independent auditor in the pre-approval policy to its chair and any pre-approval decisions were presented to the audit committee at its next scheduled meeting. The audit committee did not delegate to management its responsibility to pre-approve services to be performed by our independent auditor for the year ended December 31, 2020. All audit and tax fees described above were approved by the audit committee in 2020 before services were rendered.
Following emergence from the Chapter 11 cases, the Audit Committee is required to pre-approve all audit and permissible non-audit services provided by the independent auditor. The Audit Committee has not yet determined whether and to what extent to delegate pre-approval authority for audit, audit related, tax and other services that may be performed by the independent auditor.
PART IV
Item 15. Exhibits, Financial Statement Schedules
Financial Statements and Financial Statement Schedules
The following documents have been included in Part II, Item 8 of this Annual Report on Form 10-K:
Consolidated Financial Statements and Notes | Page |
Reports of Independent Registered Public Accounting Firm (PCAOB ID 238) | |
Report of Independent Registered Public Accounting Firm (PCAOB ID 185) | 41 |
42 | |
43 | |
44 | |
Consolidated Statements of Changes in Stockholders' Equity (Deficit) | 45 |
46 | |
47 |
All other schedules have been omitted because they are inapplicable or not required or the information is included elsewhere in the consolidated financial statements or notes thereto.
Exhibits
Exhibit No. | Description |
4.2 | Indenture, dated December 6, 2011, among SESI, L.L.C., the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated herein by reference to Exhibit 4.1 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed on December 12, 2011 (File No. 001-34037)), as amended by Supplemental Indenture, dated February 29, 2012, by and among SESI, L.L.C., the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.3 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed on March 1, 2012 (File No. 001-34037)), as further amended by Supplemental Indenture dated May 7, 2012, by and among SESI, L.L.C. the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.3 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed on May 8, 2012 (File No. 001-34037)), as further amended by Supplemental Indenture dated August 29, 2014, by and among SESI, L.L.C., the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed on September 2, 2014 (File No. 001-34037)), as further amended by Supplemental Indenture dated August 3, 2015, by and among SESI, L.L.C., the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Superior Energy Services, Inc.’s Quarterly Report on Form 10-Q |
98
Supplemental Indenture, dated as of October 20, 2017, by and among SESI L.L.C., the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed on October 23, 2017 (File No. 001-34037)) as further supplemented by Supplemental Indenture, dated as of February 14, 2020 by and among SESI, L.L.C., the guarantors party thereto and the Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed on February 14, 2020 (File No. 001-34037)). | |
4.3 | Indenture, dated August 17, 2017, among SESI L.L.C., the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed on August 17, 2017 (File No. 001-34037)), as further amended by Supplemental Indenture, dated as of October 20, 2017, by and among SESI L.L.C., the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.2 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed on October 23, 2017 (File No. 001-34037)). |
99
10.28 | |
10.29 | |
10.30 | |
10.31 |
100
10.32 | |
10.33 | |
10.34 | |
10.35 | |
10.36 | |
10.37 | |
10.38 | |
10.39^ | |
10.40^ | |
10.41^ | |
10.42^ | |
10.43^ | |
10.44^ | |
10.45^ | |
10.46^ | |
10.47^ | |
10.48^ | |
10.49^ | |
10.50^ | |
10.51^ |
101
10.52^ | |
10.53^ | |
10.54^ | |
10.55^ | |
10.56^ | |
10.57^ | |
14.1 | |
16.1 | |
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| Officer’s certification pursuant to Section 1350 of Title 18 of the U.S. Code. |
| Officer’s certification pursuant to Section 1350 of Title 18 of the U.S. |
101.INS* | Inline XBRL Instance Document |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document |
104* | |
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* Filed herein
^ Management contract or compensatory plan or arrangement
Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SUPERIOR ENERGY SERVICES, INC. | |||
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Date: March |
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By: | /s/ | ||
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature | Title | Date |
s/ Brian K. Moore | President and Chief Executive Officer | March ___, 2023 |
Brian K. Moore | (Principal Executive Officer) | |
/s/ James W. Spexarth. James W. Spexarth | Executive Vice President, Chief Financial Officer & Treasurer (Principal Accounting and Financial Officer) | March ___, 2023 |
/s/ Michael Y. McGovern | Executive Chairman of the Board | March |
Michael Y. McGovern |
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/s/ Joseph Citarrella | Director | March |
Joseph Citarrella | ||
/s/ Daniel E. Flores | Director | March |
Daniel E. Flores | ||
/s/ Julie J. Robertson | Director | March |
Julie J. Robertson | ||
/s/ Krishna Shivram | Director | March |
Krishna Shivram | ||
/s/ Timothy J. Winfrey | Director | March |
Timothy J. Winfrey |
103
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
As of the date of filing of this Annual Report on Form 10-K, no annual report to security holders covering the registrant’s last fiscal year, proxy statement, form of proxy or other proxy soliciting material sent to more than 10 of the registrant’s security holders with respect to any annual or other meeting of security holders has been sent to security holders.
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Schedule II Valuation and Qualifying Accounts
Years Ended December 31, 2020, 2019 and 2018
(in thousands)
Balance at the | Charged to | ||||||||||||
beginning of | costs and | Balance at the | |||||||||||
Description | the year | expenses | Deductions | end of the year | |||||||||
2020 | |||||||||||||
Allowance for doubtful accounts | $ | 12,156 | $ | 14,587 | $ | 2,114 | $ | 24,629 | |||||
2019 | |||||||||||||
Allowance for doubtful accounts | $ | 12,080 | $ | 3,006 | $ | 2,930 | $ | 12,156 | |||||
2018 | |||||||||||||
Allowance for doubtful accounts | $ | 29,037 | $ | 3,569 | $ | 20,526 | $ | 12,080 | |||||