PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Business
Pioneer Energy Services Corp. (formerly called “Pioneer Drilling Company”) provides land-based drilling services and production services to a diverse group of independent and large oil and gas exploration and production companies in the United States and internationally in Colombia. We also provide two of our services (coiled tubing and wireline services) offshore in the Gulf of Mexico.
Our Drilling Services Segment providesdrilling services business segments provide contract land drilling services through our four3 domestic divisions which are located in the Marcellus/Utica, Permian Basin and Eagle Ford, Permian Basin and Bakken regions, and internationally in Colombia. In addition to our drilling rigs, weWe provide a comprehensive service offering which includes the drilling rig, crews, supplies, and most of the ancillary equipment needed to operate our drilling rigs. Our drilling rig fleet is 100% pad-capable and consists ofoffers the following:latest advancements in pad drilling. The following table summarizes our current rig fleet count and composition for each drilling services business segment:
| Multi-well, Pad-capable | |||||
| AC rigs | SCR rigs | Total | |||
| U.S. rigs | 16 | — | 16 | ||
| Colombia rigs | — | 8 | 8 | ||
| 24 | |||||
| Multi-well, Pad-capable | |||||||||||||||||
| AC rigs | SCR rigs | Total | |||||||||||||||
| Domestic drilling | 17 | 0 | 17 | ||||||||||||||
| International drilling | 0 | 8 | 8 | ||||||||||||||
| 25 | |||||||||||||||||
Our Production Services Segment providesproduction services business segments provide a range of services to a diverse group of explorationproducers primarily in Texas, North Dakota and production companies, with our operations concentrated in the major United States onshore oil and gas producing regions in the Mid-Continent and Rocky Mountain states and in the Gulf Coast, both onshore and offshore.region. As of SeptemberJune 30, 2017,2021, the fleet counts for each of our production services fleets are as follows:
| 550 HP | 600 HP | Total | ||||
| Well servicing rigs, by horsepower (HP) rating | 113 | 12 | 125 | |||
| Onshore | Offshore | Total | ||||
| Wireline units | 111 | 6 | 117 | |||
| Coiled tubing units | 10 | 4 | 14 | |||
| 550 HP | 600 HP | Total | |||||||||||||||
| Well servicing rigs, by horsepower (HP) rating | 111 | 12 | 123 | ||||||||||||||
| Wireline services units | 72 | ||||||||||||||||
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Deferred revenues | $ | 562 | $ | 597 | $ | 1,859 | $ | 1,177 | |||||||
| Deferred costs | 1,311 | 795 | 3,997 | 1,947 | |||||||||||
| September 30, 2017 | December 31, 2016 | ||||||
| Current: | |||||||
| Deferred revenues | $ | 783 | $ | 1,449 | |||
| Deferred costs | 1,360 | 2,290 | |||||
| Long-term: | |||||||
| Deferred revenues | $ | 391 | $ | 202 | |||
| Deferred costs | 162 | 212 | |||||
| September 30, 2017 | December 31, 2016 | ||||||
| Daywork drilling contracts in progress | $ | 13,391 | $ | 7,042 | |||
| Production services | 877 | 375 | |||||
| $ | 14,268 | $ | 7,417 | ||||
On July 5, 2021, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Patterson-UTI Energy, Inc., a Delaware corporation (“Patterson”), Crescent Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Patterson (“Merger Sub Inc.”), and Crescent Ranch Second Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of Patterson (“Merger Sub LLC”), pursuant to which, upon the prior years have been reclassified to conformterms and subject to the current year’s presentation.conditions set forth therein, (i) Merger Sub Inc. will merge with and into Pioneer Energy Services Corp. (“Pioneer”), with Pioneer continuing as the surviving entity (the “Surviving Corporation”) (the “First Company Merger”) and (ii) immediately following the First Company Merger, the Surviving Corporation will merge with and into Merger Sub LLC, with Merger Sub LLC continuing as the surviving entity (the “Surviving Company”) (the “Second Company Merger” and, together with the First Company Merger, the “Mergers”), which is described in more detail in Note 2, Subsequent Events.
Basis of Presentation
— The accompanying unaudited condensed consolidated financial statements include the accounts of Pioneer Energy Services Corp. and our wholly ownedwholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of our management, all adjustments (consisting of normal, recurring accruals) necessary for a fair presentation have been included. We suggest that you read these unaudited condensed consolidated financial statements together with the consolidated financial statements and the related notes included in our annual report on Form 10-K for the year ended December 31, 2016.2020.
As described in Note 2, Emergence from Voluntary Reorganization under Chapter 11, and Note 3, Fresh Start Accounting, to our consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2020, on March 1, 2020 (the “Petition Date”), Pioneer and certain of our domestic subsidiaries (collectively, the “Debtors”) filed
9
voluntary petitions (the “Bankruptcy Petitions”) for reorganization under title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). On May 11, 2020, the Bankruptcy Court confirmed the plan of reorganization (the “Plan”) that was filed with the Bankruptcy Court on March 2, 2020, and on May 29, 2020 (the “Effective Date”), the conditions to effectiveness of the plan were satisfied and we emerged from Chapter 11. Upon our emergence from Chapter 11, we adopted fresh start accounting in accordance with Accounting Standards Codification (ASC) Topic 852 and became a new entity for financial reporting purposes. As a result, the condensed consolidated financial statements after the Effective Date are not comparable with the consolidated financial statements on or before that date as indicated by the “black line” division in the financial statements and footnote tables, which emphasizes the lack of comparability between amounts presented. References to “Successor” relate to our financial position and results of operations after the Effective Date. References to “Predecessor” refer to our financial position and results of operations on or before the Effective Date.
Use of Estimates — In preparing the accompanying unaudited condensed consolidated financial statements, we make various estimates and assumptions that affect the amounts of assets and liabilities we report as of the dates of the balance sheets and income and expenses we report for the periods shown in the income statements and statements of cash flows. Our actual results could differ significantly from those estimates. Material estimates affecting our financial results, including those that are particularly susceptible to significant changes in the near term, relate to our estimateestimates of the allowance for doubtful accounts, our determination of depreciationcertain variable revenues and amortization expenses,periods of certain deferred revenues and costs associated with drilling daywork contracts, our estimates of projected cash flows and fair values for impairment evaluations, our estimate of the valuation allowance for deferred tax assets, and our estimate of the liability relating to the self-insurance portion of our health and workers’ compensation insurance.
Recently Issued Accounting Standards
Changes to accounting principles generally accepted in the United States of America (“U.S. GAAP”) are established by the Financial Accounting Standards Board (FASB) in the form of Accounting Standards Updates (ASUs) to the FASB ASC. We consider the applicability and impact of all ASUs. Additionally, because we have securities registered under the Securities and Exchange Act of 1934, we consider the applicability and impact of releases issued by the Securities & Exchange Commission (the “SEC”). Other than those listed below, we have determined that there are currently no new or recently adopted ASUs or SEC releases which we believe will have a material impact on our consolidated financial position and results of operations.
•Convertible Instruments and Contracts in an Entity’s Own Equity. In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments and preferred stock. Additionally, this ASU improves the consistency of EPS calculations by requiring entities to apply one method, the if-converted method, to all convertible instruments in diluted earnings-per-share calculations. This ASU will be effective for us on January 1, 2022, however, early adoption is permitted on January 1, 2021. We are currently evaluating the effect that the ASU will have on our consolidated financial statements.
•Simplifying the Accounting for Income Taxes. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting and disclosure requirements for income taxes by, among other changes, removing certain exceptions and by clarifying certain aspects of the current accounting guidance. We adopted this ASU on January 1, 2021, and it did not have a material impact on our condensed consolidated financial statements.
Additional Detail of Account Balances
Restricted Cash — Our restricted cash balance primarily reflects the portion of net proceeds from the issuance of our senior secured term loan held in a restricted account until the completion of certain administrative tasks related to providing access rights to certain of our real property, a condition which is still in effect under the terms of our post-emergence debt instruments, as well as $0.3 million and $0.2 million of proceeds from asset sales received at June 30, 2021 and December 31, 2020, respectively, which were used to fund the redemption of Senior Secured Notes tendered in January and July 2021, respectively, as further described in Note 6, Debt.
Other Receivables — Our other receivables primarily consist of recoverable taxes related to our international operations, and, for December 31, 2020, refundable payroll tax credit receivables associated with the CARES Act.
10
Prepaid Expenses and Other Current Assets —Prepaid expenses and other current assets include items such as insurance, rent deposits, software subscriptions, and other fees. We routinely expense these items in the normal course of business over the periods that we benefit from these expenses. Prepaid expenses and other current assets also include deferred mobilization costs for short-term drilling contracts and demobilization revenues recognized on drilling contracts expiring in the near term.
Other Noncurrent Assets— Other noncurrent assets primarily consist of prepaid taxes in Colombia which are creditable against future income taxes, but also includes the noncurrent portion of prepaid insurance premiums, unamortized debt issuance costs associated with our ABL Credit Facility, deferred mobilization costs on long-term drilling contracts, cash deposits related to the deductibles on our workers’ compensation insurance policies, and deferred compensation plan investments.
Other Accrued Expenses — Our other accrued expenses include accruals for items such as sales taxes, property taxes and withholding tax liabilities related to our international operations and accruals for professional fees. We routinely expense these items in the normal course of business over the periods these expenses benefit. Our other accrued expenses also includes the current portion of the lease liability associated with our long-term operating leases.
Other Noncurrent Liabilities — Our other noncurrent liabilities primarily relate to the noncurrent portion of payroll taxes deferred in connection with the CARES Act, as well as the noncurrent portion of deferred mobilization revenues.
2. Subsequent Events
Merger Agreement with Patterson-UTI
On July 5, 2021, Pioneer entered into the Merger Agreement with Patterson, and Patterson’s wholly owned subsidiaries, Merger Sub Inc., and Merger Sub LLC, pursuant to which, upon the terms and subject to the conditions set forth therein, Merger Sub Inc. will merge with and into Pioneer, with Pioneer continuing as the surviving entity, which will then merge with and into Merger Sub LLC, which will continue as the surviving entity. Upon consummation of the merger transactions, Pioneer will be a wholly owned subsidiary of Patterson and will no longer be a registrant under the rules of the SEC.
Under the terms of the Merger Agreement and as more fully described below, Pioneer will receive from Patterson aggregate consideration of up to 26,275,000 shares of common stock, par value $0.01 per share, of Patterson (“Patterson common stock”) and $30 million of cash. As more fully described in the Merger Agreement, all of Pioneer’s debt is being retired in connection with the Mergers with a portion of such shares and cash with Pioneer’s cash on hand determined in accordance with the Merger Agreement prior to closing (the “Company Cash”).
Pursuant to the Merger Agreement and subject to certain exceptions, holders of Common stock and holders of Convertible Notes will be issued shares of Patterson common stock according to an exchange ratio (the “Exchange Ratio”) to be determined at the closing of the Mergers and the other transactions contemplated by the Merger Agreement (collectively, the “Transactions”). The Exchange Ratio will equal the quotient obtained by dividing (i) 26,275,000 (subject to a downward adjustment as specified in the Merger Agreement if the average of the volume weighted average prices of the Patterson common stock during the 10 consecutive trading days ending with the last complete trading day prior to the closing date (“Patterson VWAP”) is greater than $11.00) less the shares of Patterson common stock to be delivered to the holders of the Senior Secured Floating Rate Notes due 2025 of Pioneer (the “Senior Notes”) as described below, by (ii) the aggregate number of shares of Common stock issued and outstanding immediately prior to the effective time of the First Company Merger (the “Effective Time”) plus the number of shares of Common stock into which the Convertible Notes are convertible immediately prior to the Effective Time. The shares of common stock to be delivered to holders of common stock and Convertible Notes in the Transactions are referred to as the “Merger Consideration.”
Pursuant to the Merger Agreement, immediately prior to the Effective Time, subject to certain exceptions, each share of Common stock issued and outstanding will be converted into the right to receive a number of shares of Patterson common stock equal to the Exchange Ratio. Each share of Common stock held in treasury by Pioneer or owned directly or indirectly by Patterson or Merger Sub Inc. will be automatically cancelled and will cease to exist, and no consideration will be issued therefor. Additionally, the Convertible Notes will convert into shares of Common stock in accordance with their terms in connection with the closing of the Transactions and the holders will receive shares of Patterson common stock on the same basis as if such notes had been converted pursuant to physical settlement prior to the closing of the Transactions. Additionally, each award of restricted common stock granted under Pioneer’s 2020 Employee Incentive Plan that is outstanding immediately prior to the merger transactions will become fully vested and treated as shares of Common stock.
11
In connection with the closing under the Merger Agreement, the Senior Notes will be redeemed at a redemption price equal to 103% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to, but excluding, the closing date. In accordance with the Merger Agreement and the Third Supplemental Indenture to that certain Indenture, dated as of May 29, 2020, between the Company and Wilmington Trust, National Association, as trustee and security agent, as amended and supplemented by that certain First Supplemental Indenture, dated as of March 3, 2021, as further amended and supplemented by that certain Second Supplemental Indenture, dated as of May 11, 2021 (the “Indenture”), to be entered into in connection with the Transactions (the “Third Supplemental Indenture”), the redemption price will be paid in a combination of cash and shares of Patterson common stock, which will reduce the number of shares to be delivered to holders of Common stock and Convertible Notes. The amount of cash to be paid upon such redemption will not exceed an amount equal to $30 million plus Company Cash less the expenses to be paid by Pioneer in connection with the Transactions (the “Company Expenses”) less amounts required to repay in full and retire any indebtedness outstanding under the ABL Credit Facility (and such payoff amount the “Company ABL Payoff Amount”) and less the amount of accrued interest on the Convertible Notes (“Accrued Interest”). The number of shares of Patterson common stock to be delivered in such redemption will equal (i) the redemption price (including accrued interest) less $30 million less Company Cash, plus the Company Expenses, plus the Company ABL Payoff Amount and plus the Accrued Interest, divided by (ii) the product of (x) the average of the Patterson VWAP for the three consecutive trading days ending on the second trading day immediately preceding the closing date and (y) 0.8575.
Each of Pioneer and Patterson makes representations and warranties in the Merger Agreement and is subject to interim operating covenants relating to the conduct of its respective business during the interim period between the execution of the Merger Agreement and the closing of the Transactions. The parties are required to use their reasonable best efforts to cause the Transactions to be consummated as promptly as reasonably practicable and to obtain any required regulatory approvals, subject to certain exceptions.
The closing of the Transactions is subject to the satisfaction or waiver of certain closing conditions, including, among others, (i) the approval of the holders of at least sixty percent of the total voting power of all outstanding securities of Pioneer generally entitled to vote at a meeting of Pioneer’s stockholders (including the Convertible Notes) (the “Pioneer Stockholder Approval”) pursuant to the terms of the Merger Agreement, (ii) the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act shall have expired or been terminated, (iii) there being no law, injunction or order by a governmental body prohibiting the consummation of the Mergers, (iv) the approval for listing of the Patterson common stock to be issued in connection with the First Company Merger on the NASDAQ, (v) the registration statement on Form S-4, to be filed with the SEC by Patterson, having been declared effective by the SEC, (vi) subject to specified materiality standards, the accuracy of the representations and warranties of the other party, (vii) compliance by each other party in all material respects with their respective covenants, (viii) the absence of a Company Material Adverse Effect or a Parent Material Adverse Effect (each as defined in the Merger Agreement), as applicable, (ix) execution and delivery of the Third Supplemental Indenture, and (x) the requirement that not more than 6% of the shares of Common stock outstanding immediately prior to the Mergers have validly exercised appraisal rights pursuant to Delaware law.
The Merger Agreement contains termination rights for each of the Company and Patterson, including, among others, a termination right for each party if the consummation of the Mergers does not occur on or before January 3, 2022 (the “Outside Date”), subject to certain exceptions; provided that the right to terminate the Merger Agreement for failure to consummate the Mergers by the Outside Date will not be available to any party to the Merger Agreement whose failure to fulfill in any material respect any of its obligations under the Merger Agreement is the primary cause of, or the primary factor that resulted in, the failure of the Mergers being consummated by such Outside Date. Additionally, either party may terminate the Merger Agreement if (i) any court of competent jurisdiction or governmental entity takes action that prohibits the Transactions, (ii) if the Pioneer Stockholder Approval is not obtained or (iii) if the other party breaches the Merger Agreement and cannot cure such breach within the applicable time period. Additionally, Pioneer may elect to terminate the Merger Agreement to accept a Superior Proposal (as defined in the Merger Agreement) or if the Patterson VWAP drops below $5.60 for the 10 consecutive trading days prior to the closing of the Transactions. Patterson may elect to terminate the Merger Agreement if the Pioneer board changes its recommendation to approve the Merger Agreement. Moreover, pursuant to the Merger Agreement, Pioneer is subject to customary limitations prohibiting any solicitations or negotiations of alternative proposals between the execution of the Merger Agreement and the closings of the Transactions.
As more fully described in the Merger Agreement, in the event that the Merger Agreement is terminated (i) by Pioneer to accept a Superior Proposal prior to obtaining the Pioneer Stockholder Approval or (ii) by Patterson due to the Pioneer board’s change of recommendation with respect to the Transactions, then Pioneer will be obligated to pay to Patterson a break-up fee of $9.5 million (the “Break-Up Fee”) pursuant to the terms of the Merger Agreement. Pioneer will also be obligated to pay the Break-Up Fee if (i) an acquisition proposal of Pioneer is made by a third party, (ii) Pioneer or Patterson then terminates
12
the Merger Agreement for failure to consummate the Mergers by the Outside Date or for failure to obtain the Pioneer Stockholder Approval, or if Patterson terminates the Merger Agreement due to Pioneer’s breach thereof and failure to cure such breach within the specified time, and (iii) within 12 months thereafter Pioneer enters into an alternative transaction.
In connection with the Merger Agreement, certain holders of Common stock and Convertible Notes holding approximately 88% of the voting power of Pioneer and 100% of the Senior Notes (collectively, the “Supporting Holders”) have entered into voting and support agreements with Patterson pursuant to which, among other things, the Supporting Holders have agreed, subject to certain limitations and exceptions, not to transfer any of their Common stock or Convertible Notes (collectively, the “Covered Securities”) until the earlier of the date the Merger Agreement is terminated by the Effective Time, to vote such Covered Securities in a manner to facilitate the consummation of the Mergers and to consent to and approve the Third Supplemental Indenture.
3. Revenue from Contracts with Customers
Our production services business segments earn revenues for well servicing and wireline services pursuant to master services agreements based on purchase orders or other contractual arrangements with the client. Production services jobs are generally short-term (ranging in duration from several hours to less than 30 days) and are charged at current market rates for the labor, equipment and materials necessary to complete the job. Production services jobs are varied in nature but typically represent a single performance obligation, either for a particular job, a series of distinct jobs, or a period of time during which we stand ready to provide services as our client needs them. Revenue is recognized for these services over time, as the services are performed.
Our drilling services business segments earn revenues by drilling oil and gas wells for our clients under daywork contracts. Daywork contracts are comprehensive agreements under which we provide a comprehensive service offering, including the drilling rig, crew, supplies, and most of the ancillary equipment necessary to operate the rig. Contract modifications that extend the term of a dayrate contract are generally accounted for prospectively as a separate dayrate contract. We account for our services provided under daywork contracts as a single performance obligation comprised of a series of distinct time increments which are satisfied over time. Accordingly, dayrate revenues are recognized in the period during which the services are performed.
With most drilling contracts, we also receive payments contractually designated for the mobilization and demobilization of drilling rigs and other equipment to and from the client’s drill site. Revenues associated with the mobilization and demobilization of our drilling rigs to and from the client’s drill site do not relate to a distinct good or service and are recognized ratably over the related contract term.
The amount of demobilization revenue that we ultimately collect is dependent upon the specific contractual terms, most of which include provisions for reduced (or no) payment for demobilization when, among other things, the contract is renewed or extended with the same client, or when the rig is subsequently contracted with another client prior to the termination of the current contract. Since revenues associated with demobilization activity are typically variable, at each period end, they are estimated at the most likely amount, and constrained when the likelihood of a significant reversal is probable. Any change in the expected amount of demobilization revenue is accounted for with the net cumulative impact of the change in estimate recognized in the period during which the revenue estimate is revised.
The upfront costs that we incur to mobilize the drilling rig to our client’s initial drilling site are capitalized and recognized ratably over the term of the related contract, including any contracted renewal or extension periods, which is our estimate of compensationthe period during which we expect to benefit from the cost of mobilizing the rig. Costs associated with the final demobilization at the end of the contract term are expensed when incurred, when the demobilization activity is performed.
From time to time, we may receive fees from our clients for capital improvements to our rigs to meet our client’s requirements. Such revenues are not considered to be distinct within the terms of the contract and are therefore allocated to the overall performance obligation, satisfied over the term of the contract. We record deferred revenue for such payments and recognize them ratably as revenue over the initial term of the related accrualsdrilling contract.
Contract Asset and Liability Balances and Contract Cost Assets
Contract asset and contract liability balances relate to demobilization and mobilization revenues, respectively. Demobilization revenue that we expect to receive is recognized ratably over the related contract term, but invoiced upon completion of the demobilization activity. Mobilization revenue, which is typically collected upon the completion of the initial mobilization activity, is deferred and recognized ratably over the related contract term. Contract asset and liability balances are netted at
13
the contract level, with the net current and noncurrent portions separately classified in our estimate of sales tax audit liability.
Contract cost assets represent the costs associated with the initial mobilization required in order to fulfill the contract, which are deferred and recognized ratably over the period during which we have reviewed events that have occurred after Septemberexpect to benefit from the mobilization, or the period during which we expect to satisfy the performance obligations of the related contract. Contract cost assets are presented as either current or noncurrent, according to the duration of the original contract to which it relates, and referred to herein as “deferred costs.”
Our current and noncurrent deferred revenues, contract assets and deferred costs as of June 30, 2017, through the filing of this Form 10-Q, for inclusion2021 and December 31, 2020 were as necessary.follows (amounts in thousands):
| Successor | |||||||||||
| June 30, 2021 | December 31, 2020 | ||||||||||
| Current deferred revenues | $ | 955 | $ | 1,019 | |||||||
| Current deferred costs | 410 | 361 | |||||||||
| Current contract assets | 0 | 300 | |||||||||
| Noncurrent deferred costs | 204 | 194 | |||||||||
| Successor | Predecessor | |||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2021 | One Month Ended June 30, 2020 | Five Months Ended May 31, 2020 | ||||||||||||||||||||||||||||||||||||
| Amortization of deferred revenues | $ | 889 | $ | 46 | $ | 2,705 | ||||||||||||||||||||||||||||||||
| Amortization of deferred costs | 541 | 39 | 1,876 | |||||||||||||||||||||||||||||||||||
As of June 30, 2021, 15 of our wireline fleet, upgrades to certain25 rigs are earning under daywork contracts, of which 9 are under domestic drillingterm contracts, and 4 additional rigs routine capital expenditures necessary to deploy rigs that were previously idle in Colombia,are contracted but pending operations.
4. Property and other new drilling equipment. Capital expenditures during 2016 consisted primarily of routine capital expenditures to maintain our drilling and production services fleets.Equipment
Assets Held for Sale—As In April 2020, we closed our coiled tubing services business and placed all of Septemberour coiled tubing services assets as held for sale at June 30, 2017,2020, which represents $1.3 million of our condensed consolidated balance sheet reflectstotal assets held for sale at June 30, 2021. We have various other equipment designated as held for sale which is carried at fair value. When the net carrying value of $8.8 million, which primarily represents thean asset designated as held for sale exceeds its estimated fair value, of three domestic SCR drilling rigs and one domestic mechanical drilling rig, as well as other drilling equipment and two coiled tubing units. During the nine months ended September 30, 2017,which we recognized impairment charges of $0.8 million to adjust the carrying values of certain of these assets to their estimated fair values,estimate based on expected sales prices, which are classified as Level 3 inputs as defined by Accounting Standards Codification (ASC)ASC Topic 820, Fair Value Measurements and Disclosures., we recognize the difference as an impairment charge.
