UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q | |||
| |||
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
2022
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File No. 001-34037
Commission Company Name: SUPERIOR ENERGY SERVICES, INC
SUPERIOR ENERGY SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware |
75-2379388 | |||||
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| ||||
(State or other jurisdiction of |
| ||||
incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
1001 Louisiana Street, Suite 2900 | Houston, TX |
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(Address of principal executive offices) | 77002 (Zip Code) |
Registrant’s telephone number, including area code: (713) (713) 654-2200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol | Name of each exchange on which registered |
None | N/A | None |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨Yes ☒ No x
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes xYes ☒ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated filer | Accelerated filer | |
Non-accelerated filer | Smaller reporting company | |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x☒
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ¨☒ No x
The number of shares of the registrant’s Class A common stock outstanding on October 28, 2021July 31, 2022 was 19,998,695.19,998,695.
The number of shares of the registrant’s Class B common stock outstanding on October 28, 2021July 31, 2022 was 76,269.76,269.
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q for
the Quarterly Period Ended June 30, 2021
TABLE OF CONTENTS
Page | |||
3 | |||
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PART I. | FINANCIAL INFORMATION | ||
Item 1. |
| ||
| |||
| |||
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) |
| ||
7 | |||
Unaudited Consolidated Statements of Changes in Stockholders' Equity (Deficit) | 8 | ||
9 | |||
Notes to Unaudited Condensed Consolidated Financial Statements |
| ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| |
Item 3. | Quantitative and Qualitative Disclosures |
| |
Item 4. |
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PART II. | OTHER INFORMATION | ||
Item 1. |
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Item 1A. |
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Item 2. | 31 | ||
Item 3. |
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Item 4. | 31 | ||
Item 5. | 31 | ||
Item 6. |
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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (the “Form 10-Q”) and other documents filed by us with the Securities and Exchange Commission (the “SEC”) contain, and future oral or written statements or press releases by us and our management may contain, forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Generally, the words “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks” and “estimates,” variations of such words and similar expressions identify forward-looking statements. All statements, other than statements of historical fact, included in this Form 10-Q regarding our financial position, financial performance, liquidity, strategic alternatives, market outlook, future capital needs, capital allocation plans, business strategies and other plans and objectives of our management for future operations and activities are forward-looking statements. These statements are based on certain assumptions and analyses made by our management in light of their experience and prevailing circumstances on the date such statements are made. Such forward-looking statements, and the assumptions on which they are based, are inherently speculative and are subject to a number of risks and uncertainties that could cause our actual results to differ materially from such statements. Such risks and uncertainties include, but are not limited to:
These risks and other uncertainties related to our business are described in detail in our Annual Report on Form 10-K for the year ended December 31, 2021. We undertake no obligation to update any of our forward-looking statements in this discussion. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.
3
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements and Notes
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
(unaudited)
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 391,219 |
|
| $ | 314,974 |
|
Accounts receivable, net |
|
| 211,014 |
|
|
| 182,432 |
|
Income taxes receivable |
|
| 5,091 |
|
|
| 5,099 |
|
Prepaid expenses |
|
| 18,513 |
|
|
| 15,861 |
|
Inventory |
|
| 67,201 |
|
|
| 60,603 |
|
Investment in equity securities |
|
| 16,524 |
|
|
| 25,735 |
|
Other current assets |
|
| 5,349 |
|
|
| 6,701 |
|
Assets held for sale |
|
| 25,629 |
|
|
| 37,528 |
|
Total current assets |
|
| 740,540 |
|
|
| 648,933 |
|
Property, plant and equipment, net |
|
| 286,927 |
|
|
| 356,274 |
|
Note receivable |
|
| 65,140 |
|
|
| 60,588 |
|
Restricted cash |
|
| 79,595 |
|
|
| 79,561 |
|
Other long-term assets, net |
|
| 50,374 |
|
|
| 54,152 |
|
Total assets |
| $ | 1,222,576 |
|
| $ | 1,199,508 |
|
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 44,334 |
|
| $ | 43,080 |
|
Accrued expenses |
|
| 111,839 |
|
|
| 108,610 |
|
Income taxes payable |
|
| 10,449 |
|
|
| 8,272 |
|
Liabilities held for sale |
|
| 4,200 |
|
|
| 5,607 |
|
Total current liabilities |
|
| 170,822 |
|
|
| 165,569 |
|
Decommissioning liability |
|
| 142,740 |
|
|
| 190,380 |
|
Deferred income taxes |
|
| 16,225 |
|
|
| 12,441 |
|
Other long-term liabilities |
|
| 82,169 |
|
|
| 89,385 |
|
Total liabilities |
|
| 411,956 |
|
|
| 457,775 |
|
|
|
|
|
|
|
| ||
Stockholders’ equity (deficit): |
|
|
|
|
|
| ||
Class A common stock $0.01 par value; 50,000 shares authorized; |
|
| 200 |
|
|
| 200 |
|
Class B common stock $0.01 par value; 2,000 shares authorized; |
|
| 1 |
|
|
| 1 |
|
Class A Additional paid-in capital |
|
| 902,486 |
|
|
| 902,486 |
|
Class B Additional paid-in capital |
|
| 2,767 |
|
|
| 1,224 |
|
Accumulated deficit |
|
| (94,834 | ) |
|
| (162,178 | ) |
Total stockholders’ equity |
|
| 810,620 |
|
|
| 741,733 |
|
Total liabilities and stockholders’ equity |
| $ | 1,222,576 |
|
| $ | 1,199,508 |
|
See accompanying notes to unaudited condensed consolidated financial statements
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||
Condensed Consolidated Balance Sheets | ||||||
(in thousands, except share data) | ||||||
(unaudited) | ||||||
Successor | Predecessor | |||||
ASSETS | June 30, 2021 | December 31, 2020 | ||||
Current assets: | ||||||
Cash and cash equivalents | $ | 205,748 | $ | 188,006 | ||
Accounts receivable, net of allowance for doubtful accounts of $515 and $24,629 at | 171,480 | 158,516 | ||||
Income taxes receivable | - | 8,891 | ||||
Prepaid expenses | 34,540 | 31,793 | ||||
Inventory | 86,064 | 77,027 | ||||
Other current assets | 7,762 | 9,171 | ||||
Assets held for sale | 170,194 | 242,104 | ||||
Total current assets | 675,788 | 715,508 | ||||
Property, plant and equipment, net | 455,079 | 408,107 | ||||
Operating lease right-of-use assets | 30,755 | 33,317 | ||||
Goodwill | - | 138,677 | ||||
Notes receivable | 74,370 | 72,129 | ||||
Restricted cash | 80,159 | 80,179 | ||||
Intangible and other long-term assets, net | 24,436 | 53,162 | ||||
Total assets | $ | 1,340,587 | $ | 1,501,079 | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 60,735 | $ | 50,330 | ||
Accrued expenses | 115,069 | 114,777 | ||||
Income taxes payable | 4,829 | - | ||||
Liabilities held for sale | 35,730 | 46,376 | ||||
Total current liabilities | 216,363 | 211,483 | ||||
Decommissioning liabilities | 171,744 | 134,436 | ||||
Operating lease liabilities | 21,353 | 29,464 | ||||
Deferred income taxes | 43,227 | 5,288 | ||||
Other long-term liabilities | 72,758 | 123,261 | ||||
Total non-current liabilities | 309,082 | 292,449 | ||||
Liabilities Subject to Compromise | - | 1,335,794 | ||||
Total liabilities | 525,445 | 1,839,726 | ||||
Stockholders’ equity (deficit): | ||||||
Predecessor common stock $0.001 par value; Authorized - 25,000,000, Issued - 15,799,318, Outstanding - 14,826,906 at December 31, 2020 | - | 16 | ||||
Successor Class A common stock $0.01 par value; Authorized - 50,000,000 shares 19,998,695 shares issued and outstanding at June 30, 2021 | 200 | - | ||||
Successor Class B common stock $0.01 par value; Authorized - 2,000,000 shares 113,840 shares issued and 76,269 shares outstanding at June 30, 2021 | 1 | - | ||||
Class A Additional paid-in capital | 902,486 | 2,756,889 | ||||
Class B Additional paid-in capital | 84 | - | ||||
Predecessor Treasury stock at cost, 972,412 shares at December 31, 2020 | - | (4,290) | ||||
Accumulated other comprehensive loss, net | - | (67,947) | ||||
Accumulated deficit | (87,629) | (3,023,315) | ||||
Total stockholders’ equity (deficit) | 815,142 | (338,647) | ||||
Total liabilities and stockholders’ equity (deficit) | $ | 1,340,587 | $ | 1,501,079 | ||
See accompanying notes to unaudited condensed consolidated financial statements. | ||||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||
Condensed Consolidated Statements of Operations | ||||||
(in thousands, except per share data) | ||||||
(unaudited) | ||||||
Successor | Predecessor | |||||
For the Three Months Ended June 30, 2021 | For the Three Months Ended June 30, 2020 | |||||
Revenues: | ||||||
Services | $ | 79,787 | $ | 59,919 | ||
Rentals | 53,238 | 51,758 | ||||
Product sales | 32,867 | 39,905 | ||||
Total revenues | 165,892 | 151,582 | ||||
Costs and expenses: | ||||||
Cost of services | 54,176 | 47,685 | ||||
Cost of rentals | 24,750 | 19,307 | ||||
Cost of sales | 24,653 | 26,434 | ||||
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) | 103,579 | 93,426 | ||||
Depreciation, depletion, amortization and accretion - services | 28,384 | 11,483 | ||||
Depreciation, depletion, amortization and accretion - rentals | 18,940 | 9,761 | ||||
Depreciation, depletion, amortization and accretion - sales | 11,694 | 7,464 | ||||
General and administrative expenses | 32,308 | 55,528 | ||||
Restructuring and other expense | 7,438 | - | ||||
Loss from operations | (36,451) | (26,080) | ||||
Other income (expense): | ||||||
Interest income (expense), net | 535 | (24,757) | ||||
Other income: | 2,570 | 821 | ||||
Loss from continuing operations before income taxes | (33,346) | (50,016) | ||||
Income tax (expense) benefit | 1,747 | 4,324 | ||||
Net loss from continuing operations | (31,599) | (45,692) | ||||
Loss from discontinued operations, net of income tax | (19,400) | (19,414) | ||||
Net loss | $ | (50,999) | $ | (65,106) | ||
Loss per share -basic and diluted | ||||||
Loss from continuing operations | $ | (1.58) | $ | (3.08) | ||
Loss from discontinued operations, net of income tax | (0.97) | (1.31) | ||||
Net loss | $ | (2.55) | $ | (4.39) | ||
Weighted-average shares outstanding - basic and diluted | 19,999 | 14,826 | ||||
See accompanying notes to condensed consolidated financial statements. | ||||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | |||||||||
Condensed Consolidated Statements of Operations | |||||||||
(in thousands, except per share data) | |||||||||
(unaudited) | |||||||||
Successor | Predecessor | ||||||||
For the Period February 3, 2021 through June 30, 2021 | For the Period January 1, 2021 through February 2, 2021 | For the Six Months Ended June 30, 2020 | |||||||
Revenues: | |||||||||
Services | $ | 123,466 | $ | 19,234 | $ | 163,722 | |||
Rentals | 84,552 | 14,434 | 141,085 | ||||||
Product sales | 63,717 | 12,260 | 81,014 | ||||||
Total revenues | 271,735 | 45,928 | 385,821 | ||||||
Costs and expenses: | |||||||||
Cost of services | 95,478 | 15,080 | 122,867 | ||||||
Cost of rentals | 34,949 | 5,876 | 50,234 | ||||||
Cost of sales | 41,020 | 8,817 | 57,838 | ||||||
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) | 171,447 | 29,773 | 230,939 | ||||||
Depreciation, depletion, amortization and accretion - services | 44,748 | 3,500 | 25,831 | ||||||
Depreciation, depletion, amortization and accretion - rentals | 30,841 | 2,627 | 22,266 | ||||||
Depreciation, depletion, amortization and accretion - sales | 23,459 | 2,231 | 12,792 | ||||||
General and administrative expenses | 50,746 | 11,052 | 114,804 | ||||||
Restructuring and other expenses | 15,821 | 1,270 | - | ||||||
Reduction in value of assets | - | - | 16,522 | ||||||
Loss from operations | (65,327) | (4,525) | (37,333) | ||||||
Other income (expense): | |||||||||
Interest income (expense), net | 747 | 202 | (49,898) | ||||||
Reorganization items, net | - | 335,560 | - | ||||||
Other expense | (275) | (2,105) | (3,411) | ||||||
Income (loss) from continuing operations before income taxes | (64,855) | 329,132 | (90,642) | ||||||
Income tax (expense) benefit | 6,032 | (60,003) | 14,160 | ||||||
Net income (loss) from continuing operations | (58,823) | 269,129 | (76,482) | ||||||
Loss from discontinued operations, net of income tax | (28,806) | (352) | (68,088) | ||||||
Net income (loss) | $ | (87,629) | $ | 268,777 | $ | (144,570) | |||
Income (loss) per share -basic | |||||||||
Net income (loss) from continuing operations | $ | (2.94) | $ | 18.13 | $ | (5.18) | |||
Loss from discontinued operations, net of income tax | (1.44) | (0.02) | (4.61) | ||||||
Net income (loss) | $ | (4.38) | $ | 18.11 | $ | (9.79) | |||
Income (loss) per share - diluted: | |||||||||
Net income (loss) from continuing operations | $ | (2.94) | $ | 18.05 | $ | (5.18) | |||
Loss from discontinued operations, net of income tax | (1.44) | (0.02) | (4.61) | ||||||
Net income (loss) | $ | (4.38) | $ | 18.03 | $ | (9.79) | |||
Weighted-average shares outstanding - basic | 19,997 | 14,845 | 14,767 | ||||||
Weighted-average shares outstanding - diluted | 19,997 | 14,905 | 14,767 | ||||||
See accompanying notes to condensed consolidated financial statements. | |||||||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||
Condensed Consolidated Statements of Comprehensive Income (Loss) | ||||||
(in thousands) | ||||||
(unaudited) | ||||||
Successor | Predecessor | |||||
For the Three Months Ended June 30, 2021 | For the Three Months Ended June 30, 2020 | |||||
Net loss | $ | (50,999) | $ | (65,106) | ||
Change in cumulative translation adjustment, net of tax | - | (285) | ||||
Comprehensive loss | $ | (50,999) | $ | (65,391) | ||
See accompanying notes to unaudited condensed consolidated financial statements. | ||||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
Successor | Predecessor | ||||||||
For the Period February 3, 2021 through June 30, 2021 | For the Period January 1, 2021 through February 2, 2021 | For the Six Months Ended June 30, 2020 | |||||||
Net income (loss) | $ | (87,629) | $ | 268,777 | $ | (144,570) | |||
Change in cumulative translation adjustment, net of tax | - | 67,947 | (4,823) | ||||||
Comprehensive income (loss) | $ | (87,629) | $ | 336,724 | $ | (149,393) | |||
See accompanying notes to unaudited condensed consolidated financial statements. | |||||||||
|
| Successor |
|
|
| Predecessor |
| ||||||
|
| For the Six Months Ended June 30, 2022 |
|
| For the Period |
|
|
| For the Period |
| |||
Revenues: |
|
|
|
|
|
|
|
|
|
| |||
Services |
| $ | 191,505 |
|
| $ | 123,466 |
|
|
| $ | 19,234 |
|
Rentals |
|
| 144,155 |
|
|
| 84,552 |
|
|
|
| 14,434 |
|
Product sales |
|
| 86,910 |
|
|
| 63,717 |
|
|
|
| 12,260 |
|
Total revenues |
|
| 422,570 |
|
|
| 271,735 |
|
|
|
| 45,928 |
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
| |||
Services |
|
| 133,698 |
|
|
| 95,113 |
|
|
|
| 15,080 |
|
Rentals |
|
| 48,848 |
|
|
| 34,949 |
|
|
|
| 5,876 |
|
Product sales |
|
| 50,802 |
|
|
| 41,020 |
|
|
|
| 8,817 |
|
Total cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 233,348 |
|
|
| 171,082 |
|
|
|
| 29,773 |
|
Depreciation, depletion, amortization and accretion: |
|
|
|
|
|
|
|
|
|
| |||
Services |
|
| 21,958 |
|
|
| 44,748 |
|
|
|
| 3,500 |
|
Rentals |
|
| 16,529 |
|
|
| 30,841 |
|
|
|
| 2,627 |
|
Product sales |
|
| 18,944 |
|
|
| 23,459 |
|
|
|
| 2,231 |
|
Total depreciation, depletion, amortization and accretion |
|
| 57,431 |
|
|
| 99,048 |
|
|
|
| 8,358 |
|
General and administrative expenses |
|
| 62,249 |
|
|
| 50,746 |
|
|
|
| 11,052 |
|
Restructuring expenses |
|
| 3,218 |
|
|
| 15,821 |
|
|
|
| 1,270 |
|
Other (gains) and losses, net |
|
| (16,866 | ) |
|
| 365 |
|
|
|
| - |
|
Income (loss) from operations |
|
| 83,190 |
|
|
| (65,327 | ) |
|
|
| (4,525 | ) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
| |||
Interest income, net |
|
| 2,638 |
|
|
| 747 |
|
|
|
| 202 |
|
Reorganization items, net |
|
| - |
|
|
| - |
|
|
|
| 335,560 |
|
Other income (expense) |
|
| 476 |
|
|
| (275 | ) |
|
|
| (2,105 | ) |
Income (loss) from continuing operations before income taxes |
|
| 86,304 |
|
|
| (64,855 | ) |
|
|
| 329,132 |
|
Income tax (expense) benefit |
|
| (18,755 | ) |
|
| 6,032 |
|
|
|
| (60,003 | ) |
Net income (loss) from continuing operations |
|
| 67,549 |
|
|
| (58,823 | ) |
|
|
| 269,129 |
|
Income (loss) from discontinued operations, net of income tax |
|
| (205 | ) |
|
| (28,806 | ) |
|
|
| (352 | ) |
Net income (loss) |
| $ | 67,344 |
|
| $ | (87,629 | ) |
|
| $ | 268,777 |
|
|
|
|
|
|
|
|
|
|
|
| |||
Income (loss) per share - basic: |
|
|
|
|
|
|
|
|
|
| |||
Net income (loss) from continuing operations |
| $ | 3.38 |
|
| $ | (2.94 | ) |
|
| $ | 18.13 |
|
Income (loss) from discontinued operations, net of income tax |
|
| (0.01 | ) |
|
| (1.44 | ) |
|
|
| (0.02 | ) |
Net income (loss) |
| $ | 3.37 |
|
| $ | (4.38 | ) |
|
| $ | 18.11 |
|
|
|
|
|
|
|
|
|
|
|
| |||
Income (loss) per share - diluted: |
|
|
|
|
|
|
|
|
|
| |||
Net income (loss) from continuing operations |
| $ | 3.37 |
|
| $ | (2.94 | ) |
|
| $ | 18.06 |
|
Income (loss) from discontinued operations, net of income tax |
|
| (0.01 | ) |
|
| (1.44 | ) |
|
|
| (0.03 | ) |
Net income (loss) |
| $ | 3.36 |
|
| $ | (4.38 | ) |
|
| $ | 18.03 |
|
|
|
|
|
|
|
|
|
|
|
| |||
Weighted-average shares outstanding - basic |
|
| 20,011 |
|
|
| 19,997 |
|
|
|
| 14,845 |
|
Weighted-average shares outstanding - diluted |
|
| 20,065 |
|
|
| 19,997 |
|
|
|
| 14,905 |
|
See accompanying notes to unaudited condensed consolidated financial statements
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(unaudited)
|
| For the Three Months Ended June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Net income (loss) |
| $ | 41,618 |
|
| $ | (50,999 | ) |
Change in cumulative translation adjustment, net of tax |
|
| 0 |
|
|
| 0 |
|
Comprehensive income (loss) |
| $ | 41,618 |
|
| $ | (50,999 | ) |
|
| Successor |
|
|
| Predecessor |
| ||||||
|
| For the Six Months Ended June 30, 2022 |
|
| For the Period |
|
|
| For the Period |
| |||
Net income (loss) |
| $ | 67,344 |
|
| $ | (87,629 | ) |
|
| $ | 268,777 |
|
Change in cumulative translation adjustment, net of tax |
|
| - |
|
|
| - |
|
|
|
| 67,947 |
|
Comprehensive income (loss) |
| $ | 67,344 |
|
| $ | (87,629 | ) |
|
| $ | 336,724 |
|
See accompanying notes to unaudited condensed consolidated financial statements
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | |||||||||||
Condensed Consolidated Statements of Cash Flows | |||||||||||
(in thousands) | |||||||||||
(unaudited) | |||||||||||
Successor | Predecessor | ||||||||||
For the Period February 3, 2021 through June 30, 2021 | For the Period January 1, 2021 through February 2, 2021 | For the Six Months Ended June 30, 2020 | |||||||||
Cash flows from operating activities: | |||||||||||
Net income (loss) | $ | (87,629) | $ | 268,777 | $ | (144,570) | |||||
- | |||||||||||
Adjustments to reconcile net loss to net cash provided by | |||||||||||
Depreciation, depletion, amortization and accretion | 130,404 | 10,498 | 78,141 | ||||||||
Deferred income taxes | (16,295) | 54,322 | (716) | ||||||||
Reduction in value of assets | - | - | 16,522 | ||||||||
Reduction in value of assets held for sale | 12,430 | (2,654) | 49,361 | ||||||||
Right-of-use assets amortization | 6,309 | 1,372 | 9,943 | ||||||||
Stock based compensation expense | 1,570 | - | 7,293 | ||||||||
Reorganization items, net | - | (354,279) | - | ||||||||
Retirement and deferred compensation plans expense, net | (1,885) | 260 | - | ||||||||
Bad debt | (5,433) | (210) | - | ||||||||
Gain on sale of assets and businesses | (4,513) | 58 | - | ||||||||
Other reconciling items, net | (1,886) | (307) | (1,906) | ||||||||
Changes in operating assets and liabilities: | - | - | |||||||||
Accounts receivable | (12,518) | 3,602 | 88,182 | ||||||||
Prepaid expenses | (2,910) | (340) | (8) | ||||||||
Inventory and other current assets | 7,314 | (221) | 5,668 | ||||||||
Accounts payable | 9,619 | (2,365) | (27,250) | ||||||||
Accrued expenses | (25,604) | 24,425 | (38,137) | ||||||||
Income taxes | 13,805 | 340 | (31,677) | ||||||||
Operating lease liabilities and other, net | (10,275) | 2,105 | (11,419) | ||||||||
Net cash provided by (used in) operating activities | 12,503 | 5,383 | (573) | ||||||||
Cash flows from investing activities: | |||||||||||
Payments for capital expenditures | (10,995) | (3,035) | (30,518) | ||||||||
Proceeds from sales of assets | 16,200 | 775 | 39,445 | ||||||||
Net cash provided by (used in) investing activities | 5,205 | (2,260) | 8,927 | ||||||||
Cash flows from financing activities: | |||||||||||
Credit facility costs | (14) | (1,920) | - | ||||||||
Tax withholdings for vested restricted stock units | (1,485) | - | (208) | ||||||||
Net cash used in financing activities | (1,499) | (1,920) | (208) | ||||||||
Effect of exchange rate changes on cash | - | 311 | (2,351) | ||||||||
Net change in cash, cash equivalents, and restricted cash | 16,209 | 1,514 | 5,795 | ||||||||
Cash, cash equivalents, and restricted cash at beginning of period | 269,698 | 268,184 | 275,388 | ||||||||
Cash, cash equivalents, and restricted cash at end of period | $ | 285,907 | $ | 269,698 | $ | 281,183 | |||||
See accompanying notes to unaudited condensed consolidated financial statements. | |||||||||||
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit)
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
| Accumulated |
|
|
|
|
|
|
| |||||||||||||
|
| Common Stock |
|
| paid-in |
|
|
|
|
| other |
|
|
|
|
|
|
| ||||||||||||||||||||||
|
| Class A |
|
| Class B |
|
| capital |
|
| Treasury |
|
| comprehensive |
|
| Accumulated |
|
|
|
| |||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Class A |
|
| Class B |
|
| stock |
|
| loss, net |
|
| deficit |
|
| Total |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balances, December 31, 2020 (Predecessor) |
|
| 15,799 |
|
| $ | 16 |
|
|
| - |
|
| $ | - |
|
| $ | 2,756,889 |
|
| $ | - |
|
| $ | (4,290 | ) |
| $ | (67,947 | ) |
| $ | (3,023,315 | ) |
| $ | (338,647 | ) |
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 268,777 |
|
|
| 268,777 |
|
Foreign currency translation adjustment |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 67,947 |
|
|
| - |
|
|
| 67,947 |
|
Extinguishment of unrecognized compensation expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 988 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 988 |
|
Stock-based compensation expense, net |
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
| 935 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| 935 |
| ||||
Restricted stock units vested |
|
| 49 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Shares withheld and retired |
|
| (15 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
| |||
Cancellation of Predecessor equity |
|
| (15,833 | ) |
|
| (16 | ) |
|
| - |
|
|
| - |
|
|
| (2,758,812 | ) |
|
| - |
|
|
| 4,290 |
|
|
| - |
|
|
| 2,754,538 |
|
|
| - |
|
Issuance of Successor Class A common stock |
|
| 19,996 |
|
|
| 200 |
|
|
| - |
|
|
| - |
|
|
| 902,486 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 902,686 |
|
Balances, February 2, 2021 (Predecessor) |
|
| 19,996 |
|
| $ | 200 |
|
|
| - |
|
| $ | - |
|
| $ | 902,486 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 902,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balances, February 3, 2021 (Successor) |
|
| 19,996 |
|
| $ | 200 |
|
|
| - |
|
| $ | - |
|
| $ | 902,486 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 902,686 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (36,630 | ) |
|
| (36,630 | ) |
Balances, March 31, 2021 (Successor) |
|
| 19,996 |
|
|
| 200 |
|
|
| - |
|
|
| - |
|
|
| 902,486 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (36,630 | ) |
|
| 866,056 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (50,999 | ) |
|
| (50,999 | ) |
Stock-based compensation expense, net |
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,570 |
|
|
|
|
|
|
|
|
|
|
|
| 1,570 |
| ||||
Common stock issued |
|
| 3 |
|
|
| - |
|
|
| 114 |
|
|