In performing an impairment evaluation, we estimate the future undiscounted net cash flows from the use and eventual disposition of the assets grouped at the lowest level that independent cash flows can be identified. For our Production Services Segment, weWe perform an impairment evaluation and estimate future undiscounted cash flows for the individual reporting units (well servicing, wireline and coiled tubing). Foreach of our Drilling Services Segment, we perform an impairment evaluation and estimate future undiscounted cash flows for individualasset groups separately, which are our domestic drilling rig assetsservices, international drilling services, well servicing and wireline services segments, and, prior to being placed as held for sale, our Colombian drilling rig assets as a group. coiled tubing services segment. If the sum of the estimated future undiscounted net cash flows is less than the carrying amount of the asset group, then we determine the fair value of the asset group. Thegroup, and the amount of an impairment charge iswould be measured as the difference between the carrying amount and the fair value of the assets.
Due to continued performance at levels lower than anticipatedthe significant decline in industry conditions, commodity prices, and a decline inprojected utilization of equipment, as well as the COVID-19 pandemic’s impact on our industry, our projected cash flows fordeclined during the coiled tubing reporting unit,first quarter of 2020, and we performed anrecoverability testing on all our reporting units. As a result of this analysis, we incurred impairment evaluationcharges of
14
$16.4 million to reduce the carrying values of our coiled tubing business asassets to their estimated fair values during the three months ended March 31, 2020. For all our other reporting units, excluding coiled tubing, we determined that the sum of June 30, 2017the estimated future undiscounted net cash flows were in excess of the carrying amounts and that no impairment existed for these reporting units at March 31, 2020. We continue to monitor potential indicators of impairment and concluded that nonone of our reporting units are currently at risk of impairment was present.at June 30, 2021.
The assumptions we use in the evaluation for impairment are inherently uncertain and require management judgment. Although we believe the assumptions and estimates used in our impairment analysis are reasonable, different assumptions and estimates could materially impact the analysis and resulting conclusions. The most significant inputs used in our impairment analysis include the projected utilization and pricing of our services, as well as the estimated proceeds upon any future sale or disposal of the assets, all of which are classified as Level 3 inputs as defined by ASC Topic 820, Fair Value Measurements and Disclosures. If commodity prices decrease or remain at current levels for an extended period of time, or if the demand for any of our assets become or remain idle for an extended amount of time, thenservices decreases below what we are currently projecting, our estimated cash flows may further decrease and thereforeour estimates of the probabilityfair value of a near term salecertain assets may increase.decrease as well. If any of the foregoing were to occur, we maycould incur additional impairment charges. The assumptions usedcharges on the related assets.
5. Leases
As a drilling and production services provider, we provide the drilling rigs and production services equipment which are necessary to fulfill our performance obligations and which are considered leases under ASU No. 2016-02, Leases, (together with its amendments, herein referred to as “ASC Topic 842”). However, ASU No. 2018-11, Leases: Targeted Improvements, allows lessors to (i) combine the lease and non-lease components of revenues when the revenue recognition pattern is the same and when the lease component, when accounted for separately, would be considered an operating lease, and (ii) account for the combined lease and non-lease components under ASC Topic 606, Revenue from Contracts with Customers, when the non-lease component is the predominant element of the combined component. We elected to apply this expedient and therefore recognize our revenues (both lease and service components) under ASC Topic 606, and present them as one revenue stream in our unaudited condensed consolidated statements of operations.
As a lessee, we lease our corporate office headquarters in San Antonio, Texas, and we conduct our business operations through 14 other regional offices located throughout the United States and internationally in Colombia. These operating locations typically include regional offices, storage and maintenance yards and employee housing sufficient to support our operations in the impairment evaluationarea. We lease most of these properties under non-cancelable term and month-to-month operating leases, many of which contain renewal options that can extend the lease term from one year to five years and some of which contain escalation clauses. We also lease various items of supplemental equipment, typically under cancelable short-term and very short term (less than 30 days) leases. Due to the nature of our business, any option to renew these short-term leases, and the options to extend certain of our long-term real estate leases, are inherently uncertaingenerally not considered reasonably certain to be exercised. Therefore, the periods covered by such optional periods are not included in the determination of the term of the lease, and require management judgment.the lease payments during these periods are similarly excluded from the calculation of operating lease asset and lease liability balances.
The following table summarizes impairment chargesour lease expense recognized, during the three and nine months ended September 30, 2017 and 2016excluding variable lease costs (amounts in thousands):
| Successor | Predecessor | ||||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2021 | One Month Ended June 30, 2020 | Five Months Ended May 31, 2020 | |||||||||||||||||||||||||||||||||||||||
| Long-term operating lease expense | $ | 615 | $ | 151 | $ | 1,080 | |||||||||||||||||||||||||||||||||||
| Short-term operating lease expense | 4,539 | 456 | 4,456 | ||||||||||||||||||||||||||||||||||||||
15
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Assets held for sale | $ | — | $ | 3,344 | $ | 795 | $ | 3,344 | |||||||
| Domestic drilling rigs and equipment | — | 918 | — | 918 | |||||||||||
| $ | — | $ | 4,262 | $ | 795 | $ | 4,262 | ||||||||
| Successor | |||||||||||
| June 30, 2021 | December 31, 2020 | ||||||||||
| Within 1 year | $ | 1,074 | $ | 1,069 | |||||||
| In the second year | 992 | 985 | |||||||||
| In the third year | 864 | 921 | |||||||||
| In the fourth year | 885 | 874 | |||||||||
| In the fifth year | 585 | 895 | |||||||||
| Thereafter | 161 | 299 | |||||||||
| Total undiscounted lease obligations | $ | 4,561 | $ | 5,043 | |||||||
| Impact of discounting | (438) | (532) | |||||||||
| Discounted value of operating lease obligations | $ | 4,123 | $ | 4,511 | |||||||
| Current operating lease liabilities | $ | 913 | $ | 889 | |||||||
| Noncurrent operating lease liabilities | 3,210 | 3,622 | |||||||||
| $ | 4,123 | $ | 4,511 | ||||||||
6. Debt
The principal amount of our outstanding debt obligations, including those issued in payment of in-kind interest, were as follows (amounts in thousands):
| Successor | |||||||||||
| June 30, 2021 | December 31, 2020 | ||||||||||
| Convertible Notes | $ | 136,082 | $ | 132,763 | |||||||
| Senior Secured Notes | 75,496 | 77,439 | |||||||||
Upon our emergence from Chapter 11, our debt obligations were recognized at fair value on our consolidated balance sheet due to the application of fresh start accounting, and a portion of the fair value of our Convertible Notes is classified as equity, as described further below.
As described further in Note 2, Subsequent Events, upon consummation of the Mergers with Patterson, all our outstanding debt obligations will be retired.
ABL Credit Facility
Upon our emergence from Chapter 11, pursuant to the terms of the Plan, we consider whether itentered into a senior secured asset-based revolving credit agreement in an aggregate amount of $75 million (the “ABL Credit Facility”) among us and substantially all of our domestic subsidiaries as borrowers (the “Borrowers”), the lenders party thereto and PNC Bank, National Association as administrative agent, and on August 7, 2020, we entered into a First Amendment to the ABL Credit Facility (together, herein referred to as the “ABL Credit Facility”) which, among other things, reduced the maximum amount of the revolving credit agreement to $40 million. Among other things, proceeds of loans under the ABL Credit Facility may be used to finance ongoing working capital and general corporate needs.
The maturity date of loans made under the ABL Credit Facility is more likely than not that some portionthe earliest of 90 days prior to maturity of the Senior Secured Notes or the Convertible Notes (both of which are described further below) and May 29, 2025. Borrowings under the ABL Credit Facility will bear interest at a rate of (i) the LIBOR rate (subject to a floor of 0%) plus an applicable margin of 375 basis points per annum or (ii) the base rate plus an applicable margin of 275 basis points per annum.
The ABL Credit Facility is guaranteed by the Borrowers and is secured by a first lien on the Borrowers’ accounts receivable and inventory, and the cash proceeds thereof, and a second lien on substantially all of the deferred taxother assets and properties of the Borrowers.
The ABL Credit Facility limits our annual capital expenditures to 125% of the budget set forth in the projections for any fiscal year and provides that if our availability plus pledged cash of up to $3 million falls below $6 million (15% of the maximum revolver amount), we will not be realized. The ultimate
required to comply with a fixed charge coverage ratio of 1.0 to 1.0, all of which is defined in the ABL Credit Facility. As of June 30, 2021, we had 0 borrowings and approximately $7.3 million in outstanding letters of credit under the ABL Credit Facility and subject to the availability requirements in the ABL Credit
16
Facility, based on eligible accounts receivable and inventory balances at June 30, 2021, availability under the ABL Credit Facility was $17.2 million, which our access to would be subject to (i) our requirement to maintain 15% available or comply with a fixed charge coverage ratio, as described above and (ii) the requirement to maintain availability of at least $4.0 million, which may include up to $2.0 million of pledged cash.
We entered into an indenture dated May 29, 2020 among the Company and Wilmington Trust, N.A., as trustee, as supplemented by the First Supplemental Indenture to the Convertible Notes Indenture dated May 11, 2021, (the “Convertible Notes Indenture”), and issued $129.8 million aggregate principal amount of deferred tax assetsconvertible senior unsecured pay-in-kind notes due 2025 thereunder (the “Convertible Notes”). We received net issuance proceeds of $120.2 million, which was net of the $9.6 million Backstop Commitment Premium, which is dependent upondescribed further below.
The Convertible Notes are general unsecured obligations which will mature on November 15, 2025, unless earlier accelerated, redeemed, converted or repurchased, and bear interest at a fixed rate of 5% per annum, which will be payable semi-annually on May 15 and November 15 in-kind in the generationform of future taxable income duringan increase to the periodsprincipal amount. The Convertible Notes are convertible at the option of the holders at any time into shares of our common stock and will convert mandatorily into our common stock at maturity; provided, however, that if the value of our common stock otherwise deliverable in connection with a mandatory conversion of a Convertible Note on the maturity date would be less than the principal amount of such Convertible Note plus accrued and unpaid interest, then the Convertible Note will instead convert into an amount of cash equal to the principal amount thereof plus accrued and unpaid interest. The initial conversion rate is 75 shares of common stock per $1,000 principal amount of the Convertible Notes, which those temporary differences become deductible.in aggregate represents 9,732,825 shares of common stock and an initial conversion price of $13.33 per share. The conversion rate is subject to customary anti-dilution adjustments.
If we undergo a “fundamental change” as defined in the Convertible Notes Indenture, subject to certain conditions, holders may require us to repurchase all or any portion of their Convertible Notes for cash at an amount equal to 100% of the principal amount of the Convertible Notes to be repurchased plus any accrued and unpaid interest. In performing this analysisthe case of certain fundamental change events that constitute merger events (as defined in the Convertible Notes Indenture), we have a superseding right to cause the mandatory conversion of all or part of the Convertible Notes into a number of shares of common stock, per $1,000 principal amount of Convertible Notes, equal to the then-current conversion rate or the cash value of such number of shares of common stock.
Holders of Convertible Notes are entitled to vote on all matters on which holders of our common stock generally are entitled to vote (or, if any, to take action by written consent of the holders of our common stock), voting together as a single class together with the shares of September 30, 2017our common stock and not as a separate class, on an as-converted basis, at any annual or special meeting of holders of our common stock and each holder is entitled to such number of votes as such holder would receive on an as-converted basis on the record date for such vote.
The Convertible Notes Indenture contains customary events of default and covenants that limit our ability and the ability of certain of our subsidiaries to incur, assume or guarantee additional indebtedness and create liens and enter into mergers or consolidations.
Because the Convertible Notes contain an embedded conversion option whereby they, or a portion of them, may be settled in cash, we have separately accounted for the liability and equity components of the Convertible Notes in accordance with the accounting requirements for convertible debt instruments set forth in ASC Topic 740, Income Taxes470-20, Debt with Conversion and Other Options. The initial fair value of the Convertible Notes was estimated and allocated, along with related debt issuance costs, to the liability and equity components in accordance with the application of Fresh Start Accounting and the requirements of ASC Topic 470. We treat the issuance of new Convertible Notes for the payment of in-kind interest as an issuance of a new instrument that retains the original economics associated with the conversion option at inception, and therefore, the Convertible Notes issued in payment of in-kind interest are accounted for with their separate equity and liability components that are proportionally the same as the original issuance.
Backstop Commitment Agreement
Prior to filing the Plan, we entered into a separate backstop commitment agreement with some of our previous creditors as well as certain members of our senior management (the “Backstop Commitment Agreement”), pursuant to which these parties committed to backstop the issuance of new Convertible Notes upon our emergence from Chapter 11. As consideration
17
for this commitment, we assessedcommitted to make an aggregate payment of $9.6 million in the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permitform of additional new convertible bonds, or in cash if the use of deferred tax assets. A significant piece of negative evidence evaluated is the cumulative loss incurred during previous years. Such negative evidence limits the ability to consider other positive evidence that is subjective, suchBackstop Commitment Agreement was terminated under certain circumstances as projections for taxable income in future years.forth therein. As a result, we may recognizeincurred a benefit only toliability and expense at the extent that reversalstime we entered into the Backstop Commitment Agreement for the aggregate amount of deferred income tax liabilities are expected to generate taxable income$9.6 million (the “Commitment Premium”) which was recognized in each relevant jurisdiction in future periods which would offset our deferred tax assets.
| September 30, 2017 | December 31, 2016 | ||||||
| Senior secured revolving credit facility | $ | 97,733 | $ | 46,000 | |||
| Senior notes | 300,000 | 300,000 | |||||
| 397,733 | 346,000 | ||||||
| Less unamortized debt issuance costs | (5,132 | ) | (6,527 | ) | |||
| $ | 392,601 | $ | 339,473 | ||||
Senior Secured Revolving Credit FacilityNotes
We have a credit agreement,entered into an indenture dated May 29, 2020 among the Company, the subsidiary guarantors party thereto and Wilmington Trust, N.A., as most recently amendedtrustee, as supplemented by the First Supplemental Indenture dated March 3, 2021, and the Second Supplemental Indenture dated May 11, 2021 (the “Senior Secured Notes Indenture”), and issued $78.1 million aggregate principal amount of floating rate senior secured notes due 2025 (the “Senior Secured Notes”) thereunder. The Senior Secured Notes are guaranteed on June 30, 2016, with Wells Fargo Bank, N.A. and a syndicate of lenders which provides for a senior secured revolving credit facility, with sub-limits for letters of credit and swing-line loans, of up to a current aggregate commitment amount of $150 million, subject to availability under a borrowing base comprised of certain eligible cash, certain eligible receivables, certain eligible inventory, and certain eligible equipment of ours and certain of our subsidiaries, all of which matures in March 2019 (the “Revolving Credit Facility”).
The financial covenants contained in our Revolving Credit Facility include the following:
Senior Notes
We have the option tomay redeem all or part of the Senior Secured Notes in whole or in part,at redemption prices (expressed as percentages of the principal amount) equal to (i) 104% for the twelve-month period beginning on June 1, 2021; (ii) 102% for the twelve-month period beginning on June 1, 2022; (iii) 101% for the twelve-month period beginning on June 1, 2023 and (iv) 100% for the twelve-month period beginning June 1, 2024 and at any time on or after March 15, 2017 in each case at the redemption price specified in the Indenture dated March 18, 2014 (the “Indenture”)thereafter, plus any accrued and unpaid interest and any additional interest (as defined inat the Indenture) thereon toredemption date. Notwithstanding the date of redemption.
The Senior Secured Notes Indenture contains a minimum asset coverage ratio of repurchase. If we engage in1.5 to 1.0 as of any June 30 or December 31, beginning December 31, 2020. The Senior Secured Notes Indenture provides for certain customary events of default and contains covenants that limit, among other things, our ability and the ability of certain of our subsidiaries, to incur, assume or guarantee additional indebtedness; pay dividends or distributions on capital stock or redeem or repurchase capital stock; make investments; repay junior debt; sell stock of our subsidiaries; transfer or sell assets; enter into sale and lease back transactions; create liens; enter into transactions with affiliates; and enter into mergers or consolidations.
Having completed aggregate qualifying asset sales within 365 daysin excess of such sale we will be required to use the net cash proceeds from such sale, to the extent we do not reinvest those proceeds$5 million, in our business, to make an offer to repurchaseaccordance with the Senior Notes Indenture, we commenced and completed offers to purchase $2.6 million in aggregate principal amount of the Senior Secured Notes during the year ended December 31, 2020 at a purchase price equal to 100% of the principal amount, of each Senior Note, plus accrued and unpaid interest through, but not including, the respective purchase dates. During the six months ended June 30, 2021, we completed additional qualifying asset sales and associated offers to purchase an aggregate $3.0 million in principal amount of the repurchase date.Senior Secured Notes and recognized $0.2 million of loss on extinguishment of debt associated with these repayments.
18
Successor Debt Issuance Costs and Discount
Costs incurred in connection with the Revolvingissuance of our Convertible Notes (which were allocated to the liability component, as described above) and Senior Secured Notes, as well as the issuance discounts, were capitalized and are being amortized using the effective interest method over the term of the related debt instrument. Costs incurred in connection with our ABL Credit Facility were capitalized and are being amortized using the straight-line method over the expected term of the Revolving Credit Facility which maturesagreement. Our unamortized debt issuance costs and discounts are presented below (amounts in March 2019. Costs incurred in connection withthousands):
| Successor | |||||||||||
| June 30, 2021 | December 31, 2020 | ||||||||||
| Unamortized discount on Convertible Notes (based on imputed interest rate of 20.9%) | $ | 53,910 | $ | 56,438 | |||||||
| Unamortized discount on Senior Secured Notes (based on imputed interest rate of 13.2%) | 2,214 | 2,733 | |||||||||
| Unamortized debt issuance costs | 3,445 | 3,714 | |||||||||
We provide a valuation allowance when it is more likely than not that some portion of our deferred tax assets will not be realized. We evaluated the impact of the reorganization, including the change in control, resulting from our bankruptcy emergence and determined it is more likely than not that we will not fully realize future income tax benefits related to our domestic net deferred tax assets based on the annual limitations that impact us, historical results, and expected market conditions known on the date of measurement.
Our deferred tax assets related to net operating losses available to reduce future taxable income, and our valuation allowance that offset a portion of our domestic net deferred tax assets, consist of the following (amounts in thousands):
| Successor | |||||||||||
| June 30, 2021 | December 31, 2020 | ||||||||||
| Net operating loss carryforward deferred tax asset | $ | 85,944 | $ | 82,901 | |||||||
| Valuation allowance | (77,786) | (74,676) | |||||||||
8. Fair Value of Financial Instruments
The FASB’s Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures, defines fair value and provides a hierarchalhierarchical framework associated with the level of subjectivity used in measuring assets and liabilities at fair value. At September 30, 2017 and December 31, 2016,Currently, our financial instruments consist primarily of cash and cash equivalents, trade and other receivables, trade payables phantom stock unit awards and long-term debt.
The carrying value of cash and cash equivalents, trade and other receivables, and trade payables are considered to be representative of their respective fair values due to the short-term nature of these instruments. At September 30, 2017 and December 31, 2016,We estimate that the aggregate estimated fair value of our phantom stock unit awards was $4.6 million and $7.0 million, respectively, for which the vested portion recognized as a liability in our condensed consolidated balance sheets was $2.4 million and $2.0 million, respectively. The phantom stock unit awards, and the measurement of fair value for these awards, are described in more detail in Note 7, Stock-Based Compensation Plans.
9. Earnings (Loss) Per Common Share
Basic earnings (loss) per share (EPS) is estimated using a discounted cash flow analysis,computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period.
Diluted EPS is computed based on rates that we believe we would currently paythe sum of the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of shares issuable from stock-based compensation awards and the Convertible Notes. Potentially dilutive common shares from outstanding stock-based compensation awards are determined using the average share price for similar typeseach period under the treasury stock method. Potentially dilutive shares from the Convertible Notes are determined using the if-converted method, whereby the Convertible Notes are assumed to be converted and included in the denominator of debt instruments. This discounted cash flow analysisthe EPS calculation (if dilutive) and the interest expense, net of tax, recorded in connection with the Convertible Notes is based on inputs defined by ASC Topic 820 as Level 2 inputs, which are observable inputs for similar types of debt instruments. The following table presents supplemental fair value information about our long-term debt at September 30, 2017 and December 31, 2016 (amounts in thousands):added back to net income (if dilutive).
19
| September 30, 2017 | December 31, 2016 | ||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||
| Total debt, net of debt issuance costs | $ | 392,601 | $ | 341,234 | $ | 339,473 | $ | 326,249 | |||||||
The following table presents a reconciliation of the numerators and denominators of the basic earnings per share and diluted earnings per shareEPS computations (amounts in thousands, except per share data):
| Successor | Predecessor | ||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended June 30, 2021 | One Month Ended June 30, 2020 | Two Months Ended May 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||||||||||||||||||||||||||
| Net loss (numerator for basic EPS) | $ | (14,619) | $ | (9,817) | $ | (35,121) | |||||||||||||||||||||||||||||||||||||||||
| Interest expense on Convertible Notes, net of tax | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||
| Numerator for diluted EPS, if-converted method | (14,619) | (9,817) | (35,121) | ||||||||||||||||||||||||||||||||||||||||||||
| Denominator: | |||||||||||||||||||||||||||||||||||||||||||||||
| Weighted-average shares (denominator for basic EPS) | 1,217 | 1,048 | 79,288 | ||||||||||||||||||||||||||||||||||||||||||||
| Potentially dilutive shares issuable from Convertible Notes, if-converted method | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||
| Potentially dilutive shares issuable from outstanding stock-based compensation awards, treasury stock method | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||
| Denominator for diluted EPS | 1,217 | 1,048 | 79,288 | ||||||||||||||||||||||||||||||||||||||||||||
| Loss per common share - Basic | $ | (12.01) | $ | (9.37) | $ | (0.44) | |||||||||||||||||||||||||||||||||||||||||
| Loss per common share - Diluted | $ | (12.01) | $ | (9.37) | $ | (0.44) | |||||||||||||||||||||||||||||||||||||||||
| Potentially dilutive securities excluded as anti-dilutive | 10,204 | 9,733 | 4,103 | ||||||||||||||||||||||||||||||||||||||||||||
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Numerator (both basic and diluted): | |||||||||||||||
| Net loss | $ | (17,227 | ) | $ | (34,620 | ) | $ | (62,560 | ) | $ | (92,310 | ) | |||
| Denominator: | |||||||||||||||
| Weighted-average shares (denominator for basic earnings (loss) per share) | 77,552 | 64,905 | 77,335 | 64,755 | |||||||||||
| Diluted effect of outstanding stock options, restricted stock and restricted stock unit awards | — | — | — | — | |||||||||||
| Denominator for diluted earnings (loss) per share | 77,552 | 64,905 | 77,335 | 64,755 | |||||||||||
| Loss per common share—Basic | $ | (0.22 | ) | $ | (0.53 | ) | $ | (0.81 | ) | $ | (1.43 | ) | |||
| Loss per common share—Diluted | $ | (0.22 | ) | $ | (0.53 | ) | $ | (0.81 | ) | $ | (1.43 | ) | |||
| Potentially dilutive securities excluded as anti-dilutive | 4,612 | 4,550 | 5,167 | 4,985 | |||||||||||
| Successor | Predecessor | ||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2021 | One Month Ended June 30, 2020 | Five Months Ended May 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||||||||||||||||||||||||||
| Net loss (numerator for basic EPS) | $ | (31,561) | $ | (9,817) | $ | (104,225) | |||||||||||||||||||||||||||||||||||||||||
| Interest expense on Convertible Notes, net of tax | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||
| Numerator for diluted EPS, if-converted method | (31,561) | (9,817) | (104,225) | ||||||||||||||||||||||||||||||||||||||||||||
| Denominator: | |||||||||||||||||||||||||||||||||||||||||||||||
| Weighted-average shares (denominator for basic EPS) | 1,178 | 1,048 | 78,968 | ||||||||||||||||||||||||||||||||||||||||||||
| Potentially dilutive shares issuable from Convertible Notes, if-converted method | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||
| Potentially dilutive shares issuable from outstanding stock-based compensation awards, treasury stock method | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||
| Denominator for diluted EPS | 1,178 | 1,048 | 78,968 | ||||||||||||||||||||||||||||||||||||||||||||
| Loss per common share - Basic | $ | (26.79) | $ | (9.37) | $ | (1.32) | |||||||||||||||||||||||||||||||||||||||||
| Loss per common share - Diluted | $ | (26.79) | $ | (9.37) | $ | (1.32) | |||||||||||||||||||||||||||||||||||||||||
| Potentially dilutive securities excluded as anti-dilutive | 10,113 | 9,733 | 4,517 | ||||||||||||||||||||||||||||||||||||||||||||
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Stock option awards | $ | 249 | $ | 192 | $ | 726 | $ | 573 | |||||||
| Restricted stock awards | 116 | 116 | 345 | 306 | |||||||||||
| Restricted stock unit awards | 525 | 625 | 2,154 | 2,119 | |||||||||||
| $ | 890 | $ | 933 | $ | 3,225 | $ | 2,998 | ||||||||
| Phantom stock unit awards | $ | 878 | $ | 307 | $ | 397 | $ | 1,033 | |||||||
| Nine months ended September 30, | |||||
| 2017 | 2016 | ||||
| Expected volatility | 76 | % | 70 | % | |
| Risk-free interest rates | 2.1 | % | 1.5 | % | |
| Expected life in years | 5.86 | 5.70 | |||
| Options granted | 268,185 | 905,966 | |||
| Grant-date fair value | $4.28 | $0.80 | |||
| Nine months ended September 30, | |||||||
| 2017 | 2016 | ||||||
| Restricted Stock: | |||||||
| Restricted stock awards granted | 167,272 | 166,664 | |||||
| Weighted-average grant-date fair value | $ | 2.75 | $ | 2.76 | |||
| Time-based RSUs: | |||||||
| Time-based RSUs granted | 96,728 | 260,334 | |||||
| Weighted-average grant-date fair value | $ | 5.61 | $ | 1.48 | |||
| Performance-based RSUs: | |||||||
| Performance-based RSUs granted | 563,469 | — | |||||
| Weighted-average grant-date fair value | $ | 7.75 | $ | — | |||
As described in Note 2, Subsequent Events, upon the consummation of the phantomMergers, all outstanding restricted stock unit awards granted are subjectwill vest in full, all Convertible Notes will convert to a market condition based on relative total shareholder return,shares of common stock, and all holders of outstanding shares of common stock will be entitled to receive Patterson common stock according to the Exchange Ratio as compared to that of our predetermined peer group, and thereforespecified in the fair value of these awards is measured using a Monte Carlo simulation model. The remaining phantom stock unit awards are subject to performance conditions, based on our EBITDA and EBITDA return on capital employed, relative to our predetermined peer group, and the fair value of these awards is measured using a Black-Scholes pricing model. Merger
20
Agreement.
10. Segment Information
As of SeptemberJune 30, 2017,2021, we have 4 operating segments, comprised of 2 drilling services business segments (domestic and international drilling) and 2 production services business segments (well servicing and wireline services), which reflects the basis used by management in making decisions regarding our achievement levelbusiness for the awards granted during 2016 is estimated to be approximately 130%. The final payout percentage will be based on ourresource allocation and performance versus the performance of our peer group, over the three year period ending December 31, 2018.
Our domestic and gas producing regions in the Mid-Continent and Rocky Mountain states and in the Gulf Coast, both onshore and offshore.
Our well servicing and wireline services segments provide a range of production services to producers primarily in Texas, North Dakota and the Rocky Mountain region. Our former coiled tubing services segment also provided various production services primarily in Texas, Wyoming, and surrounding areas.
The following table setstables set forth certain financial information for each of our two operating segments and corporate as of and for the three and nine months ended September 30, 2017 and 2016 (amounts in thousands):
| Successor | Predecessor | |||||||||||||||||||||||||
| Three months ended June 30, 2021 | One Month Ended June 30, 2020 | Two Months Ended May 31, 2020 | ||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||
| Domestic drilling | $ | 23,414 | $ | 5,866 | $ | 17,450 | ||||||||||||||||||||
| International drilling | 9,685 | 828 | 1,473 | |||||||||||||||||||||||
| Drilling services | 33,099 | 6,694 | 18,923 | |||||||||||||||||||||||
| Well servicing | 18,033 | 3,756 | 6,331 | |||||||||||||||||||||||
| Wireline services | 8,394 | 713 | 2,410 | |||||||||||||||||||||||
| Coiled tubing services | 0 | 0 | 384 | |||||||||||||||||||||||
| Production services | 26,427 | 4,469 | 9,125 | |||||||||||||||||||||||
| Consolidated revenues | $ | 59,526 | $ | 11,163 | $ | 28,048 | ||||||||||||||||||||
| Operating costs: | ||||||||||||||||||||||||||
| Domestic drilling | $ | 17,405 | $ | 3,646 | $ | 9,236 | ||||||||||||||||||||
| International drilling | 7,760 | 1,063 | 1,538 | |||||||||||||||||||||||
| Drilling services | 25,165 | 4,709 | 10,774 | |||||||||||||||||||||||
| Well servicing | 13,445 | 2,810 | 5,926 | |||||||||||||||||||||||
| Wireline services | 7,754 | 1,085 | 3,552 | |||||||||||||||||||||||
| Coiled tubing services | 33 | 139 | 1,773 | |||||||||||||||||||||||
| Production services | 21,232 | 4,034 | 11,251 | |||||||||||||||||||||||
| Consolidated operating costs | $ | 46,397 | $ | 8,743 | $ | 22,025 | ||||||||||||||||||||
| Gross margin: | ||||||||||||||||||||||||||
| Domestic drilling | $ | 6,009 | $ | 2,220 | $ | 8,214 | ||||||||||||||||||||
| International drilling | 1,925 | (235) | (65) | |||||||||||||||||||||||
| Drilling services | 7,934 | 1,985 | 8,149 | |||||||||||||||||||||||
| Well servicing | 4,588 | 946 | 405 | |||||||||||||||||||||||
| Wireline services | 640 | (372) | (1,142) | |||||||||||||||||||||||
| Coiled tubing services | (33) | (139) | (1,389) | |||||||||||||||||||||||
| Production services | 5,195 | 435 | (2,126) | |||||||||||||||||||||||
| Consolidated gross margin | $ | 13,129 | $ | 2,420 | $ | 6,023 | ||||||||||||||||||||
21
| As of and for the three months ended September 30, | As of and for the nine months ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Production Services Segment: | |||||||||||||||
| Revenues | $ | 74,738 | $ | 40,899 | $ | 199,830 | $ | 116,998 | |||||||
| Operating costs | 58,304 | 31,912 | 156,678 | 95,503 | |||||||||||
| Segment margin | $ | 16,434 | $ | 8,987 | $ | 43,152 | $ | 21,495 | |||||||
| Identifiable assets | $ | 252,010 | $ | 246,610 | $ | 252,010 | $ | 246,610 | |||||||
| Depreciation and amortization | 11,621 | 12,849 | 34,753 | 39,851 | |||||||||||
| Capital expenditures | 7,164 | 2,070 | 31,282 | 8,312 | |||||||||||
| Drilling Services Segment: | |||||||||||||||
| Revenues | $ | 42,543 | $ | 27,454 | $ | 120,338 | $ | 88,597 | |||||||
| Operating costs | 28,386 | 19,776 | 81,841 | 51,989 | |||||||||||
| Segment margin | $ | 14,157 | $ | 7,678 | $ | 38,497 | $ | 36,608 | |||||||
| Identifiable assets | $ | 440,392 | $ | 463,621 | $ | 440,392 | $ | 463,621 | |||||||
| Depreciation and amortization | 12,689 | 15,511 | 38,681 | 46,597 | |||||||||||
| Capital expenditures | 4,818 | 7,785 | 22,313 | 15,330 | |||||||||||
| Corporate: | |||||||||||||||
| Identifiable assets | $ | 15,040 | $ | 12,566 | $ | 15,040 | $ | 12,566 | |||||||
| Depreciation and amortization | 313 | 303 | 921 | 961 | |||||||||||
| Capital expenditures | 236 | 175 | 607 | 350 | |||||||||||
| Total: | |||||||||||||||
| Revenues | $ | 117,281 | $ | 68,353 | $ | 320,168 | $ | 205,595 | |||||||
| Operating costs | 86,690 | 51,688 | 238,519 | 147,492 | |||||||||||
| Consolidated margin | $ | 30,591 | $ | 16,665 | $ | 81,649 | $ | 58,103 | |||||||
| Identifiable assets | $ | 707,442 | $ | 722,797 | $ | 707,442 | $ | 722,797 | |||||||
| Depreciation and amortization | 24,623 | 28,663 | 74,355 | 87,409 | |||||||||||
| Capital expenditures | 12,218 | 10,030 | 54,202 | 23,992 | |||||||||||
| Successor | Predecessor | |||||||||||||||||||||||||
| Three months ended June 30, 2021 | One Month Ended June 30, 2020 | Two Months Ended May 31, 2020 | ||||||||||||||||||||||||
| Identifiable Assets: | ||||||||||||||||||||||||||
| Domestic drilling (1) | $ | 138,473 | $ | 150,897 | $ | 158,283 | ||||||||||||||||||||
| International drilling (1) (2) | 40,680 | 47,541 | 49,611 | |||||||||||||||||||||||
| Drilling services | 179,153 | 198,438 | 207,894 | |||||||||||||||||||||||
| Well servicing | 41,284 | 47,832 | 49,388 | |||||||||||||||||||||||
| Wireline services | 17,998 | 22,623 | 23,948 | |||||||||||||||||||||||
| Coiled tubing services | 1,339 | 5,941 | 6,336 | |||||||||||||||||||||||
| Production services | 60,621 | 76,396 | 79,672 | |||||||||||||||||||||||
| Corporate | 55,037 | 68,966 | 65,057 | |||||||||||||||||||||||
| Consolidated identifiable assets (3) | $ | 294,811 | $ | 343,800 | $ | 352,623 | ||||||||||||||||||||
| Depreciation and amortization: | ||||||||||||||||||||||||||
| Domestic drilling | $ | 5,975 | $ | 2,012 | $ | 7,153 | ||||||||||||||||||||
| International drilling | 2,514 | 1,076 | 843 | |||||||||||||||||||||||
| Drilling services | 8,489 | 3,088 | 7,996 | |||||||||||||||||||||||
| Well servicing | 2,555 | 1,261 | 3,039 | |||||||||||||||||||||||
| Wireline services | 807 | 763 | 2,011 | |||||||||||||||||||||||
| Coiled tubing services | 0 | 0 | 471 | |||||||||||||||||||||||
| Production services | 3,362 | 2,024 | 5,521 | |||||||||||||||||||||||
| Corporate | 93 | 124 | 146 | |||||||||||||||||||||||
| Consolidated depreciation | $ | 11,944 | $ | 5,236 | $ | 13,663 | ||||||||||||||||||||
| Capital Expenditures: | ||||||||||||||||||||||||||
| Domestic drilling | $ | 2,231 | $ | 484 | $ | 621 | ||||||||||||||||||||
| International drilling | 1,405 | 138 | 106 | |||||||||||||||||||||||
| Drilling services | 3,636 | 622 | 727 | |||||||||||||||||||||||
| Well servicing | 564 | 30 | 201 | |||||||||||||||||||||||
| Wireline services | 307 | 60 | 112 | |||||||||||||||||||||||
| Coiled tubing services | 0 | 0 | 3 | |||||||||||||||||||||||
| Production services | 871 | 90 | 316 | |||||||||||||||||||||||
| Corporate | 51 | 0 | 20 | |||||||||||||||||||||||
| Consolidated capital expenditures | $ | 4,558 | $ | 712 | $ | 1,063 | ||||||||||||||||||||
| Successor | Predecessor | |||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2021 | One Month Ended June 30, 2020 | Five Months Ended May 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||||||||||||||
| Domestic drilling | $ | 45,897 | $ | 5,866 | $ | 53,341 | ||||||||||||||||||||||||||||||||||||||
| International drilling | 20,748 | 828 | 15,928 | |||||||||||||||||||||||||||||||||||||||||
| Drilling services | 66,645 | 6,694 | 69,269 | |||||||||||||||||||||||||||||||||||||||||
| Well servicing | 32,890 | 3,756 | 31,947 | |||||||||||||||||||||||||||||||||||||||||
| Wireline services | 18,729 | 713 | 35,543 | |||||||||||||||||||||||||||||||||||||||||
| Coiled tubing services | 0 | 0 | 5,611 | |||||||||||||||||||||||||||||||||||||||||
| Production services | 51,619 | 4,469 | 73,101 | |||||||||||||||||||||||||||||||||||||||||
| Consolidated revenues | $ | 118,264 | $ | 11,163 | $ | 142,370 | ||||||||||||||||||||||||||||||||||||||
22
| Successor | Predecessor | |||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2021 | One Month Ended June 30, 2020 | Five Months Ended May 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||
| Operating costs: | ||||||||||||||||||||||||||||||||||||||||||||
| Domestic drilling | $ | 32,864 | $ | 3,646 | $ | 33,101 | ||||||||||||||||||||||||||||||||||||||
| International drilling | 15,835 | 1,063 | 13,676 | |||||||||||||||||||||||||||||||||||||||||
| Drilling services | 48,699 | 4,709 | 46,777 | |||||||||||||||||||||||||||||||||||||||||
| Well servicing | 25,333 | 2,810 | 26,877 | |||||||||||||||||||||||||||||||||||||||||
| Wireline services | 17,632 | 1,085 | 31,836 | |||||||||||||||||||||||||||||||||||||||||
| Coiled tubing services | 59 | 139 | 8,557 | |||||||||||||||||||||||||||||||||||||||||
| Production services | 43,024 | 4,034 | 67,270 | |||||||||||||||||||||||||||||||||||||||||
| Consolidated operating costs | $ | 91,723 | $ | 8,743 | $ | 114,047 | ||||||||||||||||||||||||||||||||||||||
| Gross margin: | ||||||||||||||||||||||||||||||||||||||||||||
| Domestic drilling | $ | 13,033 | $ | 2,220 | $ | 20,240 | ||||||||||||||||||||||||||||||||||||||
| International drilling | 4,913 | (235) | 2,252 | |||||||||||||||||||||||||||||||||||||||||
| Drilling services | 17,946 | 1,985 | 22,492 | |||||||||||||||||||||||||||||||||||||||||
| Well servicing | 7,557 | 946 | 5,070 | |||||||||||||||||||||||||||||||||||||||||
| Wireline services | 1,097 | (372) | 3,707 | |||||||||||||||||||||||||||||||||||||||||
| Coiled tubing services | (59) | (139) | (2,946) | |||||||||||||||||||||||||||||||||||||||||
| Production services | 8,595 | 435 | 5,831 | |||||||||||||||||||||||||||||||||||||||||
| Consolidated gross margin | $ | 26,541 | $ | 2,420 | $ | 28,323 | ||||||||||||||||||||||||||||||||||||||
| Identifiable Assets: | ||||||||||||||||||||||||||||||||||||||||||||
Domestic drilling (1) | $ | 138,473 | $ | 150,897 | $ | 158,283 | ||||||||||||||||||||||||||||||||||||||
International drilling (1) (2) | 40,680 | 47,541 | 49,611 | |||||||||||||||||||||||||||||||||||||||||
| Drilling services | 179,153 | 198,438 | 207,894 | |||||||||||||||||||||||||||||||||||||||||
| Well servicing | 41,284 | 47,832 | 49,388 | |||||||||||||||||||||||||||||||||||||||||
| Wireline services | 17,998 | 22,623 | 23,948 | |||||||||||||||||||||||||||||||||||||||||
| Coiled tubing services | 1,339 | 5,941 | 6,336 | |||||||||||||||||||||||||||||||||||||||||
| Production services | 60,621 | 76,396 | 79,672 | |||||||||||||||||||||||||||||||||||||||||
| Corporate | 55,037 | 68,966 | 65,057 | |||||||||||||||||||||||||||||||||||||||||
Consolidated identifiable assets (3) | $ | 294,811 | $ | 343,800 | $ | 352,623 | ||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization: | ||||||||||||||||||||||||||||||||||||||||||||
| Domestic drilling | $ | 12,265 | $ | 2,012 | $ | 18,058 | ||||||||||||||||||||||||||||||||||||||
| International drilling | 5,662 | 1,076 | 2,144 | |||||||||||||||||||||||||||||||||||||||||
| Drilling services | 17,927 | 3,088 | 20,202 | |||||||||||||||||||||||||||||||||||||||||
| Well servicing | 5,491 | 1,261 | 7,820 | |||||||||||||||||||||||||||||||||||||||||
| Wireline services | 1,697 | 763 | 5,088 | |||||||||||||||||||||||||||||||||||||||||
| Coiled tubing services | 0 | 0 | 2,164 | |||||||||||||||||||||||||||||||||||||||||
| Production services | 7,188 | 2,024 | 15,072 | |||||||||||||||||||||||||||||||||||||||||
| Corporate | 194 | 124 | 373 | |||||||||||||||||||||||||||||||||||||||||
| Consolidated depreciation | $ | 25,309 | $ | 5,236 | $ | 35,647 | ||||||||||||||||||||||||||||||||||||||
| Capital Expenditures: | ||||||||||||||||||||||||||||||||||||||||||||
| Domestic drilling | $ | 4,616 | $ | 484 | $ | 3,862 | ||||||||||||||||||||||||||||||||||||||
| International drilling | 1,970 | 138 | 1,273 | |||||||||||||||||||||||||||||||||||||||||
| Drilling services | 6,586 | 622 | 5,135 | |||||||||||||||||||||||||||||||||||||||||
| Well servicing | 899 | 30 | 1,918 | |||||||||||||||||||||||||||||||||||||||||
| Wireline services | 799 | 60 | 1,684 | |||||||||||||||||||||||||||||||||||||||||
| Coiled tubing services | 0 | 0 | 166 | |||||||||||||||||||||||||||||||||||||||||
| Production services | 1,698 | 90 | 3,768 | |||||||||||||||||||||||||||||||||||||||||
| Corporate | 88 | 0 | 21 | |||||||||||||||||||||||||||||||||||||||||
| Consolidated capital expenditures | $ | 8,372 | $ | 712 | $ | 8,924 | ||||||||||||||||||||||||||||||||||||||
(1) Identifiable assets for our drilling segments include the impact of a $28.7 million and $28.3 million intercompany balance, as of June 30, 2021 and 2020, respectively, between our domestic drilling segment (intercompany receivable) and our international drilling segment (intercompany payable).
23
(2) Identifiable assets for our international drilling segment include 5 drilling rigs that are owned by our Colombia subsidiary and 3 drilling rigs that are owned by one of our domestic subsidiaries and leased to our Colombia subsidiary.
(3) Upon our emergence from Chapter 11, due to the application of fresh start accounting, the carrying value of our identifiable assets was reduced to the estimated fair value and a new historical cost basis was established for all our property and equipment.
The following table reconciles theis a reconciliation of consolidated gross margin of our two operating segments and corporate reported above to income (loss)loss from operations as reported on the condensed consolidated statements of operations for the three and nine months ended September 30, 2017 and 2016 (amounts in thousands):
| Successor | Predecessor | ||||||||||||||||||||||||||||||||||||||||
| Three months ended June 30, 2021 | One Month Ended June 30, 2020 | Two Months Ended May 31, 2020 | |||||||||||||||||||||||||||||||||||||||
| Consolidated gross margin | $ | 13,129 | $ | 2,420 | $ | 6,023 | |||||||||||||||||||||||||||||||||||
| Depreciation and amortization | (11,944) | (5,236) | (13,663) | ||||||||||||||||||||||||||||||||||||||
| General and administrative | (10,997) | (4,213) | (7,392) | ||||||||||||||||||||||||||||||||||||||
| Prepetition restructuring charges | 0 | 0 | 252 | ||||||||||||||||||||||||||||||||||||||
| Impairment | 0 | (388) | 0 | ||||||||||||||||||||||||||||||||||||||
| Bad debt (expense) recovery, net | 198 | 283 | (482) | ||||||||||||||||||||||||||||||||||||||
| Gain on dispositions of property and equipment, net | 1,072 | 460 | 272 | ||||||||||||||||||||||||||||||||||||||
| Loss from operations | $ | (8,542) | $ | (6,674) | $ | (14,990) | |||||||||||||||||||||||||||||||||||
| Successor | Predecessor | ||||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2021 | One Month Ended June 30, 2020 | Five Months Ended May 31, 2020 | |||||||||||||||||||||||||||||||||||||||
| Consolidated gross margin | $ | 26,541 | $ | 2,420 | $ | 28,323 | |||||||||||||||||||||||||||||||||||
| Depreciation and amortization | (25,309) | (5,236) | (35,647) | ||||||||||||||||||||||||||||||||||||||
| General and administrative | (20,710) | (4,213) | (22,047) | ||||||||||||||||||||||||||||||||||||||
| Prepetition restructuring charges | 0 | 0 | (16,822) | ||||||||||||||||||||||||||||||||||||||
| Impairment | 0 | (388) | (17,853) | ||||||||||||||||||||||||||||||||||||||
| Bad debt (expense) recovery, net | 395 | 283 | (1,209) | ||||||||||||||||||||||||||||||||||||||
| Gain on dispositions of property and equipment, net | 3,370 | 460 | 989 | ||||||||||||||||||||||||||||||||||||||
| Loss from operations | $ | (15,713) | $ | (6,674) | $ | (64,266) | |||||||||||||||||||||||||||||||||||
11. Commitments, Contingencies and Insurance Claim Liabilities
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Consolidated margin | $ | 30,591 | $ | 16,665 | $ | 81,649 | $ | 58,103 | |||||||
| Depreciation and amortization | (24,623 | ) | (28,663 | ) | (74,355 | ) | (87,409 | ) | |||||||
| General and administrative | (17,528 | ) | (14,312 | ) | (51,342 | ) | (46,078 | ) | |||||||
| Bad debt (expense) recovery | (491 | ) | 359 | 98 | 302 | ||||||||||
| Impairment charges | — | (4,262 | ) | (795 | ) | (4,262 | ) | ||||||||
| Gain on dispositions of property and equipment, net | 1,159 | 328 | 2,251 | 420 | |||||||||||
| Loss from operations | $ | (10,892 | ) | $ | (29,885 | ) | $ | (42,494 | ) | $ | (78,924 | ) | |||
| As of and for the three months ended September 30, | As of and for the nine months ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Revenues | $ | 7,403 | $ | 622 | $ | 26,379 | $ | 1,979 | |||||||
Identifiable assets (1) | 32,340 | 37,444 | 32,340 | 37,444 | |||||||||||
In connection with our operations in Colombia, our foreign subsidiaries have obtainedroutinely obtain bonds for bidding on drilling contracts, performing under drilling contracts, and remitting customs and importation duties. We have guaranteed paymentsBased on historical experience and information currently available, we believe the likelihood of $43.4 million relating to our performancedemand for payment under these bonds asand guarantees is remote.