| 1 |
|
|
| - |
|
|
| (1 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Share withheld and retired |
|
| - |
|
|
| - |
|
|
| (38 | ) |
|
| - |
|
|
| - |
|
|
| (1,485 | ) |
|
|
|
|
|
|
|
|
|
|
| (1,485 | ) | |||
Balances, June 30, 2021 (Successor) |
|
| 19,999 |
|
| $ | 200 |
|
|
| 76 |
|
| $ | 1 |
|
| $ | 902,486 |
|
| $ | 84 |
|
| $ | - |
|
| $ | - |
|
| $ | (87,629 | ) |
| $ | 815,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balances, December 31, 2021 (Successor) |
|
| 19,999 |
|
| $ | 200 |
|
|
| 76 |
|
| $ | 1 |
|
| $ | 902,486 |
|
| $ | 1,224 |
|
| $ | - |
|
| $ | - |
|
| $ | (162,178 | ) |
| $ | 741,733 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 25,726 |
|
|
| 25,726 |
|
Stock-based compensation expense, net |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 585 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 585 |
|
Balances, March 31, 2022 (Successor) |
|
| 19,999 |
|
|
| 200 |
|
|
| 76 |
|
|
| 1 |
|
|
| 902,486 |
|
|
| 1,809 |
|
|
| - |
|
|
| - |
|
|
| (136,452 | ) |
|
| 768,044 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 41,618 |
|
|
| 41,618 |
|
Stock-based compensation expense, net |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 958 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 958 |
|
Balances, June 30 2022 (Successor) |
|
| 19,999 |
|
| $ | 200 |
|
|
| 76 |
|
| $ | 1 |
|
| $ | 902,486 |
|
| $ | 2,767 |
|
| $ | - |
|
| $ | - |
|
| $ | (94,834 | ) |
| $ | 810,620 |
|
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES | ||||||||||||||||||||||||||||||
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) | ||||||||||||||||||||||||||||||
(in thousands, except share data) | ||||||||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||
Class A | Class B | Accumulated | ||||||||||||||||||||||||||||
Class A | Class B | Additional | Additional | other | ||||||||||||||||||||||||||
Common Stock | Common Stock | Treasury | paid-in | paid-in | comprehensive | Accumulated | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | stock | capital | capital | loss, net | deficit | Total | |||||||||||||||||||||
Balances, December 31, 2020 (Predecessor) | 15,799,318 | $ | 16 | - | $ | - | $ | (4,290) | $ | 2,756,889 | $ | - | $ | (67,947) | $ | (3,023,315) | $ | (338,647) | ||||||||||||
Net income | - | - | - | - | - | - | - | - | 268,777 | 268,777 | ||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | - | - | - | 67,947 | - | 67,947 | ||||||||||||||||||||
Extinguishment of unrecognized compensation expense | - | - | - | - | - | 988 | - | - | - | 988 | ||||||||||||||||||||
Stock-based compensation expense, | - | - | - | - | - | |||||||||||||||||||||||||
net of forfeitures | - | - | - | - | - | 935 | - | - | - | 935 | ||||||||||||||||||||
Restricted stock units vested | 48,903 | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||
Shares withheld and retired | (14,701) | - | - | - | - | - | - | |||||||||||||||||||||||
Cancellation of Predecessor equity | (15,833,520) | (16) | - | - | 4,290 | (2,758,812) | - | - | 2,754,538 | - | ||||||||||||||||||||
Issuance of Successor Class A common stock | 19,995,581 | 200 | - | - | - | 902,486 | - | - | - | 902,686 | ||||||||||||||||||||
Balances, February 2, 2021 (Predecessor) | 19,995,581 | 200 | - | - | - | 902,486 | - | - | - | 902,686 | ||||||||||||||||||||
Balances, February 3, 2021 (Successor) | 19,995,581 | 200 | - | - | - | 902,486 | - | - | - | 902,686 | ||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | (36,630) | (36,630) | ||||||||||||||||||||
Balances, March 31, 2021 (Successor) | 19,995,581 | $ | 200 | - | $ | - | $ | - | $ | 902,486 | $ | - | $ | - | $ | (36,630) | $ | 866,056 | ||||||||||||
Net loss | - | - | - | - | - | - | - | - | (50,999) | (50,999) | ||||||||||||||||||||
Stock-based compensation expense, | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||
net of forfeitures | - | - | - | - | - | - | 1,570 | - | - | 1,570 | ||||||||||||||||||||
Common stock issued | 3,114 | - | 113,840 | 1 | - | - | (1) | - | - | - | ||||||||||||||||||||
Shares withheld and retired | - | - | (37,571) | - | - | - | (1,485) | - | - | (1,485) | ||||||||||||||||||||
Balances, June 30, 2021 (Successor) | 19,998,695 | $ | 200 | 76,269 | $ | 1 | $ | - | $ | 902,486 | $ | 84 | $ | - | $ | (87,629) | $ | 815,142 | ||||||||||||
Balances, December 31, 2019 (Predecessor) | 15,689,463 | 16 | (4,290) | 2,752,859 | - | (71,927) | (2,627,085) | 49,573 | ||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | (79,464) | (79,464) | ||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | - | - | - | (4,538) | - | (4,538) | ||||||||||||||||||||
Stock-based compensation expense, | - | |||||||||||||||||||||||||||||
net of forfeitures | - | - | - | - | - | 2,527 | - | - | - | 2,527 | ||||||||||||||||||||
Transactions under stock plans | 108,965 | - | - | - | (208) | - | - | - | (208) | |||||||||||||||||||||
Balances, March 31, 2020 (Predecessor) | 15,798,428 | $ | 16 | - | $ | - | $ | (4,290) | $ | 2,755,178 | $ | - | $ | (76,465) | $ | (2,706,549) | $ | (32,110) | ||||||||||||
Net loss | (65,106) | (65,106) | ||||||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | - | - | - | (285) | - | (285) | ||||||||||||||||||||
Purchases of treasury stock | - | - | - | - | - | - | - | |||||||||||||||||||||||
Stock-based compensation expense, | - | - | - | - | ||||||||||||||||||||||||||
net of forfeitures | - | - | - | - | - | 2,374 | - | - | - | 2,374 | ||||||||||||||||||||
Transactions under stock plans | 611 | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||
Balances, June 30, 2020 (Predecessor) | 15,799,039 | $ | 16 | - | $ | - | $ | (4,290) | $ | 2,757,552 | $ | - | $ | (76,750) | $ | (2,771,655) | $ | (95,127) | ||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements. | ||||||||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
|
| Successor |
|
|
| Predecessor |
| ||||||
|
| For the Six Months Ended June 30, 2022 |
|
| For the Period |
|
|
| For the Period |
| |||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
| |||
Net income (loss) |
| $ | 67,344 |
|
| $ | (87,629 | ) |
|
| $ | 268,777 |
|
Adjustments to reconcile net income (loss) to net cash from operating activities: |
|
|
|
|
|
|
|
|
|
| |||
Depreciation, depletion, amortization and accretion |
|
| 57,431 |
|
|
| 130,404 |
|
|
|
| 10,499 |
|
Deferred income taxes |
|
| 1,687 |
|
|
| (16,295 | ) |
|
|
| 54,322 |
|
Amortization of credit facility costs |
|
| 254 |
|
|
| 0 |
|
|
|
| 0 |
|
Stock based compensation expense |
|
| 1,543 |
|
|
| 1,570 |
|
|
|
| 935 |
|
Reorganization items, net |
|
| 0 |
|
|
| 0 |
|
|
|
| (354,279 | ) |
Bad debt |
|
| (920 | ) |
|
| (5,433 | ) |
|
|
| (210 | ) |
Gain on sale of assets and businesses |
|
| 0 |
|
|
| 0 |
|
|
|
| 58 |
|
Gain on sale of equity securities |
|
| (3,611 | ) |
|
| 0 |
|
|
|
| 0 |
|
Unrealized gain on investment in equity securities |
|
| (544 | ) |
|
| 0 |
|
|
|
| 0 |
|
Other (gains) and losses, net |
|
| (23,296 | ) |
|
| 7,883 |
|
|
|
| 0 |
|
Other reconciling items, net |
|
| 2,529 |
|
|
| (1,886 | ) |
|
|
| 1,017 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
| |||
Accounts receivable |
|
| (26,362 | ) |
|
| (12,518 | ) |
|
|
| 3,602 |
|
Prepaid expenses |
|
| (2,652 | ) |
|
| (2,910 | ) |
|
|
| (340 | ) |
Inventory and other current assets |
|
| (5,358 | ) |
|
| 7,314 |
|
|
|
| (221 | ) |
Accounts payable |
|
| (1,986 | ) |
|
| 9,619 |
|
|
|
| (2,365 | ) |
Accrued expenses |
|
| 144 |
|
|
| (25,604 | ) |
|
|
| 23,489 |
|
Income taxes |
|
| 2,185 |
|
|
| 13,805 |
|
|
|
| 340 |
|
Other, net |
|
| (144 | ) |
|
| (5,817 | ) |
|
|
| (241 | ) |
Net cash from operating activities |
|
| 68,244 |
|
|
| 12,503 |
|
|
|
| 5,383 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
| |||
Payments for capital expenditures |
|
| (20,514 | ) |
|
| (10,995 | ) |
|
|
| (3,035 | ) |
Proceeds from sales of assets |
|
| 15,183 |
|
|
| 16,200 |
|
|
|
| 775 |
|
Proceeds from sales of equity securities |
|
| 13,366 |
|
|
| 0 |
|
|
|
| 0 |
|
Net cash from investing activities |
|
| 8,035 |
|
|
| 5,205 |
|
|
|
| (2,260 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
| |||
Credit facility costs |
|
| 0 |
|
|
| (14 | ) |
|
|
| (1,920 | ) |
Tax withholdings for vested restricted stock units |
|
| 0 |
|
|
| (1,485 | ) |
|
|
| 0 |
|
Net cash from financing activities |
|
| 0 |
|
|
| (1,499 | ) |
|
|
| (1,920 | ) |
Effect of exchange rate changes on cash |
|
| 0 |
|
|
| 0 |
|
|
|
| 311 |
|
Net change in cash, cash equivalents, and restricted cash |
|
| 76,279 |
|
|
| 16,209 |
|
|
|
| 1,514 |
|
Cash, cash equivalents, and restricted cash at beginning of period |
|
| 394,535 |
|
|
| 269,698 |
|
|
|
| 268,184 |
|
Cash, cash equivalents, and restricted cash at end of period |
| $ | 470,814 |
|
| $ | 285,907 |
|
|
| $ | 269,698 |
|
See accompanying notes to unaudited condensed consolidated financial statements
9
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
(1)Basis of Presentation
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”); however, management believes the disclosures that are made are adequate to make the information presented not misleading.
As used herein, the “Company,” “we,” “us”, “our” and similar terms refer to (i) prior to the Emergence Date (as defined below), SESI Holdings, Inc. (formerly known as Superior Energy Services, Inc.) (the “Former Parent”) and its subsidiaries (“Predecessor”) and (ii) after the Emergence Date, Superior Energy Services, Inc. (formerly known as Superior Newco, Inc.) and its subsidiaries.subsidiaries (“Successor”). Due to our adoption of fresh start accounting, discussed below, our operations for the six months ended June 30, 2021 are separated by the operations which occurred from January 1, 2021 through February 2, 2021 (the “Predecessor Period”) and the operations that occurred from February 3, 2021 through June 30, 2021 (the “Successor Period”).
These financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in Superior Energy Services, Inc.’sour Annual Report on Form 10-K for the year ended December 31, 2020.2021. As described below, as a result of the application of fresh start accounting and the effects of the implementation of ourthe Plan (as defined below), the financial statements after the Emergence Date are not comparable with the consolidated financial statements on or before that date. Refer to Note 3 – “Fresh Start Accounting” below for additional information.
In ourthe opinion of management, the accompanying unaudited condensed financial statements contain all adjustments, consisting primarily of normal recurring adjustments, necessary for a fair statement of our financial position as of June 30, 2021, 2021,2022, and our results of operations and cash flows for the three months ended June 30, 20212022 and 2020, and cash flows for the periods January 1, 2021 through February 2, 2021 and February 3, 2021 through June 30, 2021 and six months ended June 30, 2020.2021. The condensed balance sheet atas of December 31, 2020,2021, was derived from our audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. See “Changes in Accounting Policies” below for further information. The year-end condensed consolidated balance sheet for the Predecessor (as defined below) was derived from audited financial statements but does not include all disclosures required by GAAP.
Effective as of February 2, 2021 (the “Emergence Date”), the entity now known as Superior Energy Services, Inc. (formerly known as Superior Newco, Inc.) became the successor reporting company to the Former Parent pursuant to Rule 15d-5 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).Emergence from Voluntary Reorganization under Chapter 11
BetweenOn December 7, 2020, certain of our direct and indirect wholly-owned domestic subsidiaries (the “Petition Date”“Affiliate Debtors”) and the Emergence Date, we operated as a debtor-in-possessionfiled petitions for reorganization under the supervisionprovisions of the United States Bankruptcy Court for the Southern District of Texas Houston Division (the “Bankruptcy Court”). For financial reporting purposes, the close of business on February 2, 2021 represents the date of our emergence from bankruptcy. As used herein, the following terms refer to us and our operations:
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We evaluate events that occur after the balance sheet date but before the financial statements are issued for potential recognition or disclosure.
Recent Developments
Voluntary Reorganization Under Chapter 11 of the Bankruptcy Code
On December 4, 2020, the Former Parent and certain of its direct and indirect wholly-owned domestic subsidiaries (together with the Former Parent, the “Affiliate Debtors”) entered into an Amended and Restated Restructuring Support Agreement (the “Amended RSA”) that amended and restated in its entirety the Restructuring Support Agreement, dated September 29, 2020, with certain holders of SESI, L.L.C.’s (“SESI”) outstanding (i) 7.125% senior unsecured notes due 2021 (the “7.125% Notes”) and (ii) 7.750% senior unsecured notes due 2024 (the “7.750% Notes”). The parties to the Amended RSA agreed to the principal terms of a proposed financial restructuring of the Affiliate Debtors, which was implemented through the Plan (as defined below).
On December 7, 2020, the Affiliate Debtors filed voluntary petitions for relief (the “Chapter 11 Cases”) under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) in the Bankruptcy Court, and, in connection therewith, the Affiliate Debtors filed with the Bankruptcy Court the proposed Joint Prepackaged Plan of Reorganization under the Bankruptcy Code (as amended, modified or supplemented from time to time, the “Plan”).
On January 19,February 2, 2021 the Bankruptcy Court entered an order, Docket No. 289, confirming and approving the Plan. On the Emergence Date,(the “Emergence Date”), the conditions to the effectiveness of the Plan were satisfied or waived and we emerged from Chapter 11.
On the Emergence Date, we qualified for and adopted fresh start accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 852 – Reorganizations, (ASC 852), which specifies the accounting and financial reporting requirements for entities reorganizing through Chapter 11 bankruptcy proceedings. The application of fresh start accounting resulted in a new basis of accounting and we became a new entity for financial reporting purposes. As a result of the implementation of the Plan and the application of fresh start accounting, these unaudited condensed consolidated financial statements after the Emergence Date are not comparable to the consolidated financial statements before that date and theour historical financial statements on or before the Emergence Date are not a reliable indicator of our financial condition and results of operations for any period after our adoption of fresh start accounting.
The accompanying unaudited condensed consolidated financial statements have been prepared as if we are a going concern and in accordance with ASC 852.
During the Current Predecessor Period, the Predecessor applied ASC 852 in preparing the unaudited condensed consolidated financial statements, which requires distinguishing transactions associated with the reorganization separate from activities related to the ongoing operations of the business. Accordingly, pre-petition liabilities that could have been impacted by the Chapter 11 Cases were classified as liabilities subject to compromise. Additionally, certain expenses, realized gains and losses and provisions for losses that were realized or incurred during and directly related to the Chapter 11 Cases, including fresh start valuation adjustments and gains on liabilities subject to compromise were recorded as reorganization items, net in the condensed consolidated statements of operations in the Current Predecessor Period. See Note 2 – “Emergence from Voluntary Reorganization under Chapter 11” for more information on the events of the Chapter 11 Cases as well as the accounting and reporting impacts of the reorganization during the Current Predecessor Period.
Use of Estimates —
In preparing the accompanying financial statements, we make various estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities reported as of the dates of the balance sheets and the amounts of revenues and expenses reported for the periods shown in the income statements and statements of cash flows. All estimates, assumptions, valuations and financial projections related to fresh start accounting, including the fair value adjustments, the enterprise value and equity value projections, are inherently subject to significant uncertainties and the resolution of contingencies beyond our control. Accordingly, we cannot assure you that the estimates, assumptions, valuations or financial projections will be realized, and actual results could vary materially. For information about the use of estimates relating to fresh start accounting, see – Note 3 – “Fresh Start Accounting” below.
Due to the lack of comparability with historical financials, our unaudited consolidated condensed financial statements and related footnotes are presented with a “black line” division to emphasize the lack of comparability between amounts presented as of and after February 2, 2021 and amounts presented for all prior periods. The Successor’s financial results for future periods following the application of fresh start accounting will be different from historical trends and the differences may be material.
Changes in Accounting Policies
Accounting policies are disclosed in the Predecessor Company’s Annual Report on Form 10-K. As of the Emergence Date, the amounts for these accounts have been recorded at fair value. After the Emergence Date, we will continue to follow the accounting policies within the Predecessor Company’s Annual Report on Form 10-K except for the policies discussed below. As part of the adoption of fresh start accounting and effective upon emergence from bankruptcy, we have adopted new presentations for certain items within our condensed consolidated balance sheets and statement of operations. The presentation changes are described below:
The functional currency of certain international subsidiaries changed from the local currency to US dollars. This brings alignment so that our functional currency is US dollars. Management considered the economic factors outlined in FASB ASC Topic No. 830 - Foreign Currency Matters in the determination of the functional currency. Management concluded that the predominance of factors support the use of the Successor parent’s currency as the functional currency and resulted in a change in functional currency to US dollars for all international subsidiaries.
In connection with our Transformation Project, which is discussed further below, and our pending disposition activities, during the second quarter of 2021, our reportable segments were changed to Rentals, Well Services and Corporate and other. The reportable segments were changed to Rentals and Well Services for the Successor Quarter, Successor Period and Current Predecessor Period. Reportable segments in the Predecessor Company’s Annual Report on Form 10-K were, and remain, Drilling Products and Services, Onshore Completion and Workover Services, Production Services and Technical Solutions.
The Predecessor recognized bad debt expense and gains/losses on sales of assets within general and administrative expenses. The Successor recognizes these expenses within cost of revenues. See Note 3 – “Fresh Start Accounting” for additional information.
Additional Detail of Account Balances
Restricted Cash —Restricted cash as of June 30, 2021 primarily represents cash of $77.5 million held in a collateral account for the payment and performance of secured obligations including the reimbursement of letters of credit, and $2.7 million relates to cash held in escrow to secure the future decommissioning obligations related to the sole oil and gas property.
(2)Emergence from Voluntary Reorganization under Chapter 11
Plan of Reorganization under Chapter 11 of the Bankruptcy Code
On December 7, 2020, the Affiliate Debtors commenced the Chapter 11 Cases as described in Note 1 – “Basis of Presentation” above. After commencement of the Chapter 11 Cases, the Affiliate Debtors continued to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.
Executory Contracts
Subject to certain exceptions, under the Bankruptcy Code, the Affiliate Debtors could assume, assign, or reject certain executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a pre-petition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the debtors from performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach. Generally, the assumption of an executory contract or unexpired lease requires the Debtors to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance.
Bankruptcy Claims
During the Chapter 11 Cases, the Affiliate Debtors filed with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of each of the Affiliate Debtors, subject to the assumptions filed in connection therewith. Certain holders of pre-petition claims that were not governmental units were required to file proofs of claim by the bar date of January 7, 2021. As of October 13, 2021, the Affiliate Debtors’ have received approximately 646proofs of claim, primarily representing general unsecured claims, for an amount of approximately $1.7 billion. The Bankruptcy Court does not allow for claims that have been acknowledged as duplicates. Approximately 570 claims totaling approximately $1.4 billion have been withdrawn, disallowed or are pending approval to be disallowed. Differences in amounts recorded and claims filed by creditors are currently being investigated and resolved, including through filing objections with the Bankruptcy Court, where appropriate. We may ask the Bankruptcy Court to disallow claims that we believe are duplicative, have been later amended or superseded, are without merit, are overstated or should be disallowed for other reasons. In light of the substantial number of claims filed, the claims resolution process may take considerable time to complete and is continuing even after the Affiliate Debtors emerged from bankruptcy. As a result of the ongoing claims resolution process post-emergence, the Affiliate Debtors agreed to allow certain claims in the amount of $232.0 million classified per the Plan of Reorganization as Class 6 General Unsecured Claims against the Parent. Each holder of a Class 6 claim receives their pro rata share of the $125,000 general unsecured claim cash pool described below. Per ASC 852-10, liabilities are measured at their allowed claim amount, and the result of allowing these claims increased liabilities subject to compromise prior to emergence. The resolution of these Class 6 claims is considered in the $125,000 cash pool as part of the emergence transaction.
On the Emergence Date, the conditions to effectiveness of the Plan were satisfied or waived and we emerged from Chapter 11.
On the Emergence Date and pursuant to the Plan:
Administrative expense claims, priority tax claims, other priority claims and other secured claims were paid or will be paid in full in the ordinary course (or receive such other treatment rendering such claims unimpaired);
General unsecured creditors for the Affiliate Debtors remained unimpaired and received payment in cash, in full, in the ordinary course;
General unsecured creditors for the Former Parent receive their pro rata share of a cash pool in the amount of $125,000;
Eligible holders of the claims arising as a result of holding either the 7.125% Notes or the 7.750% Notes against the Affiliate Debtors received their pro rata share of:
A payment equal to 2% of the principal amount of 7.125% Notes or 7.750% Notes held by all holders who did not opt out of receiving a cash payout; or
Solely to the extent that such a holder timely and validly elected to opt out of receiving the cash payout, (A) 100% of the Class A common stock issued and outstanding on the Emergence Date, subject to dilution, and (B), to the extent such holder was an “accredited investor” or “qualified institutional buyer” within the meaning of the SEC’s rules, subscription rights to participate in an equity rights offering (the “Equity Rights Offering”);
The Affiliate Debtors conducted the Equity Rights Offering through an offering of subscription rights for the purchase of Class A common stock on a pro rata basis; and
Prior parent equity interests and common stock of the Affiliate Debtors were cancelled and new Class A common stock was issued to settle claims arising as a result of holding either the 7.125% Notes or the 7.750% Notes, as noted above.