In February 2021, we received a $2.5 million assessment from the Colombian tax and customs authority related to an administrative delay in documentation provided for one of September 30, 2017.our drilling rigs. After evaluating the assessment with our customs advisors, we do not believe that it is probable that we will be required to pay the customs duty assessment.
We are currently undergoingroutinely subject to various states’ sales and use tax audits for multi-year periods and we are working to resolve all relevant issues.audits. As of SeptemberJune 30, 20172021 and December 31, 2016,2020, our accrued liability was $1.1$1.0 million and $0.6$0.9 million,, respectively, based on our estimate of the sales and useindirect tax obligations that are expected to result from these audits.obligations. Due to the inherent uncertainty of the audit process, we believe that it is reasonably possible that we may incur additional tax assessments with respect to one or more of thepotential audits in excess of the amount accrued. We believe that such an outcome would not have a material adverse effect on our results of operations or financial position. Because certainposition, but because of these audits are in a preliminary stage,the aforementioned uncertainty, an estimate of the possible loss or range of loss from an adverse result in all or substantially all of these casesaudit results cannot reasonably be made.
Due to the nature of our business, we are, from time to time, involved in litigation or subject to disputes or claims related to our business activities, including workers’ compensation claims and employment-related disputes. Legal costs relating to these matters are expensed as incurred. In the opinion of our management, none of the pending litigation, disputes or claims against us will have a material adverse effect on our financial condition, results of operations or cash flow from operations.
24
Insurance Claim Liabilities
We use a combination of self-insurance and severally, on a senior unsecured basis by all existing 100% owned domestic subsidiaries, exceptthird-party insurance for Pioneer Services Holdings, LLC. The subsidiaries that generally operatevarious types of coverage. At June 30, 2021, our non-U.S. business concentrated in Colombia do not guarantee our Senior Notes. The non-guarantor subsidiaries do not have any payment obligationsaccrued insurance premiums and deductibles include approximately $0.6 million of accruals for costs incurred under the Senior Notes,self-insurance portion of our health insurance and approximately $1.8 million of accruals for costs associated with our workers’ compensation insurance. We accrue for these costs as claims are incurred using an actuarial calculation that is based on industry and our company’s historical claim development data, and we accrue the guarantees or the Indenture.
Our insurance recoveries receivables and our accrued liability for insurance claims and settlements represent our estimate of claims in excess of our deductible, which are covered and managed by our third-party insurance providers, some of which may ultimately be settled by the insurance provider in the long-term. These are presented in our condensed consolidated balance sheets as unrestricted subsidiaries under the Indenture will not guarantee the Senior Notes. As of September 30, 2017, there were no restrictions on the ability of subsidiary guarantors to transfer fundscurrent due to the parent company.
claims.
25
| September 30, 2017 | |||||||||||||||||||
| Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
| ASSETS | |||||||||||||||||||
| Current assets: | |||||||||||||||||||
| Cash and cash equivalents | $ | 10,780 | $ | (1,225 | ) | $ | 1,297 | $ | — | $ | 10,852 | ||||||||
| Receivables, net of allowance | 5 | 87,786 | 15,055 | (42 | ) | 102,804 | |||||||||||||
| Intercompany receivable (payable) | (24,836 | ) | 47,186 | (22,350 | ) | — | — | ||||||||||||
| Inventory | — | 6,216 | 5,542 | — | 11,758 | ||||||||||||||
| Assets held for sale | — | 8,704 | 52 | — | 8,756 | ||||||||||||||
| Prepaid expenses and other current assets | 1,589 | 2,043 | 1,699 | — | 5,331 | ||||||||||||||
| Total current assets | (12,462 | ) | 150,710 | 1,295 | (42 | ) | 139,501 | ||||||||||||
| Net property and equipment | 2,185 | 539,286 | 25,030 | — | 566,501 | ||||||||||||||
| Investment in subsidiaries | 573,721 | 20,198 | — | (593,919 | ) | — | |||||||||||||
| Deferred income taxes | 58,545 | — | — | (58,545 | ) | — | |||||||||||||
| Other long-term assets | 481 | 797 | 162 | — | 1,440 | ||||||||||||||
| Total assets | $ | 622,470 | $ | 710,991 | $ | 26,487 | $ | (652,506 | ) | $ | 707,442 | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||||||
| Current liabilities: | |||||||||||||||||||
| Accounts payable | $ | 467 | $ | 28,858 | $ | 2,683 | $ | — | $ | 32,008 | |||||||||
| Deferred revenues | — | 302 | 481 | — | 783 | ||||||||||||||
| Accrued expenses | 5,526 | 38,548 | 2,690 | (42 | ) | 46,722 | |||||||||||||
| Total current liabilities | 5,993 | 67,708 | 5,854 | (42 | ) | 79,513 | |||||||||||||
| Long-term debt, less debt issuance costs | 392,601 | — | — | — | 392,601 | ||||||||||||||
| Deferred income taxes | — | 67,160 | — | (58,545 | ) | 8,615 | |||||||||||||
| Other long-term liabilities | 2,348 | 2,402 | 435 | — | 5,185 | ||||||||||||||
| Total liabilities | 400,942 | 137,270 | 6,289 | (58,587 | ) | 485,914 | |||||||||||||
| Total shareholders’ equity | 221,528 | 573,721 | 20,198 | (593,919 | ) | 221,528 | |||||||||||||
| Total liabilities and shareholders’ equity | $ | 622,470 | $ | 710,991 | $ | 26,487 | $ | (652,506 | ) | $ | 707,442 | ||||||||
| December 31, 2016 | |||||||||||||||||||
| Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
| ASSETS | |||||||||||||||||||
| Current assets: | |||||||||||||||||||
| Cash and cash equivalents | $ | 9,898 | $ | (764 | ) | $ | 1,060 | $ | — | $ | 10,194 | ||||||||
| Receivables, net of allowance | 480 | 64,946 | 7,210 | (513 | ) | 72,123 | |||||||||||||
| Intercompany receivable (payable) | (24,836 | ) | 35,427 | (10,591 | ) | — | — | ||||||||||||
| Inventory | — | 5,659 | 4,001 | — | 9,660 | ||||||||||||||
| Assets held for sale | — | 15,035 | 58 | — | 15,093 | ||||||||||||||
| Prepaid expenses and other current assets | 1,280 | 4,014 | 1,632 | — | 6,926 | ||||||||||||||
| Total current assets | (13,178 | ) | 124,317 | 3,370 | (513 | ) | 113,996 | ||||||||||||
| Net property and equipment | 2,501 | 556,062 | 25,517 | — | 584,080 | ||||||||||||||
| Investment in subsidiaries | 577,965 | 24,270 | — | (602,235 | ) | — | |||||||||||||
| Deferred income taxes | 65,041 | — | — | (65,041 | ) | — | |||||||||||||
| Other long-term assets | 583 | 1,029 | 414 | — | 2,026 | ||||||||||||||
| Total assets | $ | 632,912 | $ | 705,678 | $ | 29,301 | $ | (667,789 | ) | $ | 700,102 | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||||||
| Current liabilities: | |||||||||||||||||||
| Accounts payable | $ | 546 | $ | 16,317 | $ | 2,345 | $ | — | $ | 19,208 | |||||||||
| Deferred revenues | — | 680 | 769 | — | 1,449 | ||||||||||||||
| Accrued expenses | 9,316 | 34,765 | 1,777 | (513 | ) | 45,345 | |||||||||||||
| Total current liabilities | 9,862 | 51,762 | 4,891 | (513 | ) | 66,002 | |||||||||||||
| Long-term debt, less debt issuance costs | 339,473 | — | — | — | 339,473 | ||||||||||||||
| Deferred income taxes | — | 73,249 | (28 | ) | (65,041 | ) | 8,180 | ||||||||||||
| Other long-term liabilities | 2,179 | 2,702 | 168 | — | 5,049 | ||||||||||||||
| Total liabilities | 351,514 | 127,713 | 5,031 | (65,554 | ) | 418,704 | |||||||||||||
| Total shareholders’ equity | 281,398 | 577,965 | 24,270 | (602,235 | ) | 281,398 | |||||||||||||
| Total liabilities and shareholders’ equity | $ | 632,912 | $ | 705,678 | $ | 29,301 | $ | (667,789 | ) | $ | 700,102 | ||||||||
| Three months ended September 30, 2017 | |||||||||||||||||||
| Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
| Revenues | $ | — | $ | 109,878 | $ | 7,403 | $ | — | $ | 117,281 | |||||||||
| Costs and expenses: | |||||||||||||||||||
| Operating costs | — | 80,075 | 6,615 | — | 86,690 | ||||||||||||||
| Depreciation and amortization | 313 | 22,882 | 1,428 | — | 24,623 | ||||||||||||||
| General and administrative | 5,737 | 11,424 | 505 | (138 | ) | 17,528 | |||||||||||||
| Intercompany leasing | — | (1,215 | ) | 1,215 | — | — | |||||||||||||
| Bad debt recovery | — | 491 | — | — | 491 | ||||||||||||||
| Gain on dispositions of property and equipment, net | — | (1,159 | ) | — | — | (1,159 | ) | ||||||||||||
| Total costs and expenses | 6,050 | 112,498 | 9,763 | (138 | ) | 128,173 | |||||||||||||
| Income (loss) from operations | (6,050 | ) | (2,620 | ) | (2,360 | ) | 138 | (10,892 | ) | ||||||||||
| Other (expense) income: | |||||||||||||||||||
| Equity in earnings of subsidiaries | (4,650 | ) | (2,393 | ) | — | 7,043 | — | ||||||||||||
| Interest expense | (6,614 | ) | 1 | — | — | (6,613 | ) | ||||||||||||
| Other (expense) income | 9 | 220 | 204 | (138 | ) | 295 | |||||||||||||
| Total other (expense) income | (11,255 | ) | (2,172 | ) | 204 | 6,905 | (6,318 | ) | |||||||||||
| Income (loss) before income taxes | (17,305 | ) | (4,792 | ) | (2,156 | ) | 7,043 | (17,210 | ) | ||||||||||
Income tax (expense) benefit 1 | 78 | 142 | (237 | ) | — | (17 | ) | ||||||||||||
| Net income (loss) | $ | (17,227 | ) | $ | (4,650 | ) | $ | (2,393 | ) | $ | 7,043 | $ | (17,227 | ) | |||||
| Three months ended September 30, 2016 | |||||||||||||||||||
| Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
| Revenues | $ | — | $ | 67,731 | $ | 622 | $ | — | $ | 68,353 | |||||||||
| Costs and expenses: | |||||||||||||||||||
| Operating costs | — | 50,061 | 1,627 | — | 51,688 | ||||||||||||||
| Depreciation and amortization | 303 | 26,659 | 1,701 | — | 28,663 | ||||||||||||||
| General and administrative | 5,046 | 9,017 | 387 | (138 | ) | 14,312 | |||||||||||||
| Intercompany leasing | — | (1,215 | ) | 1,215 | — | — | |||||||||||||
| Bad debt expense | — | (359 | ) | — | — | (359 | ) | ||||||||||||
| Impairment charges | — | 4,262 | — | — | 4,262 | ||||||||||||||
| Gain on dispositions of property and equipment, net | — | (325 | ) | (3 | ) | — | (328 | ) | |||||||||||
| Total costs and expenses | 5,349 | 88,100 | 4,927 | (138 | ) | 98,238 | |||||||||||||
| Income (loss) from operations | (5,349 | ) | (20,369 | ) | (4,305 | ) | 138 | (29,885 | ) | ||||||||||
| Other (expense) income: | |||||||||||||||||||
| Equity in earnings of subsidiaries | (23,794 | ) | (4,587 | ) | — | 28,381 | — | ||||||||||||
| Interest expense | (6,661 | ) | (14 | ) | (3 | ) | — | (6,678 | ) | ||||||||||
| Other (expense) income | 14 | 217 | 152 | (138 | ) | 245 | |||||||||||||
| Total other (expense) income | (30,441 | ) | (4,384 | ) | 149 | 28,243 | (6,433 | ) | |||||||||||
| Income (loss) before income taxes | (35,790 | ) | (24,753 | ) | (4,156 | ) | 28,381 | (36,318 | ) | ||||||||||
Income tax (expense) benefit 1 | 1,170 | 959 | (431 | ) | — | 1,698 | |||||||||||||
| Net income (loss) | $ | (34,620 | ) | $ | (23,794 | ) | $ | (4,587 | ) | $ | 28,381 | $ | (34,620 | ) | |||||
1 The income tax expense (benefit) reflected in each column does not include any tax effect of the equity in earnings (losses) of subsidiaries. | |||||||||||||||||||
| Nine months ended September 30, 2017 | |||||||||||||||||||
| Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
| Revenues | $ | — | $ | 293,788 | $ | 26,380 | $ | — | $ | 320,168 | |||||||||
| Costs and expenses: | |||||||||||||||||||
| Operating costs | — | 218,344 | 20,175 | — | 238,519 | ||||||||||||||
| Depreciation and amortization | 921 | 69,027 | 4,407 | — | 74,355 | ||||||||||||||
| General and administrative | 16,507 | 33,818 | 1,431 | (414 | ) | 51,342 | |||||||||||||
| Intercompany leasing | — | (3,645 | ) | 3,645 | — | — | |||||||||||||
| Bad debt recovery | — | (98 | ) | — | — | (98 | ) | ||||||||||||
| Impairment charges | — | 795 | — | — | 795 | ||||||||||||||
| Loss (gain) on dispositions of property and equipment, net | 2 | (2,126 | ) | (127 | ) | — | (2,251 | ) | |||||||||||
| Total costs and expenses | 17,430 | 316,115 | 29,531 | (414 | ) | 362,662 | |||||||||||||
| Income (loss) from operations | (17,430 | ) | (22,327 | ) | (3,151 | ) | 414 | (42,494 | ) | ||||||||||
| Other (expense) income: | |||||||||||||||||||
| Equity in earnings of subsidiaries | (19,518 | ) | (3,924 | ) | — | 23,442 | — | ||||||||||||
| Interest expense | (19,110 | ) | 20 | — | — | (19,090 | ) | ||||||||||||
| Other (expense) income | 37 | 678 | (77 | ) | (414 | ) | 224 | ||||||||||||
| Total other (expense) income | (38,591 | ) | (3,226 | ) | (77 | ) | 23,028 | (18,866 | ) | ||||||||||
| Income (loss) before income taxes | (56,021 | ) | (25,553 | ) | (3,228 | ) | 23,442 | (61,360 | ) | ||||||||||
Income tax (expense) benefit 1 | (6,539 | ) | 6,035 | (696 | ) | — | (1,200 | ) | |||||||||||
| Net income (loss) | $ | (62,560 | ) | $ | (19,518 | ) | $ | (3,924 | ) | $ | 23,442 | $ | (62,560 | ) | |||||
| Nine months ended September 30, 2016 | |||||||||||||||||||
| Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
| Revenues | $ | — | $ | 203,616 | $ | 1,979 | $ | — | $ | 205,595 | |||||||||
| Costs and expenses: | |||||||||||||||||||
| Operating costs | — | 142,766 | 4,726 | — | 147,492 | ||||||||||||||
| Depreciation and amortization | 960 | 81,257 | 5,192 | — | 87,409 | ||||||||||||||
| General and administrative | 16,324 | 29,061 | 1,107 | (414 | ) | 46,078 | |||||||||||||
| Intercompany leasing | — | (3,645 | ) | 3,645 | — | — | |||||||||||||
| Bad debt expense | — | (302 | ) | — | — | (302 | ) | ||||||||||||
| Impairment charges | — | 4,262 | — | — | 4,262 | ||||||||||||||
| Gain on dispositions of property and equipment, net | — | (366 | ) | (54 | ) | — | (420 | ) | |||||||||||
| Total costs and expenses | 17,284 | 253,033 | 14,616 | (414 | ) | 284,519 | |||||||||||||
| Income (loss) from operations | (17,284 | ) | (49,417 | ) | (12,637 | ) | 414 | (78,924 | ) | ||||||||||
| Other (expense) income: | |||||||||||||||||||
| Equity in earnings of subsidiaries | (58,421 | ) | (13,777 | ) | — | 72,198 | — | ||||||||||||
| Interest expense | (19,220 | ) | (88 | ) | 1 | — | (19,307 | ) | |||||||||||
| Loss on extinguishment of debt | (299 | ) | — | — | — | (299 | ) | ||||||||||||
| Other (expense) income | 12 | 1,222 | (246 | ) | (414 | ) | 574 | ||||||||||||
| Total other (expense) income | (77,928 | ) | (12,643 | ) | (245 | ) | 71,784 | (19,032 | ) | ||||||||||
| Income (loss) before income taxes | (95,212 | ) | (62,060 | ) | (12,882 | ) | 72,198 | (97,956 | ) | ||||||||||
Income tax (expense) benefit 1 | 2,902 | 3,639 | (895 | ) | — | 5,646 | |||||||||||||
| Net income (loss) | $ | (92,310 | ) | $ | (58,421 | ) | $ | (13,777 | ) | $ | 72,198 | $ | (92,310 | ) | |||||
1 The income tax expense (benefit) reflected in each column does not include any tax effect of the equity in earnings (losses) of subsidiaries. | |||||||||||||||||||
| Nine months ended September 30, 2017 | |||||||||||||||||||
| Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
| Cash flows from operating activities | $ | (35,376 | ) | $ | 19,768 | $ | 4,346 | $ | — | $ | (11,262 | ) | |||||||
| Cash flows from investing activities: | |||||||||||||||||||
| Purchases of property and equipment | (563 | ) | (48,490 | ) | (4,023 | ) | 270 | (52,806 | ) | ||||||||||
| Proceeds from sale of property and equipment | — | 10,528 | 149 | (270 | ) | 10,407 | |||||||||||||
| Proceeds from insurance recoveries | — | 3,119 | — | — | 3,119 | ||||||||||||||
| (563 | ) | (34,843 | ) | (3,874 | ) | — | (39,280 | ) | |||||||||||
| Cash flows from financing activities: | |||||||||||||||||||
| Debt repayments | (13,267 | ) | — | — | — | (13,267 | ) | ||||||||||||
| Proceeds from issuance of debt | 65,000 | — | — | — | 65,000 | ||||||||||||||
| Purchase of treasury stock | (533 | ) | — | — | — | (533 | ) | ||||||||||||
| Intercompany contributions/distributions | (14,379 | ) | 14,614 | (235 | ) | — | — | ||||||||||||
| 36,821 | 14,614 | (235 | ) | — | 51,200 | ||||||||||||||
| Net increase (decrease) in cash and cash equivalents | 882 | (461 | ) | 237 | — | 658 | |||||||||||||
| Beginning cash and cash equivalents | 9,898 | (764 | ) | 1,060 | — | 10,194 | |||||||||||||
| Ending cash and cash equivalents | $ | 10,780 | $ | (1,225 | ) | $ | 1,297 | $ | — | $ | 10,852 | ||||||||
| Nine months ended September 30, 2016 | |||||||||||||||||||
| Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
| Cash flows from operating activities | $ | (37,104 | ) | $ | 44,422 | $ | 326 | $ | — | $ | 7,644 | ||||||||
| Cash flows from investing activities: | |||||||||||||||||||
| Purchases of property and equipment | (352 | ) | (24,997 | ) | (235 | ) | — | (25,584 | ) | ||||||||||
| Proceeds from sale of property and equipment | — | 2,689 | 54 | — | 2,743 | ||||||||||||||
| (352 | ) | (22,308 | ) | (181 | ) | — | (22,841 | ) | |||||||||||
| Cash flows from financing activities: | |||||||||||||||||||
| Debt repayments | (500 | ) | — | — | — | (500 | ) | ||||||||||||
| Proceeds from issuance of debt | 12,000 | — | — | — | 12,000 | ||||||||||||||
| Debt issuance costs | (819 | ) | — | — | — | (819 | ) | ||||||||||||
| Proceeds from exercise of options | 183 | — | — | — | 183 | ||||||||||||||
| Purchase of treasury stock | (124 | ) | — | — | — | (124 | ) | ||||||||||||
| Intercompany contributions/distributions | 17,594 | (17,524 | ) | (70 | ) | — | — | ||||||||||||
| 28,334 | (17,524 | ) | (70 | ) | — | 10,740 | |||||||||||||
| Net increase (decrease) in cash and cash equivalents | (9,122 | ) | 4,590 | 75 | — | (4,457 | ) | ||||||||||||
| Beginning cash and cash equivalents | 17,221 | (5,612 | ) | 2,551 | — | 14,160 | |||||||||||||
| Ending cash and cash equivalents | $ | 8,099 | $ | (1,022 | ) | $ | 2,626 | $ | — | $ | 9,703 | ||||||||
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statements we make in the following discussion that express a belief, expectation or intention, as well as those that are not historical fact, are forward-looking statements made in good faith that are subject to risks, uncertainties and assumptions. These forward-looking statements are based on our current beliefs, intentions, and expectations and are not guarantees or indicators of future performance. Our actual results, performance or achievements, or industry results, as well as our expectation to refinance our existing $150 million Revolving Credit Facility, could differ materially from those we express in the following discussion as a result of a variety of factors, including risks and uncertainties relating to the effects of the pending merger with Patterson-UTI, the potential failure to complete the merger with Patterson-UTI, the effects of our bankruptcy on our business and relationships, the concentration of our equity ownership following bankruptcy, the effect of the coronavirus (COVID-19) pandemic on our industry, general economic and business conditions and industry trends, levels and volatility of oil and gas prices, the continued demand for drilling services or production services in the geographic areas where we operate, decisions about exploration and development projects to be made by oil and gas exploration and production companies, the highly competitive nature of our business, the supply of marketable equipment within the industry, technological advancements and trends in our industry and improvements in our competitors' equipment, the loss of one or more of our major clients or a decrease in their demand for our services, future compliance with covenants under debt agreements, including our senior secured revolving credit facility and our senior notes, as well as any other debt agreements we may enter into in the future, operating hazards inherent in our operations, the supply of marketable drilling rigs, well servicing rigs, coiled tubing and wireline units within the industry, the continued availability of drilling rig, well servicing rig, coiled tubingsupplies, equipment and wireline unit components, the continued availability of qualified personnel the success or failure ofrequired to operate our acquisition strategy, including our ability to finance acquisitions, manage growth and effectively integrate acquisitions,fleets, the political, economic, regulatory and other uncertainties encountered by our operations, and changes in, or our failure or inability to comply with, governmental regulations, including those relating to the environment, the occurrence of cybersecurity incidents, the success or failure of future acquisitions or dispositions, our level of indebtedness and future compliance with covenants under our ability to closedebt agreements, and the impact of not having our proposed new $175 million term loan and $75 million asset-based revolving lending facility.common stock listed on a national securities exchange or quoted on an over-the-counter market. We have discussed many of these factors in more detail elsewhere in this report,andin our Annual Report on Form 10-K for the year ended December 31, 2016, 2020, as amended by Form 10-K/A for the year ended December 31, 2020, including under the headings “Risk Factors” in Item 1A and “Special Note Regarding Forward-Looking Statements”Statements and Risk Factor Summary” in the Introductory Note to Part I and “Risk Factors” in Item 1A.I. These factors are not necessarily all the important factors that could affect us.Other unpredictable or unknown factors could also have material adverse effects on actual results of matters that are the subject of our forward-looking statements. All forward-looking statements speak only as of the date on which they are made and we undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise. We advise our shareholdersstockholders that they should (1) recognize that important factors not referred to above could affect the accuracy of our forward-looking statements and (2) use caution and common sense when considering our forward-looking statements.