The costs of efforts to restructure our capital, prior to and during the Chapter 11 Cases, along with all other costs incurred in connection with the Chapter 11 Cases, have been material.
On the Emergence Date, pursuant to the terms of the Plan, we filed an amended and restated certificate of incorporation (the “Certificate of Incorporation”) and a certificate of amendment of the amended and restated certificate of incorporation (the “Certificate of Amendment”).
Also, on the Emergence Date, and pursuant to the terms of the Plan, we adopted amended and restated bylaws (the “Bylaws”). The descriptions of the Certificate of Incorporation and the Bylaws are qualified in their entirety by reference to the full texts of the Certificate of Incorporation, Bylaws, and Certificate of Amendment.
(3)Fresh Start Accounting
Fresh Start Accounting
In connection with the emergence from bankruptcy and in accordance with ASC 852, we qualified for and adopted fresh start accounting on the Emergence Date because (1) the holders of the then existing common shares of the Predecessor received less than 50 percent of the new common shares of the Successor outstanding upon emergence and (2) the reorganization value of the Predecessor’s assets immediately prior to confirmation of the Plan of $1,456.8 million was less than the total of all post-petition liabilities and allowed claims of $2,076.1 million.
In accordance with ASC 852, upon adoption of fresh start accounting, the reorganization value derived from the enterprise value as disclosed in the Plan was allocated to our assets and liabilities based on their fair values (except for deferred income taxes) in accordance with FASB ASC Topic No. 805 - Business Combinations (ASC 805) and FASB ASC Topic No. 820 - Fair Value Measurements (ASC 820). The reorganization value represents the fair value of the Successor’s assets before considering certain liabilities and is intended to represent the approximate amount a willing buyer would pay for our assets immediately after reorganization. The amount of deferred income taxes recorded due to the fair value adjustments to assets and liabilities was determined in accordance with FASB ASC Topic No. 740 - Income Taxes.
Reorganization Value
The reorganization value represents the fair value of the Successor’s total assets before considering certain liabilities and is intended to approximate the amount a willing buyer would pay for the Successor’s assets immediately after restructuring. The Plan confirmed by the Bankruptcy Court estimated a range of enterprise values between $710.0 million and $880.0 million.
The following table reconciles the enterprise value to the reorganization value of Successor’s assets that has been allocated to our individual assets as of the Emergence Date (in thousands):
Emergence Date | |||
Selected Enterprise Value within Bankruptcy Court Range | $ | 729,918 | |
Plus: Cash and cash equivalents | 172,768 | ||
Plus: Liabilities excluding the decommissioning liabilities | 380,496 | ||
Plus: Decommissioning liabilities, including decommissioning liabilities classified as held for sale | 173,622 | ||
Reorganization Value | 1,456,804 | ||
Management determined the enterprise and corresponding equity value of the Successor using various valuation methods, including (i) discounted cash flow analysis (“DCF”), (ii) comparable company analysis and (iii) precedent transaction analysis. The use of each approach provides corroboration for the other approaches.
In order to estimate the enterprise value using the DCF analysis approach, management’s estimated future cash flow projections, plus a terminal value which was calculated by applying a multiple based on our internal rate of return (“IRR”) of 17.6% and a perpetuity growth rate of 3.0% to the terminal year’s projected earnings before interest, tax, depreciation and amortization (“EBITDA”). These estimated future cash flows were then discounted to an assumed present value using our estimated weighted-average cost of capital, which is represented by our IRR.
The comparable company analysis provides an estimate of our value relative to other publicly traded companies with similar operating and financial characteristics, by which a range of EBITDA multiples of the comparable companies was then applied to management’s projected EBITDA to derive an estimated enterprise value.
Precedent transaction analysis provides an estimate of enterprise value based on recent sale transactions of similar companies, by deriving the implied EBITDA multiple of those transactions, based on sales prices, which was then applied to management’s projected EBITDA.
The enterprise value and corresponding equity value are dependent upon achieving the future financial results set forth in our valuations, as well as the realization of certain other assumptions. All estimates, assumptions, valuations and financial projections, including the fair value adjustments, the enterprise value and equity value projections, are inherently subject to significant uncertainties and the resolution of contingencies beyond our control. Accordingly, we cannot assure you that the estimates, assumptions, valuations or financial projections will be realized, and actual results could vary materially.
Valuation Process
The reorganization value was allocated to the Successor’s reporting segments using the discounted cash flow approach. The reorganization value was then allocated to the Successor’s identifiable assets and liabilities using the fair value principle as contemplated in ASC 820. The specific approach, or approaches, used to allocate reorganization value by asset class are noted below.
Inventory
The fair value of the inventory was determined by using both a cost approach and income approach. Inventory was segregated into raw materials, spare parts, work in process (“WIP”), and finished goods. Fair value of raw materials and spare parts inventory were determined using the cost approach. Fair value of finished goods and WIP inventory were determined by using the net realizable value approach. The fair value of finished goods was measured using an estimate of the costs to sell or dispose of the inventory plus a reasonable profit allowance on those efforts adjusted for holding costs. The fair value of WIP was measured using an estimate of the costs to complete and sell or consume the inventory plus a reasonable profit allowance on those efforts adjusted for holding costs.
Property, Plant and Equipment
Real Property
The fair values of real property locations were estimated using the sales comparison (market) approach and cost approach. As part of the valuation process, information was obtained on the Successor’s current usage, building type, year built, and cost history for all properties valued. In determining the fair value and remaining useful life for real property assets, functional and economic obsolescence was considered and taken as an adjustment at the asset level.
Tangible Assets Excluding Real Property and Oil and Gas Assets
The fair values of our tangible assets were calculated using either the cost or market approach. For most tangible asset categories, a cost approach was utilized relying on purchase year, historic costs, and industry/equipment based trend factors to determine replacement cost new of the assets. Readily available market transaction data was used and adjusted for current market conditions for asset categories with active secondary markets such as heavy trucks and computer equipment. In both approaches, consideration was made for the effects of physical deterioration as well as functional and economic obsolescence in determining both estimates of fair value and the remaining useful lives of the assets.
Oil and Gas Assets
The oil and gas assets were valued as of January 31, 2021, for the purposes of the February 2, 2021 condensed consolidated balance sheet, using estimates of the reserve volumes and associated income data based on escalated price and cost parameters.
Decommissioning Liabilities
In accordance with FASB ASC Topic No. 410 – Asset Retirement and Environmental Obligations (“ASC 410”), the asset retirement obligations associated with the Successor’s oil and gas assets were valued using the income approach. Estimates were used for future retirement costs and the expected time to retirement, then adjusted for an estimated inflation rate over the time period prior to retirement and discounted future cash outflows by a credit adjusted risk-free rate of 5.6%. As such, the Successor changed its presentation to consolidate the fair value of the Predecessor’s decommissioning liabilities previously recorded to other long-term liabilities into the Successor’s decommissioning liabilities.
Internally-Developed Software
Internally-developed software was valued using the cost approach in which a replacement cost was estimated based on the software developer time, materials, and other supporting services required to replicate the software.
Intangible Assets
Intangible assets were identified apart from goodwill using the guidance provided in ASC 805. Intangible assets that were identified as either separable or arose from contract or other legal rights were valued using either the cost or income approaches. The principal intangible assets identified were trademarks and patents. Trademarks and patents were valued using the relief from royalty method in which the subject intangible asset is valued by reference to the amount of royalty income it could generate if it was licensed in an arm’s length transaction to a third party.
Lease Liabilities and Right of Use Assets
The fair value of lease liabilities was measured as the present value of the remaining lease payments, as if the lease were a new lease as of the Emergence Date. The Successor used its incremental borrowing rate of 5.3% commensurate with the Successor's capital structure as the discount rate in determining the present value of the remaining lease payments.
Consolidated Successor Balance Sheet
The adjustments included in the following fresh start consolidated condensed balance sheet as of February 2, 2021 reflect the effects of the transactions contemplated by the Plan and executed by the Successor on the Emergence Date (reflected in the column Reorganization Adjustments), and fair value and other required accounting adjustments resulting from the adoption of fresh start accounting (reflected in the column Fresh Start Adjustments). The explanatory notes provide additional information with regard to the adjustments recorded, the methods used to determine the fair values and significant assumptions.
The consolidated condensed balance sheet as of the Emergence Date was as follows (in thousands):
As of February 2, 2021 | |||||||||||||
Predecessor | Reorganization Adjustments | Fresh Start Adjustments | Successor | ||||||||||
ASSETS | |||||||||||||
Current assets: | |||||||||||||
Cash and cash equivalents | $ | 194,671 | $ | (21,903) | (1) | $ | - | $ | 172,768 | ||||
Restricted cash - current | - | 16,751 | (2) | - | 16,751 | ||||||||
Accounts receivable, net of allowance for doubtful accounts | 153,518 | 11 | (3) | - | 153,529 | ||||||||
Income taxes receivable | 9,146 | - | (170) | (16) | 8,976 | ||||||||
Prepaid expenses | 31,630 | - | - | 31,630 | |||||||||
Inventory and other current assets | 90,073 | - | 11,067 | (17) | 101,140 | ||||||||
Assets held for sale | 240,761 | - | (20,402) | (18) | 220,359 | ||||||||
Total current assets | 719,799 | (5,141) | (9,505) | 705,153 | |||||||||
Property, plant and equipment, net of accumulated depreciation and depletion | 401,263 | - | 139,587 | (19) | 540,850 | ||||||||
Operating lease right-of-use assets | 32,488 | - | 1,430 | (20) | 33,918 | ||||||||
Goodwill | 138,934 | - | (138,934) | (21) | - | ||||||||
Notes receivable | 72,484 | - | - | 72,484 | |||||||||
Restricted cash - non-current | 80,179 | - | - | 80,179 | |||||||||
Intangible and other long-term assets, net of accumulated amortization | 52,264 | (10,080) | (4) | (17,964) | (22) | 24,220 | |||||||
Total assets | $ | 1,497,411 | $ | (15,221) | $ | (25,386) | $ | 1,456,804 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | |||||||||||||
Current liabilities: | |||||||||||||
Accounts payable | $ | 51,816 | $ | (700) | (5) | $ | - | $ | 51,116 | ||||
Accrued expenses | 126,768 | 9,042 | (6) | 1,406 | (23) | 137,216 | |||||||
Liabilities held for sale | 39,642 | 1,614 | (7) | (3,992) | (24) | 37,264 | |||||||
Total current liabilities | 218,226 | 9,956 | (2,586) | 225,596 | |||||||||
Decommissioning liabilities | 134,934 | - | 34,581 | (25) | 169,515 | ||||||||
Operating lease liabilities | 23,584 | - | (29) | (26) | 23,555 | ||||||||
Deferred income taxes | 4,853 | 3,100 | (8) | 51,569 | (27) | 59,522 | |||||||
Other long-term liabilities | 121,756 | - | (45,826) | (28) | 75,930 | ||||||||
Total non-current liabilities | 285,127 | 3,100 | 40,295 | 328,522 | |||||||||
Liabilities subject to compromise | 1,572,772 | (1,572,772) | (9) | - | - | ||||||||
Total liabilities | 2,076,125 | (1,559,716) | 37,709 | 554,118 | |||||||||
Stockholders’ equity (deficit): | |||||||||||||
Predecessor common stock $0.001 par value | 16 | (16) | (10) | - | - | ||||||||
Predecessor Additional paid-in capital | 2,757,824 | (2,757,824) | (11) | - | - | ||||||||
Predecessor Treasury stock at cost | (4,290) | 4,290 | (12) | - | - | ||||||||
Successor Class A common stock $0.001 par value | - | 200 | (13) | - | 200 | ||||||||
Successor Additional paid-in capital | - | 902,486 | (14) | - | 902,486 | ||||||||
Accumulated other comprehensive loss, net | (67,532) | - | 67,532 | (29) | - | ||||||||
Accumulated deficit | (3,264,732) | 3,395,359 | (15) | (130,627) | (30) | - | |||||||
Total stockholders’ equity (deficit) | (578,714) | 1,544,495 | (63,095) | 902,686 | |||||||||
Total liabilities and stockholders’ equity (deficit) | $ | 1,497,411 | $ | (15,221) | $ | (25,386) | $ | 1,456,804 | |||||
Reorganization Adjustments (in thousands)
(1)Changes in cash and cash equivalents included the following:
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(2)Changes to restricted cash - current included the following:
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(3)Changes of $11 to accounts receivable reflect a receivable from the solicitor for excess proceeds received during the Rights Offering.
(4)Changes to intangibles and other long-term assets included the following:
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(5)Changes to accounts payable included the following:
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(6)Changes in accrued liabilities include the following:
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(7)Changes in liabilities held for sale reflect the fair value reinstatement of rejected leases claims.
(8)Changes in deferred income taxes are due to reorganization adjustments.
(9)The resulting gain on liabilities subject to compromise was determined as follows:
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The Equity Rights Offering generated $963 in proceeds used to settle $952 in Cash Opt-in Noteholder claims. The Equity Rights Offering shares were offered at a price of $1.31/share to Cash Opt-out Noteholders. As such, the Equity Rights Offering shares generated the $963 in cash proceeds from the share issuance as well as an implied discount to the Cash Opt-in claimants of $32.2 million, recorded as a loss on share issuance in reorganization items, net. The loss on the Equity Rights Offering share
issuance is offset by the gain on share issuance of $32.2 million implied by the issuance of shares to settle Cash Opt-out Noteholder claims at a value of $46.82/share compared to the reorganization value implied share price of $45.14/share.
(10)Changes of $16 in Predecessor common stock reflect the cancellation of the Predecessor’s common stock.
(11)Changes in Predecessor additional paid-in capital (APIC) include the following:
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(12)Reflects $4.3 million cancellation of Predecessor treasury stock held at cost.
(13)Changes in the Successor’s Class A common stock include the following:
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(14)Changes in Successor additional paid-in capital include the following:
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(15)Changes to retained earnings (deficit) include the following:
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Fresh Start Adjustments (in thousands)
(16)Changes of $170 in income tax receivable reflects the decrease to current deferred tax assets due to the adoption of fresh start accounting.
(17)Changes in inventory and other current assets included the following:
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(18)Changes of $20.4 million in assets held for sale primarily reflect a fair value adjustment of $16.5 million decreasing real property and a $3.5 million decrease to Predecessor decommissioning balances due to the adoption of fresh start accounting.
(19)Changes of $139.6 million to property, plant and equipment reflect the fair value adjustment.
Successor Fair Value | Predecessor Book Value | |||
Land, Buildings, and Associated Improvements | 117,341 | 205,237 | ||
Machinery and Equipment | 290,593 | 1,103,501 | ||
Rental Services Equipment | 92,861 | 617,762 | ||
Other Depreciable or Depletable Assets | 35,143 | 46,403 | ||
Construction in Progress | 4,912 | 4,912 | ||
540,850 | 1,977,815 | |||
Less: Accumulated Depreciation and Depletion | - | (1,576,552) | ||
Property, Plant and Equipment, net | 540,850 | 401,263 |
(20)Reflects $1.4 million due to the fair value adjustment increasing operating lease right-of-use assets.
(21)Changes of $138.9 million to goodwill reflect the derecognition of the Predecessor’s goodwill due to the adoption of fresh start accounting.
(22)The fair value changes of $1.4 million to intangibles assets are reflected in the table below:
Successor Fair Value | Predecessor Net Book Value | |||
Customer Relationships | - | 2,644 | ||
Trade Names | 4,166 | 2,268 | ||
Patents | 2,120 | - | ||
Intangible Assets, Net | 6,286 | 4,912 |
Reduction of other long-term assets was due to the adoption of fresh start accounting and include $17.1 million in decommissioning liabilities related to Predecessor long-term assets fair valued and presented in the Successor’s property, plant, and equipment.
(23)Changes of $1.4 million to accrued expenses reflect the fair value adjustment increasing the current portion of operating lease liabilities.
(24)Reflects the $4.0 million fair value adjustment decreasing decommissioning liabilities and operating lease liabilities related to assets held for sale.
(25)Reflects the $34.6 million fair value adjustment increasing the non-current portion of decommissioning liabilities.
(26)Reflects the fair value adjustment decreasing the non-current portion of operating lease liabilities.
(27)Reflects the $70.4 million increase of deferred tax liabilities netted against an $18.8 million increase in realizable deferred tax assets due to the adoption of fresh start accounting.
(28)Changes of $45.8 million in other long-term liabilities reflects the reclassification of amounts associated with the Predecessor’s decommissioning liability balances that were fair valued and presented in the Successor’s decommissioning liabilities, as well as an increase in FIN48 liabilities of $1.5 million.
(29)Changes to accumulated other comprehensive loss reflect the elimination of Predecessor currency translation adjustment balances
due to the adoption of fresh start accounting on Predecessor currency translation adjustment balances.
(30)Changes reflect the cumulative impact of fresh start accounting adjustments discussed above and the elimination of the Predecessor’s accumulated other comprehensive loss and the Predecessor’s accumulated deficit.
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Reorganization Items, net
The Predecessor incurred costs associated with the reorganization, primarily unamortized debt issuance costs, expenses related to rejected leases and post-petition professional fees. In accordance with applicable guidance, costs associated with the Chapter 11 Cases have been recorded as reorganization items, net within the accompanying consolidated statement of operations for the Current Predecessor Period ended February 2, 2021. Reorganization items, net was 0 for the Successor Period, with $13.7 million used in operating activities during the Successor Period. Reorganization items, net was $335.6 million for the Current Predecessor Period, with $3.1 million representing cash used in operating activities during the Current Predecessor Period, $2.7 million and $0.4 million paid for professional fees and to settle lease rejection damages, respectively.
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Restructuring and other expenses
We embarked on a transformation project as part of our emergence from bankruptcy to reconfigure our operations and organization to maximize shareholder value and margin growth. The project is focused around three sequential phases:
Business Unit Review – Analyzing strategic changes that emphasize product optimization and margin enhancement to maximize the cash flow profile of our business units and focus on our core competencies;
Geographic Focus – Review our footprint and improve capital efficiency by focusing on low-risk, high reward geographies to maximize returns; and
Right Size Support – Streamline support to match optimized business units that represent our core portfolio and consolidate our operational footprint to align the size of our operations with current demand to provide a superior value proposition and exhibit capital discipline.
Transformation Project
In connection with this initiative, during 2021, we incurred costs of $7.4 million and $15.8 million in the Successor Quarter and Successor Period, respectively, and $1.3 million in the Current Predecessor Period, which primarily relate to professional fees and separation costs related to former executives and personnel. These costs are included in Restructuring and other expenses in the Condensed Consolidated Statements of Operations.
Additionally, we have disposed of certain assets with a net book value of approximately $27.0 million. Proceeds from the sales of these assets have totaled approximately $43.8 million through October 29, 2021.
(4)Revenue
Revenue Recognition
Revenues are recognized when performance obligations are satisfied in accordance with contractual terms, in an amount that reflects the consideration we expect to be entitled to in exchange for services rendered, rentals provided, and products sold. Taxes collected from customers and remitted to governmental authorities and revenues are reported on a net basis in our financial statements.
Performance Obligations
A performance obligation arises under contracts with customers to render services, provide rentals or sell products, and is the unit of account under FASB Accounting Standards Update 2014-09 - Revenue from Contracts with Customers (Topic 606). We account for services rendered and rentals provided separately if they are distinct and the service or rental is separately identifiable from other items provided to a customer and if a customer can benefit from the services rendered or rentals provided on its own or with other resources that are readily available to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. A contract’s selling prices are determined based on prices we charge for services rendered, rentals provided, and products sold. The majority of our performance obligations are satisfied over time, which is generally represented by a period of 30 days or less. Our payment terms vary by the type of products or services offered. The term between invoicing and when the payment is due is typically 30 days.
Services Revenue: primarily represents amounts charged to customers for the completion of services rendered, including labor, products and supplies necessary to perform the service. Rates for these services vary depending on the type of services provided and can be based on a per job, per hour or per day basis.
Rentals Revenue: primarily priced on a per day, per man hour or similar basis and consists of fees charged to customers for the use of our rental equipment over the term of the rental period, which is generally less than twelve months.
Product Sales Revenue: products are generally sold based upon purchase orders or contracts with our customers that include fixed or determinable prices but do not include right of return provisions or other significant post-delivery obligations. We recognize revenue from product sales when title passes to the customer, the customer assumes risks and rewards of ownership, collectability is reasonably assured and delivery occurs as directed by the customer.
We expense sales commissions when incurred because the amortization period would be one year or less.
Disaggregation of Revenue
The following table presents our revenues by segment disaggregated by geography (in thousands):
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| For the Three Months Ended June 30, |
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| 2022 |
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| 2021 |
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U.S. land |
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Rentals |
| $ | 43,791 |
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| $ | 20,789 |
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Well Services |
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| 4,151 |
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| 6,781 |
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Total U.S. land |
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| 47,942 |
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| 27,570 |
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U.S. offshore |
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Rentals |
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| 36,331 |
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| 26,890 |
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Well Services |
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| 32,569 |
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| 26,574 |
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Total U.S. offshore |
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| 68,900 |
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| 53,464 |
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International |
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Rentals |
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| 23,607 |
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| 19,558 |
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Well Services |
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| 84,191 |
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| 65,300 |
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Total International |
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| 107,798 |
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| 84,858 |
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Total Revenues |
| $ | 224,640 |
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| $ | 165,892 |
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Successor | Predecessor |
| Successor |
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| Predecessor |
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Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 |
| For the Six Months Ended June 30, 2022 |
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| For the Period |
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| For the Period |
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U.S. land |
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Rentals | $ | 20,789 | $ | N/A |
| $ | 77,753 |
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| $ | 31,898 |
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|
| $ | 4,917 |
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Well Services | 6,781 | N/A |
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| 8,699 |
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| 8,907 |
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| 3,379 |
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Drilling Products and Services | N/A | 19,538 | |||||||||||||||||
Onshore Completion and Workover Services | N/A | - | |||||||||||||||||
Production Services | N/A | 6 | |||||||||||||||||
Technical Solutions | N/A | 3,166 | |||||||||||||||||
Total U.S. land | $ | 27,570 | $ | 22,710 |
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| 86,452 |
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| 40,805 |
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| 8,296 |
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U.S. offshore |
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Rentals | $ | 26,890 | $ | N/A |
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| 69,084 |
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| 47,293 |
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| 8,196 |
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Well Services | 26,574 | N/A |
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| 60,890 |
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| 45,995 |
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| 7,371 |
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Drilling Products and Services | N/A | 28,587 | |||||||||||||||||
Onshore Completion and Workover Services | N/A | - | |||||||||||||||||
Production Services | N/A | 6,363 | |||||||||||||||||
Technical Solutions | N/A | 23,611 | |||||||||||||||||
Total U.S. offshore | $ | 53,464 | $ | 58,561 |
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| 129,974 |
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| 93,288 |
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| 15,567 |
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International |
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Rentals | $ | 19,558 | $ | N/A |
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| 45,648 |
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| 30,494 |
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| 5,226 |
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Well Services | 65,300 | N/A |
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| 160,496 |
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| 107,148 |
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| 16,839 |
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Drilling Products and Services | N/A | 19,225 | |||||||||||||||||
Onshore Completion and Workover Services | N/A | - | |||||||||||||||||
Production Services | N/A | 37,033 | |||||||||||||||||
Technical Solutions | N/A | 14,053 | |||||||||||||||||
Total International | $ | 84,858 | $ | 70,311 |
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| 206,144 |
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| 137,642 |
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|
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| 22,065 |
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Total Revenues | $ | 165,892 | $ | 151,582 |
| $ | 422,570 |
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| $ | 271,735 |
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|
| $ | 45,928 |
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Successor | Predecessor | ||||||||
For the Period February 3, 2021 through June 30, 2021 | For the Period January 1, 2021 through February 2, 2021 | For the Six Months Ended June 30, 2020 | |||||||
U.S. land | |||||||||
Rentals | $ | 31,898 | $ | 4,917 | $ | N/A | |||
Well Services | 8,907 | 3,379 | N/A | ||||||
Drilling Products and Services | N/A | N/A | 56,193 | ||||||
Onshore Completion and Workover Services | N/A | N/A | - | ||||||
Production Services | N/A | N/A | 4,633 | ||||||
Technical Solutions | N/A | N/A | 9,303 | ||||||
Total U.S. land | $ | 40,805 | $ | 8,296 | $ | 70,129 | |||
U.S. offshore | |||||||||
Rentals | $ | 47,293 | $ | 8,196 | $ | N/A | |||
Well Services | 45,995 | 7,371 | N/A | ||||||
Drilling Products and Services | N/A | N/A | 65,811 | ||||||
Onshore Completion and Workover Services | N/A | N/A | - | ||||||
Production Services | N/A | N/A | 17,663 | ||||||
Technical Solutions | N/A | N/A | 55,144 | ||||||
Total U.S. offshore | $ | 93,288 | $ | 15,567 | $ | 138,618 | |||
International | |||||||||
Rentals | $ | 30,494 | $ | 5,226 | $ | N/A | |||
Well Services | 107,148 | 16,839 | N/A | ||||||
Drilling Products and Services | N/A | N/A | 49,338 | ||||||
Onshore Completion and Workover Services | N/A | N/A | - | ||||||
Production Services | N/A | N/A | 96,571 | ||||||
Technical Solutions | N/A | N/A | 31,165 | ||||||
Total International | $ | 137,642 | $ | 22,065 | $ | 177,074 | |||
Total Revenues | $ | 271,735 | $ | 45,928 | $ | 385,821 | |||
The following table presents our revenues by segment disaggregated by type (in thousands):
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| For the Three Months Ended June 30, |
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| 2022 |
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| 2021 |
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Services |
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Rentals |
| $ | 12,654 |
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| $ | 9,592 |
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Well Services |
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| 87,412 |
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| 70,195 |
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Total Services |
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| 100,066 |
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| 79,787 |
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Rentals |
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Rentals |
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| 73,563 |
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| 47,895 |
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Well Services |
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| 3,430 |
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|
| 5,343 |
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Total Rentals |
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| 76,993 |
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| 53,238 |
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Product Sales |
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Rentals |
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| 17,512 |
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| 9,750 |
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Well Services |
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| 30,069 |
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| 23,117 |
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Total Product Sales |
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| 47,581 |
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| 32,867 |
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Total Revenues |
| $ | 224,640 |
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| $ | 165,892 |
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|
| Successor |
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| Predecessor |
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| For the Six Months Ended June 30, 2022 |
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| For the Period |
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|
| For the Period |
| |||
Services |
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Rentals |
| $ | 23,812 |
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| $ | 15,856 |
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|
| $ | 2,005 |
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Well Services |
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| 167,693 |
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|
| 107,610 |
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|
|
| 17,229 |
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Total Services |
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| 191,505 |
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| 123,466 |
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| 19,234 |
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|
|
|
|
| |||
Rentals |
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|
|
|
|
|
|
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| |||
Rentals |
|
| 138,810 |
|
|
| 76,488 |
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|
|
| 14,082 |
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Well Services |
|
| 5,345 |
|
|
| 8,064 |
|
|
|
| 352 |
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Total Rentals |
|
| 144,155 |
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|
| 84,552 |
|
|
|
| 14,434 |
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|
|
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|
|
|
|
|
|
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| |||
Product Sales |
|
|
|
|
|
|
|
|
|
| |||
Rentals |
|
| 29,863 |
|
|
| 17,341 |
|
|
|
| 2,252 |
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Well Services |
|
| 57,047 |
|
|
| 46,376 |
|
|
|
| 10,008 |
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Total Product Sales |
|
| 86,910 |
|
|
| 63,717 |
|
|
|
| 12,260 |
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Total Revenues |
| $ | 422,570 |
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| $ | 271,735 |
|
|
| $ | 45,928 |
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Accounts Receivable
Successor | Predecessor | |||||
Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | |||||
Services | ||||||
Rentals | $ | 9,592 | $ | N/A | ||
Well Services | 70,195 | N/A | ||||
Drilling Products and Services | N/A | 13,012 | ||||
Onshore Completion and Workover Services | N/A | - | ||||
Production Services | N/A | 28,759 | ||||
Technical Solutions | N/A | 18,148 | ||||
Total Services | $ | 79,787 | $ | 59,919 | ||
Rentals | ||||||
Rentals | $ | 47,895 | $ | N/A | ||
Well Services | 5,343 | N/A | ||||
Drilling Products and Services | N/A | 44,573 | ||||
Onshore Completion and Workover Services | N/A | - | ||||
Production Services | N/A | 4,959 | ||||
Technical Solutions | N/A | 2,226 | ||||
Total Rentals | $ | 53,238 | $ | 51,758 | ||
Product Sales | ||||||
Rentals | $ | 9,750 | $ | N/A | ||
Well Services | 23,117 | N/A | ||||
Drilling Products and Services | N/A | 9,764 | ||||
Onshore Completion and Workover Services | N/A | - | ||||
Production Services | N/A | 9,684 | ||||
Technical Solutions | N/A | 20,457 | ||||
Total Product Sales | $ | 32,867 | $ | 39,905 | ||
Total Revenues | $ | 165,892 | $ | 151,582 | ||
12
Successor | Predecessor | ||||||||
For the Period February 3, 2021 through June 30, 2021 | For the Period January 1, 2021 through February 2, 2021 | For the Six Months Ended June 30, 2020 | |||||||
Services | |||||||||
Rentals | $ | 15,856 | $ | 2,005 | $ | N/A | |||
Well Services | 107,610 | 17,229 | N/A | ||||||
Drilling Products and Services | N/A | N/A | 27,589 | ||||||
Onshore Completion and Workover Services | N/A | N/A | - | ||||||
Production Services | N/A | N/A | 89,224 | ||||||
Technical Solutions | N/A | N/A | 46,909 | ||||||
Total Services | $ | 123,466 | $ | 19,234 | $ | 163,722 | |||
Rentals | |||||||||
Rentals | $ | 76,488 | $ | 14,082 | $ | N/A | |||
Well Services | 8,064 | 352 | N/A | ||||||
Drilling Products and Services | N/A | N/A | 122,402 | ||||||
Onshore Completion and Workover Services | N/A | N/A | - | ||||||
Production Services | N/A | N/A | 10,083 | ||||||
Technical Solutions | N/A | N/A | 8,600 | ||||||
Total Rentals | $ | 84,552 | $ | 14,434 | $ | 141,085 | |||
Product Sales | |||||||||
Rentals | $ | 17,341 | $ | 2,252 | $ | N/A | |||
Well Services | 46,376 | 10,008 | N/A | ||||||
Drilling Products and Services | N/A | N/A | 21,352 | ||||||
Onshore Completion and Workover Services | N/A | N/A | - | ||||||
Production Services | N/A | N/A | 19,559 | ||||||
Technical Solutions | N/A | N/A | 40,103 | ||||||
Total Product Sales | $ | 63,717 | $ | 12,260 | $ | 81,014 | |||
Total Revenues | $ | 271,735 | $ | 45,928 | $ | 385,821 | |||
(5)(3) Inventory
Inventories are stated at the lower of cost or net realizable value. We apply net realizable value and obsolescence to the gross value of the inventory. Cost is determined using the first-in, first-out or weighted-average cost methods for finished goods and WIP.work-in-process. Supplies and consumables primarily consist principally of products used in ourthe services provided to our customers. The components of the inventory balances are as follows (in thousands):
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| June 30, 2022 |
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|
| December 31, 2021 |
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Finished goods |
| $ | 31,046 |
|
|
| $ | 26,187 |
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Raw materials |
|
| 9,397 |
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|
|
| 9,753 |
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Work-in-process |
|
| 3,520 |
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|
|
| 4,253 |
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Supplies and consumables |
|
| 23,238 |
|
|
|
| 20,410 |
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Total |
| $ | 67,201 |
|
|
| $ | 60,603 |
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(4) Decommissioning Liability
We account for our decommissioning liability under ASC 410 – Asset Retirement Obligations. Our decommissioning liability is associated with our oil and gas property and includes costs related to the plugging of wells, decommissioning of the related platform and equipment and site restoration. We review the adequacy of our decommissioning liability whenever indicators suggest that the estimated cash flows and/or relating timing needed to satisfy the liability have changed materially.
During the second quarter of 2022, we undertook an initiative to alter our decommissioning program, whereby we intend to convert the platform into an artificial reef (“reef-in-place”) and no longer expect to fully decommission the platform. The reef-in-place program would involve severing the top portion of the structure at a permitted navigation depth and placing the severed structure on the sea floor next to the base of the remaining structure.
In connection with the changes in the decommissioning program, we have revised the timing and estimates for the plugging and abandonment of the associated wells, as well as the timing to complete the decommissioning of the platform under a reef-in-place program such that we now expect all decommissioning activities to be completed by the second quarter of 2031.
Successor | Predecessor | ||||||
June 30, 2021 | December 31, 2020 | ||||||
Finished goods | $ | 42,000 | $ | 35,074 | |||
Raw materials | 1,009 | 5,139 | |||||
WIP | 6,350 | 2,994 | |||||
Supplies and consumables | 36,705 | 33,820 | |||||
Total | $ | 86,064 | $ | 77,027 | |||
The changes in estimates under a reef-in-place program resulted in a reduction in the carrying value of our decommissioning liability and related note receivable, as well as impacted the carrying value of our oil and gas producing assets. Due to the reduction in both costs and timing, our decommissioning liability was reduced by $
The following table presents our decommissioning liability as of the periods indicated:
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Wells |
| $ | 81,995 |
|
| $ | 97,810 |
|
Platform |
|
| 60,745 |
|
|
| 92,570 |
|
Decommissioning Liability |
|
| 142,740 |
|
|
| 190,380 |
|
Less: Note Receivable |
|
| (65,140 | ) |
|
| (60,588 | ) |
Decommissioning Liability, net of Note Receivable |
| $ | 77,600 |
|
| $ | 129,792 |
|
Accretion expense for the three and six months ended June 30, 2022 was $2.7 million and $5.4 million respectively. Accretion expense for the three months ended June 30, 2021, the Successor Period and Predecessor Period was $1.2 million, $2.2 million and $0.5 million, respectively.
(6)13
Notes
(5) Note Receivable
NotesWe have a decommissioning liability related to the acquisition of a single oil and gas property. Our note receivable consist ofarises from a commitment from the seller of anthe oil and gas property acquired by us related tofor costs associated with the abandonment of the acquired property. Pursuant to an agreement with the seller, we invoice the seller an agreed upon amount at the completion of certain decommissioning activities foractivities.
During the offshore platform. Thesecond quarter of 2022, changes in estimates regarding the timing and the cost of decommissioning our oil and gas property under a reef-in-place program resulted in a reduction in the carrying value of our decommissioning liability and related note receivable, as well as impacted the carrying value of our oil and gas producing assets. Due to the reduction in both costs and timing, our decommissioning liability was reduced by $53.0 million and the related note receivable was increased by $2.6 million. Additionally, in accordance with ASC 410-20, the carrying value of our oil and gas producing assets, which included capitalized oil and gas reserves and capitalized asset retirement costs, was reduced by $38.2 million, which represented the net book value of all of our oil and gas assets at the time of the reduction. In connection with these changes, we recognized a gain of approximately $17.4 million which is included in other (gains) and losses, net in our statement of operations.
Due to the reduction in estimated costs under the reef-in-place program, the gross amount of the seller’s obligation was reduced to us totals $115.0 million and is recorded at present value, which totaled $74.4$106.9 million as of June 30, 2021. 2022 and was recorded at its present value, which totaled $65.1 million.
The related discount on the note receivable, which is currently based on an effective interest rate of 6.58%5.6%, is amortized to interest income based onover the expected timing of the completion of the decommissioning activities. We recorded non-cash interest income relatedactivities, which are now expected to notes receivablebe completed during the second quarter of $1.2 million and $1.9 million for the Successor Quarter and Successor Period, respectively, which is included in other reconciling items, net in the Condensed Consolidated Statements of Cash Flows. The Predecessor recorded interest income related to notes receivable of $0.4 million and $1.2 million for the Current Predecessor Period and the Prior Predecessor Quarter, respectively.2031. Interest receivable is considered paid in kind and is compounded into the carrying amount of the note.
(7)Non-cash interest income for the three and six months ended June 30, 2022 was $1.0 million and $2.0 million respectively. Non-cash interest income for the three months ended June 30, 2021, the Successor Period and Predecessor Period was $1.2 million, $1.9 million and $0.4 million, respectively. As the interest income on the note receivable is non-cash, it is included in other reconciling items, net in the condensed consolidated statements of cash flows.
(6) Property, Plant and Equipment, Net
Property, plant and equipment are stated at cost, except for assets for which reduction in value is recorded during the period and assets acquired using purchase accounting and through fresh start accounting, which are recorded at fair value as of the date of acquisition. Depreciation on acquired assets is computed using the straight-line method over the estimated useful lives of the related assets as follows:
|
| ||||||
|
| ||||||
|
| ||||||
|
|
A summary of property, plant and equipment, net is as follows (in thousands):
Successor | Predecessor | ||||||||||||||
June 30, 2021 | December 31, 2020 |
| June 30, 2022 |
|
| December 31, 2021 |
| ||||||||
Machinery and equipment | $ | 380,318 | $ | 1,727,454 |
| $ | 368,220 |
|
| $ | 360,353 |
| |||
Buildings, improvements and leasehold improvements | 85,082 | 171,635 |
|
| 77,529 |
|
|
| 75,374 |
| |||||
Automobiles, trucks, tractors and trailers | 7,534 | 11,742 |
|
| 6,550 |
|
|
| 6,450 |
| |||||
Furniture and fixtures | 19,996 | 31,407 |
|
| 19,707 |
|
|
| 19,668 |
| |||||
Construction-in-progress | 6,122 | 4,793 |
|
| 5,078 |
|
|
| 6,700 |
| |||||
Land | 31,782 | 33,394 |
|
| 28,446 |
|
|
| 28,671 |
| |||||
Oil and gas producing assets | 20,028 | 15,117 |
|
| 0 |
|
|
| 44,700 |
| |||||
Total | 550,862 | 1,995,542 |
|
| 505,530 |
|
|
| 541,916 |
| |||||
Accumulated depreciation and depletion | (95,783) | (1,587,435) |
|
| (218,603 | ) |
|
| (185,642 | ) | |||||
Property, plant and equipment, net | $ | 455,079 | $ | 408,107 |
| $ | 286,927 |
|
| $ | 356,274 |
| |||
Depreciation and depletion expense (excluding depletion, amortizationassociated with our property, plant and accretion)equipment for the Successor Quarterthree and Prior Predecessor Quartersix months ended June 30, 2022 was $57.3$20.4 million and $26.2$51.6 million respectively. Depreciation and depletion expense, (excludingexcluding depreciation and depletion amortization and accretion)related to assets held for sale, for the three months ended June 30, 2021, the Successor Period Currentand Predecessor Period and was $Prior Predecessor Period 57.6was $95.4 million, $9.5$96.5 million and $54.8$7.8 million, respectively.
As discussed above, Gains and losses on disposals of assets are recognized within other (gains) and losses, net in connection with the valuation process under fresh start accounting, certain fully depreciated assets were assigned an estimated fair valueour statement of approximately $282.1 million and remaining useful life of less than 36 months. Depreciation expense for the remainder of 2021 is expected to be approximately $104.6 million and approximately $75.1 million and $46.5 million for the years ended December 31, 2022 and 2023, respectively. See Note 3 – “operations.Fresh Start Accounting” for additional information.
(8) Intangibles
Intangible assets consist of the following (in thousands):
Successor | Predecessor | ||||||||||||||||||||
June 30, 2021 | December 31, 2020 | ||||||||||||||||||||
Estimated | Gross | Accumulated | Net | Gross | Accumulated | Net | |||||||||||||||
Useful Lives | Amount | Amortization | Balance | Amount | Amortization | Balance | |||||||||||||||
Trade Names | 10 | 4,166 | (174) | 3,992 | 4,744 | (4,263) | 481 | ||||||||||||||
Customer Relationships | 17 | - | - | - | 14,592 | (10,077) | 4,515 | ||||||||||||||
Patents | 10 | 2,120 | (88) | 2,032 | - | - | - | ||||||||||||||
Non-Compete Agreements | 3 | - | - | - | 3,478 | (3,478) | - | ||||||||||||||
Total | $ | 6,286 | $ | (262) | $ | 6,024 | $ | 22,814 | $ | (17,818) | $ | 4,996 | |||||||||
At June 30, 2021, trade name intangible assets totaling $0.7 million were included in Assets Held for Sale. Amortization expense for both the Successor Quarter and Prior Predecessor Quarter was $0.2 million. For the Successor Period, Current Predecessor Period and Prior Predecessor Period amortization expense was $0.3 million, $0.1 million and $0.5 million, respectively. Based on the carrying values of intangible assets June 30, 2021, amortization expense for the next five years (2021 through 2025) is estimated to be $0.3 million for the remainder of 2021 and $0.7 million for the years 2022 through 2025.
See Note 3 – “Fresh Start Accounting” for additional information.
During the second quarter of 2022, changes in estimates regarding the timing and the cost of decommissioning our oil and gas property under a reef-in-place program resulted in a reduction in the carrying value of our decommissioning liability and related note receivable, as well as impacted the carrying value of our oil and gas producing assets. Due to the reduction in both costs and timing, our decommissioning liability was reduced by $53.0 million and the related note receivable was increased by $2.6 million. Additionally, in accordance with ASC 410, the carrying value of our oil and gas producing assets, which included capitalized oil and gas reserves and capitalized asset retirement costs, was reduced by $38.2 million, which represented the net book value of all of our oil and gas assets at the time of the reduction. In connection with these changes, we recognized a gain of approximately $17.4 million which is included in other (gains) and losses, net in our statement of operations.
14
(9)(7) Debt
Credit Facility
On the Emergence Date, pursuant to the Plan, the Former Parent, as parent guarantor, and SESI, as borrower,we entered into a Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders and letter of credit issuers named therein providing for a $120.0$120.0 million asset-based secured revolving credit facility (the “Credit Facility”),Credit Facility, all of which provides for revolving loans and is available for the issuancesissuance of letters of credit.credit (the “Credit Facility”). The issuance of letters of credit reduces availability under the Credit Facility on a dollar-for-dollar basis. The Credit Facility will mature on December 9, 2024. The borrowing base under the Credit Facility is determined by reference to SESI’s and its subsidiary guarantors’ (i) eligible accounts receivable, (ii) eligible inventory, (iii) solely during the period from February 2, 2021 until the earlier of December 9, 2022 and the date that unrestricted cash of SESI and its wholly-owned subsidiaries is less than $75.0 million, eligible premium rental drill pipe and (iv) so long as there are no loans outstanding at such time, certain cash of SESI and its subsidiary guarantors, less reserves established by the administrative agent in its permitted discretion.
Availability under the Credit Facility at any time is equal to the lesser of (i) the aggregate commitments under the Credit Facility and (ii) the borrowing base at such time. As of June 30, 2021, the2022, our borrowing base, underas defined in the Credit FacilityAgreement, was approximately $120.0$120.0 million, and we had $45.0$34.3 million of letters of credit outstanding that reduced itsthe borrowing availability under the revolving credit facility. Subject to certain conditions, upon request and with the consent of the participating lenders, the total commitmentsavailability. We had no outstanding borrowings under the Credit Facility may be increased to $170.0 million. SESI’s obligations underas of June 30, 2022.
Unless all loans are paid off and letters of credit outstanding are cash collateralized and the Credit Facility are guaranteed by the Former Parent and all of SESI’s material domestic subsidiaries, and secured by substantially all of the personal property of the Former Parent, SESI and SESI’s material domestic subsidiaries, in each case, subject to certain customary exceptions.
Borrowings underterminated, the Credit Facility bear interest, at SESI’s option, at either an adjusted LIBOR (as defined below) rate plus an applicable margin ranging from 3.00%requires, subject to 3.50% per annum, or an alternate base rate plus an applicable margin ranging from 2.00% to 2.50% per annum, in each case, on the basis of the then applicable consolidated fixed charge coverage ratio. In addition, SESI is required to pay (i) a letter of credit fee ranging from 3.00% to 3.50% per annum on the basis of the consolidated fixed charge coverage ratio on the aggregate face amount of all outstanding letters of credit, (ii) to the issuing lender of each letter of credit, a fronting fee of no less than 0.25% per annum on the outstanding amount of each such letter of credit and (iii) commitment fees of 0.50% per annum on the daily unused amount of the Credit Facility, in each case, quarterly in arrears.
The Credit Facility containspermitted exceptions, compliance with various covenants, requiring compliance, including, but not limited to, limitations on the incurrence of indebtedness, permitted investments, liens on assets, making distributions, transactions with affiliates, mergers, consolidations, dispositions of assets and other provisions customary in similar types of agreements. The Credit Facility also requires compliance with a fixed charge coverage ratio of 1.0 to 1.0 if either (i)(a) an event of default has occurred and is continuing or (ii)(b) availability under the Credit Facility is less than the greater of $20.0$20.0 million or 15%15% of the lesser of the aggregate commitments and the borrowing base. The covenant and other restrictions of the Credit Facility significantly restrict the ability to incur borrowings other than letters of credit.
On May 13, 2021, SESI, SESI Holdings, Inc. and the subsidiary guarantors party thereto entered into a first amendment and waiver to the Credit Facility (the “First Amendment and Waiver to the Credit Facility”) to, among other things, (i) extend the deadline thereunder for the delivery of our consolidated unaudited financial statements for the quarter ended March 31, 2021 to June 1, 2021 and (ii) obtain a limited waiver of potential defaults under the Credit Facility related to a delayed public filing of such financial statements after the original deadline for delivery of such financial statements.
On May 28, 2021, SESI, L.L.C., SESI Holdings, Inc. and the subsidiary guarantors party thereto entered into a waiver to the Credit Facility to (i) extend the deadline under the Credit Agreement for the delivery of Superior Energy Services, Inc.’s consolidated unaudited financial statements for the quarter ended March 31, 2021 and the calendar months ending April 30, 2021 and May 31, 2021 to July 15, 2021 and (ii) agree that until the unaudited financial statements and a revised borrowing base certificateWe were in connection therewith are delivered, the lenders will not becompliance with all required to make any advances requested.
On July 15, 2021, SESI, the Former Parent, and the subsidiary guarantors party thereto entered into a waiver to the Credit Facility with JPMorgan Chase Bank, N.A., as administrative agent and lender, and certain other financial institutions and other parties thereto as lenders to (i) extend the deadline under the Credit Facility for the delivery of our consolidated unaudited financial statements (x) as of and for the quarter ended March 31, 2021 to September 30, 2021 and (y) as of and for the quarter ended June 30, 2021 and the calendar months ending April 30, 2021, May 31, 2021, July 31, 2021 and August 31, 2021 to October 30, 2021, (ii) obtain a limited waiver of potential defaults under the Credit Facility related to a delayed public filing of this quarterly report on Form 10-Q with respect to the fiscal quarter ended June 30, 2021 (including related financial statements) after the original deadline (and confirmation of such waiver as it pertains to the quarterly report on Form 10-Q with respect to the fiscal quarter ended March 31, 2021), and (iii) agree that until the quarterly unaudited financial statements and a revised borrowing base certificate in connection with each such quarter is delivered, the lenders will not be required to make any advances requested.
Delayed-Draw Term Loan Commitment Letter
On September 29, 2020, the Predecessor entered into a commitment letter (the “Delayed-Draw Term Loan Commitment Letter”) with certain of the consenting noteholders (such consenting noteholders, the “Backstop Commitment Parties”). The Backstop Commitment Parties committed to provide a delayed draw term loan facility (the “Delayed-Draw Term Loan Facility”) in an aggregate principal amount not to exceed $200.0 million, upon our emergence from bankruptcy on the terms and subject to the conditions of the Delayed-Draw Term Loan Commitment Letter.
The Predecessor paid $12.0 million of fees in consideration for the commitment by the Backstop Commitment Parties during 2020. On the Emergence Date, the Delayed-Draw Term Loan Commitment Letter terminated in accordance with its terms upon the effectiveness of the Credit Facility without the establishment of the Delayed-Draw Term Loan Facility. The termination resulted in the Predecessor recognizing $12.0 million of reorganization items, net during the Current Predecessor Period.
Debtor-in-Possession Financing
In connection with the Chapter 11 Cases, the Affiliate Debtors filed a motion for approval of a debtor-in-possession financing facility, and on December 8, 2020, the Bankruptcy Court approved such motion and entered into an order approving the financings (the “DIP Order”). In accordance with the DIP Order, on December 9, 2020, the Predecessor, as guarantor, and SESI, as borrower, entered into a $120.0 million Senior Secured Debtor-in-Possession Credit Agreement (the “DIP Credit Facility”) with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto.