Recent Developments
Patterson-UTI Merger Agreement
On July 5, 2021, Pioneer Energy Services Corp., a Delaware corporation (“Pioneer”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Patterson-UTI Energy, Inc., a Delaware corporation (“Patterson”), Crescent Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Patterson (“Merger Sub Inc.”), and Crescent Ranch Second Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of Patterson (“Merger Sub LLC”), pursuant to which, upon the terms and subject to the conditions set forth therein, (i) Merger Sub Inc. will merge with and into Pioneer, with Pioneer continuing as the surviving entity (the “Surviving Corporation”) (the “First Company Merger”) and (ii) immediately following the First Company Merger, the Surviving Corporation will merge with and into Merger Sub LLC, with Merger Sub LLC continuing as the surviving entity (the “Surviving Company”) (the “Second Company Merger” and, together with the First Company Merger, the “Mergers”). Upon consummation of the Mergers, Pioneer will be a wholly owned subsidiary of Patterson and will no longer be a registrant under the rules of the SEC.
Under the terms of the Merger Agreement and as more fully described below, Pioneer will receive from Patterson an aggregate consideration of up to 26,275,000 shares of common stock, par value $0.01 per share, of Patterson (“Patterson common stock”) and $30 million of cash. As more fully described in the Merger Agreement, all of Pioneer’s debt is being retired in connection with the Mergers with a portion of such shares and cash with Pioneer’s cash on hand determined in accordance with the Merger Agreement prior to closing (the “Company Cash”).
Pursuant to the Merger Agreement and subject to certain exceptions, holders of Common stock and holders Convertible Notes will be issued shares of Patterson common stock according to an exchange ratio (the “Exchange Ratio”) to be determined at the closing of the Mergers and the other transactions contemplated by the Merger Agreement (collectively, the “Transactions”). The Exchange Ratio will equal the quotient obtained by dividing (i) 26,275,000 (subject to a downward adjustment as specified in the Merger Agreement if the average of the volume weighted average prices of the Patterson common stock during the 10 consecutive trading days ending with the last complete trading day prior to the closing date
26
(“Patterson VWAP”) is greater than $11.00) less the shares of Patterson common stock to be delivered to the holders of the Senior Secured Floating Rate Notes due 2025 of Pioneer (the “Senior Notes”) as described below, by (ii) the aggregate number of shares of Common stock issued and outstanding immediately prior to the effective time of the First Company Merger (the “Effective Time”) plus the number of shares of Common stock into which the Convertible Notes are convertible immediately prior to the Effective Time.
Pursuant to the Merger Agreement, immediately prior to the Effective Time, subject to certain exceptions, each share of Common stock issued and outstanding will be converted into the right to receive a number of shares of Patterson common stock equal to the Exchange Ratio. Each share of Common stock held in treasury by Pioneer or owned directly or indirectly by Patterson or Merger Sub Inc. will be automatically cancelled and will cease to exist, and no consideration will be issued therefor. Additionally, the Convertible Notes will convert into shares of Common stock in accordance with their terms in connection with the closing of the Transactions and the holders will receive shares of Patterson common stock on the same basis as if such notes had been converted pursuant to physical settlement prior to the closing of the Transactions. Additionally, each award of restricted common stock granted under Pioneer’s 2020 Employee Incentive Plan that is outstanding immediately prior to the merger transactions will become fully vested and treated as shares of Common stock.
In connection with the closing under the Merger Agreement, the Senior Notes will be redeemed at a redemption price equal to 103% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to, but excluding, the closing date. In accordance with the Merger Agreement and the Third Supplemental Indenture to that certain Indenture, dated as of May 29, 2020, between the Company and Wilmington Trust, National Association, as trustee and security agent, as amended and supplemented by that certain First Supplemental Indenture, dated as of March 3, 2021, as further amended and supplemented by that certain Second Supplemental Indenture, dated as of May 11, 2021 (the “Indenture”), to be entered into in connection with the Transactions (the “Third Supplemental Indenture”), the redemption price will be paid in a combination of cash and shares of Patterson common stock, which will reduce the number of shares to be delivered to holders of Common stock and Convertible Notes. The amount of cash to be paid upon such redemption will not exceed an amount equal to $30 million plus Company Cash less the expenses to be paid by Pioneer in connection with the Transactions (the “Company Expenses”) less amounts required to repay in full and retire any indebtedness outstanding under the ABL Credit Facility (and such payoff amount the “Company ABL Payoff Amount”) and less the amount of accrued interest on the Convertible Notes (“Accrued Interest”). The number of shares of Patterson common stock to be delivered in such redemption will equal (i) the redemption price (including accrued interest) less $30 million less Company Cash, plus the Company Expenses, plus the Company ABL Payoff Amount and plus the Accrued Interest, divided by (ii) the product of (x) the average of the Patterson VWAP for the three consecutive trading days ending on the second trading day immediately preceding the closing date and (y) 0.8575.
Each of Pioneer and Patterson makes representations and warranties in the Merger Agreement and is subject to interim operating covenants relating to the conduct of its respective business during the interim period between the execution of the Merger Agreement and the closing of the Transactions. The parties are required to use their reasonable best efforts to cause the Transactions to be consummated as promptly as reasonably practicable and to obtain any required regulatory approvals, subject to certain exceptions.
The closing of the Transactions is subject to the satisfaction or waiver of certain closing conditions, including, among others, (i) the approval of the holders of at least sixty percent of the total voting power of all outstanding securities of Pioneer generally entitled to vote at a meeting of Pioneer’s stockholders (including the Convertible Notes) (the “Pioneer Stockholder Approval”) pursuant to the terms of the Merger Agreement, (ii) the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act shall have expired or been terminated, (iii) there being no law, injunction or order by a governmental body prohibiting the consummation of the Mergers, (iv) the approval for listing of the Patterson common stock to be issued in connection with the First Company Merger on the NASDAQ, (v) the registration statement on Form S-4, to be filed with the SEC by Patterson, having been declared effective by the SEC, (vi) subject to specified materiality standards, the accuracy of the representations and warranties of the other party, (vii) compliance by each other party in all material respects with their respective covenants, (viii) the absence of a Company Material Adverse Effect or a Parent Material Adverse Effect (each as defined in the Merger Agreement), as applicable, (ix) execution and delivery of the Third Supplemental Indenture, and (x) the requirement that not more than 6% of the shares of Common stock outstanding immediately prior to the Mergers have validly exercised appraisal rights pursuant to Delaware law.
The Merger Agreement contains termination rights for each of the Company and Patterson, including, among others, a termination right for each party if the consummation of the merger does not occur on or before January 3, 2022 (the “Outside Date”), subject to certain exceptions; provided that the right to terminate the Merger Agreement for failure to consummate the Mergers by the Outside Date will not be available to any party to the Merger Agreement whose failure to fulfill in any
27
material respect any of its obligations under the Merger Agreement is the primary cause of, or the primary factor that resulted in, the failure of the Mergers being consummated by such Outside Date. Additionally, either party may terminate the Merger Agreement if (i) any court of competent jurisdiction or governmental entity takes action that prohibits the Transactions, (ii) if the Pioneer Stockholder Approval is not obtained or (iii) if the other party breaches the Merger Agreement and cannot cure such breach within the applicable time period. Additionally, Pioneer may elect to terminate the Merger Agreement to accept a Superior Proposal (as defined in the Merger Agreement) or if the Patterson VWAP drops below $5.60 for the 10 consecutive trading days prior to the closing of the Transactions. Patterson may elect to terminate the Merger Agreement if the Pioneer board changes its recommendation to approve the Merger Agreement. Moreover, pursuant to the Merger Agreement, Pioneer is subject to customary limitations prohibiting any solicitations or negotiations of alternative proposals between the execution of the Merger Agreement and the closings of the Transactions.
As more fully described in the Merger Agreement, in the event that the Merger Agreement is terminated (i) by Pioneer to accept a Superior Proposal prior to obtaining the Pioneer Stockholder Approval or (ii) by Patterson due to the Pioneer board’s change of recommendation with respect to the Transactions, then Pioneer will be obligated to pay to Patterson a break-up fee of $9.5 million (the “Break-Up Fee”) pursuant to the terms of the Merger Agreement. Pioneer will also be obligated to pay the Break-Up Fee if (i) an acquisition proposal of Pioneer is made by a third party, (ii) Pioneer or Patterson then terminates the Merger Agreement for failure to consummate the Mergers by the Outside Date or for failure to obtain the Pioneer Stockholder Approval, or if Patterson terminates the Merger Agreement due to Pioneer’s breach thereof and failure to cure such breach within the specified time, and (iii) within 12 months thereafter Pioneer enters into an alternative transaction.
In connection with the Merger Agreement, certain holders of Common stock and Convertible Notes holding approximately 88% of the voting power of Pioneer and 100% of the Senior Notes (collectively, the “Supporting Holders”) have entered into voting and support agreements with Patterson pursuant to which, among other things, the Supporting Holders have agreed, subject to certain limitations and exceptions, not to transfer any of their Common stock or Convertible Notes (collectively, the “Covered Securities”) until the earlier of the date the Merger Agreement is terminated by the Effective Time, to vote such Covered Securities in a manner to facilitate the consummation of the Mergers and to consent to and approve the Third Supplemental Indenture.
28
Company Overview
Pioneer Energy Services Corp. (formerly called “Pioneer Drilling Company”) provides land-based drilling services and production services to a diverse group of independent and large oil and gas exploration and production companies in the United States and internationally in Colombia. We also provide two of our services (coiled tubing and wireline services) offshore in the Gulf of Mexico. Drilling services and production services are fundamental to establishing and maintaining the flow of oil and natural gas throughout the productive life of a well and enable us to meet multiple needs of our clients.well.
•Drilling Services Segment— From 1999 to 2011, we significantly expanded our fleet through acquisitions and the construction of new drilling rigs. As our industry changed with the evolution of shale drilling, we began a transformation process in 2011, by selectively disposing of our older, less capable rigs, while we continued to invest in our rig building program to construct more technologically advanced, pad-optimal rigs to meet the changing needs of our clients.
| Rig Count | |||||||||
| International drilling | |||||||||
| 25 | |||||||||
•Production Services Segment—— Our Production Services Segment providesproduction services business segments provide a range of services to a diverse group of explorationproducers primarily in Texas, North Dakota and production companies, with our operations concentrated in the major United States onshore oil and gas producing regions in the Mid-Continent and Rocky Mountain states and in the Gulf Coast, both onshore and offshore. The primary production services we offer are the following:
region.◦Well Servicing. A rangeOur fleet consists of services are required in order to establish production in newly-drilled wells and to maintain production over the useful lives of active wells. We use our well servicing rig fleet to provide these necessary services, including the completion of newly-drilled wells, maintenance and workover of active wells, and plugging and abandonment of wells at the end of their useful lives. As of September 30, 2017, we have a fleet of 113111 rigs with 550 horsepower and 12 rigs with 600 horsepower with operations in 10 locations, mostly in the Gulf Coast states, as well as in Arkansas, North Dakota, and Colorado.
◦Wireline Services. Our fleet of 72 wireline units, including nine units that offer greaseless electric wireline used to reach further depths in longer laterals and two greaseless EcoQuietTM units designed to reduce noise when operating in proximity to urban areas, is deployed through 5 operating locations in Texas, the Rocky Mountain region and North Dakota.
Pioneer Energy Services Corp. was incorporated under the laws of the State of Texas in 1979 as the successor to a business that had been operating since 1968. Over the last 15 years,Since then, we have significantly expanded and transformed our business through acquisitions and organic growth. We conduct our operations throughUpon emergence from Chapter 11 in May 2020, we converted from a Texas corporation to a Delaware corporation.
Our current business is comprised of two operating segments: ourbusiness lines — Drilling Services Segment(consisting of Domestic Drilling and ourInternational Drilling reportable segments) and Production Services Segment.(consisting of Well Servicing and Wireline Services reportable segments). In April 2020, we closed our coiled tubing operations and idled all our coiled tubing equipment, which were subsequently placed as held for sale as of June 30, 2020. Financial information about our operating segments is included in Note 8, 10, Segment Information, of the Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1,, Financial Statements, of this Quarterly Report on Form 10-Q.10-Q.
Pioneer Energy Services Corp.’s corporate office is located at 1250 NEN.E. Loop 410, Suite 1000, San Antonio, Texas 78209. Our phone number is (855) 884-0575 and our website address is www.pioneeres.com. We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (SEC). Information on our website is not incorporated into this report or otherwise made part of this report.
Reorganization and Emergence from Chapter 11
On March 1, 2020, we filed a petition for reorganization under Chapter 11 of the Bankruptcy Code. On May 11, 2020, the Bankruptcy Court confirmed the plan of reorganization (the “Plan”) that was filed with the Bankruptcy Court on March 2, 2020, and on May 29, 2020 (the “Effective Date”), the conditions to effectiveness of the Plan were satisfied, and we emerged from Chapter 11.
As a result of the application of fresh start accounting and the effects of the implementation of the Plan, our condensed consolidated financial statements after the Effective Date are not comparable with the consolidated financial statements on or
29
before that date as indicated by the “black line” division in the financial statements and footnote tables, which emphasizes the lack of comparability between amounts presented. References to “Successor” relate to our financial position and results of operations after the Effective Date. References to “Predecessor” refer to our financial position and results of operations on or before the Effective Date.
Market Conditions in Our Industryand Outlook
Industry Overview — Demand for oilfield services offered by our industry is a function of our clients’ willingness and ability to make operating expenditurescapital and capitaloperating expenditures to explore for, develop and produce hydrocarbons, which is primarily driven by current and expected oil and natural gas prices.
However, in a severe downturn that is prolonged, both operating and capital expenditures are significantly reduced, and the demand for all our service offerings is significantly impacted. After a prolonged or severe downturn, among the productiondemand for production-related workover services generally improves first, followed by the demand for completion-oriented services generally improves first, as exploration and production companies begin to complete wells that were previously drilled but not completed during the downturn, and to complete newly drilled wells asfinally by the demand for drilling services improves during recovery.of new wells.
For additional information concerning the potential effects of the volatility in oil and gas prices and the effects of technological advancements andother industry trends, in our industry, see Item 1A – “Risk Factors” in Part I of our Annual Report on Form 10-K for the year ended December 31, 2016.2020.
Market Conditions and Outlook — Our industry has experiencedThe COVID-19 pandemic which began in early 2020 resulted in a severe down cycle since late 2014 which persisted through 2016 withsignificant decrease in oil prices (WTI) dipping below $30 in early 2016. A modest recovery in commodity prices beganand significant disruption and uncertainty in the latter halfoil and natural gas market. In March 2020, the decline in demand due to the COVID-19 pandemic coincided with the announcement of 2016, with an averageprice reductions and possible production increases by members of OPEC and other oil exporting nations, including Russia. Although OPEC and other oil exporting nations ultimately agreed to cut production, these extreme supply and demand dynamics caused significant crude oil price during the first nine months of 2017 just below $50 per barrel,declines, negatively impacting our industry’s oil producers who responded with significant cuts in their previously planned and a current oil price at September 30, 2017 of almost $52 per barrel.projected spending.
The trends in spot prices of WTI crude oil and Henry Hub natural gas, and the resulting trends in domestic land rig counts (per Baker Hughes) and domestic well servicing rig counts (per Guiberson/Association of Energy Service Companies) over the last three yearsCompanies/Energy Workforce & Technology Council) from January 2020 through June 2021 are illustrated in the graphs below.
30
The trendscommodity price environment and global oversupply of oil during 2020 resulted in an oversupply of equipment in the industry, declining rig counts and dayrates, and substantially reduced activity for all our service offerings. Additionally, because our business depends on the level of spending by our clients, we are also affected by our clients’ ability to access the capital markets. After several consecutive years without significant improvement in commodity prices, many exploration and production companies have limited their spending to a level which can be supported by net operating cash flows alone, as access to the capital markets through debt or equity financings has become more challenging in our industry.
However, the recovery of supply chain disruptions and the rollout of COVID-19 vaccinations led to stabilization and improvements in commodity pricing, with oil prices of over $70 per barrel at the end of June 2021, versus approximately $40 per barrel one year ago. Steadily increasing commodity prices and domestic rig counts oversince the last 12 months are illustrated below:latter half of 2020 and continued market stabilization led to improved activity levels for all of our business segments.
As our clients without penalty, although the contract would still require payment for demobilization servicescontinue to adjust their capital budgets and 30 days notice. We are actively marketing our idle drilling rigsoperations in Colombiaresponse to various operators andimproving but uncertain industry conditions, we are evaluating other options, includingcontinuing to focus our efforts on reducing costs and managing labor pressures, and maintaining essential functions and readiness for the possibility of the sale of some or all of our assets in Colombia.
| Spot Market Contracts | Term Contract Expiration by Period | |||||||||||||||||||
| Total Term Contracts | Within 6 Months | 6 Months to 1 Year | 1 Year to 18 Months | 18 Months to 2 Years | 2 to 4 Years | |||||||||||||||
| U.S. rigs: | ||||||||||||||||||||
| Earning under contract | 3 | 13 | 3 | 5 | 5 | — | — | |||||||||||||
| Colombia rigs: | ||||||||||||||||||||
| Earning under contract | 1 | 4 | 1 | 1 | — | — | 2 | |||||||||||||
| Contracted, pending operations | — | 1 | 1 | — | — | — | — | |||||||||||||
| 4 | 18 | 5 | 6 | 5 | — | 2 | ||||||||||||||
Liquidity and Capital Resources
Liquidity Overview
Our emergence from Chapter 11 has allowed us to significantly reduce our level of indebtedness and our future cash interest obligations. We currently expect that cash and cash equivalents, cash generated from operations, and available funds under the ABL Credit Facility are adequate to cover our liquidity requirements for at least the next 12 months. However, our ability to maintain sufficient liquidity and compliance with our debt instruments over the next 12 months, grow, make capital expenditures, and service our debt depends primarily upon (i) the level of demand for, and pricing of, our products and services; (ii) the level of spending by our clients; (iii) our ability to collect our receivables and access borrowings under the ABL Credit Facility; (iv) the supply and demand for oil and gas; (v) oil and gas prices; (vi) general economic and market conditions; and (vii) and other factors that are beyond our control.
The market competition between OPEC and non-OPEC countries coupled with the impact of the COVID-19 pandemic caused significant crude oil price declines in 2020, negatively impacting our industry’s oil producers who responded with significant cuts in their recent and projected spending which affected, and could continue to negatively affect, the amount of cash we generate and have available for working capital requirements, capital expenditures, and debt service.
Our availability under the ABL Credit Facility at June 30, 2021 was $17.2 million, which our access to would be subject to (i) our requirement to maintain 15% of the maximum revolver amount available or comply with a fixed charge coverage ratio and (ii) the requirement to maintain availability of at least $4 million, which may include up to $2 million of pledged cash. In addition, as a result of current market conditions, certain of our clients are facing financial pressures and liquidity issues. There can be no assurance that one or more of our clients will not delay or default on payments owed to us or file for bankruptcy protection, in which case we may be unable to collect all, or any portion, of the accounts receivable owed to us by such clients. Delays or defaults in payments of accounts receivable owed to us may also adversely affect our borrowing base and our ability to borrow under our ABL Credit Facility.
Sources of CapitalCapital Resources
Our principal sources of liquidity currently consist of:
•total cash and cash equivalents, including restricted cash ($10.930.3 million as of SeptemberJune 30, 2017)2021);
•cash generated from operations; and
•availability under the unused portion of our senior secured revolving credit facility (the “Revolving Credit Facility”).
31
ABL Credit Facility — Upon our emergence from Chapter 11, pursuant to the terms of the Plan, we entered into a senior secured asset-based revolving credit agreement in an aggregate amount of $75 million among us and substantially all of our domestic subsidiaries as borrowers (the “Borrowers”), the lenders party thereto and PNC Bank, National Association as administrative agent. On August 7, 2020, we entered into a First Amendment to the ABL Credit Facility (together, herein referred to as the “ABL Credit Facility”) which, among other things, reduced the maximum amount of the revolving credit agreement to $40 million. Among other things, proceeds of loans under the ABL Credit Facility may be used to finance ongoing working capital and general corporate needs.
The maturity date of loans made under the ABL Credit Facility is the earliest of 90 days prior to maturity of the Senior Secured Notes or the Convertible Notes (both of which are described below in the section entitled Debt Instruments and Compliance Requirements) and May 29, 2025. Borrowings under the ABL Credit Facility will bear interest at a rate of (i) the LIBOR rate (subject to a floor of 0%) plus an applicable margin of 375 basis points per annum or (ii) the base rate plus an applicable margin of 275 basis points per annum.
The ABL Credit Facility is guaranteed by the Borrowers and is secured by a first lien on Form 10-Q.the Borrowers’ accounts receivable and inventory, and the cash proceeds thereof, and a second lien on substantially all of the other assets and properties of the Borrowers. The ABL Credit Facility limits our annual capital expenditures to 125% of the budget set forth in the projections for any fiscal year and provides that if our availability plus pledged cash of up to $3 million falls below $6 million (15% of the maximum revolver amount), we will be required to comply with a fixed charge coverage ratio of 1.0 to 1.0, all of which is defined in the ABL Credit Facility.
As of June 30, 2021, we had no borrowings and approximately $7.3 million in outstanding letters of credit under the ABL Credit Facility and subject to the availability requirements in the ABL Credit Facility, based on eligible accounts receivable and inventory balances at June 30, 2021, availability under the ABL Credit Facility was $17.2 million, which our access to would be subject to (i) our requirement to maintain 15% of the maximum revolver amount available or comply with a fixed charge coverage ratio, as described above, and (ii) the requirement to maintain availability of at least $4 million, which may include up to $2 million of pledged cash.
Uses of Capital Resources
Our principal liquidity requirements are currently for:
•working capital needs;
•capital expenditures; and
•debt service; and
Our operations have historically generated cash flows sufficientworking capital needs typically fluctuate in relation to meet our requirements for debt serviceactivity and normal capital expenditures. However,pricing. Following a sustained period of low activity, our working capital requirementsneeds generally increase during periods when rig construction projects areas we invest in progress or duringreactivating previously idle equipment and in purchases of inventory and supplies for expected increasing activity. Our capital requirements to maintain our equipment also fluctuate in relation to activity, and increase following a period of sustained low activity. During periods of expansion in our production services business, at which timesand/or organic growth, we have been more likely to accessmeet increased capital requirements through equity or debt financing. Additionally, our working capital needs may increase in periods of increasing activity following a sustained period of low activity, which is the primary reason for the $11.3 million of net cash used in operating activities during the nine months ended September 30, 2017. During periods of sustained low activity and pricing, when our cash flow from operations are negatively impacted, we may also access additional capital through the use of available funds under our Revolvingthe ABL Credit Facility.