On the Emergence Date, the Credit Facility replaced the DIP Credit Facility and approximately $46.6 million of undrawn letters of credit outstanding under the former DIP Credit Facility were deemed outstanding under the Credit Facility. All accrued and unpaid fees and other amounts outstanding thereunder were paid in full as well.
Prepetition Indebtedness
The Predecessor’s outstanding debt was as follows (in thousands) for the periods indicated:
Stated Interest Rate (%) | December 31, 2020 | |||
Senior unsecured notes due September 2024 | 7.750 | $ | 500,000 | |
Senior unsecured notes due December 2021 | 7.125 | 800,000 | ||
Total debt, gross | 1,300,000 | |||
Reclassification to liabilities subject to compromise | (1,300,000) | |||
Unamortized debt issuance costs | - | |||
Total debt, net | $ | - | ||
The Predecessor had outstanding $800.0 million of senior unsecured notes due December 2021. The indenture governing the 7.125% senior unsecured notes due 2021 required semi-annual interest payments on June 15 and December 15of each year through the maturity date of December 15, 2021.
The Predecessor also had outstanding $500.0 million of senior unsecured notes due September 2024. The indenture governing the 7.75% senior unsecured notes due 2024 required semi-annual interest payments on March 15 and September 15 of each year through the maturity date of September 15, 2024.
At the Petition Date, there was pre-petition accrued interest of $35.8 million under the two issuances of senior secured notes. As a result of the automatic stay from bankruptcy, principal and interest was not paid during the bankruptcy proceedings. On the Emergence Date, obligations under these notes, including principal and accrued interest of $35.8 million, were fully extinguished in exchange for cash and equity in the Successor.
(10) Decommissioning Liabilities
We account for decommissioning liabilities under ASC 410 – Asset Retirement Obligations. Our decommissioning liabilities are associated with an oil and gas property and include liabilities related to the plugging of wells, removal of the related platform and equipment and site restoration. We review the adequacy of our decommissioning liabilities whenever indicators suggest that the estimated cash flows and/or relating timing needed to satisfy the liability have changed materially. The Successor had decommissioning liabilities of $171.1 millioncovenants as of June 30, 2021 and the Predecessor had decommissioning liabilities of $142.7 million as of December 31, 2020, respectively, including decommissioning liabilities included within liabilities held for sale. In connection with fresh start accounting, we now present all asset retirement obligations separately as decommissioning liabilities on the balance sheet. Previously, certain of these decommissioning liabilities were included as a component of other long-term liabilities.2022.
(11) Leases
Accounting Policy for Leases
We determine if an arrangement is a lease at inception. All of our leases are operating leases and are included in right-of-use (“ROU”) assets, accounts payable and operating lease liabilities in the condensed consolidated balance sheet.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligations to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the respective lease term. We use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Our lease terms may include options to extend or terminate the lease.
Overview
Our operating leases are primarily for real estate, machinery and equipment, and vehicles. The terms and conditions for these leases vary by the type of underlying asset. Total operating lease expense was as follows (in thousands):
Successor | Predecessor | |||||
Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | |||||
Long-term fixed lease expense | $ | 3,779 | $ | 4,624 | ||
Short-term lease expense | 2,349 | 884 | ||||
Total operating lease expense | $ | 6,128 | $ | 5,508 | ||
Successor | Predecessor | |||||||||
For the Period February 3, 2021 through June 30, 2021 | For the Period January 1, 2021 through February 2, 2021 | For the Six Months Ended June 30, 2020 | ||||||||
Long-term fixed lease expense | $ | 5,759 | $ | 1,824 | $ | 10,255 | ||||
Long-term variable lease expense | - | 19 | - | |||||||
Short-term lease expense | 3,345 | 789 | 1,875 | |||||||
Total operating lease expense | $ | 9,104 | $ | 2,632 | $ | 12,130 | ||||
Supplemental Balance Sheet and Cash Flows Information
Operating leases were as follows (in thousands):
Successor | Predecessor | |||||
June 30, 2021 | December 31, 2020 | |||||
Operating lease ROU assets | $ | 30,755 | $ | 33,317 | ||
Accrued expenses | $ | 9,522 | $ | 10,698 | ||
Operating lease liabilities | 21,353 | 29,464 | ||||
Total operating lease liabilities | $ | 30,875 | $ | 40,162 | ||
Weighted-average remaining lease term | 11 years | 9 years | ||||
Weighted-average discount rate | 5.34% | 6.35% | ||||
Successor | Predecessor | ||||||||
For the Period February 3, 2021 through June 30, 2021 | For the Period January 1, 2021 through February 2, 2021 | For the Six Months Ended June 30, 2020 | |||||||
Cash paid for operating leases | $ | 7,614 | $ | 1,575 | $ | 13,494 | |||
ROU assets obtained in exchange for lease obligations | $ | 2,823 | $ | 453 | $ | 2,996 | |||
Maturities of operating lease liabilities at June 30, 2021 are as follows (in thousands):
Remainder of 2021 | $ | 5,284 |
2022 | 9,180 | |
2023 | 6,841 | |
2024 | 4,403 | |
2025 | 3,396 | |
Thereafter | 20,902 | |
Total lease payments | 50,006 | |
Less imputed interest | (19,131) | |
Total | $ | 30,875 |
(12)(8) Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date. Inputs used in determining fair value are characterized according to a hierarchy that prioritizes those inputs based on the degree to which they are observable. The three input levels of the fair value hierarchy are as follows:
Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.
Level 2: Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical assets or liabilities in inactive markets; or model-derived valuations or other inputs that can be corroborated by observable market data.
Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.
The following tables provide a summary of the financial assets and liabilities measured at fair value on a recurring basis (in thousands):
|
| June 30, 2022 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Non-qualified deferred compensation assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Intangible and other long-term assets, net |
| $ | 0 |
|
| $ | 15,361 |
|
| $ | - |
|
| $ | 15,361 |
|
Accounts payable |
|
| - |
|
|
| 1,758 |
|
|
| - |
|
|
| 1,758 |
|
Other long-term liabilities |
|
| - |
|
|
| 15,513 |
|
|
| - |
|
|
| 15,513 |
|
Investment in equity securities |
| $ | 16,524 |
|
| $ | - |
|
| $ | - |
|
| $ | 16,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| December 31, 2021 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Non-qualified deferred compensation assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Intangible and other long-term assets, net |
| $ | - |
|
| $ | 15,896 |
|
| $ | - |
|
| $ | 15,896 |
|
Accounts payable |
|
| - |
|
|
| 2,250 |
|
|
| - |
|
|
| 2,250 |
|
Other long-term liabilities |
|
| - |
|
|
| 19,218 |
|
|
| - |
|
|
| 19,218 |
|
Investment in equity securities |
| $ | 25,735 |
|
| $ | - |
|
| $ | - |
|
| $ | 25,735 |
|
Successor Fair Value at June 30, 2021 | ||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||
Intangible and other long-term assets, net: | ||||||||||||
Non-qualified deferred compensation assets | $ | 7,457 | $ | 8,146 | $ | - | $ | 15,603 | ||||
Accounts payable: | ||||||||||||
Non-qualified deferred compensation liabilities | $ | - | $ | 2,112 | $ | - | $ | 2,112 | ||||
Other long-term liabilities: | ||||||||||||
Non-qualified deferred compensation liabilities | $ | - | $ | 19,702 | $ | - | $ | 19,702 | ||||
Predecessor Fair Value at December 31, 2020 | ||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||
Intangible and other long-term assets, net: | ||||||||||||
Non-qualified deferred compensation assets | $ | - | $ | 15,013 | $ | - | $ | 15,013 | ||||
Accounts payable: | ||||||||||||
Non-qualified deferred compensation liabilities | $ | - | $ | 2,869 | $ | - | $ | 2,869 | ||||
Other long-term liabilities: | ||||||||||||
Non-qualified deferred compensation liabilities | $ | - | $ | 20,697 | $ | - | $ | 20,697 | ||||
Total debt | $ | 409,050 | $ | - | $ | - | $ | 409,050 | ||||
Our non-qualified deferred compensation plans allow officers, certain highly compensated employees and non-employee directors to defer receipt of a portion of their compensation and contribute such amounts to one or more hypothetical investment funds. These investments are reported at fair value based on unadjusted quoted prices in active markets for identifiable assets and observable inputs for similar assets and liabilities, which represent either a Level 1 or Level 2 in the fair value hierarchy dependinghierarchy. Investment in equity securities relates to our ownership of common stock of Select Energy Services, Inc. (“Select”) and is reported at fair value based on unadjusted quoted prices which are readily determinable, which represents a Level 1 in the type of investment. Commencement of the Chapter 11 Cases automatically stayed payments under the non-qualified deferred compensation plans. As a result of the consummation of the Plan, restricted stock units issued prior to the Fresh Start Accounting Date under our stock incentive plans were cancelled for 0 consideration.fair value hierarchy.
The carrying amount of cash equivalents, accounts receivable, accounts payable and accrued expenses, as reflected in the condensed consolidated balance sheets, approximates fair value due to the short maturities. The fair value of the debt instruments is determined by reference to the market value of such instruments as quoted in an over-the-counter market, which represents Level 1 in the fair value hierarchy.
(9) Other income (expense)
(13)
15
Other income (expense) primarily relate to re-measurement gains and losses associated with our foreign currencies and realized and unrealized gains and losses on our investment in equity securities.
As of June 30, 2022, we held 2.4 million shares of Select common stock. During the three and six months ended June 30, 2022, we recognized unrealized losses of $5.9 million and unrealized gains of $0.5 million, respectively from our investment in equity securities. During the six months ended June 30, 2022, we disposed of 1.7 million shares of Select for $13.4 million, of which 0.7 million shares were disposed of for $6.0 million during the three months ended June 30, 2022. During the three and six months ended June 30, 2022, we recognized gains totaling $1.9 million and $3.6 million, respectively, in connection with these transactions.
Losses on foreign currencies during the three and six months ended June 30, 2022 were $10.5 million and $4.9 million, respectively. Gain on foreign currencies for the three months ended June 30, 2021 and the Successor Period were $2.9 million and $0.3 million, respectively. Losses on foreign currencies during the three and six months ended June 30, 2022 include an expense of $2.7 million which represents a correction of an immaterial error relating to a period prior to our emergence from bankruptcy. During the Predecessor Period, losses on foreign currencies were $2.1 million. Gains and losses on foreign currencies are primarily related to our operations in Brazil.
(10) Segment Information
In connection with our previously discussed Transformation Project and pending disposition activities, during the second quarter of 2021, our reportable segments were changed to Rentals, Well Services and Corporate and other. Reportable segments for periods prior to January 1, 2021 which were presented in our Annual Report on Form 10-K were Drilling Products and Services, Onshore Completion and Workover Services, Production Services and Technical Solutions. The Predecessor segment presentation has not been revised due to the change in reporting entity as a result of our application of fresh start accounting.
Business Segments
The products and service offerings of our Rentals segment are comprised of value-added engineering and design services, rental of premium drill strings, tubing, landing strings, completion tubulars and premium downhole tubular rentals, design engineering,handling accessories, manufacturing and rental of bottom hole assemblies, and rentals of accommodation units.
The products and service offerings of our Well Services segment are comprised of risk management, well control and training solutions, hydraulic workover and snubbing services, engineering and manufacturing of premium sand control tools, coiled tubing, cased hole and mechanical wireline,onshore international production testingservices. The Well Services segment also includes the operations of our offshore oil and optimization, pressure control and remedial pumping services.gas property.
We evaluate the performance of our reportable segments based on income or loss from operations excluding corporate expenses.operations. The segment measure is calculated as follows: segment revenues less segment operating expenses, including general and administrative expenses, depreciation, depletion, amortization and accretion expense, restructuring expenses and reduction in value of assets.other gains and losses. We use this segment measure to evaluate our reportable segments as it is the measure that is most consistent with how we organize and manage our business operations. Corporate and other costs primarily include expenses related to support functions, including salaries and benefits for corporate employees.
Summarized financial information for our segments is as follows (in thousands):
For the three months ended June 30, 2022 |
|
|
|
| Well |
|
| Corporate and |
|
| Consolidated |
| ||||
|
| Rentals |
|
| Services |
|
| Other |
|
| Total |
| ||||
Revenues |
| $ | 103,729 |
|
| $ | 120,911 |
|
| $ | - |
|
| $ | 224,640 |
|
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 35,860 |
|
|
| 85,108 |
|
|
| - |
|
|
| 120,968 |
|
Depreciation, depletion, amortization and accretion |
|
| 12,556 |
|
|
| 9,662 |
|
|
| 1,128 |
|
|
| 23,346 |
|
General and administrative expenses |
|
| 6,559 |
|
|
| 11,202 |
|
|
| 12,470 |
|
|
| 30,231 |
|
Restructuring expenses |
|
| - |
|
|
| - |
|
|
| 1,663 |
|
|
| 1,663 |
|
Other (gains) and losses, net |
|
| 195 |
|
|
| (18,208 | ) |
|
| - |
|
|
| (18,013 | ) |
Income (loss) from operations |
| $ | 48,559 |
|
| $ | 33,147 |
|
| $ | (15,261 | ) |
| $ | 66,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
For the three months ended June 30, 2021 |
|
|
|
| Well |
|
| Corporate and |
|
| Consolidated |
| ||||
|
| Rentals |
|
| Services |
|
| Other |
|
| Total |
| ||||
Revenues |
| $ | 67,237 |
|
| $ | 98,655 |
|
| $ | - |
|
| $ | 165,892 |
|
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 27,309 |
|
|
| 75,736 |
|
|
|
|
|
| 103,045 |
| |
Depreciation, depletion, amortization and accretion |
|
| 42,083 |
|
|
| 15,213 |
|
|
| 1,722 |
|
|
| 59,018 |
|
General and administrative expenses |
|
| 6,352 |
|
|
| 13,123 |
|
|
| 12,833 |
|
|
| 32,308 |
|
Restructuring expenses |
|
| - |
|
|
| - |
|
|
| 7,438 |
|
|
| 7,438 |
|
Other (gains) and losses, net |
|
| 725 |
|
|
| (191 | ) |
|
|
|
|
| 534 |
| |
Income (loss) from operations |
| $ | (9,232 | ) |
| $ | (5,226 | ) |
| $ | (21,993 | ) |
| $ | (36,451 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
16
Successor | ||||||||||||
Three Months Ended June 30, 2021 | ||||||||||||
Well | Corporate and | Consolidated | ||||||||||
Rental | Services | Other | Total | |||||||||
Revenues | $ | 67,237 | $ | 98,655 | $ | - | $ | 165,892 | ||||
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) | 28,034 | 75,545 | - | 103,579 | ||||||||
Depreciation, depletion, amortization | ||||||||||||
and accretion | 42,083 | 14,859 | 2,076 | 59,018 | ||||||||
General and administrative expenses | 6,352 | 9,566 | 16,390 | 32,308 | ||||||||
Restructuring and other expenses | - | - | 7,438 | 7,438 | ||||||||
Reduction in value of assets | - | - | - | - | ||||||||
Income (loss) from operations | (9,232) | (1,315) | (25,904) | (36,451) | ||||||||
Interest income (expense), net | - | 1 | 534 | 535 | ||||||||
Other income (expense) | (501) | 2,640 | 431 | 2,570 | ||||||||
Income (loss) from continuing operations | ||||||||||||
before income taxes | $ | (9,733) | $ | 1,326 | $ | (24,939) | $ | (33,346) | ||||
For the six months ended June 30, 2022 (Successor) |
|
|
|
| Well |
|
| Corporate and |
|
| Consolidated |
| ||||
|
| Rentals |
|
| Services |
|
| Other |
|
| Total |
| ||||
Revenues |
| $ | 192,485 |
|
| $ | 230,085 |
|
| $ | - |
|
| $ | 422,570 |
|
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 67,612 |
|
|
| 165,736 |
|
|
| - |
|
|
| 233,348 |
|
Depreciation, depletion, amortization and accretion |
|
| 33,545 |
|
|
| 21,390 |
|
|
| 2,496 |
|
|
| 57,431 |
|
General and administrative expenses |
|
| 13,924 |
|
|
| 22,603 |
|
|
| 25,722 |
|
|
| 62,249 |
|
Restructuring expenses |
|
| - |
|
|
| - |
|
|
| 3,218 |
|
|
| 3,218 |
|
Other (gains) and losses, net |
|
| 60 |
|
|
| (16,926 | ) |
|
| - |
|
|
| (16,866 | ) |
Income (loss) from operations |
| $ | 77,344 |
|
| $ | 37,282 |
|
| $ | (31,436 | ) |
| $ | 83,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
For the Period February 3, 2021 through June 30, 2021 (Successor) |
|
|
|
| Well |
|
| Corporate and |
|
| Consolidated |
| ||||
|
| Rentals |
|
| Services |
|
| Other |
|
| Total |
| ||||
Revenues |
| $ | 109,685 |
|
| $ | 162,050 |
|
| $ | - |
|
| $ | 271,735 |
|
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 42,795 |
|
|
| 128,287 |
|
|
| - |
|
|
| 171,082 |
|
Depreciation, depletion, amortization and accretion |
|
| 70,141 |
|
|
| 26,376 |
|
|
| 2,531 |
|
|
| 99,048 |
|
General and administrative expenses |
|
| 9,803 |
|
|
| 21,584 |
|
|
| 19,359 |
|
|
| 50,746 |
|
Restructuring expenses |
|
| - |
|
|
| - |
|
|
| 15,821 |
|
|
| 15,821 |
|
Other (gains) and losses, net |
|
| 560 |
|
|
| (195 | ) |
|
| - |
|
|
| 365 |
|
Income (loss) from operations |
| $ | (13,614 | ) |
| $ | (14,002 | ) |
| $ | (37,711 | ) |
| $ | (65,327 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
For the Period January 1, 2021 through February 2, 2021 (Predecessor) |
|
|
|
| Well |
|
| Corporate and |
|
| Consolidated |
| ||||
|
| Rentals |
|
| Services |
|
| Other |
|
| Total |
| ||||
Revenues |
| $ | 18,339 |
|
| $ | 27,589 |
|
| $ | - |
|
| $ | 45,928 |
|
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 7,839 |
|
|
| 21,934 |
|
|
| - |
|
|
| 29,773 |
|
Depreciation, depletion, amortization and accretion |
|
| 4,271 |
|
|
| 3,666 |
|
|
| 421 |
|
|
| 8,358 |
|
General and administrative expenses |
|
| 2,027 |
|
|
| 4,111 |
|
|
| 4,914 |
|
|
| 11,052 |
|
Restructuring expenses |
|
| - |
|
|
| - |
|
|
| 1,270 |
|
|
| 1,270 |
|
Income (loss) from operations |
| $ | 4,202 |
|
| $ | (2,122 | ) |
| $ | (6,605 | ) |
| $ | (4,525 | ) |
Identifiable Assets
|
|
|
|
| Well |
|
| Corporate |
|
| Consolidated |
| ||||
|
| Rentals |
|
| Services |
|
| and Other |
|
| Total |
| ||||
June 30, 2022 |
| $ | 456,309 |
|
| $ | 605,804 |
|
| $ | 160,463 |
|
| $ | 1,222,576 |
|
December 31, 2021 |
|
| 379,453 |
|
|
| 636,256 |
|
|
| 183,799 |
|
|
| 1,199,508 |
|
Predecessor | ||||||||||||||||||
Three Months Ended June 30, 2020 | Onshore | |||||||||||||||||
Completion | ||||||||||||||||||
Drilling Products | and Workover | Production | Technical | Corporate and | Consolidated | |||||||||||||
and Services | Services | Services | Solutions | Other | Total | |||||||||||||
Revenues | $ | 67,349 | $ | - | $ | 43,402 | $ | 40,831 | $ | - | $ | 151,582 | ||||||
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) | 22,485 | (29) | 37,792 | 33,178 | - | 93,426 | ||||||||||||
Depreciation, depletion, amortization | ||||||||||||||||||
and accretion | 15,827 | 102 | 7,592 | 4,260 | 927 | 28,708 | ||||||||||||
General and administrative expenses | 10,927 | 12 | 6,343 | 10,209 | 28,037 | 55,528 | ||||||||||||
Income (loss) from operations | 18,110 | (85) | (8,325) | (6,816) | (28,964) | (26,080) | ||||||||||||
Interest income (expense), net | - | - | 1,104 | (25,861) | (24,757) | |||||||||||||
Other income | - | - | 821 | 821 | ||||||||||||||
Income (loss) from continuing operations | ||||||||||||||||||
before income taxes | $ | 18,110 | $ | (85) | $ | (8,325) | $ | (5,712) | $ | (54,004) | $ | (50,016) | ||||||
17
Predecessor | ||||||||||||
For the Period January 1, 2021 through February 2, 2021 | ||||||||||||
Well | Corporate and | Consolidated | ||||||||||
Rental | Services | Other | Total | |||||||||
Revenues | $ | 18,339 | $ | 27,589 | $ | - | $ | 45,928 | ||||
Cost of revenues (exclusive of depreciation, | ||||||||||||
depletion, amortization and accretion) | 7,839 | 21,934 | - | 29,773 | ||||||||
Depreciation, depletion, amortization | ||||||||||||
and accretion | 4,271 | 3,666 | 421 | 8,358 | ||||||||
General and administrative expenses | 2,027 | 3,107 | 5,918 | 11,052 | ||||||||
Restructuring and other expenses | - | - | 1,270 | 1,270 | ||||||||
Income (loss) from operations | 4,202 | (1,118) | (7,609) | (4,525) | ||||||||
Interest income (expense), net | 10 | 1 | 191 | 202 | ||||||||
Reorganization items, net | (2,037) | 31,816 | 305,781 | 335,560 | ||||||||
Other income (expense) | (399) | (165) | (1,541) | (2,105) | ||||||||
Income (loss) from continuing operations | ||||||||||||
before income taxes | $ | 1,776 | $ | 30,534 | $ | 296,822 | $ | 329,132 | ||||
Successor | ||||||||||||
For the Period February 3, 2021 to June 30, 2021 | ||||||||||||
Well | Corporate and | Consolidated | ||||||||||
Rental | Services | Other | Total | |||||||||
Revenues | $ | 109,685 | $ | 162,050 | $ | - | $ | 271,735 | ||||
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) | 43,355 | 128,092 | - | 171,447 | ||||||||
Depreciation, depletion, amortization | ||||||||||||
and accretion | 70,141 | 25,676 | 3,231 | 99,048 | ||||||||
General and administrative expenses | 9,803 | 15,826 | 25,117 | 50,746 | ||||||||
Restructuring and other expenses | - | - | 15,821 | 15,821 | ||||||||
Loss from operations | (13,614) | (7,544) | (44,169) | (65,327) | ||||||||
Interest income (expense), net | - | 3 | 744 | 747 | ||||||||
Other income (expense) | (701) | 2,235 | (1,809) | (275) | ||||||||
Loss from continuing operations | ||||||||||||
before income taxes | $ | (14,315) | $ | (5,306) | $ | (45,234) | $ | (64,855) | ||||
Predecessor | ||||||||||||||||||
Six Months Ended June 30, 2020 | Onshore | |||||||||||||||||
Completion | ||||||||||||||||||
Drilling Products | and Workover | Production | Technical | Corporate and | Consolidated | |||||||||||||
and Services | Services | Services | Solutions | Other | Total | |||||||||||||
Revenues | $ | 171,343 | $ | - | $ | 118,866 | $ | 95,612 | $ | - | $ | 385,821 | ||||||
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) | 57,449 | (2,018) | 100,808 | 74,700 | - | 230,939 | ||||||||||||
Depreciation, depletion, amortization | ||||||||||||||||||
and accretion | 33,618 | 215 | 15,457 | 9,604 | 1,995 | 60,889 | ||||||||||||
General and administrative expenses | 25,440 | 35 | 13,607 | 24,244 | 51,478 | 114,804 | ||||||||||||
Reduction in value of assets | - | - | 4,064 | 12,458 | - | 16,522 | ||||||||||||
Income (loss) from operations | 54,836 | 1,768 | (15,070) | (25,394) | (53,473) | (37,333) | ||||||||||||
Interest income (expense), net | - | - | 2,277 | (52,175) | (49,898) | |||||||||||||
Other income | - | - | (3,411) | (3,411) | ||||||||||||||
Income (loss) from continuing operations | ||||||||||||||||||
before income taxes | $ | 54,836 | $ | 1,768 | $ | (15,070) | $ | (23,117) | $ | (109,059) | $ | (90,642) | ||||||
Identifiable Assets | ||||||||||||
Well | Corporate and | Consolidated | ||||||||||
Rentals | Services | Other | Total | |||||||||
June 30, 2021 - Successor | $ | 399,537 | $ | 694,074 | $ | 246,976 | $ | 1,340,587 | ||||
Drilling Products | Completion and Workover | Production | Technical | Corporate and | Consolidated | |||||||||||||
and Services | Services | Services | Solutions | Other | Total | |||||||||||||
December 31, 2020 - Predecessor | $ | 557,469 | $ | 183,065 | $ | 368,185 | $ | 260,339 | $ | 132,021 | $ | 1,501,079 |
Geographic Segments
We operate in the U.S. and in various other countries throughout the world. Our international operations are primarily focused in Latin America, Asia-Pacific and the Middle East and North Africa regions. We attribute revenue to various countries based on the location of where services are performed or the destination of the drilling products or equipment sold or rented. Long-lived assets consist primarily of property, plant and equipment and are attributed to various countries based on the physical location of the asset at the end of a period.