32
Working Capital — Our working capital was $60.0 million at September 30, 2017, compared to $48.0 million at December 31, 2016. Ourand current ratio, which we calculate by dividing current assets by current liabilities, was 1.8 at September 30, 2017, as compared to 1.7 at December 31, 2016. The changes in the components of our working capital were as follows as of June 30, 2021 and December 31, 2020 (amounts in thousands),thousands, except current ratio):
| June 30, 2021 | December 31, 2020 | Change | |||||||||||||||
| Current assets | $ | 112,276 | $ | 113,133 | $ | (857) | |||||||||||
| Current liabilities | 61,027 | 59,018 | 2,009 | ||||||||||||||
| Working capital | $ | 51,249 | $ | 54,115 | $ | (2,866) | |||||||||||
| Current ratio | 1.8 | 1.9 | (0.1) | ||||||||||||||
Our current assets decreased by $0.9 million during 2021, primarily due to a $2.1 million decrease in total cash including restricted cash, a $2.0 million decrease in assets held for sale, and as described below:a $1.4 million decrease in prepaid expenses and other current assets, all of which were largely offset by a $5.7 million increase in total trade and unbilled receivables.
| September 30, 2017 | December 31, 2016 | Change | |||||||||
| Cash and cash equivalents | $ | 10,852 | $ | 10,194 | $ | 658 | |||||
| Receivables: | |||||||||||
| Trade, net of allowance for doubtful accounts | 71,634 | 38,764 | 32,870 | ||||||||
| Unbilled receivables | 14,268 | 7,417 | 6,851 | ||||||||
| Insurance recoveries | 13,491 | 17,003 | (3,512 | ) | |||||||
| Other receivables | 3,411 | 8,939 | (5,528 | ) | |||||||
| Inventory | 11,758 | 9,660 | 2,098 | ||||||||
| Assets held for sale | 8,756 | 15,093 | (6,337 | ) | |||||||
| Prepaid expenses and other current assets | 5,331 | 6,926 | (1,595 | ) | |||||||
| Current assets | 139,501 | 113,996 | 25,505 | ||||||||
| Accounts payable | 32,008 | 19,208 | 12,800 | ||||||||
| Deferred revenues | 783 | 1,449 | (666 | ) | |||||||
| Accrued expenses: | |||||||||||
| Payroll and related employee costs | 19,298 | 14,813 | 4,485 | ||||||||
| Insurance premiums and deductibles | 7,811 | 6,446 | 1,365 | ||||||||
| Insurance claims and settlements | 13,084 | 13,667 | (583 | ) | |||||||
| Interest | 912 | 5,395 | (4,483 | ) | |||||||
| Other | 5,617 | 5,024 | 593 | ||||||||
| Current liabilities | 79,513 | 66,002 | 13,511 | ||||||||
| Working capital | $ | 59,988 | $ | 47,994 | $ | 11,994 | |||||
•The decrease in assets held for sale is primarily attributable to the sale of equipment and inventory from our coiled tubing operations which closed in April 2020.
•The decrease in prepaid expenses and other current assets as well as $3.1 million of insurance proceeds received from drilling rig damages. Cash used in operations during 2017 wasis primarily for increased working capital requirements due to the recent and expected increaseamortization of prepaid insurance premiums which are generally paid in activity.
late October each year.Our current liabilities increased $2.0 million during 2017 is primarily2021, due to an insurance claim receivable of $3.1a $2.6 million forincrease in trade accounts payable and a drilling rig that was damaged during 2016, for which the proceeds were received$1.6 million increase in early 2017.
•The increase in trade accounts payable is primarily due to the sale of two drilling rigs in December 2016, for which the proceeds of $6.3 million were received in January 2017. This decrease is partially offset by $0.8 million remaining of a short-term note receivable from the sales of two mechanical drilling rigs that were sold during the third quarter of 2017.
•The $1.1 million decrease in other accrued expenses during 20172021 is primarily due to the payment of interest on our Senior Notes which is due semi-annually on March 15 and September 15.
| Payments Due by Period | |||||||||||||||||||
| Contractual Obligations | Total | Within 1 Year | 2 to 3 Years | 4 to 5 Years | Beyond 5 Years | ||||||||||||||
| Debt | $ | 397,733 | $ | — | $ | 97,733 | $ | 300,000 | $ | — | |||||||||
| Interest on debt | 92,569 | 24,962 | 40,044 | 27,563 | — | ||||||||||||||
| Purchase commitments | 4,100 | 4,100 | — | — | — | ||||||||||||||
| Operating leases | 10,718 | 3,268 | 3,931 | 1,525 | 1,994 | ||||||||||||||
| Incentive compensation | 14,318 | 4,660 | 9,658 | — | — | ||||||||||||||
| $ | 519,438 | $ | 36,990 | $ | 151,366 | $ | 329,088 | $ | 1,994 | ||||||||||
Capital Expenditures — During the ninethree months ended September 30, 2017, we spent $52.8March 31, 2021 and 2020, our capital expenditures totaled $8.7 million on purchases of property and equipment and placed into service property and equipment of $54.2 million.$11.7 million, respectively, primarily related to routine expenditures that are necessary to maintain our fleets. Currently, we expect to spend a total of approximately $60$20 million on capital expenditures during 2017, with approximately half allocated2021, which is limited to each ofroutine expenditures necessary to maintain our segments. Our total planned capital expenditures for 2017 include approximately $22 millionfor domestic and international drilling rig upgrades, the exchange of 20 well servicing rigs which was completed in the first quarter of 2017, and the purchase of six wireline units.
fleets. Actual capital expenditures may vary depending on the climate of our industry and any resulting increase or decrease in activity levels, the timing of commitments and payments, availability of capital resources, and the level of rig build and other expansioninvestment opportunities that meet our strategic and return on capital employed criteria. We expect to fund the remaining capital expenditures in 20172021 from cash and operating cash flow in excess of our working capital requirements, proceeds from sales of certain non-strategic assets, and fromalthough available borrowings under our RevolvingABL Credit Facility are also available, if necessary.
Debt Instruments and Compliance Requirements— Upon our emergence from Chapter 11, we entered into a $75 million senior secured asset-based revolving credit agreement which was later amended and reduced to $40 million in August 2020 (the “ABL Credit Facility”), and issued $129.8 million of aggregate principal amount of 5% convertible senior unsecured pay-in-kind notes due 2025 (the “Convertible Notes”) and $78.1 million of aggregate principal amount of floating rate senior
33
secured notes due 2025 (the “Senior Secured Notes”). The proceeds from the issuance of the Convertible Notes and the Senior Secured Notes were used to repay the then outstanding term loan.
If the Mergers are consummated in accordance with the terms of the Merger Agreement, it will result in the retirement of all our outstanding debt obligations, as further discussed in the previous section entitled “Recent Developments.”
The following is a summary of our debt instruments and compliance requirements as of June 30, 2021 including covenants, restrictions and guarantees, as it relates to our Convertible Notes and Senior Secured Notes, and a summary of our ABL Credit Facility is included in the above section entitled ABL Credit Facility.As of June 30, 2021, we were in compliance with all covenants required by our debt instruments. However, our ability to maintain compliance with our debt instruments, and to service our debt, is dependent upon the level of demand for our products and services, the level of spending by our clients, the supply and demand for oil, oil and gas prices, general economic and market conditions and other factors which are beyond our control. If the Mergers are not consummated and we are unable to generate cash flow sufficient for debt service and repayment at maturity, we may seek to refinance our debts or access additional capital through debt/equity offerings.
Convertible Notes Indenture and Convertible Notes due 2025. We entered into an indenture dated May 29, 2020 among the Company and Wilmington Trust, N.A., as trustee, as supplemented by the First Supplemental Indenture to the Convertible Notes Indenture dated May 11, 2021, (the “Convertible Notes Indenture”), and issued $129.8 million aggregate principal amount of convertible senior unsecured pay-in-kind notes due 2025 thereunder. The Convertible Notes are general unsecured obligations which will mature on November 15, 2025, unless earlier accelerated, redeemed, converted or repurchased, and bear interest at a fixed rate of 5% per annum, which will be payable semi-annually in-kind in the form of an increase to the principal amount.
The Convertible Notes are convertible at the option of the holders at any time into shares of our common stock and will convert mandatorily into our common stock at maturity; provided, however, that if the value of our common stock otherwise deliverable in connection with a mandatory conversion of a Convertible Note on the maturity date would be less than the principal amount of such Convertible Note plus accrued and unpaid interest, then the Convertible Note will instead convert into an amount of cash equal to the principal amount thereof plus accrued and unpaid interest. The initial conversion rate is 75 shares of common stock per $1,000 principal amount of the Convertible Notes, which in aggregate represents 9,732,825 shares of common stock and an initial conversion price of $13.33 per share. The conversion rate is subject to customary anti-dilution adjustments.
If we undergo a “fundamental change” as defined in the Convertible Notes Indenture, subject to certain conditions, holders may require us to repurchase all or any portion of their Convertible Notes for cash at an amount equal to 100% of the principal amount of the Convertible Notes to be repurchased plus any accrued and unpaid interest. In the case of certain fundamental change events that constitute merger events (as defined in the Convertible Notes Indenture), we have a superseding right to cause the mandatory conversion of all or part of the Convertible Notes into a number of shares of common stock, per $1,000 principal amount of Convertible Notes, equal to the then-current conversion rate or the cash value of such number of shares of common stock.
Holders of Convertible Notes are entitled to vote on all matters on which holders of our common stock generally are entitled to vote (or, if any, to take action by written consent of the holders of our common stock), voting together as a single class together with the shares of our common stock and not as a separate class, on an as-converted basis, at any annual or special meeting of holders of our common stock and each holder is entitled to such number of votes as such holder would receive on an as-converted basis on the record date for such vote.
The Convertible Notes Indenture contains covenants that limit our ability and the ability of certain of our subsidiaries to incur, assume or guarantee additional indebtedness and create liens and enter into mergers or consolidations. The Convertible Notes Indenture also contains customary events of default. In the case of an event of default arising from certain events of bankruptcy, insolvency or other similar law, with respect to us or any of our significant subsidiaries, all outstanding Convertible Notes will become due and payable immediately without further action or notice. If any other event of default occurs and is continuing, then the trustee or the holders of at least 25% in aggregate principal amount of the Convertible Notes then outstanding may declare the Convertible Notes due and payable immediately.
The Convertible Notes Indenture provides, subject to certain exceptions, that for so long as our common stock is registered under the Securities Exchange Act of 1934 (the “Exchange Act”), a beneficial owner of the Convertible Notes is not entitled to receive shares of our common stock upon an optional conversion of any Convertible Notes during any period of time in which the aggregate number of shares of our common stock that may be acquired by such beneficial owner upon conversion
34
of Convertible Notes shall, when added to the aggregate number of shares of our common stock deemed beneficially owned, directly or indirectly, by such beneficial owner and each person subject to aggregation of our common stock with such beneficial owner under Section 13 or Section 16 of the Exchange Act at such time, exceed 9.99% of the total issued and outstanding shares of our common stock. Certain of the holders of Convertible Notes opted out of this provision.
Senior Secured Notes Indenture and Senior Secured Notes due 2025. We entered into an indenture dated May 29, 2020 among the Company, the subsidiary guarantors party thereto and Wilmington Trust, N.A., as trustee, as supplemented by the First Supplemental Indenture dated March 3, 2021, and the Second Supplemental Indenture dated May 11, 2021 (the “Senior Secured Notes Indenture”), and issued $78.1 million aggregate principal amount of floating rate senior secured notes due 2025 thereunder. The Senior Secured Notes are guaranteed on a senior secured basis by substantially all of our existing domestic subsidiaries, which also guarantee our obligations under the ABL Credit Facility, (the “Guarantors”) on a full and unconditional basis and are secured by a second lien on the accounts receivable and inventory and a first lien on substantially all of the other assets and properties (including the cash proceeds thereof) of the Company and the Guarantors.
The Senior Secured Notes will mature on May 15, 2025 and accrue interest at the rate of LIBOR plus 9.5% per annum until May 15, 2024, after which the rate will be LIBOR plus 10.5% per annum, and in both cases with a LIBOR rate floor of 1.5% and payable quarterly in arrears on the 15th of each February, May, August and November of each year. The interest payments which were due prior to May 2021 were paid 50% in cash and 50% of the interest was paid in-kind in the form of an increase to the principal amount.
We may redeem all or part of the Senior Secured Notes at redemption prices (expressed as percentages of the principal amount) equal to (i) 104% for the twelve-month period beginning on June 1, 2021; (ii) 102% for the twelve-month period beginning on June 1, 2022; (iii) 101% for the twelve-month period beginning on June 1, 2023 and (iv) 100% for the twelve-month period beginning June 1, 2024 and at any time thereafter, plus accrued and unpaid interest at the redemption date. Notwithstanding the foregoing, if a change of control (as defined in the Senior Secured Notes Indenture) occurs prior to June 1, 2022, we may elect to purchase all remaining outstanding Senior Secured Notes not tendered to us as described below at a redemption price equal to 103% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the applicable redemption date. If a change of control (as defined in the Senior Secured Notes Indenture) occurs, holders of the Senior Secured Notes will have the right to require us to repurchase all or any part of their Senior Secured Notes at a purchase price equal to 101% of the aggregate principal amount of the Senior Secured Notes repurchased, plus accrued and unpaid interest, if any, to the repurchase date.
The Senior Secured Notes Indenture contains covenants that limit, among other things, our ability and the ability of certain of our subsidiaries, to incur, assume or guarantee additional indebtedness; pay dividends or distributions on capital stock or redeem or repurchase capital stock; make investments; repay junior debt; sell stock of our subsidiaries; transfer or sell assets; enter into sale and lease back transactions; create liens; enter into transactions with affiliates; and enter into mergers or consolidations. The Senior Secured Notes Indenture contains a minimum asset coverage ratio of 1.5 to 1.0 as of any June 30 or December 31, beginning December 31, 2020. As of June 30, 2021, the asset coverage ratio, as calculated under the Senior Secured Notes Indenture, was 3.0 to 1.0.
The Senior Secured Notes Indenture also provides for certain customary events of default, including, among others, nonpayment of principal or interest, breach of covenants, failure to pay final judgments in excess of a specified threshold, failure of a guarantee to remain in effect, failure of a security document to create an effective security interest in collateral, bankruptcy and insolvency events, and cross acceleration, which would permit the principal, premium, if any, interest and other monetary obligations on all the then outstanding Senior Secured Notes to be declared due and payable immediately.
Pursuant to the Senior Secured Notes Indenture, we commenced and completed offers to purchase $2.6 million in aggregate principal amount of the Senior Secured Notes during the year ended December 31, 2020 at a purchase price equal to 100% of the principal amount, plus accrued and unpaid interest through, but not including, the respective purchase dates. During the six months ended June 30, 2021, we completed additional qualifying asset sales and associated offers to purchase an aggregate $3.0 million in principal amount of the Senior Secured Notes and recognized $0.2 million of loss on extinguishment of debt associated with these repayments. As of June 30, 2021, the aggregate principal amount of Senior Secured Notes outstanding is $75.5 million.
Supplemental Guarantor Information
Our Senior Secured Notes are issued by Pioneer Energy Services Corp. (the “Parent Issuer”) and are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by all existing 100%-owned domestic subsidiaries
35
(the “Guarantors”), except for Pioneer Services Holdings, LLC. The subsidiaries that generally operate our non-U.S. business concentrated in Colombia do not guarantee our Senior Secured Notes (and did not guarantee our Prepetition Senior Notes). The non-guarantor subsidiaries do not have any payment obligations under the Senior Secured Notes, the guarantees, or the Senior Secured Notes Indenture. In the event of a bankruptcy, liquidation or reorganization of any non-guarantor subsidiary, such non-guarantor subsidiary would be obligated to pay the holders of its debt and other liabilities, including its trade creditors, before it would be able to distribute any of its assets to us. As of June 30, 2021, there were no restrictions on the ability of subsidiary guarantors to transfer funds to the parent company.
The following tables present summarized financial information for the Parent Issuer and Guarantors, on a combined basis after the elimination of intercompany balances and transactions between the Parent Issuer and Guarantors and investments in any subsidiary that is a non-guarantor (amounts in thousands):
| June 30, 2021 | |||||
| Current assets, excluding those due from non-guarantor subsidiaries | $ | 85,752 | |||
| Current assets due from non-guarantor subsidiaries | 28,392 | ||||
| Property and equipment, net | 129,830 | ||||
| Noncurrent assets, excluding property and equipment | 14,464 | ||||
| Current liabilities | $ | 54,002 | |||
| Long-term debt | 151,709 | ||||
| Noncurrent liabilities, excluding long-term debt | 6,732 | ||||
| Three months ended June 30, 2021 | Six Months Ended June 30, 2021 | ||||||||||||||||||||||
| Revenues | $ | 49,841 | $ | 97,516 | |||||||||||||||||||
| Operating costs | 38,637 | 75,888 | |||||||||||||||||||||
Loss from operations(1) | (6,344) | (11,846) | |||||||||||||||||||||
Net loss(1) | (12,704) | (25,742) | |||||||||||||||||||||
(1) Includes intercompany lease income from non-guarantor subsidiary totaling $1.2 million and $2.4 million during the three and six months ended June 30, 2021, respectively.
36
Results of Operations
Although the Successor period(s) and the Predecessor period(s) are distinct reporting periods, we have combined the Successor and Predecessor period results during the three and six months ended June 30, 2020 in order to provide some comparability of such information to the corresponding Successor periods ended June 30, 2021. 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 corresponding Successor periods as reviewing the Successor period results in isolation would not be useful in identifying trends in or reaching conclusions regarding our overall operating performance.
The following table providestables provide certain information about our operations, including details of each of our business segments’ revenues, operating costs and gross margin for the three and nine months ended September 30, 2017 and 2016periods indicated (amounts in thousands, except average number of drilling rigs, utilization rate and revenue day information)thousands).
| Successor | Predecessor | Combined (Non-GAAP) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended June 30, 2021 | One Month Ended June 30, 2020 | Two Months Ended May 31, 2020 | Three Months Ended June 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic drilling | $ | 23,414 | $ | 5,866 | $ | 17,450 | $ | 23,316 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| International drilling | 9,685 | 828 | 1,473 | 2,301 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Drilling services | 33,099 | 6,694 | 18,923 | 25,617 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Well servicing | 18,033 | 3,756 | 6,331 | 10,087 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Wireline services | 8,394 | 713 | 2,410 | 3,123 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Coiled tubing services | — | — | 384 | 384 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Production services | 26,427 | 4,469 | 9,125 | 13,594 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated revenues | $ | 59,526 | $ | 11,163 | $ | 28,048 | $ | 39,211 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating costs: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic drilling | $ | 17,405 | $ | 3,646 | $ | 9,236 | $ | 12,882 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| International drilling | 7,760 | 1,063 | 1,538 | 2,601 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Drilling services | 25,165 | 4,709 | 10,774 | 15,483 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Well servicing | 13,445 | 2,810 | 5,926 | 8,736 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Wireline services | 7,754 | 1,085 | 3,552 | 4,637 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Coiled tubing services | 33 | 139 | 1,773 | 1,912 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Production services | 21,232 | 4,034 | 11,251 | 15,285 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated operating costs | $ | 46,397 | $ | 8,743 | $ | 22,025 | $ | 30,768 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross margin: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic drilling | $ | 6,009 | $ | 2,220 | $ | 8,214 | $ | 10,434 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| International drilling | 1,925 | (235) | (65) | (300) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Drilling services | 7,934 | 1,985 | 8,149 | 10,134 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Well servicing | 4,588 | 946 | 405 | 1,351 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Wireline services | 640 | (372) | (1,142) | (1,514) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Coiled tubing services | (33) | (139) | (1,389) | (1,528) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Production services | 5,195 | 435 | (2,126) | (1,691) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated gross margin | $ | 13,129 | $ | 2,420 | $ | 6,023 | $ | 8,443 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | $ | (14,619) | $ | (9,817) | $ | (35,121) | $ | (44,938) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjusted EBITDA (1) | $ | 3,226 | $ | (1,280) | $ | 633 | $ | (647) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
37
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Production Services Segment: | |||||||||||||||
| Revenues | $ | 74,738 | $ | 40,899 | $ | 199,830 | $ | 116,998 | |||||||
| Operating costs | 58,304 | 31,912 | 156,678 | 95,503 | |||||||||||
Production Services Segment margin (1) | $ | 16,434 | $ | 8,987 | $ | 43,152 | $ | 21,495 | |||||||
| Drilling Services Segment: | |||||||||||||||
| Revenues | $ | 42,543 | $ | 27,454 | $ | 120,338 | $ | 88,597 | |||||||
| Operating costs | 28,386 | 19,776 | 81,841 | 51,989 | |||||||||||
Drilling Services Segment margin (1) | $ | 14,157 | $ | 7,678 | $ | 38,497 | $ | 36,608 | |||||||
| Average number of drilling rigs | 24.0 | 31.0 | 24.0 | 31.0 | |||||||||||
| Utilization rate | 79 | % | 38 | % | 75 | % | 41 | % | |||||||
| Revenue days | 1,755 | 1,093 | 4,917 | 3,513 | |||||||||||
| Average revenues per day | $ | 24,241 | $ | 25,118 | $ | 24,474 | $ | 25,220 | |||||||
| Average operating costs per day | 16,174 | 18,093 | 16,644 | 14,799 | |||||||||||
| Drilling Services Segment margin per day | $ | 8,067 | $ | 7,025 | $ | 7,830 | $ | 10,421 | |||||||
| Combined: | |||||||||||||||
| Revenues | $ | 117,281 | $ | 68,353 | $ | 320,168 | $ | 205,595 | |||||||
| Operating costs | 86,690 | 51,688 | 238,519 | 147,492 | |||||||||||
| Consolidated margin | $ | 30,591 | $ | 16,665 | $ | 81,649 | $ | 58,103 | |||||||
| Net loss | $ | (17,227 | ) | $ | (34,620 | ) | $ | (62,560 | ) | $ | (92,310 | ) | |||
Adjusted EBITDA (2) | $ | 14,026 | $ | 3,285 | $ | 32,880 | $ | 13,321 | |||||||
| Successor | Predecessor | Combined (Non-GAAP) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2021 | One Month Ended June 30, 2020 | Five Months Ended May 31, 2020 | Six Months Ended June 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic drilling | $ | 45,897 | $ | 5,866 | $ | 53,341 | $ | 59,207 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| International drilling | 20,748 | 828 | 15,928 | 16,756 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Drilling services | 66,645 | 6,694 | 69,269 | 75,963 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Well servicing | 32,890 | 3,756 | 31,947 | 35,703 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Wireline services | 18,729 | 713 | 35,543 | 36,256 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Coiled tubing services | — | — | 5,611 | 5,611 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Production services | 51,619 | 4,469 | 73,101 | 77,570 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated revenues | $ | 118,264 | $ | 11,163 | $ | 142,370 | $ | 153,533 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating costs: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic drilling | $ | 32,864 | $ | 3,646 | $ | 33,101 | $ | 36,747 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| International drilling | 15,835 | 1,063 | 13,676 | 14,739 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Drilling services | 48,699 | 4,709 | 46,777 | 51,486 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Well servicing | 25,333 | 2,810 | 26,877 | 29,687 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Wireline services | 17,632 | 1,085 | 31,836 | 32,921 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Coiled tubing services | 59 | 139 | 8,557 | 8,696 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Production services | 43,024 | 4,034 | 67,270 | 71,304 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated operating costs | $ | 91,723 | $ | 8,743 | $ | 114,047 | $ | 122,790 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross margin: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic drilling | $ | 13,033 | $ | 2,220 | $ | 20,240 | $ | 22,460 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| International drilling | 4,913 | (235) | 2,252 | 2,017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Drilling services | 17,946 | 1,985 | 22,492 | 24,477 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Well servicing | 7,557 | 946 | 5,070 | 6,016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Wireline services | 1,097 | (372) | 3,707 | 3,335 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Coiled tubing services | (59) | (139) | (2,946) | (3,085) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Production services | 8,595 | 435 | 5,831 | 6,266 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated gross margin | $ | 26,541 | $ | 2,420 | $ | 28,323 | $ | 30,743 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | $ | (31,561) | $ | (9,817) | $ | (104,225) | $ | (114,042) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjusted EBITDA (1) | $ | 6,870 | $ | (1,280) | $ | 2,723 | $ | 1,443 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(1) Production Services Segment margin represents production services revenue less production services operating costs. Drilling Services Segment margin represents contract drilling revenues less contract drilling operating costs. Production Services Segment margin and Drilling Services Segment margin are non-GAAP financial measures which we consider to be important supplemental measures of operating performance. Our management uses these measures to facilitate period-to-period comparisons in operating performance of our reportable segments. We believe that Production Services Segment margin and Drilling Services Segment margin are useful to investors and analysts because they provide a means to evaluate the operating performance of the segments on an ongoing basis using criteria that are used by our
38
A reconciliation of net loss, as reported, to Adjusted EBITDA, and a reconciliation of net loss, as reported, to consolidated Production Services Segment margin and Drilling Services Segmentgross margin, are set forth in the following table.tables (amounts in thousands):
| Successor | Predecessor | Combined (Non-GAAP) | ||||||||||||||||||||||||||||||||||||||||||
| Three months ended June 30, 2021 | One Month Ended June 30, 2020 | Two Months Ended May 31, 2020 | Three Months Ended June 30, 2020 | |||||||||||||||||||||||||||||||||||||||||
| Net loss | $ | (14,619) | $ | (9,817) | $ | (35,121) | $ | (44,938) | ||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 11,944 | 5,236 | 13,663 | 18,899 | ||||||||||||||||||||||||||||||||||||||||
| Prepetition restructuring charges | — | — | (252) | (252) | ||||||||||||||||||||||||||||||||||||||||
| Impairment | — | 388 | — | 388 | ||||||||||||||||||||||||||||||||||||||||
| Reorganization items, net | (239) | 1,144 | 15,240 | 16,384 | ||||||||||||||||||||||||||||||||||||||||
| Interest expense | 6,698 | 2,215 | 4,135 | 6,350 | ||||||||||||||||||||||||||||||||||||||||
| Loss on extinguishment of debt | 109 | — | 3,723 | 3,723 | ||||||||||||||||||||||||||||||||||||||||
| Income tax benefit | (667) | (446) | (755) | (1,201) | ||||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | 3,226 | (1,280) | 633 | (647) | ||||||||||||||||||||||||||||||||||||||||
| General and administrative | 10,997 | 4,213 | 7,392 | 11,605 | ||||||||||||||||||||||||||||||||||||||||
| Bad debt recovery (expense), net | (198) | (283) | 482 | 199 | ||||||||||||||||||||||||||||||||||||||||
| Gain on dispositions of property and equipment, net | (1,072) | (460) | (272) | (732) | ||||||||||||||||||||||||||||||||||||||||
| Other expense (income) | 176 | 230 | (2,212) | (1,982) | ||||||||||||||||||||||||||||||||||||||||
| Consolidated gross margin | $ | 13,129 | $ | 2,420 | $ | 6,023 | $ | 8,443 | ||||||||||||||||||||||||||||||||||||
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| (amounts in thousands) | |||||||||||||||
| Reconciliation of net loss and Adjusted EBITDA to consolidated margin: | |||||||||||||||
| Net loss | $ | (17,227 | ) | $ | (34,620 | ) | $ | (62,560 | ) | $ | (92,310 | ) | |||
| Depreciation and amortization | 24,623 | 28,663 | 74,355 | 87,409 | |||||||||||
| Impairment charges | — | 4,262 | 795 | 4,262 | |||||||||||
| Interest expense | 6,613 | 6,678 | 19,090 | 19,307 | |||||||||||
| Loss on extinguishment of debt | — | — | — | 299 | |||||||||||
| Income tax expense (benefit) | 17 | (1,698 | ) | 1,200 | (5,646 | ) | |||||||||
| Adjusted EBITDA | 14,026 | 3,285 | 32,880 | 13,321 | |||||||||||
| General and administrative | 17,528 | 14,312 | 51,342 | 46,078 | |||||||||||
| Bad debt expense (recoveries) | 491 | (359 | ) | (98 | ) | (302 | ) | ||||||||
| Gain on dispositions of property and equipment, net | (1,159 | ) | (328 | ) | (2,251 | ) | (420 | ) | |||||||
| Other (income) expense | (295 | ) | (245 | ) | (224 | ) | (574 | ) | |||||||
| Consolidated margin | $ | 30,591 | $ | 16,665 | $ | 81,649 | $ | 58,103 | |||||||
| Successor | Predecessor | Combined (Non-GAAP) | ||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2021 | One Month Ended June 30, 2020 | Five Months Ended May 31, 2020 | Six Months Ended June 30, 2020 | |||||||||||||||||||||||||||||||||||||||||
| Net loss | $ | (31,561) | $ | (9,817) | $ | (104,225) | $ | (114,042) | ||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 25,309 | 5,236 | 35,647 | 40,883 | ||||||||||||||||||||||||||||||||||||||||
| Prepetition restructuring charges | — | — | 16,822 | 16,822 | ||||||||||||||||||||||||||||||||||||||||
| Impairment | — | 388 | 17,853 | 18,241 | ||||||||||||||||||||||||||||||||||||||||
| Reorganization items, net | (93) | 1,144 | 21,903 | 23,047 | ||||||||||||||||||||||||||||||||||||||||
| Interest expense | 13,232 | 2,215 | 12,294 | 14,509 | ||||||||||||||||||||||||||||||||||||||||
| Loss on extinguishment of debt | 192 | — | 4,215 | 4,215 | ||||||||||||||||||||||||||||||||||||||||
| Income tax benefit | (209) | (446) | (1,786) | (2,232) | ||||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | 6,870 | (1,280) | 2,723 | 1,443 | ||||||||||||||||||||||||||||||||||||||||
| General and administrative | 20,710 | 4,213 | 22,047 | 26,260 | ||||||||||||||||||||||||||||||||||||||||
| Bad debt recovery (expense), net | (395) | (283) | 1,209 | 926 | ||||||||||||||||||||||||||||||||||||||||
| Gain on dispositions of property and equipment, net | (3,370) | (460) | (989) | (1,449) | ||||||||||||||||||||||||||||||||||||||||
| Other expense (income) | 2,726 | 230 | 3,333 | 3,563 | ||||||||||||||||||||||||||||||||||||||||
| Consolidated gross margin | $ | 26,541 | $ | 2,420 | $ | 28,323 | $ | 30,743 | ||||||||||||||||||||||||||||||||||||
Consolidated gross margin— BothWe experienced a significant decline in demand for all our Production Servicesservice offerings beginning in March 2020 as a result of the economic downturn caused by the COVID-19 pandemic and Drilling Services Segments experienced an increaseadverse global oil production and pricing decisions made by OPEC and non-OPEC countries, as described in more detail in the earlier section entitled, “Market Conditions and Outlook.” As commodity prices improved during 2021, activity levels across all our businesses increased, particularly during the second quarter of 2021. Our consolidated gross margin increased $4.7 million, or 56%, for the three and nine months ended SeptemberJune 30, 2017,2021 and decreased $4.2 million, or 14%, for the six months ended June 30, 2021, as compared to the corresponding periods in 2016,2020.
39
•DrillingServices— Our drilling services revenues and operating costs increased by 29% and 63% for the three months ended June 30, 2021, respectively, as compared to the corresponding period in 2020, and decreased by 12% and 5% for the six months ended June 30, 2021, respectively. The following tables provide operating statistics for each of our industry continues to recover from an industry downturn. drilling services segments:
| Successor | Predecessor | Combined (Non-GAAP) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended June 30, 2021 | One Month Ended June 30, 2020 | Two Months Ended May 31, 2020 | Three Months Ended June 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
| Domestic drilling: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Average number of drilling rigs | 17 | 17 | 17 | 17 | ||||||||||||||||||||||||||||||||||||||||||||||
| Utilization rate | 69 | % | 53 | % | 69 | % | 64 | % | ||||||||||||||||||||||||||||||||||||||||||
| Revenue days | 1,073 | 270 | 718 | 988 | ||||||||||||||||||||||||||||||||||||||||||||||
| Average revenues per day | $ | 21,821 | $ | 21,726 | $ | 24,304 | $ | 23,599 | ||||||||||||||||||||||||||||||||||||||||||
| Average operating costs per day | 16,221 | 13,504 | 12,864 | 13,038 | ||||||||||||||||||||||||||||||||||||||||||||||
| Average margin per day | $ | 5,600 | $ | 8,222 | $ | 11,440 | $ | 10,561 | ||||||||||||||||||||||||||||||||||||||||||
| International drilling: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Average number of drilling rigs | 8 | 8 | 8 | 8 | ||||||||||||||||||||||||||||||||||||||||||||||
| Utilization rate | 41 | % | 10 | % | 4 | % | 6 | % | ||||||||||||||||||||||||||||||||||||||||||
| Revenue days | 296 | 25 | 20 | 45 | ||||||||||||||||||||||||||||||||||||||||||||||
| Average revenues per day | $ | 32,720 | $ | 33,120 | $ | 73,650 | $ | 51,133 | ||||||||||||||||||||||||||||||||||||||||||
| Average operating costs per day | 26,216 | 42,520 | 76,900 | 57,800 | ||||||||||||||||||||||||||||||||||||||||||||||
| Average margin per day | $ | 6,504 | $ | (9,400) | $ | (3,250) | $ | (6,667) | ||||||||||||||||||||||||||||||||||||||||||
| Successor | Predecessor | Combined (Non-GAAP) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2021 | One Month Ended June 30, 2020 | Five Months Ended May 31, 2020 | Six Months Ended June 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
| Domestic drilling: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Average number of drilling rigs | 17 | 17 | 17 | 17 | ||||||||||||||||||||||||||||||||||||||||||||||
| Utilization rate | 68 | % | 53 | % | 81 | % | 77 | % | ||||||||||||||||||||||||||||||||||||||||||
| Revenue days | 2,107 | 270 | 2,100 | 2,370 | ||||||||||||||||||||||||||||||||||||||||||||||
| Average revenues per day | $ | 21,783 | $ | 21,726 | $ | 25,400 | $ | 24,982 | ||||||||||||||||||||||||||||||||||||||||||
| Average operating costs per day | 15,598 | 13,504 | 15,762 | 15,505 | ||||||||||||||||||||||||||||||||||||||||||||||
| Average margin per day | $ | 6,185 | $ | 8,222 | $ | 9,638 | $ | 9,477 | ||||||||||||||||||||||||||||||||||||||||||
| International drilling: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Average number of drilling rigs | 8 | 8 | 8 | 8 | ||||||||||||||||||||||||||||||||||||||||||||||
| Utilization rate | 42 | % | 10 | % | 28 | % | 25 | % | ||||||||||||||||||||||||||||||||||||||||||
| Revenue days | 615 | 25 | 335 | 360 | ||||||||||||||||||||||||||||||||||||||||||||||
| Average revenues per day | $ | 33,737 | $ | 33,120 | $ | 47,546 | $ | 46,544 | ||||||||||||||||||||||||||||||||||||||||||
| Average operating costs per day | 25,748 | 42,520 | 40,824 | 40,942 | ||||||||||||||||||||||||||||||||||||||||||||||
| Average margin per day | $ | 7,989 | $ | (9,400) | $ | 6,722 | $ | 5,602 | ||||||||||||||||||||||||||||||||||||||||||
Our consolidateddomestic drilling average revenues and margin increased 84% and 41%per day for the three and ninesix months ended SeptemberJune 30, 2017, respectively,2021 decreased as compared to the corresponding periods in 2016.
Our international drilling average margin per day for the three and six months ended June 30, 2021 improved significantly as compared to the corresponding periods in 2016, while operating costs increased2020, driven primarily by $26.4 million, or 83%, and $61.2 million, or 64%, respectively. The following table provides a detail of revenues for each production services business for the three and nine months ended September 30, 2017 and 2016 (amountssignificant improvements in thousands, except percentages).
40
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||
| Well Servicing | $ | 19,103 | 25 | % | $ | 17,779 | 43 | % | $ | 58,854 | 30 | % | $ | 54,643 | 47 | % | |||||||
| Wireline Services | 46,085 | 62 | % | 18,412 | 45 | % | 118,463 | 59 | % | 48,266 | 41 | % | |||||||||||
| Coiled Tubing Services | 9,550 | 13 | % | 4,708 | 12 | % | 22,513 | 11 | % | 14,089 | 12 | % | |||||||||||
| Production services revenues | $ | 74,738 | $ | 40,899 | $ | 199,830 | $ | 116,998 | |||||||||||||||
the three and ninesix months ended SeptemberJune 30, 2017, respectively,2021 as compared to the corresponding periods in 2016. The total2020 contributed to the improvement in average margin per day during 2021. Additionally, average revenues and operating costs per day during 2021 were adversely impacted by Colombia’s national strike which resulted in an increase in rig hours for our well servicing fleetstandby time and delays in rig mobilization.
•Production Services— Our revenues and operating costs from production services increased by 1% and 5%, for the three and nine months ended SeptemberJune 30, 2017, respectively,2021 but decreased for the six months ended June 30, 2021 as compared to the corresponding periods in 2016, while pricing2020. The following tables provide operating statistics for theseeach of our production services segments:
| Successor | Predecessor | Combined (Non-GAAP) | |||||||||||||||||||||||||||||||||||||||||||||
| Three months ended June 30, 2021 | One Month Ended June 30, 2020 | Two Months Ended May 31, 2020 | Three Months Ended June 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||
| Well servicing: | |||||||||||||||||||||||||||||||||||||||||||||||
| Average number of rigs | 123 | 123 | 123 | 123 | |||||||||||||||||||||||||||||||||||||||||||
| Utilization rate | 41 | % | 26 | % | 23 | % | 24 | % | |||||||||||||||||||||||||||||||||||||||
| Rig hours | 34,711 | 7,765 | 12,565 | 20,330 | |||||||||||||||||||||||||||||||||||||||||||
| Average revenue per hour | $ | 520 | $ | 484 | $ | 504 | $ | 496 | |||||||||||||||||||||||||||||||||||||||
| Wireline services: | |||||||||||||||||||||||||||||||||||||||||||||||
| Average number of units | 72 | 93 | 93 | 93 | |||||||||||||||||||||||||||||||||||||||||||
| Number of stages | 1,675 | 92 | 383 | 475 | |||||||||||||||||||||||||||||||||||||||||||
| Successor | Successor | Predecessor | Combined (Non-GAAP) | ||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2021 | One Month Ended June 30, 2020 | Five Months Ended May 31, 2020 | Six Months Ended June 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||
| Well servicing: | |||||||||||||||||||||||||||||||||||||||||||||||
| Average number of rigs | 123 | 123 | 123 | 123 | |||||||||||||||||||||||||||||||||||||||||||
| Utilization rate | 38 | % | 26 | % | 40 | % | 38 | % | |||||||||||||||||||||||||||||||||||||||
| Rig hours | 64,569 | 7,765 | 56,797 | 64,562 | |||||||||||||||||||||||||||||||||||||||||||
| Average revenue per hour | $ | 509 | $ | 484 | $ | 562 | $ | 553 | |||||||||||||||||||||||||||||||||||||||
| Wireline services: | |||||||||||||||||||||||||||||||||||||||||||||||
| Average number of units | 73 | 93 | 93 | 93 | |||||||||||||||||||||||||||||||||||||||||||
| Number of stages | 4,266 | 92 | 6,510 | 6,602 | |||||||||||||||||||||||||||||||||||||||||||
Our well servicing rig hours increased by 7% and 2%. Our coiled tubing utilization increased to 29% and 25%71% for the three and nine months ended September 30, 2017, respectively, from 22% during both of the corresponding periods in 2016, partly due to the decrease in total fleet count during 2017 as three units were placed as held for sale at June 30, 2017.
| Three months ended September 30, | Nine months ended September 30, | ||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||
| Daywork contracts (not terminated early) | 100 | % | 94 | % | 100 | % | 84 | % | |||
| Daywork contracts terminated early | — | % | 6 | % | — | % | 15 | % | |||
| Turnkey contracts | — | % | — | % | — | % | 1 | % | |||
Our wireline services business segment experienced an increase of over 250% in the number of perforating stages performed but a 27% decrease in price per stage for the three months ended June 30, 2021 as compared to the corresponding period in 2020. For the six months ended June 30, 2021, the number of perforating stages performed and price per stage each decreased by 3%35% as compared to the corresponding period in 2020. Already decreasing demand for bothcompletion-related services worsened with the sharp decline in industry conditions beginning in late February 2020, and resulted in our decision to close several underperforming operating locations and downsize our fleet beginning in the second quarter of 2020. In early 2021, we closed another operating location that experienced a decline in revenue and are continuing our evaluation of this business for further cost reductions.
Depreciation and amortization expense — Our depreciation expense decreased by $7.0 million, or 37%, and $15.6 million, or 38%, for the three and ninesix months ended SeptemberJune 30, 2017,2021 as compared to the corresponding periods in 2016, while2020, primarily as a
41
result of the application of fresh start accounting which resulted in reductions to the values of our average operating costs per daylong-lived assets as of May 31, 2020 as well as the designation of all our coiled tubing assets as held-for-sale at June 30, 2020. The overall decrease in depreciation expense was partially offset by an increase for the amortization of intangible assets which were established in connection with fresh start accounting at May 31, 2020. Also, as a result of applying fresh start accounting, we assigned new useful lives to our long-lived assets, several of which were assigned a remaining useful life of one year. Therefore, with no significant capital expenditures expected for the remainder of 2021, we expect a decline in depreciation and amortization expense as this class of assets will be fully depreciated.
Prepetition restructuring charges— All expenses and losses incurred prior to the Petition Date which were related to the Chapter 11 proceedings are presented as prepetition restructuring charges in our Predecessor condensed consolidated statements of operations, including $9.6 million of expense incurred for the Commitment Premium pursuant to the Backstop Commitment Agreement. For more detail, see Note 2, Emergence from Voluntary Reorganization under Chapter 11, of the Notes to Consolidated Financial Statements, included in Part II, Item 8, Financial Statements and Supplementary Data, of our annual report on Form 10-K for the year ended December 31, 2020.
Impairment— Due to the significant decline in industry conditions, commodity prices, and projected utilization of equipment, as well as the COVID-19 pandemic’s impact on our industry, our projected cash flows declined during the first quarter of 2020, and we performed recoverability testing on all our reporting units. As a result of this analysis, we incurred impairment charges of $16.4 million and $1.9 million during 2020 to reduce the carrying values of our coiled tubing assets and certain held-for-sale assets, respectively, to their estimated fair values.
Reorganization items, net — Any expenses, gains, and losses incurred subsequent to the filing for Chapter 11 and directly related to such proceedings are presented as reorganization items in our condensed consolidated statements of operations. For more detail, see Note 2, Emergence from Voluntary Reorganization under Chapter 11, of the Notes to Consolidated Financial Statements, included in Part II, Item 8, Financial Statements and Supplementary Data, of our annual report on Form 10-K for the year ended December 31, 2020.
Interest expense — Our interest expense decreased by 11%$0.3 million, or 5%, and increased by 12%$1.3 million, or 9% for the three and ninesix months ended SeptemberJune 30, 2017, respectively,2021 as compared to the corresponding periods in 2016.2020, primarily because the Prepetition Senior Notes stopped accruing interest as of March 1, 2020, in accordance with the terms of the Plan, and because our total outstanding debt was significantly reduced upon our emergence from Chapter 11. The overall decreases were slightly offset by an increase in amortization of debt discounts and issuance costs, which increased the total effective interest rate during the period.
Income tax benefit— Our average revenues per day decreasedeffective tax rates differ from the applicable U.S. statutory rates primarily due to the expirationimpact of term contracts during 2016 that were entered into priorvaluation allowances, as well as the impact of state taxes, other permanent differences, and the mix of profit and loss between federal, state and international taxing jurisdictions with different tax rates.
General and administrative expense — Our general and administrative expense decreased by $0.6 million, or 5%, and $5.6 million, or 21%, for the three and six months ended June 30, 2021 as compared to the downturn at higher revenue rates, manycorresponding periods in 2020. These decreases primarily consist of whichreduced employee costs of $1.3 million and $5.6 million, respectively, as well as the impact of cost-cutting measures implemented during 2020 including, among other things, reductions in headcount, incentive compensation, and base salary compensation for our executives and other administrative personnel, and reduced cash compensation for our non-employee directors. These decreases were terminated early. partially offset by increases in stock compensation expense of $1.7 million and $2.2 million during these same respective periods, primarily attributable to the grants of restricted stock to our directors in April 2021.
Gain on dispositions of property and equipment, net— During the six months ended June 30, 2021 and the corresponding period in 2020, we recognized net gains of $3.4 million and $1.4 million, respectively, on the disposition or sale of various property and equipment, primarily for the sale of coiled tubing equipment.
Other expense (income)— The decrease in revenues per day was mostly offset by an increased percentage of our revenues attributable to our Colombian operations, where we typically earn a higher dayrate. Our operating costs per day increased duringother expense for the ninesix months ended SeptemberJune 30, 2017,2021 as compared to the corresponding period in 2016,2020 is primarily duerelated to a higher percentage$2.8 million of daywork revenues versus revenues earned under contracts that were terminated early, as well as the increased contribution fromnet foreign currency losses recognized for our Colombian operations, where our operating costs per day are higher. The increase in operating costs from increased activity was partially offset by the benefits realized from our reduced cost structure, especially in Colombia, which is the primary reason for the decrease in operating costs per day during the three months ended September 30, 2017, as compared to the corresponding period in 2016.
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||
| United States | $ | 35,140 | 83 | % | $ | 26,832 | 98 | % | $ | 93,959 | 78 | % | $ | 86,618 | 98 | % | |||||||
| Colombia | 7,403 | 17 | % | 622 | 2 | % | 26,379 | 22 | % | 1,979 | 2 | % | |||||||||||
| Drilling services revenues | $ | 42,543 | $ | 27,454 | $ | 120,338 | $ | 88,597 | |||||||||||||||
42
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with USU.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Actual results could differ from those estimates. As of SeptemberJune 30, 2017,2021, there were no significant changes to our critical accounting policies since the date of our annual report on Form 10-K for the year ended December 31, 2016.2020.
•Revenues. In accordance with ASC Topic 606, Revenue from Contracts with Customers, we estimate of compensation related accruals and our estimate of sales tax audit liability.
•Impairment Evaluation. In accordance with ASC Topic 360, Property, Plant and other equipment are based on our almost 50 years of experience in the oilfield services industry with similar equipment.
The assumptions usedwe use in the evaluation for impairment evaluation are inherently uncertain and require management judgment. Although we believe the assumptions and estimates used in our impairment analysesanalysis are reasonable, and appropriate, different assumptions and estimates could materially impact the analysesanalysis and resulting conclusions. The most significant inputs used in our impairment analysis include the projected utilization and pricing of our services, as well as the estimated proceeds upon any future sale or disposal of the assets, all of which are classified as Level 3 inputs as defined by ASC Topic 820, Fair Value Measurements and Disclosures. If commodity prices decrease or remain at current levels for an extended period of time, or if the demand for any of our assets become or remain idle for an extended amount of time, thenservices decreases below what we are currently projecting, our estimated cash flows may further decrease and thereforeour estimates of the probabilityfair value of a near term salecertain assets may increase.decrease as well. If any of the foregoing were to occur, we maycould incur additional impairment charges.
•Deferred Tax Assets. We provide a valuation allowance when it is more likely than not that some portion of our deferred tax assets will not be realized. We evaluated the impact of the reorganization, including the change in control, resulting from our bankruptcy emergence and determined it is more likely than not that we will not fully realize future income tax benefits related to our domestic net deferred tax assets based on the annual limitations that impact us, historical results, and expected market conditions known on the date of measurement. For more information, see Note 7, Taxes, of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
•Insurance Claim Liabilities. We use a combination of self-insurance and third-party insurance for various types of coverage. We have stop-loss coverage of $225,000 per covered individual per year under our health insurance and deductibles of $500,000 and $250,000 per occurrence under our workers’ compensation and auto liability insurance, respectively. We have a $500,000 self-insured retention and an additional aggregate deductible of $500,000 under our general liability insurance as well as an annual aggregate deductible of $1,000,000 on the first layer of excess coverage.