Our revenue attributed to the U.S. and to other countries and the value of our long-lived assets by those locations are as follows (in thousands):
Revenues
Revenues | |||||||||||||||
Successor | Predecessor |
| For the Three Months Ended June 30, |
| |||||||||||
Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 |
| 2022 |
|
| 2021 |
| ||||||||
United States | $ | 81,034 | $ | 81,271 |
| $ | 116,842 |
|
| $ | 81,034 |
| |||
Other countries | 84,858 | 70,311 |
|
| 107,798 |
|
|
| 84,858 |
| |||||
Total | $ | 165,892 | $ | 151,582 |
| $ | 224,640 |
|
| $ | 165,892 |
| |||
|
| Successor |
|
|
| Predecessor |
| ||||||
|
| For the Six Months Ended June 30, 2022 |
|
| For the Period |
|
|
| For the Period |
| |||
United States |
| $ | 216,426 |
|
| $ | 134,093 |
|
|
| $ | 23,863 |
|
Other countries |
|
| 206,144 |
|
|
| 137,642 |
|
|
|
| 22,065 |
|
Total |
| $ | 422,570 |
|
| $ | 271,735 |
|
|
| $ | 45,928 |
|
Long-Lived Assets
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
United States |
| $ | 190,891 |
|
| $ | 231,388 |
|
Other countries |
|
| 96,036 |
|
|
| 124,886 |
|
Total |
| $ | 286,927 |
|
| $ | 356,274 |
|
31(11) Stock-Based Compensation Plans
Our Management Incentive Plan (“MIP”) provides the issuance of up to
Revenues | ||||||||||
Successor | Predecessor | |||||||||
For the Period February 3, 2021 through June 30, 2021 | For the Period January 1, 2021 through February 2, 2021 | Six Months Ended June 30, 2020 | ||||||||
United States | $ | 134,093 | $ | 23,863 | $ | 208,747 | ||||
Other countries | 137,642 | 22,065 | 177,074 | |||||||
Total | $ | 271,735 | $ | 45,928 | $ | 385,821 | ||||
Long-Lived Assets | ||||||||||
Successor | Predecessor | |||||||||
June 30, 2021 | December 31, 2020 | |||||||||
United States | $ | 285,413 | $ | 253,114 | ||||||
Other countries | 169,666 | 154,993 | ||||||||
Total | $ | 455,079 | $ | 408,107 | ||||||
1,999,869 shares of our Class B common stock, par value $0.01 per share (the “Class B Common Stock”) for the grant of share-based and cash-based awards.
Approval of Forms of Award Agreement and Equity Awards
On March 28, 2022, the Board and the Compensation Committee approved new forms of restricted stock unit (“RSU”) award agreements and forms of performance stock unit (“PSU”) award agreements (collectively, the “Award Agreements”) under the MIP, and approved a special grant of 72,050 RSUs and 288,199 PSUs which was intended to satisfy stock awards for the next three years. Additional grants will be issued for new hires and promotions.
(14)Awards made under the forms of RSU award agreements for our employees generally vest in three equal annual installments over the three-year Reductionperiod, subject to terms and conditions set forth in Valuethe forms of AssetsRSU award agreements. Awards made under the forms PSU award agreements may be earned between 25% and 100% of the target award based on achievement of share price goals set forth in the forms of PSU award agreements and will vest to the extent that share price goals are achieved based on the terms and conditions set forth in the forms of PSU award agreements.
Long-lived assets, such as property, plant and equipment and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is assessed by a comparison of the carrying amount of such assets to their fair value calculated, in part, by the estimated undiscounted future cash flows expected to be generated by the assets. Cash flow estimates are based upon, among other things, historical results adjusted to reflect the best estimate of future market rates, utilization levels, and operating performance. Estimates of cash flows may differ from actual cash flows due to, among other things, changes in economic conditions or changes in an asset’s operating performance. Our assets are grouped by line of business or division for the impairment testing, which represents the lowest level of identifiable cash flows. If the asset grouping’s fair value is less than the carrying amount of the asset grouping, impairment losses are recorded in the amount by which the carrying amount of asset grouping exceeds the fair value. The estimate of fair value represents our best estimate based on industry trends and reference to market transactions and is subject to variability.
During the first quarterthree and six months ended June 30, 2022, we recognized $1.0 million and $1.5 million, respectively, in compensation expense associated with grants of 2020, in line withrestricted stock awards and RSUs. During both the rapidly changing market conditions, our market capitalization deteriorated. We determined that these events constituted a triggering event that required us to reviewthree months ended June 30, 2021 and the recoverability of our long-lived assets and to perform an interim goodwill impairment as of March 31, 2020. During the Prior PredecessorSuccessor Period, we recorded a reductionrecognized $1.6 million in valuecompensation cost associated with grants of assets totaling $16.5 million which related to property, plantrestricted stock and equipment in the Production Services and Technical Solutions segments.
(15) GoodwillRSUs.
As part of the Successor’s emergence from the Chapter 11 Cases, the Successor adopted fresh start accounting and began reporting as a new accounting entity as of the Emergence Date. Due to the fair value measurement of our assets and liabilities as required by ASC 852, we determined that the Successor retained 0 goodwill balance based on the assignment of reorganization value to the Successor’s identifiable assets and liabilities. As noted in Note 3 – “Fresh Start Accounting,” the Predecessor’s goodwill balance of $138.9 million was eliminated during the fresh start adjustments to the consolidated condensed balance sheet as of February 2, 2021.
(16) Stock-Based Compensation Plans
As noted in Note 2 – “Emergence from Voluntary Reorganization under Chapter 11,” the Former Parent’s equity interests were cancelled as of the Emergence Date and new Class A common stock was issued to settle claims arising as a result of holding either the 7.125% Notes or the 7.750% Notes. As a result of the consummation of the Plan, restricted stock units issued prior to the fresh start accounting date under our stock incentive plansEmergence Date were cancelled for zero consideration. The balance sheet effectWe recognized $0.9 million in compensation costs during the Predecessor Period prior to cancellation of the cancellation is noted in Note 3 – “Fresh Start Accounting.”pre-Emergence outstanding restricted stock units.
18
2021 Management Incentive Plan
On June 1, 2021, our Board of Directors (the “Board”) and the Compensation Committee of the Board (the “Compensation Committee”) approved and adopted our Incentive Plan, which provides for the grant of share-based and cash-based awards and, in connection therewith, the issuance from time to time of up to 1,999,869 shares of our Class B common stock, par value $0.01 per share.
32
Restricted Stock Grants
On June1, 2021, the Board and the Compensation Committee approved the forms of restricted stock award agreements for (i) employee participants (the “Employee Restricted Stock Award Agreement”) and (ii) non-employee directors (the “Director Restricted Stock Award Agreement”).
On June 1, 2021, the Board and the Compensation Committee approved, pursuant to the applicable Employee Restricted Stock Award Agreements and Director Restricted Stock Award Agreements, the issuance of 113,840 restricted shares (76,269 restricted shares after giving effect to tax withholding) of Class B common stock under the Incentive Plan to certain of our non-employee directors and officers (the “Restricted Stock Grants”). The Restricted Stock Grants will vest over a period of three years, subject to earlier vesting and forfeiture on terms and conditions set forth in the applicable award agreement. The fair value of the restricted shares was estimated to be $39.53 per share as of the date of grant.
(17)(12) Income Taxes
The effective tax rate for the Current Predecessor Period, the Successor Quarterthree and the Successor Periodsix months ended June 30, 2022 was 18.2%, 5.2%20.0% and 9.3%21.7%, respectively, on income from continuing operations. The effective tax rate in the Current Predecessor Period is different from the blendedU.S. federal and state statutory rate of 22.5%21% primarily from non-deductible items, foreign tax rates that differ from the adoptionU.S. federal statutory rate, the release of fresh start accountingvaluation allowance based on current period income in certain jurisdictions and foreign losses for which 0 tax benefit is being recorded.
In recording deferred income tax assets, we consider whether it is more likely than not some portion or all of the deferred income tax assets will be realized. The ultimate realization of deferred income tax assets is dependent on the generation of future taxable income of the appropriate character during the period. The cancellationperiods in which those deferred income tax assets would be deductible. Our annualized effective tax rate for the six months ended June 30, 2022 includes a tax benefit of indebtedness income$18.8 million related to the release of a valuation allowance previously recorded against U.S. foreign tax credit carryforwards. We previously considered these credit carryforwards to be unrealizable primarily due to our cumulative history of losses in the U.S. in recent years and tax attribute utilization limits under Section 382 resulting from bankruptcy. This was significant negative evidence that outweighed positive evidence from forecasts of future taxable income. However, based on recognized built in gains that have increased our limit under Section 382, year to date income in the restructuring has significantly reduced our US taxU.S., and certain attributes including but not limited to NOL carryforwards. We experienced an ownership change under Sec. 382promoting use of the Internal Revenue Codeforeign tax credit carryovers, when combined with our view on the remaining 2022 outlook, we determined there is now significant positive evidence for our ability to utilize available U.S. foreign tax credit carryforwards in 2022. The amount of 1986, as amended (the “Code”)valuation allowance released in the U.S. recognizes foreign tax credit deferred tax assets that we estimate will offset U.S. taxes payable in 2022. After the valuation allowance release, we have $37.1 million of U.S. foreign tax credit deferred tax assets that continue to have a valuation allowance against them. We will continue to evaluate the realizability of our U.S. foreign tax credit carryforwards and may have additional valuation allowance releases in future periods if we achieve positive cumulative U.S. income results of appropriate character and timing to do so.
The effective tax rate for the three months ended June 30, 2021, the Successor Period and the Predecessor Period was 5.2%, which is anticipated to limit certain remaining tax attributes.9.3% and 18.2%, respectively, on income from
continuing operations. The tax rate induring the Successor Quarterthree months ended June 30, 2021 and the Successor Period is different from the blendedU.S. federal and state statutory rate of 22.5%21% primarily from non-deductible items and foreign losses for which no tax benefit is being recorded.
The effective tax rate for Priorin the Predecessor Quarter and Prior Predecessor Period was 8.6% and 15.6%, respectively, on income from continuing operations. The tax rate is different from the blendedU.S. federal and state statutory rate of 22.5%21% primarily from foreign losses for which no tax benefit was recorded.due the adoption of fresh start accounting during the period.
The SuccessorWe had $14.7$15.7 million and $15.0 million of unrecognized tax benefits as of June 30, 20212022 and the Predecessor had $13.2 million of unrecognized tax benefits as of December 31, 2020,2021, respectively, all of which would impact our effective tax rate if recognized.recognized except for $1.6 million offset in deferred income taxes. It is reasonably possible $3.4 million of unrecognized tax benefits could be settled in the next twelve months due to the conclusion of tax audits or statutes of limitations expiration. It is our policy to recognize interest and applicable penalties, if any, related to uncertain tax positions in income tax expense.
As of June 30, 2021, we have a deferred tax liability of $43.2 million and a valuation allowance of $96.0 million recorded against our deferred tax assets that relate to US foreign tax credits, US state net operating losses and other non-US deferred tax assets. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the carryforward period. We assess the realizability of deferred tax assets quarterly and consider carryback availability, the scheduled reversal of deferred tax liabilities, and tax planning strategies in making this assessment.
(18)(13) Earnings per Share
Our common equity consists of Class A Common Stock and Class B Common Stock (the “Common Stock”).
Basic earnings per share is computed by dividing income available to common stockholders by the weighted-averageweighted average number of shares of common stockCommon Stock outstanding during the period. Diluted earnings per share is computed inusing the same manner as basic earnings per share, except that the denominator is increased to include theweighted average number of additional shares of common stock that could have beenCommon Stock outstanding assumingduring the exercise of stock options and the conversion of restricted stock units.
Diluted earnings per share for the Successor Period, Successor Quarter, Prior Predecessor Period and Prior Predecessor Quarter do not includeperiod plus any potentially dilutive sharesCommon Stock, such as these periods reflected a net loss.restricted stock awards, restricted stock units, and performance-based units calculated using the treasury stock method.
The following table presents the reconciliation between the weighted average number of shares for basic and diluted earnings per share.
(19)
|
| Successor |
|
|
| Predecessor |
| ||||||||||||||
|
| For the Three Months Ended June 30, 2022 |
|
| For the Three Months Ended June 30, 2021 |
|
| For the Six Months Ended June 30, 2022 |
|
| For the Period |
|
|
| For the Period |
| |||||
Weighted-average shares outstanding - basic |
|
| 20,024 |
|
|
| 19,999 |
|
|
| 20,011 |
|
|
| 19,997 |
|
|
|
| 14,845 |
|
Potentially dilutive stock awards and units |
|
| 52 |
|
|
| 0 |
|
|
| 54 |
|
|
| 0 |
|
|
|
| 60 |
|
Weighted-average shares outstanding - diluted |
|
| 20,076 |
|
|
| 19,999 |
|
|
| 20,065 |
|
|
| 19,997 |
|
|
|
| 14,905 |
|
19
(14) Contingencies
Due to the nature of our business, we are involved, from time to time, in various routine litigation or subject to disputes or claims or actions, including those commercial in nature, regarding our business activities in the ordinary course of business. Legal costs related to these matters are expensed as incurred. Management is of the opinion that none of the claims and actions will have a material adverse impact on our financial position, results of operations or cash flows. Commencement of the Chapter 11 Cases automatically stayed certain proceedings and actions, and these cases have continued after the Emergence Date.
A subsidiary of ours is involved in legal proceedings with 2 former employees regarding the payment of royalties for a patentable product paid for by the subsidiary and developed while they worked for the subsidiary. On April 2, 2018, the former employees and their corporation filed a lawsuit (the “First Case)Case”) in the Harris County District Court (the “District Court”) alleging that the royalty payments they had invoiced at 25%25% and for which they received payments since 2010, should have been paid at a rate of 50%50%. In May 2019, the jury issued a verdict in favor of the plaintiffs. On October 25, 2019, the court issued a final judgment against us, which we have fully secured with a bond. Oral arguments in front of the Court of Appeals took place in April 2022. We strongly disagree with the verdict and believe the District Court committed several legal errors that should result in a reversal or remand of the case by the Court of Appeals.
A second case (the “Second Case”) was filed in District Court against the same subsidiary of ours bringing the same claims and seeking damages post judgment from the First Case until discontinuation of the sale of the product at issue by the subsidiary. In December 2020, the Court entered a final judgement for the Plaintiffs’plaintiffs’ and the Second Case was stayed for the duration of our bankruptcy. We have filed an appeal and a Motion to Abate the Second Case pending the appeal of the First Case. The Motion to Abate the Second Case was granted on October 26, 2021 by the Court of Appeals. As of June 30, 2021,2022, we have reserved $7.0$7.0 million for the judgements in the First Case and Second Case.
AnOur Indian subsidiary, of the Company hadSES Energy Services India Pvt. Ltd, entered into a contract with an Indian oil and gas company to provide an off-shoreoff shore vessel for various types of work.well stimulation. A dispute arose over the performability of the terms of the contract. The potential loss of this possible onerouscontract was terminated by the customer. The maximum liability under the contract is capped at approximately $7.3 million.$7.3 million, of which approximately $3.5 million has been claimed via revocation of performance bank guarantees.
20
Commencement of the Chapter 11 Cases automatically stayed certain proceedings and actions against the Predecessor. These cases have continued after the Emergence Date.
(20)(15) Discontinued Operations
On December 10, 2019, Pumpco Energy Services, Inc (“Pumpco”) completed its existing hydraulic fracturing field operations and was determined to discontinue, wind down and exit its hydraulic fracturing operations. The financial results of Pumpco’s operations have historically been included in the Predecessor’s North America segment. The Successor continued to sell Pumpco’s fixed assets as of June 30, 2021.
During the second quarter of 2021, we signed a Letter of Intent (“LOI”) with Select Energy Services, Inc. (“Select”) to sell all of the issued and outstanding equity of Complete Energy Services, Inc. (“Complete”) which would also include Superior Well Services (“SPW”) flowback and well testing businesses, including the associated assets, liabilities and working capital. The financial results of Complete and SPW operations have historically been included in our Onshore Completion and Workover Services segment. Discontinuing Complete and SPW is aligned with our overall strategic objective to divest assets and service lines that do not compete for investment in the current market environment. Net proceeds from the sale of Complete and any remaining assets from SPW will be used to fund current operations, reinvest in other of the Company’s service lines, or return capital to investors. In connection with these pending dispositions, during the second quarter of 2021, we recognized a reduction in value of assets related to Complete for approximately $12.4 million. We expect to complete the sale of the remaining assets of SPW within the next 12 months.
The following tablestable summarizes the components of our discontinued operations, net of tax (in thousands):
Successor | Predecessor | ||||||
Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | ||||||
Revenues | $ | 45,114 | $ | 32,485 | |||
Cost of services | 35,459 | 36,450 | |||||
Depreciation, depletion, amortization and accretion | 18,581 | 8,034 | |||||
General and administrative expenses | 3,623 | 3,505 | |||||
Reduction in value of assets | 12,430 | 3,003 | |||||
Loss from operations | (24,979) | (18,507) | |||||
Other income (expense) | (53) | 8 | |||||
Loss from discontinued operations before tax | (25,032) | (18,499) | |||||
Income tax benefit (expense) | 5,632 | (915) | |||||
Loss from discontinued operations, net of income tax | $ | (19,400) | $ | (19,414) | |||
Successor | Predecessor |
| Successor |
|
|
| Predecessor |
| |||||||||||||||
For the Period February 3, 2021 through June 30, 2021 | For the Period January 1, 2021 through February 2, 2021 | Six Months Ended June 30, 2020 |
| For the Six Months Ended June 30, 2022 |
|
| For the Period |
|
|
| For the Period |
| |||||||||||
Revenues | $ | 68,366 | $ | 10,719 | $ | 119,996 |
| $ | 0 |
|
| $ | 68,366 |
|
|
| $ | 10,719 |
| ||||
Cost of services | 55,481 | 10,398 | 116,081 |
|
| 0 |
|
|
| 60,393 |
|
|
|
| 10,398 |
| |||||||
Depreciation, depletion, amortization and accretion | 31,356 | 2,141 | 17,206 |
|
| 0 |
|
|
| 31,356 |
|
|
|
| 2,141 |
| |||||||
General and administrative expenses | 6,218 | 1,119 | 17,475 |
|
| 5,453 |
|
|
| 6,218 |
|
|
|
| 1,119 |
| |||||||
Reduction in value of assets | 12,430 | - | 49,361 | ||||||||||||||||||||
Other (gains) and losses, net |
|
| (5,193 | ) |
|
| 7,518 |
|
|
|
| 0 |
| ||||||||||
Loss from operations | (37,119) | (2,939) | (80,127) |
|
| (260 | ) |
|
| (37,119 | ) |
|
|
| (2,939 | ) | |||||||
Other income (expense) | (50) | 2,485 | 15 |
|
| 0 |
|
|
| (50 | ) |
|
|
| 2,485 |
| |||||||
Loss from discontinued operations before tax | (37,169) | (454) | (80,112) |
|
| (260 | ) |
|
| (37,169 | ) |
|
|
| (454 | ) | |||||||
Income tax benefit (expense) | 8,363 | 102 | 12,024 |
|
| 55 |
|
|
| 8,363 |
|
|
|
| 102 |
| |||||||
Loss from discontinued operations, net of income tax | $ | (28,806) | $ | (352) | $ | (68,088) | |||||||||||||||||
Income (loss) from discontinued operations, net of income tax |
| $ | (205 | ) |
| $ | (28,806 | ) |
|
| $ | (352 | ) | ||||||||||
The following summarizes the assets and liabilities related to assets held for salediscontinued operations (in thousands):
Successor | Predecessor | |||||
June 30, 2021 | December 31, 2020 | |||||
Current assets: | ||||||
Accounts receivable, net | $ | 35,853 | $ | 25,448 | ||
Prepaid expenses | 5,154 | 4,881 | ||||
Other current assets | 7,443 | 12,076 | ||||
Total current assets | 48,450 | 42,405 | ||||
Property, plant and equipment, net | 106,425 | 179,380 | ||||
Operating lease ROU assets | 13,549 | 16,958 | ||||
Other assets | 1,770 | 3,361 | ||||
Total assets held for sale | $ | 170,194 | $ | 242,104 | ||
Current liabilities: | ||||||
Accounts payable | $ | 6,075 | $ | 2,830 | ||
Accrued expenses | 11,391 | 11,153 | ||||
Total current liabilities | 17,466 | 13,983 | ||||
Operating lease liabilities | 13,562 | 21,987 | ||||
Decommissioning liabilities | 4,156 | 8,311 | ||||
Other liabilities | 546 | 2,095 | ||||
Total liabilities | $ | 35,730 | $ | 46,376 | ||
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Assets: |
|
|
|
|
|
| ||
Accounts receivable, net |
| $ | 4,809 |
|
| $ | 7,469 |
|
Property, plant and equipment, net |
|
| 20,659 |
|
|
| 29,328 |
|
Other assets |
|
| 161 |
|
|
| 731 |
|
Total assets held for sale |
| $ | 25,629 |
|
| $ | 37,528 |
|
|
|
|
|
|
|
| ||
Liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 544 |
|
| $ | 652 |
|
Accrued expenses |
|
| 3,433 |
|
|
| 4,268 |
|
Other liabilities |
|
| 223 |
|
|
| 687 |
|
Total liabilities held for sale |
| $ | 4,200 |
|
| $ | 5,607 |
|
Significant operating non-cash items relating to assets held for sale and cash flows from investing activities for our discontinued operations were as follows (in thousands):
21
Successor | Predecessor | |||||||||
For the Period February 3, 2021 through June 30, 2021 | For the Period January 1, 2021 through February 2, 2021 | Six Months Ended June 30, 2020 | ||||||||
Cash flows from discontinued operating activities: | ||||||||||
Reduction in value of assets | $ | 12,430 | $ | - | $ | 49,361 | ||||
Gain on sale of assets | (5,118) | (43) | ||||||||
Depreciation, depletion, amortization and accretion | 31,356 | 2,142 | 17,206 | |||||||
Cash flows from discontinued investing activities: | ||||||||||
Proceeds from sales of assets | 10,867 | 486 | - | |||||||
|
| Successor |
|
|
| Predecessor |
| ||||||
|
| For the Six Months Ended June 30, 2022 |
|
| For the Period |
|
|
| For the Period |
| |||
Cash flows from discontinued operating activities: |
|
|
|
|
|
|
|
|
|
| |||
(Gain)/loss on sale of assets |
| $ | 0 |
|
| $ | 0 |
|
|
| $ | (43 | ) |
Other (gains) and losses, net |
|
| (5,193 | ) |
|
| 7,518 |
|
|
|
| 0 |
|
Depreciation, depletion, amortization and accretion |
|
| 0 |
|
|
| 31,356 |
|
|
|
| 2,141 |
|
Cash flows from discontinued investing activities: |
|
|
|
|
|
|
|
|
|
| |||
Proceeds from sales of assets |
|
| 13,861 |
|
|
| 14,894 |
|
|
|
| 486 |
|
35
(21)(16) Supplemental Cash Flow Information
The table below is a reconciliation of cash, cash equivalents and restricted cash for the beginning and the end of the period for all periods presented:
Successor | Predecessor | ||||||||||||||||||||||
For the Period February 3, 2021 through June 30, 2021 | For the Period January 1, 2021 through February 2, 2021 | For the Six Months Ended June 30, 2020 | |||||||||||||||||||||
| Successor |
|
|
| Predecessor |
| |||||||||||||||||
| For the Six Months Ended June 30, 2022 |
|
| For the Period |
|
|
| For the Period |
| ||||||||||||||
Cash, cash equivalents, and restricted cash, beginning of period |
|
|
|
|
|
|
|
|
| ||||||||||||||
Cash and cash equivalents | $ | 172,768 | $ | 188,006 | $ | 272,624 |
| $ | 314,974 |
|
| $ | 172,768 |
|
|
| $ | 188,006 |
| ||||
Restricted cash-current | 16,751 | - | - |
|
| 0 |
|
|
| 16,751 |
|
|
|
| 0 |
| |||||||
Restricted cash-non-current | 80,179 | 80,178 | 2,764 |
|
| 79,561 |
|
|
| 80,179 |
|
|
|
| 80,178 |
| |||||||
Cash, cash equivalents, and restricted cash, beginning of period | $ | 269,698 | $ | 268,184 | $ | 275,388 |
| $ | 394,535 |
|
| $ | 269,698 |
|
|
| $ | 268,184 |
| ||||
|
|
|
|
|
|
|
|
| |||||||||||||||
Cash, cash equivalents, and restricted cash, end of period |
|
|
|
|
|
|
|
|
| ||||||||||||||
Cash and cash equivalents | $ | 205,748 | $ | 172,768 | $ | 278,409 |
| $ | 391,219 |
|
| $ | 205,748 |
|
|
| $ | 172,768 |
| ||||
Restricted cash-current | - | 16,751 | - |
|
| 0 |
|
|
| 0 |
|
|
|
| 16,751 |
| |||||||
Restricted cash-non-current | 80,159 | 80,179 | 2,774 |
|
| 79,595 |
|
|
| 80,159 |
|
|
|
| 80,179 |
| |||||||
Cash, cash equivalents, and restricted cash, end of period | $ | 285,907 | $ | 269,698 | $ | 281,183 |
| $ | 470,814 |
|
| $ | 285,907 |
|
|
| $ | 269,698 |
| ||||
(22)(17) New Accounting Pronouncements
Recently Issued Accounting Standards
In June 2016, the FASB issued ASU 2016-13 - Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This update improves financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope by using the Current Expected Credit Losses (the “CECL”) model. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses on financial instruments at the time the asset is originated or acquired. This update will apply to receivables arising from revenue transactions. The new standard is effective for the us beginning on January 1, 2023. We have concluded that the adoption of ASU 2016-13 will not have a material impact on itsour consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12 - Simplifying the Accounting for Income Taxes (“ASU 2019-12”). This update simplifies the accounting for income taxes by removing the following exceptions: (1) the incremental approach for intra-period tax allocation when there is a loss from continuing operations and income or a gain from other items; (2) the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; (3) the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and (4) the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The update also (1) requires an entity to recognize a franchise tax that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax; (2) requires an entity to evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction; (3) specifies that an entity is not required to allocate the consolidate amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements; (4) requires an entity to reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date; and (5) makes minor codification improvements for income taxes related to employee stock ownership plans. Our adoption of ASU 2019-12 as of January 1, 2021 has not had a material impact on its financial position, results of operations or cash flows.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform — Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). This update provides an optional expedient and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates (“IBORs”) and, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-based and less susceptible to manipulation. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. In January 2021, the FASB issued ASU No. 2021-01, which clarifies that certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The amendments in these ASUs are effective for all entities as of March 12, 2020 through December
31, 2022. As our credit agreement allows for alternative benchmark rates to be applied to any borrowings, we do not expect the cessation of LIBOR to have a material impact on our financial position, results of operations, cash flows or disclosures.