43
For more information about recently issued accounting standards, see Note 9, Commitments1, Organization and Contingencies, Summary of Significant Accounting Policies, of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk primarily consists of (i) interest rate risk associated with our variable rate debt and (ii) foreign currency exchange rate risk associated with our international operations in Colombia.
Interest Rate Risk — We are subjectexposed to interest rate market risk on our variable rate debt. We do not use financial instruments for trading or other speculative purposes. As of SeptemberJune 30, 2017, we had $97.7 million2021, the principal amount outstanding under our Revolving Credit Facility, which is our only variable rate debt.debt, the Senior Secured Notes, was $75.5 million. The impact of a hypothetical 1% increase or decrease in interest rates on this amount of debt would have resulted in a corresponding increase or decrease, respectively, in interest expense of approximately $0.7$0.4 million during the ninesix months ended SeptemberJune 30, 2017.2021. This potential increase or decrease is based on the simplified assumption that the level of variable rate debt remains constant with an immediate across-the-board interest rate increase or decrease as of January 1, 2017.2021.
Foreign Currency Risk— While the U.S. dollar is the functional currency for reporting purposes for our Colombian operations, we enter into transactions denominated in Colombian pesos.Pesos. Nonmonetary assets and liabilities are translated at historical rates and monetary assets and liabilities are translated at exchange rates in effect at the end of the period. Income statement accounts are translated at average rates for the period. As a result, Colombian Peso denominated transactions are affected by changes in exchange rates. We generally accept the exposure to exchange rate movements without using derivative financial instruments to manage this risk. Therefore, both positive and negative movements in the Colombian Peso currency exchange rate against the U.S. dollar have and will continue to affect the reported amount of revenues, expenses, profit, and assets and liabilities in our consolidated financial statements. The impact of currency rate changes on our Colombian Peso denominated transactions and balances resulted in net foreign currency gainslosses of $0.2$2.8 million for the ninesix months ended SeptemberJune 30, 2017.2021.
ITEM 4. CONTROLS AND PROCEDURES
In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of SeptemberJune 30, 2017,2021, to ensureprovide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
In the ordinary course of business, we may make changes to our systems and processes to improve controls and increase efficiency, and make changes to our internal controls over financial reporting in order to ensure that we maintain an effective internal control environment.
There has been no change in our internal control over financial reporting that occurred during the three months ended SeptemberJune 30, 20172021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
44
PART II - OTHER INFORMATION
From time to time, we are involved in routine litigation or subject to disputes or claims related toarising out of our business activities, including workers’ compensation claims and employment-related disputes. In the opinion of our management, none of the pending litigation, disputes or claims against us will have a material adverse effect on our financial condition, results of operations or cash flows. For information on Legal Proceedings, see Note 11, Commitments, Contingencies and Insurance Claim Liabilities, of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 Financial Statements, of this Quarterly Report on Form 10-Q.
ITEM 1A.RISK FACTORS
In addition to the risk factors described below and the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in Item 1A — “Risk Factors” in our Form 10-K, as amended by Form 10-K/A, for the year ended December 31, 2020, which could materially affect our business, financial condition or future results.
Risks Relating to the Pending Merger with Patterson-UTI
•Because the market price of Patterson common stock will fluctuate, our stockholders and convertible noteholders cannot be sure of the value of the shares of Patterson common stock they will receive in connection with the Mergers. In addition, because the Exchange Ratio is determined only at the time of the closing, the number of shares of Patterson common stock to be received in connection with the Mergers will not be known prior to that time.
In connection with the Mergers, each eligible share of common stock will be converted automatically into the right to receive the Merger Consideration, with cash paid in lieu of the issuance of any fractional shares of Patterson common stock. The Exchange Ratio is determined only at the time of closing and will depend on, among other things, the market price of Patterson common stock for specified periods prior to closing, our cash on hand at closing determined in accordance with the Merger Agreement, the amount of our designated expenses, any amounts required to repay in full and retire any indebtedness outstanding under our ABL Credit Facility and the amount of accrued interest on the Convertible Notes. In addition, the Exchange Ratio is subject to a downward adjustment as specified in the Merger Agreement if the average of the Patterson-UTI VWAP for the 10 consecutive trading days ending with the last complete trading day prior to the closing date is greater than $11.00. Therefore, the value of the Merger Consideration, including the number of shares of Patterson common stock received in connection with the Mergers, will depend in part on the market price of Patterson common stock at and for specified periods prior to the Effective Time. The market price of Patterson common stock has fluctuated since the date of the announcement of the parties’ entry into the Merger Agreement and will continue to fluctuate until the date the Mergers are completed and thereafter.
In addition to the market price of Patterson common stock, the Exchange Ratio and therefore the value of the Merger Consideration will depend on our cash on hand at closing determined in accordance with the Merger Agreement after payment of our designated expenses and debt repayments under our ABL credit facility.
•The market price for Patterson common stock following the closing may be affected by factors different from those that historically have affected or currently affect Patterson common stock and our common stock.
Upon completion of the Mergers, our stockholders and convertible noteholders will receive shares of Patterson common stock. Patterson’s financial position may differ from its financial position before the completion of the Mergers, and the results of operations of Patterson following the Mergers may be affected by some factors that are different from those currently affecting the results of operations of Patterson and those currently affecting our results of operations. Accordingly, the market price and performance of Patterson common stock is likely to be different from the performance of our common stock in the absence of the Mergers. In addition, general fluctuations in stock markets could have a material adverse effect on the market for, or liquidity of, Patterson common stock, regardless of Patterson’s actual operating performance.
•Our stockholders as of immediately prior to the Mergers will have a substantially reduced ownership in Patterson following the Mergers.
The maximum number of shares of Patterson common stock to be issued and the maximum amount of cash to be delivered by Patterson pursuant to the Merger Agreement will be 26,275,000 shares and $30,000,000 in cash, which
45
includes all amounts required to retire the Senior Notes, the Convertible Notes and any debt outstanding under our ABL Credit Facility, together with the payment of the Merger Consideration to holders of our common stock, subject to appraisal rights that may be exercised by such holders under Delaware law.
The actual number of shares of Patterson common stock to be issued pursuant to the Merger Agreement will be determined at the completion of the Mergers based on the Exchange Ratio that will be determined only at the closing. The Exchange Ratio will equal the quotient obtained by dividing (i) 26,275,000 (subject to a downward adjustment as specified in the Merger Agreement if the average of the Patterson-UTI VWAP for the 10 consecutive trading days ending with the last complete trading day prior to the closing date of the Mergers is greater than $11.00) less the shares of Patterson common stock to be delivered to our senior noteholders as described herein, by (ii) the aggregate number of shares of our common stock issued and outstanding immediately prior to the Effective Time plus the number of shares of our common stock into which the Convertible Notes are convertible immediately prior to the effective time (assuming physical settlement as specified in the indenture governing the Convertible Notes). The shares of common stock to be delivered to holders of common stock and Convertible Notes in the Transactions are referred to as the “Merger Consideration.” The issuance of these new shares could have the effect of depressing the market price of Patterson common stock, through dilution of earnings per share or otherwise. Any dilution of, or delay of any accretion to, Patterson’s earnings per share could cause the price of Patterson common stock to decline or increase at a reduced rate.
Following the completion of the Mergers and our debt repayments, it is expected that Patterson stockholders as of immediately prior to the Mergers will own approximately 88%, and holders of our securities as of immediately prior to the Mergers will own approximately 12%, of the issued and outstanding shares of Patterson common stock. As a result, our current stockholders will have significantly less influence on the policies of Patterson than they currently have on our policies.
•We must obtain certain regulatory approvals and clearances to consummate the Mergers.
The completion of the Mergers is subject to antitrust review in the United States. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and the rules promulgated thereunder, the Mergers cannot be completed until the parties to the Merger Agreement have given notification and furnished information to the Federal Trade Commission (the “FTC”) and the United States Department of Justice (the “DOJ”), and until the applicable waiting period has expired or has been terminated.
At any time before or after consummation of the Mergers, notwithstanding the early termination of the applicable waiting period under the HSR Act, the FTC, the DOJ or any state could take such action under antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the Mergers or seeking the divestiture of substantial assets of Patterson or us or its or our respective subsidiaries, respectively. Private parties may also seek to take legal action under antitrust laws under certain circumstances.
•The Mergers are subject to a number of conditions to the obligations of us and Patterson to complete the Mergers, which, if not fulfilled, or not fulfilled in a timely manner, may delay completion of the Mergers or result in termination of the Merger Agreement.
The respective obligations of each of us and Patterson to effect the Mergers are subject to the satisfaction at or prior to the Effective Time of the following conditions:
◦The approval of the merger proposal by our stockholders must have been obtained;
◦any waiting period (and any extension thereof) under the HSR Act relating to the Mergers shall have expired or been terminated;
◦no temporary restraining order, preliminary or permanent injunction or other judgment, order or decree or other legal restraint or prohibition issued by any governmental entity having jurisdiction over any party shall be in effect, and no law shall have been enacted, entered, promulgated, enforced or deemed applicable by any governmental entity that prohibits or makes illegal consummation of the Mergers;
◦the shares of Patterson common stock to be issued in the First Merger shall have been approved for listing on the NASDAQ;
46
◦the registration statement on Form S-4, shall have been declared effective by the SEC under the Securities Act and shall not be the subject of any stop order suspending the effectiveness of the Form S-4 and no action seeking a stop order shall have been initiated or threated by the SEC;
◦the Third Supplemental Indenture shall have been executed and delivered by us, the guarantors party thereto and the trustee under the Senior Note indenture, and shall be in full force and effect;
◦subject to certain exceptions and materiality standards provided in the Merger Agreement, the representations and warranties of the other party must be true and correct as of the date of the Merger Agreement and as of the closing date, and such party must have received an officer’s certificate from the other party to that effect; and
◦the other party must have performed in all material respects all of its obligations required to be performed under the Merger Agreement, and such party must have received an officer’s certificate from the other party to that effect.
The obligations of Patterson, Merger Sub Inc. and Merger Sub LLC to effect the Mergers are also subject to the satisfaction, or waiver by Patterson, at or prior to the effective time of the following additional conditions:
◦since the date of the Merger Agreement there shall not have occurred any event, change, circumstance, occurrence, effect or state of facts that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on us, and Patterson’s receipt of an officers’ certificate from us to that effect;
◦delivery of a properly executed Foreign Investment and Real Property Tax Act of 1980 notification letter which states that the shares of common stock issued and outstanding immediately prior to the effective time do not constitute “United States real property interests” under Section 897(c) of the Code for purposes of satisfying Patterson’s obligations under Treasury Regulation Section 1.1445-2(c)(3), and a form of notice to the IRS prepared in accordance with the requirements of Treasury Regulation Section 1.897-2(h)(2); and
◦not more than 6% of the shares of common stock outstanding as of immediately prior to the effective time shall be dissenting shares.
Many of the conditions to completion of the Mergers are not within either our control, and we cannot predict when, or if, these conditions will be satisfied. If any of these conditions are not satisfied or waived prior to the Outside Date, it is possible that the Merger Agreement may be terminated. Although we and Patterson have agreed in the Merger Agreement to use reasonable best efforts, subject to certain limitations, to complete the Mergers as promptly as practicable, these and other conditions to the completion of the Mergers may fail to be satisfied. In addition, satisfying the conditions to and completing the Mergers may take longer, and could cost more, than we expect. We cannot predict whether and when these other conditions will be satisfied. Furthermore, the requirements for obtaining the required clearances and approvals could delay the completion of the Mergers for a significant period of time or prevent them from occurring. Any delay in completing the Mergers may adversely affect the cost savings and other benefits that we expect to achieve if the Mergers and the integration of the companies’ respective businesses are completed within the expected timeframe. There can be no assurance that all required regulatory approvals will be obtained or obtained prior to the termination date.
•If the Mergers, taken together, do not qualify as a “reorganization” within the meaning of Section 368(a) of the Code, our stockholders may be required to pay substantial U.S. federal income taxes.
The Mergers are intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and we intend to report the mergers consistent with such qualification. Neither we nor Patterson intend to obtain a ruling from the IRS with respect to the tax consequences of the Mergers. If the IRS or a court determines that the Mergers, taken together, should not be treated as a “reorganization” within the meaning of Section 368(a) of the Code, a U.S. holder of common stock would generally recognize taxable gain or loss upon the exchange of common stock for Patterson common stock pursuant to the Mergers.
•Uncertainties associated with the Mergers may cause a loss of our key employees, which could adversely affect the future business and operations of Patterson following the Mergers.
We are dependent on the experience and industry knowledge of our officers and other key employees to execute our business plans. Patterson’s success after the Mergers will depend in part upon its ability to retain key employees. Our
47
current and prospective employees may experience uncertainty about their roles within Patterson following the Mergers or other concerns regarding the timing and completion of the Mergers or the operations of Patterson following the Mergers, any of which may have an adverse effect on our ability to retain or attract key personnel. In addition, the loss of our key personnel could diminish the anticipated benefits of the Mergers. Although we must implement any retention bonus arrangements for our employees and our subsidiaries that are specifically directed by Patterson, no assurance can be given that Patterson, following the Mergers, will be able to retain or attract our key employees to the same extent that we have previously been able to retain or attract our own employees.
•Our business relationships may be subject to disruption due to uncertainty associated with the Mergers, which could have a material adverse effect on our results of operations, cash flows and financial position during the pendency of the Mergers.
Parties with which we do business may experience uncertainty associated with the Mergers, including with respect to current or future business relationships with us following the Mergers. Our business relationships may be subject to disruption as customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners may attempt to delay or defer entering into new business relationships, negotiate changes in existing business relationships or consider entering into business relationships with parties other than us following the mergers. These disruptions could have a material and adverse effect on our results of operations, cash flows and financial position, regardless of whether the Mergers are completed, as well as a material and adverse effect on Patterson’s ability to realize the expected cost savings and other benefits of the Mergers. The risk, and adverse effect, of any disruption could be exacerbated by a delay in completion of the Mergers or termination of the Merger Agreement.
•The Merger Agreement subjects us to restrictions on our business activities prior to the Effective Time.
The Merger Agreement subjects us to restrictions on our business activities prior to the Effective Time. The Merger Agreement obligates us to use commercially reasonable efforts to carry on our business in the ordinary course in all material respects, and the Merger Agreement obligates us to use our commercially reasonable efforts to preserve intact our business organization, preserve our assets, rights and properties in good repair and condition, keep available the services of our current officers, employees and consultants and preserve our goodwill and relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with us. These restrictions could prevent us from pursuing certain business opportunities that arise prior to the Effective Time and are outside the ordinary course of business.
•The Merger Agreement limits our ability to pursue alternatives to the Mergers, may discourage other companies from making a favorable alternative transaction proposal and, in specified circumstances, could require us to pay Patterson a termination fee.
The Merger Agreement contains certain provisions that restrict our ability to solicit, initiate, endorse, knowingly encourage or knowingly facilitate any inquiry, proposal or offer with respect to, or making or completion of, any acquisition proposal, or any inquiry, proposal or offer that would reasonably be expected to lead to, an acquisition proposal with respect to us, and we have agreed to certain terms and conditions relating to our ability to enter into, continue or otherwise participate in any discussions or negotiations regarding or otherwise cooperate in any way with, any acquisition proposal. Further, even if the Pioneer board withdraws, modifies or qualifies in any manner adverse to Patterson its recommendation with respect to the Pioneer merger proposal, unless the Merger Agreement has been terminated in accordance with its terms, we will still be required to submit the Pioneer merger proposal to a vote at the Pioneer special meeting. In addition, Patterson generally has an opportunity to offer to modify the terms of the Merger Agreement in response to any competing acquisition proposals or intervening events before the Pioneer board may withdraw, modify or qualify its recommendation. The Merger Agreement further provides that under specified circumstances, including after receipt of certain alternative acquisition proposals, we may be required to pay Patterson a cash termination fee equal to $9.5 million.
These provisions could discourage a potential third-party acquirer or other strategic transaction partner that might have an interest in acquiring all or a significant portion of us from considering or pursuing an alternative transaction with us or proposing such a transaction, even if it were prepared to pay consideration with a higher per share value than the total value proposed to be paid or received in the Mergers. These provisions might also result in a potential third-party acquirer or other strategic transaction partner proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances.
48
•Failure to complete the Mergers could have a material adverse effect on our results of operations, cash flows and financial positions.
If the Mergers are not completed for any reason, including as a result of failure to obtain all requisite regulatory approvals or if our stockholders fail to approve the Pioneer merger proposal, our ongoing business may be materially adversely affected and, without realizing any of the benefits of having completed the Mergers, we would be subject to a number of risks, including the following:
◦we may experience negative reactions from our customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners;
◦we will still be required to pay certain significant costs relating to the Mergers, such as legal, accounting, financial advisor and printing fees;
◦we may be required to pay a termination fee as required by the Merger Agreement;
◦the Merger Agreement places certain restrictions on our conduct pursuant to the terms of the Merger Agreement, which may delay or prevent us from undertaking business opportunities that, absent the Merger Agreement, may have been pursued;
◦matters relating to the Mergers (including integration planning) require substantial commitments of time and resources by our management, which may have resulted in the distraction of our management from ongoing business operations and pursuing other opportunities that could have been beneficial to us; and
◦litigation related to any failure to complete the Mergers or related to any enforcement proceeding commenced against us to perform our obligations pursuant to the Merger Agreement.
If the Mergers are not completed, the risks described above may materialize and they may have a material adverse effect on our results of operations, cash flows, financial position and stock prices.
•The shares of Patterson common stock to be received by our stockholders upon completion of the Mergers will have different rights from shares of our common stock.
Upon completion of the Mergers, our stockholders will no longer be stockholders of us. Instead, former Pioneer stockholders will become Patterson stockholders, and, while their rights as Patterson stockholders will continue to be governed by the laws of the state of Delaware, their rights will be subject to and governed by the terms of the Patterson certificate of incorporation and the Patterson bylaws. The laws of the state of Delaware and terms of the Patterson certificate of incorporation and the Patterson bylaws are in some respects different than the terms of our certificate of incorporation and our bylaws, which currently govern the rights of our stockholders.
•We are expected to incur significant transaction costs in connection with the Mergers, which may be in excess of those anticipated by us and, except for the Pioneer designated expenses, will be paid by Patterson in accordance with the terms of the Merger Agreement.
We have incurred and are expected to continue to incur a number of non-recurring costs associated with negotiating and completing the Mergers, combining the operations of the two companies and achieving desired synergies. All costs and expenses incurred in connection with the authorization, preparation, investigation, negotiation, execution and performance of the Merger Agreement and the transactions contemplated thereby, including the Mergers, will be paid by Patterson, except with respect to the Pioneer designated expenses, which will be paid by us, and include, among others, any fees paid to our financial and legal advisors, any brokers’, finders’ or similar fees payable by us, 50% of all fees incurred in connection with the filing, printing and mailing of the proxy statement/prospectus and specified employee retention, severance and benefit costs. These costs have been, and will continue to be, substantial and will be borne by Patterson and us, as applicable, whether or not the Mergers are completed. Patterson will also incur costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and other employment-related costs. We and Patterson will continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in connection with the Mergers and the integration of the two companies’ businesses. While we and Patterson have assumed that a certain level of expenses would be incurred, there are many factors beyond our control that could affect the total amount or the timing of the expenses. The elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may not offset integration-related costs and achieve a net benefit in the near term, or at all.
49
The costs described above and any unanticipated costs and expenses, which will be borne by Patterson or us, as applicable, even if the Mergers are not completed, could have an adverse effect on our financial condition and operating results.
•Litigation relating to the Mergers could result in an injunction preventing the completion of the Mergers and/or substantial costs to us.
Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into acquisition, merger or other business combination agreements. Even if such a lawsuit is without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on our liquidity and financial condition.
Lawsuits that may be brought against us or our respective directors could also seek, among other things, injunctive relief or other equitable relief, including a request to rescind parts of the Merger Agreement already implemented and to otherwise enjoin the parties from consummating the Mergers. One of the conditions to the closing of the Mergers is that no injunction by any court or other tribunal of competent jurisdiction has been entered and continues to be in effect and no law has been adopted or is effective, in either case that prohibits or makes illegal the closing of the Mergers. Consequently, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Mergers, that injunction may delay or prevent the Mergers from being completed within the expected timeframe or at all, which may adversely affect our business, financial position and results of operation. Either we or Patterson may terminate the Merger Agreement if any court of competent jurisdiction or other governmental entity issues any judgment, order, injunction, rule or decree, or takes any other action restraining, enjoining or otherwise prohibiting any of the transactions contemplated by the Merger Agreement, and such judgment, order, injunction, rule, decree or other action becomes final and nonappealable, so long as the party seeking to terminate the Merger Agreement has used its reasonable best efforts to contest, appeal and remove such judgment, order, injunction, rule, decree, ruling or other action in accordance with the terms of the Merger Agreement.
There can be no assurance that any of the defendants will be successful in the outcome of any potential future lawsuits. The defense or settlement of any lawsuit or claim that remains unresolved at the time the Mergers are completed may adversely affect our business, financial condition, results of operations and cash flows.
•The Mergers may be completed even though material adverse changes subsequent to the announcement of the Mergers, such as industry-wide changes or other events, may occur.
Patterson can refuse to complete the Mergers if there is a material adverse change affecting us. However, some types of changes do not permit either party to refuse to complete the transaction, even if such changes would have a material adverse effect on us. For example, a worsening of our financial condition or results of operations.operations due to a decrease in commodity prices or general economic conditions would not give Patterson the right to refuse to complete the Mergers. In addition, the parties have the ability, but are under no obligation, to waive any material adverse change that results in the failure of a closing condition and instead proceed with completing the Mergers. If adverse changes occur that affect either party but the parties are still required or voluntarily decide to complete the transaction, Patterson’s share price, business and financial results after the Mergers may suffer.
•Our stockholders are entitled to appraisal rights in connection with the Mergers.
None.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
50
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION |
51
ITEM 6. EXHIBITS
The following exhibits are filed as part of this report:
| Exhibit Number | Description | |||||||||||||
| 2.1* | - | |||||||||||||
| 3.1* | - | |||||||||||||
| 3.2* | - | |||||||||||||
| 3.3* | - | |||||||||||||
| 4.1* | - | |||||||||||||
| 4.2* | - | |||||||||||||
| 4.3* | - | |||||||||||||
| 4.4* | ||||||||||||||
| 4.5* | - | |||||||||||||
| 4.6* | - | |||||||||||||
| 4.7* | - | |||||||||||||
| 4.8* | - | |||||||||||||
| 4.9* | ||||||||||||||
| 4.10** | - | |||||||||||||
| 4.11** | - | |||||||||||||
| 31.1** | - | |||||||||||||
| 31.2** | - | |||||||||||||
| 32.1# | - | |||||||||||||
| 32.2# | - | |||||||||||||
| 99.1* | ||||||||||||||
| 101.INS | - | Inline XBRL Instance Document—the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL 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 | ||||||||||||
52
| Exhibit Number | Description | |||||||||||||
| 101.DEF | - | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||||||||||||
| 104 | - | Cover Page Interactive Data File (embedded within the Inline XBRL document) | ||||||||||||
| * | Incorporated by reference to the filing indicated. | |||||||||||||
| ** | Filed herewith. | |||||||||||||
| # | Furnished herewith. | |||||||||||||
53
SIGNATURES
Pursuant to the requirements 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.
| PIONEER ENERGY SERVICES CORP. | ||
| /s/ Lorne E. Phillips | ||
| Lorne E. Phillips | ||
| Executive Vice President and Chief Financial Officer | ||
| (Principal Financial Officer and Duly Authorized Officer) | ||
Dated: November 2, 2017August 6, 2021
54