22
(23)(18) Subsequent Events
Divestiture
On July 9, 2021, we entered into a Securities Purchase18, 2022, our Board and SaleCompensation Committee (the “Committee”) approved an executive chairman agreement for Michael Y. McGovern, our Executive Chairman (the “Executive Chairman Agreement”).
Executive Chairman Agreement for Mr. McGovern
Mr. McGovern’s Executive Chairman Agreement provides for an annual base salary of $750,000, with an initial one-year term that automatically extends for an additional one-year term on the first anniversary of the effective date of the Agreement (the “Purchase Agreement”“Extension Date”) with SES Holdings, LLC (the “Parent”), Select Energy Services, Inc. (the “Buyer”) (solely to the extent stated therein), and Complete. Pursuant to the Purchase Agreement, the Buyer acquired certainunless either party gives 60 days’ prior written notice of our onshore oilfield services operations in the United States through the acquisition of 100%non-renewal before expiration of the equity intereststhen-current term. Mr. McGovern’s annual base salary is subject to adjustment (upward or downward) if Mr. McGovern’s duties or commitments change during the term of Complete, for a purchase pricethe Executive Chairman Agreement. Further, in connection with his Executive Chairman Agreement, we will grant Mr. McGovern RSUs under the MIP and accelerate the vesting of approximately $14.0 million in cash and the issuance of 3.6 millionMr. McGovern’s restricted shares of Class AB common stock $0.01 par value,granted under the MIP (in each case, as discussed below). In addition, Mr. McGovern’s Executive Chairman Agreement provides for a cash lump sum payment to be made within thirty (30) days of the Buyer,Effective Date (as defined in the Executive Chairman Agreement) in an amount equal to $288,306.45 to account for the annual base salary Mr. McGovern would have been paid since assuming the position of Executive Chairman until the Effective Date less any payments received from us since assuming the position of Executive Chairman until the Effective Date.
If Mr. McGovern’s employment is terminated by Mr. McGovern for good reason (as defined in the Executive Chairman Agreement) or by us for any reason other than: (a) Mr. McGovern’s death or incapacity; (b) for cause (as defined in the Executive Chairman Agreement); (c) upon any non-renewal of the term of the Executive Chairman Agreement; or (d) the occurrence of a change in control (as defined in the Plan), we will pay or provide to Mr. McGovern, in addition to his base salary through the date of termination and any rights under the term of equity awards and any medical or other welfare benefits required by law (the “Accrued Amounts”):
The payments and benefits described above (other than the Accrued Amounts) are subject to customary post-closing adjustments. The Purchase Agreement also contains certain registration rightsMr. McGovern’s timely execution of the Company which required the Buyer to file a registration statement with the SEC for the resalerelease of the Class A common stock issued to us. On August 26, 2021 the Buyer filed a registration statement on Form S-1 to register the resale of the 3.6 million shares of Class A common stock acquired by us, which was declared effective by the SEC on September 3, 2021. The Purchase Agreement contains customary representations, warranties and covenants. As discussed above,claims in connection with this disposition, during the second quarter of 2021, we recognized a reduction in value of assets related to Complete for approximately $12.4 million.our favor.
Item 2. Management’s DiscussionMr. McGovern will also be bound by, among other typical restrictive covenants, a 12-month post-termination non-compete covenant (unless his employment is terminated by us without cause or Mr. McGovern terminates his employment for good reason) and Analysis of Financial Conditiona 12-month post-termination non-solicitation covenant with respect to customers and Results of Operationsemployees.
As used herein, the “Company,” “we,” “us,” “our” and similar terms refer to (i) prior to the Emergence Date (as defined below), SESI Holdings, Inc. (formerly known as Superior Energy Services, Inc.) (the “Former Parent”) and its subsidiaries and (ii) after the Emergence Date, Superior Energy Services, Inc. (formerly known as Superior Newco, Inc.) and its subsidiaries. As used herein, the following terms refer to us and our operations:
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Effective as
Equity Awards
On July 18, 2022, the Board and the Committee approved a RSU award agreement (the “Award Agreement”) under the MIP for Mr. McGovern for 79,375 RSUs (and a number of the Emergence Date, the entity now known as Superior Energy Services, Inc. (formerly known as Superior Newco, Inc.) became the successor reporting company to the Former Parent pursuant to Rule 15d-5corresponding shares of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)our Class B common stock).
Critical Accounting PoliciesThe RSUs under the Award Agreement generally vest in three equal annual installments over a three-year period commencing on the first anniversary of January 20, 2022, subject to earlier vesting upon a change in control (as defined in the Plan) and, Estimatesgenerally, Mr. McGovern’s continued employment through the applicable vesting date, and forfeiture on terms and conditions set forth in the Award Agreement. Notwithstanding the foregoing, in the event that Mr. McGovern’s employment is terminated by us without cause (excluding due to death or disability (as defined in the Executive Chairman Agreement)) or by Mr. McGovern for good reason, subject to subject to Mr. McGovern’s timely execution of a release of claims in our favor and continued compliance with his restrictive covenants, the tranche of RSUs due to vest on the next scheduled vesting date following the date of termination (i.e., one-third (1/3rd)) will vest.
Please referAcceleration of Restricted Stock Grant
On July 18, 2022, the Board and the Committee approved accelerated vesting with respect to 15,642 outstanding restricted shares of our Annual ReportClass B common stock granted by us to Mr. McGovern on Form 10-K for the year ended December 31, 2020, andJune 1, 2021.
23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations for the discussion of our Critical Accounting Policies and Estimates. The below is an update to those policies:
Fresh Start Accounting
In connectionThe following discussion should be read in conjunction with the emergence from bankruptcyour unaudited condensed consolidated financial statements and accompanying notes included elsewhere in accordance with ASC 852, we qualified for and adopted fresh start accounting on the Emergence Date because (1) the holders of the then-existing common shares of the Predecessor received less than
50% of the new common shares of the Successor outstanding upon emergence and (2) the reorganization value of the Predecessor’s assets immediately prior to confirmation of the Plan was less than the total of all post-petition liabilities and allowed claims. See Part 1, Item 1, “Unaudited Condensed Consolidated Financial Statements and Notes” – Note 1 – “Basis of Presentation” and Note 3 – “Fresh Start Accounting” for additional information.
Forward-Looking Statements
This quarterly reportthis Quarterly Report on Form 10-Q10-Q. In addition, the following discussion and other documents filed by us with the SEC contain,analysis and future oral or written statements or press releases by us and our management may contain,information contains forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Generally, the words “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks”about our business, operations and “estimates,” variations of such words and similar expressions identify forward-looking statements, although not all forward-looking statements contain these identifying words. All statements other than statements of historical fact included in this quarterly report on Form 10-Q or such other materials regarding our financial position, financial performance liquidity, strategic alternatives, market outlook, future capital needs, capital allocation plans, business strategies and other plans and objectives of our management for future operations and activities are forward-looking statements. These statements are based on certain assumptionsour current expectations that involve risks, uncertainties and analyses made by our management in light of its experience and prevailing circumstances on the date such statements are made. Such forward-looking statements, and the assumptions on which they are based, are inherently speculative and are subject to a number of risks and uncertainties that could cause ourassumptions. Our actual results tocould differ materially from such statements. Such risks and uncertainties include, but are not limited to:
risks and uncertainties regarding the voluntary petitions for relief filedthose anticipated by the Affiliate Debtors (as defined below) on December 7, 2020 (the “Chapter 11 Cases”) under Chapter 11these forward-looking statements as a result of Title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas Houston Division (the “Bankruptcy Court”), including but not limited to: the continuing effects of the Chapter 11 Cases on us and our various constituents; attendant risks associated with restrictions on our ability to pursue our business strategies; and uncertainty and continuing risks associated with our ability to achieve our stated goals;
the likelihood that our historical financial information may no longer be indicative of our future performance; and our implementation of fresh start accounting;
the difficulty to predict our long-term liquidity requirements and the adequacy of our capital resources;
restrictive covenants in the $120.0 million asset-based secured revolving Credit Facility (as defined below) could limit our growth and our ability to finance our operations, fund our capital needs, respond to changing conditions and engage in other business activities that may be in our best interests;
our ability to prepare and file our quarterly report for the quarter ended June 30, 2021 or deliver other required financial information within the time periods prescribed by our Credit Facility or to obtain additional waivers from our lenders;
the conditions in the oil and gas industry;
the effects of public health threats, pandemics and epidemics, and the adverse impact thereof on our business, financial condition, results of operations and liquidity,many factors. including, but not limited to, our growth, operating costs, supply chain, labor availability, logistical capabilities, customer demandthose identified below and industry demand generally, margins, utilization, cash position, taxes,those discussed in the price of our securities,sections titled “Risk Factors” and our ability to access capital markets, includingunder the macroeconomic effects from the continuing COVID-19 pandemic;
the ability of the members of Organization of Petroleum Exporting Countries (“OPEC+”) to agree on and to maintain crude oil price and production controls;
necessary capital financing may not be available at economic rates or at all;
operating hazards, including the significant possibility of accidents resultingheading “Information Regarding Forward-Looking Statements” in personal injury or death, or property damage for which we may have limited or no insurance coverage or indemnification rights;
the possibility of not being fully indemnified against losses incurred due to catastrophic events;
claims, litigation or other proceedings that require cash payments or could impair financial condition;
credit risk associated with our customer base;
the effect of regulatory programs and environmental matters on our operations or prospects;
the impact that unfavorable or unusual weather conditions could have on our operations;
the potential inability to retain key employees and skilled workers;
political, legal, economic and other risks and uncertainties associated with our international operations;
laws, regulations or practices in foreign countries could materially restrict our operations or expose us to additional risks;
potential changes in tax laws, adverse positions taken by tax authorities or tax audits impacting our operating results;
changes in competitive and technological factors affecting our operations;
risks associated with the uncertainty of macroeconomic and business conditions worldwide;
our operations may be subject to cyber-attacks;
counterparty risks associated with reliance on key suppliers;
challenges with estimating our potential liabilities related to our oil and natural gas property;
risks associated with potential changes of Bureau of Ocean Energy Management security and bonding requirements for offshore platforms;
the likelihood that the interests of our significant stockholders may conflict with the interests of our other stockholders;
the risks associated with owning our Class A common stock, par value $0.01 per share, for which there is no public market;
the likelihood that the Stockholders Agreement (as defined below) may prevent certain transactions that could otherwise be beneficial to our stockholders; and
our ability to remediate the identified material weakness in our internal control over financial reporting.
These risks and other uncertainties related to our business are described in detail in Item 1A of our Annualthis Quarterly Report on Form 10-K (the “Annual Report”) for the year ended December 31, 2020. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Investors are cautioned that many of the assumptions on which our forward-looking statements are based are likely to change after such statements are made, including for example the market prices of oil and gas and regulations affecting oil and gas operations, which we cannot control or anticipate. Further, we may make changes to our business strategies and plans (including our capital spending and capital allocation plans) at any time and without notice, based on any changes in the above-listed factors, our assumptions or otherwise, any of which could or will affect our results. For all these reasons, actual events and results may differ materially from those anticipated, estimated, projected or implied by us in our forward-looking statements. We undertake no obligation to update any of our forward-looking statements for any reason, notwithstanding any changes in our assumptions, changes in our business plans, our actual experience, or other changes. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.10-Q.
Executive Summary
General
We provide a wide variety of services and products to the energy industry. We serve major, national and independent oil and natural gas exploration and production companies around the world and offer products and services with respect to the various phases of a well’s economic life cycle. The Successor reports its operating results in two business segments: Global and North America.
Recent DevelopmentsHistorically, we provided a wide variety of services and products to many markets within the energy industry. Our core businesses focus on products and services that we believe meet the criteria of:
See Part 1, Item 1, “Unaudited Condensed Consolidated Financial Statements and Notes” – Note 1 – “Basis of Presentation” for information regarding the Voluntary Reorganization Under Chapter 11 of the Bankruptcy Code.
Fresh Start Accounting
Beginning on the Emergence Date, we applied fresh start accounting, which resulted in a new basis of accounting and we became a new entity for financial reporting purposes. As a result of the application of fresh start accounting and the effects of the implementation of the Plan, the consolidated financial statements after February 2, 2021 are not comparable with the consolidated financial statements on or priorbeing critical to that date. See Part 1, Item 1, “Unaudited Condensed Consolidated Financial Statements and Notes” – Note 3 – “Fresh Start Accounting” for additional information.
Divestiture
See Part 1, Item 1, “Unaudited Condensed Consolidated Financial Statements and Notes” – Note 23 – “Subsequent Events” for additional information.
Waivers to Credit Agreement
See Part 1, Item 1, “Unaudited Condensed Consolidated Financial Statements and Notes” – Note 9 – “Debt” for additional information.
Credit Facility
See Part 1, Item 1, “Unaudited Condensed Consolidated Financial Statements and Notes” – Note 9 – “Debt” for additional information.
Stockholders Agreement
On the Emergence Date, in order to implement the governance related provisions reflected in the Plan, the stockholder’s agreement, dated February 2, 2021 (the “Stockholders Agreement”), was executed, to provide for certain governance matters. Other than the obligations related to Confidential Information (as defined in the Stockholders Agreement), the rights and preferences of each stockholder under the Stockholders Agreement will terminate when such stockholder ceases to own any shares of Class A common stock.
The foregoing description of the Stockholders Agreement is qualified in its entirety by the full text of the document, which is incorporated herein by reference.
Amendments to Stockholders Agreement
The Company and stockholders holding a majority of our Class A common stock entered into that certain amendment to the Stockholders Agreement, effective May 14, 2021, extending the deadline to provide its stockholders unaudited consolidated quarterly financial statements from 45 days after the conclusion of a quarter to 60 days after such quarter (or, if applicable, the first business day thereafter).
The Company and stockholders holding a majority of our Class A common stock entered into that certain Second Amendment to the Stockholders Agreement, effective May 31, 2021, extending the deadline to provide its stockholders the unaudited consolidated quarterly financial statements for the quarter ended March 31, 2021 to no later than July 15, 2021.
The Company and stockholders holding a majority of our Class A common stock entered into that certain Third Amendment to the Stockholders Agreement, effective as of July 14, 2021, extending the deadline to provide its stockholders the unaudited consolidated quarterly financial statements for the quarters ended March 31, 2021 and June 30, 2021 to no later than September 30, 2021 and October 31, 2021, respectively.
2021 Management Incentive Plan
See Part 1, Item 1, “Unaudited Condensed Consolidated Financial Statements and Notes” – Note 16 – “Stock Based
Compensation Plans” for additional information.
Restricted Stock Grants
See Part 1, Item 1, “Unaudited Condensed Consolidated Financial Statements and Notes” – Note 16 – “Stock Based
Compensation Plans” for additional information.
Senior Notes-Prepetition Indebtedness
As part of the transactions undertaken pursuant to the Plan, the record holders of certain of the 7.125% Notes and the 7.750% Notes contributed all of their allowed claims described in the Plan in exchange for either (i) a cash payout to be entirely funded by the Equity Rights Offering, or (ii) shares of the Class A common stock. See Part 1, Item 1, “Unaudited Condensed Consolidated Financial Statements and Notes” – Note 2 “Emergence from Voluntary Reorganization under Chapter 11” and Note 9 – “Debt” for additional information.
COVID-19 Pandemic and Market Conditions
Our operations continue to be disrupted due to the circumstances surrounding the COVID-19 pandemic. The significant business disruption resulting from the COVID-19 pandemic has impacted customers, vendors and suppliers in all geographical areas where we operate. The closure of non-essential business facilities and restrictions on travel put in place by governments around the world have significantly reduced economic activity. Also, the COVID-19 pandemic has impacted and may further impact the broader economies of affected countries, including negatively impacting economic growth, the proper functioning of financial and capital markets, foreign currency exchange rates, and interest rates. For example, the continued spread of COVID-19 has led to disruption and volatility in the global capital markets, which increases the cost of capital and adversely impacts access to capital. Additionally, recognized health risks associated with the COVID-19 pandemic have altered the policies of companies operating around the world, resulting in these companies instituting safety programs similar to what both domestic and international governmental agencies have implemented, including stay at home orders, social distancing mandates, and other community oriented health objectives. We are complying with all such ordinances in our operations across the globe. Management believes it has proactively addressed many of the known operational impacts of the COVID-19 pandemic to the extent possible and will strive to continue to do so, but there can be no guarantee the measures will be fully effective.
Commodity prices during 2021 will continue to be impacted by the global containment of the virus, pace of economic recovery, as well as changes to OPEC+ production levels. There is increased economic optimism in 2021 as governments worldwide continue to distribute the COVID-19 vaccines. However, although vaccination campaigns are underway, several regions, including areas of the United States, have been and continue to deal with a rebound in the pandemic. There is also concern about whether vaccines will be effective against different strains of the virus that have developed and may develop in the future. West Texas Intermediate (“WTI”) oil spot prices have recovered to pre-pandemic levels. OPEC+ continues to meet regularly to review the state of global oil supply, demand and inventory levels. Even though signs of economic recovery centered on COVID-19 mitigation, global vaccine distribution and re-opening efforts make demand forcustomers’ oil and gas difficultoperations,
The result of this approach is recoveringa portfolio of business lines grounded in our core mission of providing high quality products and prices will be positively impacted.services while maintaining the trust and serving the needs of our customers, with an emphasis on free cash flow generation and capital efficiency.
24
Industry Trends
The oil and gas industry is both cyclical and seasonal. The level of spending by oil and gas companies is highly influenced by current and expected demand and future prices of oil and natural gas. Changes in spending result in an increased or decreased demand for our services and products. Rig count is an indicator of the level of spending by oil and gas companies. Our financial performance is significantly affected by the rig count in the U.S. land and offshore market areas as well as oil and natural gas prices and worldwide rig activity, which are summarized in the tables below.
Three Months Ended June 30, | Six Months Ended June 30, |
| Three months ended |
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| Six months ended |
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|
| ||||||||||||||||||||||||||
2021 | 2020 | % Change | 2021 | 2020 | % Change |
| June 30, 2022 |
|
| March 31, 2022 |
|
| % Change |
| June 30, 2022 |
|
| June 30, 2021 |
|
| % Change | ||||||||||||||||
Worldwide Rig Count (1) |
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U.S.: |
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Land | 437 | 378 | 16% | 411 | 571 | -28% |
|
| 704 |
|
|
| 621 |
|
| 13.4% |
|
| 663 |
|
|
| 409 |
|
| 62.1% | |||||||||||
Offshore | 13 | 14 | -7% | 14 | 17 | -18% |
|
| 15 |
|
|
| 15 |
|
| 0.0% |
|
| 15 |
|
|
| 14 |
|
| 7.1% | |||||||||||
Total | 450 | 392 | 15% | 425 | 588 | -28% |
|
| 719 |
|
|
| 636 |
|
| 13.1% |
|
| 678 |
|
|
| 423 |
|
| 60.3% | |||||||||||
International (2) | 734 | 834 | -12% | 716 | 954 | -25% |
|
| 816 |
|
|
| 823 |
|
| (0.9%) |
|
| 819 |
|
|
| 716 |
|
| 14.4% | |||||||||||
Worldwide Total | 1,184 | 1,226 | -3% | 1,141 | 1,542 | -26% |
|
| 1,535 |
|
|
| 1,459 |
|
| 5.2% |
|
| 1,497 |
|
|
| 1,139 |
|
| 31.4% | |||||||||||
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Commodity Prices (average) |
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Crude Oil (West Texas Intermediate) | $ | 66.19 | $ | 27.96 | 137% | $ | 62.24 | $ | 36.58 | 70% |
| $ | 108.83 |
|
| $ | 95.18 |
|
| 14.3% |
| $ | 102.01 |
|
| $ | 62.24 |
|
| 63.9% | |||||||
Natural Gas (Henry Hub) | $ | 2.94 | $ | 1.70 | 73% | $ | 3.25 | $ | 1.80 | 81% |
| $ | 7.48 |
|
| $ | 4.66 |
|
| 60.5% |
| $ | 6.07 |
|
| $ | 3.25 |
|
| 86.8% | |||||||
(1)measuredmeasure by the average active drilling rigs based on Baker Hughes Co. rig count information.information
(2)Rig Count.rig count
Comparison of the Results of Operations for the Three Months Ended June 30, 20212022 and 2020March 31, 2022
Our revenue for the Successor Quarter was $165.9 million, an increase of $14.3 million, or 9.4%, as compared to the Prior Predecessor Quarter. Net loss for the Successor Quarter was $51.0 million, as compared to aWe reported net loss of $65.1 million for the Prior Predecessor Quarter.
The following table compares our operating resultsincome from continuing operations for the three months ended June 30, 20212022 (the “Current Quarter”) of $43.6 million on revenue of $224.6 million. This compares to a net income from continuing operations for the three months ended March 31, 2022 (the “Prior Quarter”) of $24.0 million on revenues of $197.9 million. Net income from continuing operations for the Current Quarter includes an $17.4 million gain from revisions to estimates related to our decommissioning liability and 2020 (in thousands, except percentages). Cost$13.5 million of revenues excludes depreciation, depletion, amortizationexpense primarily related to foreign currency losses during the quarter totaling $10.5 million and accretion.both realized and unrealized losses, net of $4.1 million on our investment in equity securities of Select Energy Services, Inc (“Select”).
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| Three months ended |
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| Change | |||||||||
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| June 30, 2022 |
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| March 31, |
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| $ |
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| % | |||
Revenues: |
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| |||
Rentals |
| $ | 103,729 |
|
| $ | 88,756 |
|
| $ | 14,973 |
|
| 16.9% |
Well Services |
|
| 120,911 |
|
|
| 109,174 |
|
|
| 11,737 |
|
| 10.8% |
Total revenues |
|
| 224,640 |
|
|
| 197,930 |
|
|
| 26,710 |
|
|
|
Cost of revenues: |
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|
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|
|
|
|
|
| |||
Rentals |
|
| 35,860 |
|
|
| 31,752 |
|
|
| 4,108 |
|
| 12.9% |
Well Services |
|
| 85,108 |
|
|
| 80,628 |
|
|
| 4,480 |
|
| 5.6% |
Total cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 120,968 |
|
|
| 112,380 |
|
|
| 8,588 |
|
|
|
Depreciation, depletion, amortization and accretion |
|
| 23,346 |
|
|
| 34,085 |
|
|
| (10,739 | ) |
| (31.5%) |
General and administrative expenses |
|
| 30,231 |
|
|
| 32,018 |
|
|
| (1,787 | ) |
| (5.6%) |
Restructuring expenses |
|
| 1,663 |
|
|
| 1,555 |
|
|
| 108 |
|
| 6.9% |
Other (gains) and losses, net |
|
| (18,013 | ) |
|
| 1,147 |
|
|
| (19,160 | ) |
| ** |
Income (loss) from operations |
|
| 66,445 |
|
|
| 16,745 |
|
|
| 49,700 |
|
|
|
Other income (expense): |
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|
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|
|
|
|
|
|
| |||
Interest income, net |
|
| 1,459 |
|
|
| 1,179 |
|
|
| 280 |
|
| 23.7% |
Other income (expense) |
|
| (13,471 | ) |
|
| 13,947 |
|
|
| (27,418 | ) |
| ** |
Income (loss) from continuing operations before income taxes |
|
| 54,433 |
|
|
| 31,871 |
|
|
| 22,562 |
|
|
|
Income tax (expense) benefit |
|
| (10,871 | ) |
|
| (7,884 | ) |
|
| (2,987 | ) |
| 37.9% |
Net income (loss) from continuing operations |
|
| 43,562 |
|
|
| 23,987 |
|
|
| 19,575 |
|
|
|
Income (loss) from discontinued operations, net of income tax |
|
| (1,944 | ) |
|
| 1,739 |
|
|
| (3,683 | ) |
| (211.8%) |
Net income (loss) |
| $ | 41,618 |
|
| $ | 25,726 |
|
| $ | 15,892 |
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** Not a meaningful percentage |
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25
Successor | Predecessor | |||||||
For the Three Months Ended June 30, 2021 | For the Three Months Ended June 30, 2020 | Change | ||||||
Revenues | $ | 165,892 | $ | 151,582 | $ | 14,310 | ||
Cost of revenues | 103,579 | 93,426 | 10,153 | |||||
Depreciation, depletion, amortization and accretion | 59,018 | 28,708 | 30,310 | |||||
General and administrative expenses | 32,308 | 55,528 | (23,220) | |||||
Restructuring and other expenses | 7,438 | - | 7,438 | |||||
Loss from operations | (36,451) | (26,080) | (10,371) | |||||
Other income (expense): | ||||||||
Interest income (expense), net | 535 | (24,757) | 25,292 | |||||
Other income (expense): | 2,570 | 821 | 1,749 | |||||
Loss from continuing operations before income taxes | (33,346) | (50,016) | 16,670 | |||||
Income tax benefit (expense) | 1,747 | 4,324 | (2,577) | |||||
Loss from continuing operations | (31,599) | (45,692) | 14,093 | |||||
Loss from discontinued operations, net of income tax | (19,400) | (19,414) | 14 | |||||
Net loss | $ | (50,999) | $ | (65,106) | $ | 14,107 |
Revenues and Cost of Revenues
Revenue for the Successor Quarter was $165.9 million, an increase of $14.3Revenues from our Rentals segment increased $15.0 million, or 9.4%16.9%, fromin the Current Quarter as compared to the Prior Predecessor Quarter. Cost of revenues increased $4.1 million, or 12.9%, in the Current Quarter as compared to the Prior Quarter. The increase in revenues was due to an increase in both average rig count and commodity prices when compared to the Prior Quarter, which drove increases in utilization and pricing of both premium drill pipe and bottom hole assembly accessories. These factors contributed to slight increase in gross margin which was 65.4% for the SuccessorCurrent Quarter was $103.6 million, an increase of $10.2 million, or 10.9%, from the Prior Predecessor Quarter. Both revenues and cost of revenuesas compared to 64.2% in the Prior Predecessor Quarter were severely impacted by the effects of COVID-19, and the increase in our results in the Successor Quarter were driven by improvements inQuarter.
Revenues from our Well Services business relatedsegment increased $11.7 million, or 10.8%, in the Current Quarter as compared to operationsthe Prior Quarter. Cost of revenues increased $4.5 million, or 5.6%, in Latin America and improvementsthe Current Quarter as compared to the Prior Quarter. Gross margin for the Current Quarter increased to 29.6% as compared to 26.1% for the Prior Quarter due to changes in revenue mix in our Wild Well Control business unit, partially offset by declinescompletions applications, increases in well completion services.service revenues with higher margins and a reduction in pass through and mobilization projects with lower margins. Additionally, the strategic shift of our more labor-intensive service businesses to U.S. offshore and international operations reduces our exposure to the most significant wage inflation pressures in this segment given our lower U.S. land headcount.
Both segments are experiencing supply chain tightness and inflation, particularly for raw materials associated with downhole completion and drilling bottom hole accessory components. This primarily impacts our ability to bring new tools to market in late 2022 and beyond as we experience long delivery lead times and increased pricing for capital expenditures.
Depreciation, Depletion, Amortization and Accretion
Depreciation, depletion, amortization and accretion was $59.0expense for the Current Quarter decreased $10.7 million, during the Successor Quarteror 31.5%, as compared to $28.7 million during the Prior Predecessor Quarter. The increase in depreciation,Depreciation expense for the Prior Quarter was impacted by the valuation process under fresh start accounting, where certain fully depreciated assets were assigned a new estimated fair value and a new remaining useful life of less than 36 months. Depreciation, depletion, amortization and accretion expense for 2022 is relatedexpected to both an increase inbe approximately $102.8 million as compared to $228.2 million for the carrying value of our assets and lower average remaining useful lives as a result of the fair value adjustment recorded as a part of fresh start accounting.full year 2021.
General and Administrative Expenses
General and administrative expense was $32.3expenses for the Current Quarter decreased $1.8 million, during the Successor Quarteror 5.6%, as compared to $55.5 million during the Prior Predecessor Quarter. The decrease is primarily related to professional fees for accounting and consulting services as well as declines in employee related costs, including benefits and incentive compensation.
Other gains and losses
Other gains for the resultCurrent Quarter were $18.0 million compared to $1.1 million in losses for the Prior Quarter. Other gains and losses primarily relate to charges recorded as part of our continued focusstrategic disposal of low margin assets in line with our efforts to reconfigure our organization both operationally and financially (the “Transformation Project”) and includes gains/losses on limiting spendingasset sales, as well as impairments primarily related to long-lived assets. Other gains and reducinglosses for the Current Quarter include a gain of $17.4 million from revisions in estimates related to our cost structure.decommissioning liability.
Restructuring and Other ExpensesIncome (Expense)
Restructuring and other expenses were $7.4 million during the Successor Quarter andOther income (expense) primarily relate professional fees incurred during the periodto re-measurement gains and losses associated with our previously discussed Transformation Project.foreign currencies and realized and unrealized gains and losses on our investment in equity securities. Losses on foreign currencies during the Current Quarter were $10.5 million and primarily related to our operations in Brazil. Losses on foreign currencies during the Current Quarter include an expense of $2.7 million which represents a correction of an immaterial error relating to a period prior to our emergence from bankruptcy. Gain on foreign currencies during the Prior Quarter were $5.6 million primarily related to our operations in Brazil.
Interest Income (Expense), netUnrealized losses on our investment in equity securities for the Current Quarter were $5.9 million. Unrealized gains on our investment in equity securities for the Prior Quarter were $6.5 million. During the Current Quarter, we disposed of 0.7 million shares for $6.0 million, and recognized gains totaling $1.9 million in connection with these transactions. During the Prior Quarter, we disposed of 1.0 million shares for $7.4 million, and recognized gains totaling $1.8 million in connection with these transactions.
Interest income was $0.5 million for the Successor Quarter compared to interest expense of $24.7 million for the Predecessor Quarter.
The Predecessor interest expense was a result of outstanding debt during the Predecessor Quarter and was subsequently eliminated as a liability subject to compromise and settled in accordance with the Plan. See Part 1, Item 1, “Unaudited Condensed Consolidated Financial Statements and Notes” – Note 3 – “Fresh Start Accounting” for additional information.
Income Taxes
The effective tax rate for the SuccessorCurrent Quarter and Prior Quarter was 5.2%20.0% and 24.7%, respectively, on income from continuing operations. The effective tax rate infor the SuccessorCurrent Quarter is different from the blendedU.S. federal and state statutory rate of 22.5%21% primarily from non-deductible items, foreign tax rates that differ from the U.S. federal statutory rate, the release of valuation allowance based on current period income in certain jurisdictions and foreign losses for which no tax benefit is being recorded. The tax rate for the Prior Quarter is
26
different from the U.S. federal statutory rate of 21% primarily from non-deductible items and foreign losses for which no tax benefit is being recorded.
The effective tax rate for Prior Predecessor Quarter was 8.6% on income from continuing operations. The tax rate is different from the blended federal and state statutory rate of 22.5% primarily from foreign losses for which no tax benefit was recorded.
Unrecognized tax benefit as of the Current Quarter and Prior Quarter was $15.7 million and $15.1 million, respectively, all of which would impact our effective tax rate if recognized except for $1.6 million offset in deferred income taxes. It is reasonably possible $3.4million of unrecognized tax benefits could be settled in the next twelve months due to the conclusion of tax audits or statutes of limitations expiration. It is our policy to recognize interest and applicable penalties, if any, related to uncertain tax positions in income tax expense.
Comparison of the Results of Operations for the Six Months Ended June 30, 20212022 and 20202021
The following table sets forth consolidated results of operations for the periods indicated. The Successor Periodperiod from February 3, 2021 through June 30, 2021 (the “Successor Period”) and the Current Predecessor Periodperiod from January 1, 2021 through February 2, 2021 (the “Predecessor Period”) are distinct reporting periods as a result of theour emergence from bankruptcy on the Emergence Date.bankruptcy. References in these results of operations to changes in comparison to the Prior Predecessor Periodsix months ended June 30, 2022 (the “Current Period)” combine the Successor Period and Current Predecessor Period (“Combined Period”) results for the six months ended June 30, 2021 (the “Combined Period”) in order to provide some comparability of such information to the Prior Predecessor Period.information. While this combined presentation is not presented according to generally accepted accounting principles in the United States of America (“GAAP”) and no comparable GAAP measures are presented, management believes that providing this financial information is the most relevant and useful method for making comparisons to the corresponding Prior PredecessorCurrent Period as reviewing the Successor Period results in isolation would not be useful in identifying trends in or reaching conclusions regarding our overall operating performance.
Successor | Predecessor | Non-GAAP | Predecessor | |||||||||||||
For the Period February 3, 2021 through June 30, 2021 | For the Period January 1, 2021 through February 2, 2021 | For the Combined Six Months ended June 30, 2021 | For the Six Months Ended June 30, 2020 | Change | ||||||||||||
Revenues | $ | 271,735 | $ | 45,928 | $ | 317,663 | $ | 385,821 | $ | (68,158) | ||||||
Cost of revenues | 171,447 | 29,773 | 201,220 | 230,939 | (29,719) | |||||||||||
Depreciation, depletion, amortization and accretion | 99,048 | 8,358 | 107,406 | 60,889 | 46,517 | |||||||||||
General and administrative expenses | 50,746 | 11,052 | 61,798 | 114,819 | (53,021) | |||||||||||
Restructuring and other expenses | 15,821 | 1,270 | 17,091 | - | 17,091 | |||||||||||
Reduction in value of assets | - | - | - | 16,522 | (16,522) | |||||||||||
Loss from operations | (65,327) | (4,525) | (69,852) | (37,348) | (32,504) | |||||||||||
Other income (expense): | ||||||||||||||||
Interest income (expense), net | 747 | 202 | 949 | (49,883) | 50,832 | |||||||||||
Reorganization items, net | - | 335,560 | 335,560 | - | 335,560 | |||||||||||
Other income (expense): | (275) | (2,105) | (2,380) | (3,411) | 1,031 | |||||||||||
Income (loss) from continuing operations before income taxes | (64,855) | 329,132 | 264,277 | (90,642) | 354,919 | |||||||||||
Income tax benefit (expense) | 6,032 | (60,003) | (53,971) | 14,160 | (68,131) | |||||||||||
Net income (loss) from continuing operations | (58,823) | 269,129 | 210,306 | (76,482) | 286,788 | |||||||||||
Income (loss) from discontinued operations, net of income tax | (28,806) | (352) | (29,158) | (68,088) | 38,930 | |||||||||||
Net income (loss) | $ | (87,629) | $ | 268,777 | $ | 181,148 | $ | (144,570) | $ | 325,718 |
NetWe reported net income from continuing operations for the Current Period of $67.5 million on revenue of $422.6 million. This compares to net income from continuing operations for the Combined Period was $181.1of $210.3 million which was driven primarily by recognitionon revenues of a $335.6 million gain in Reorganization items, net due to debt forgiveness as part of our emergence from bankruptcy. Also included in the results for Combined Period was a pre-tax charge of $13.9 million related to restructuring activities. This compares to a net loss for the Prior Predecessor Period of $144.6$317.7 million.
|
| Successor |
|
|
| Predecessor |
|
| Non-GAAP |
|
| Change | |||||||||||
|
| For the Six Months Ended June 30, 2022 |
|
| For the Period |
|
|
| For the Period |
|
| For the Combined Six Months Ended June 30, 2021 |
|
| $ |
|
| % | |||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Rentals |
| $ | 192,485 |
|
| $ | 109,685 |
|
|
| $ | 18,339 |
|
| $ | 128,024 |
|
| $ | 64,461 |
|
| 50.4% |
Well Services |
|
| 230,085 |
|
|
| 162,050 |
|
|
|
| 27,589 |
|
|
| 189,639 |
|
|
| 40,446 |
|
| 21.3% |
Total revenues |
|
| 422,570 |
|
|
| 271,735 |
|
|
|
| 45,928 |
|
|
| 317,663 |
|
|
| 104,907 |
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Rentals |
|
| 67,612 |
|
|
| 42,795 |
|
|
|
| 7,839 |
|
|
| 50,634 |
|
|
| 16,978 |
|
| 33.5% |
Well Services |
|
| 165,736 |
|
|
| 128,287 |
|
|
|
| 21,934 |
|
|
| 150,221 |
|
|
| 15,515 |
|
| 10.3% |
Total cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 233,348 |
|
|
| 171,082 |
|
|
|
| 29,773 |
|
|
| 200,855 |
|
|
| 32,493 |
|
|
|
Depreciation, depletion, amortization and accretion |
|
| 57,431 |
|
|
| 99,048 |
|
|
|
| 8,358 |
|
|
| 107,406 |
|
|
| (49,975 | ) |
| (46.5%) |
General and administrative expenses |
|
| 62,249 |
|
|
| 50,746 |
|
|
|
| 11,052 |
|
|
| 61,798 |
|
|
| 451 |
|
| 0.7% |
Restructuring expenses |
|
| 3,218 |
|
|
| 15,821 |
|
|
|
| 1,270 |
|
|
| 17,091 |
|
|
| (13,873 | ) |
| (81.2%) |
Other (gains) and losses, net |
|
| (16,866 | ) |
|
| 365 |
|
|
|
| - |
|
|
| 365 |
|
|
| (17,231 | ) |
| ** |
Income (loss) from operations |
|
| 83,190 |
|
|
| (65,327 | ) |
|
|
| (4,525 | ) |
|
| (69,852 | ) |
|
| 153,042 |
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest income, net |
|
| 2,638 |
|
|
| 747 |
|
|
|
| 202 |
|
|
| 949 |
|
|
| 1,689 |
|
| 178.0% |
Reorganization items, net |
|
| - |
|
|
| - |
|
|
|
| 335,560 |
|
|
| 335,560 |
|
|
| (335,560 | ) |
| (100.0%) |
Other income (expense) |
|
| 476 |
|
|
| (275 | ) |
|
|
| (2,105 | ) |
|
| (2,380 | ) |
|
| 2,856 |
|
| ** |
Income (loss) from continuing operations before income taxes |
|
| 86,304 |
|
|
| (64,855 | ) |
|
|
| 329,132 |
|
|
| 264,277 |
|
|
| (177,973 | ) |
|
|
Income tax (expense) benefit |
|
| (18,755 | ) |
|
| 6,032 |
|
|
|
| (60,003 | ) |
|
| (53,971 | ) |
|
| 35,216 |
|
| (65.2%) |
Net income (loss) from continuing operations |
|
| 67,549 |
|
|
| (58,823 | ) |
|
|
| 269,129 |
|
|
| 210,306 |
|
|
| (142,757 | ) |
|
|
Income (loss) from discontinued operations, net of income tax |
|
| (205 | ) |
|
| (28,806 | ) |
|
|
| (352 | ) |
|
| (29,158 | ) |
|
| 28,953 |
|
| (99.3%) |
Net income (loss) |
| $ | 67,344 |
|
| $ | (87,629 | ) |
|
| $ | 268,777 |
|
| $ | 181,148 |
|
| $ | (113,804 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
** Not a meaningful percentage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
27
Revenues and Cost of Revenues
Revenue forRevenues from our Rentals segment increased $64.5 million, or 50.4%, in the CombinedCurrent Period decreased by 17.7% to $317.7 million, as compared to $385.8 million for the Prior Predecessor Quarter.Combined Period. Cost of revenues forincreased $17.0 million, or 33.5%, in the CombinedCurrent Period decreased by 12.9%, to $201.2 million, as compared to $230.9 million for the Prior PredecessorCombined Period. Both revenuesThis increase was due to an increase in both average rig count and costcommodity prices when compared to the Combined Period. During the Current Period, we experienced increases in utilization and pricing of revenues were severely impacted by the effects of COVID-19 on the worldwide economy, and our results were impacted by a decline in all business lines. We experienced a decline in rentals ofboth premium drill pipe and bottom hole assembliesassembly accessories, which contributed to an increase in gross margin which was 64.9% for the Current Period as well as a declinecompared to 60.4% in revenues from accommodation units, slickline services and plug and abandonment activities.the Combined Period.
Revenues from our Well Services segment increased $40.4 million, or 21.3%, in the Current Period as compared to the Combined Period. Cost of revenues increased $15.5 million, or 10.3%, in the Current Period as compared to the Combined Period. The increase in cost of revenues was driven by the increase in overall segment revenues, and gross margin for the Current Period increased to 28.0% as compared to 20.8% for the Combined Period due to changes in revenue mix in our completions applications, increases in service revenues with higher margins and a reduction in pass through and mobilization projects with lower margins. Additionally, the strategic shift of our more labor-intensive service businesses to U.S. offshore and international operations reduces our exposure to the most significant wage inflation pressures in this segment given our lower U.S. land headcount.
Depreciation, Depletion, Amortization and Accretion
Depreciation, depletion, amortization and accretion was $107.4expense for the Current Period decreased $50.0 million, duringor 46.5%, as compared to the Combined Period. Depreciation expense for the Combined Period compared to $60.9 million duringwas impacted by the Prior Predecessor Period. The increase in depreciation,valuation process under fresh start accounting, where certain fully depreciated assets were assigned a new estimated fair value and a new remaining useful life of less than 36 months. Depreciation, depletion, amortization and accretion expense for 2022 is relatedexpected to both an increase inbe approximately $102.8 million as compared to $228.2 million for the
carrying value of our assets and lower average remaining useful lives as a result of the fair value adjustment recorded as a part of fresh start accounting.
General and AdministrativeRestructuring Expenses
General and administrative expense was $50.7 million during the Combined Period compared to $114.8 million during the Prior Predecessor Period. The decrease is the result of our continued focus on limiting spending and reducing our cost structure.
Restructuring and Other Expenses
Restructuring and other expenses were $15.8for the Current Period decreased of $13.9 million, duringor 81.2%, as compared to the Combined Period, and primarily relate to severance expenses and costs related to executive officers that resigned during the period as well as professional fees associated with our previously discussedthe Transformation Project.
Reorganization items, netOther gains and losses
Reorganization items, net were $335.6Other gains and losses for the Current Period include a gain of $17.4 million from revisions in estimates related to our decommissioning liability.
Other Income (Expense)
Losses on foreign currencies during the Current Predecessor Period. See Part 1, Item 1, “Unaudited Condensed Consolidated Financial StatementsPeriod and Notes” – Note 3 – “Fresh Start Accounting”Combined Period were $4.9 million and $1.8 million, respectively. Losses on foreign currencies during the Current Period include an expense of $2.7 million which represents a correction of an immaterial error relating to a period prior to our emergence from bankruptcy. Realized and unrealized gains on our investment in equity securities for additional information on reorganization items, net.the Current Period were $4.2 million. During the Current Period, we disposed of 1.7 million shares for $13.4 million.
Interest Income (Expense), net
Interest income was $0.9 million for the Combined Periodcompared to interest expense of $49.9 million for the Prior Predecessor Period. The Prior Predecessor Period interest expense was a result of outstanding debt during the Prior Predecessor Period and was subsequently eliminated as a liability subject to compromise and settled in accordance with the Plan. See Part 1, Item 1, “Unaudited Condensed Consolidated Financial Statements and Notes” – Note 3 – “Fresh Start Accounting” for additional information.
Income Taxes
The effective tax rate for the Current Predecessor Period and the SuccessorCombined Period was 18.2%,21.7% and 9.3%20.4%, respectively, on income from continuing operations. The effective tax rate infor the Current Predecessor Period is different from the blendedU.S. federal and state statutory rate of 22.5% primarily from the adoption of fresh start accounting during the period. The cancellation of indebtedness income resulting from the restructuring has significantly reduced our US tax attributes, including but not limited to NOL carryforwards. We experienced an ownership change under Sec. 382 of the Internal Revenue Code of 1986, as amended (the “Code”), which is anticipated to limit certain remaining tax attributes. The tax rate in the Successor Period is different from the blended federal and state statutory rate of 22.5%21% primarily from non-deductible items, foreign tax rates that differ from the U.S. federal statutory rate, the release of valuation allowance based on current period income in certain jurisdictions and foreign losses for which no tax benefit is being recorded.
The effective tax rate for the Prior PredecessorCombined Period was 15.6%, respectively, on income from continuing operations. The tax rate is different from the blendedU.S. federal and state statutory rate of 22.5%21% primarily from non-deductible items, foreign losses for which no tax benefit was recorded.recorded and the adoption of fresh start accounting during the period.
Unrecognized tax benefit as of June 30, 2022 was $15.7 million, all of which would impact our effective tax rate if recognized except for $1.6 million offset in deferred income taxes. It is reasonably possible $3.4 million of unrecognized tax benefits could be settled in the next twelve months due to the conclusion of tax audits or statutes of limitations expiration. It is our policy to recognize interest and applicable penalties, if any, related to uncertain tax positions in income tax expense.
28
Liquidity and Capital Resources
Cash flows depend, to a large degree, on the level of spending by oil and gas companies for exploration, development and production activities. Certain sources and uses of cash, such as our level of discretionary capital expenditures and divestitures of non-core assets, are within our control and are adjusted as necessary based on market conditions.
Also impacting liquidity is the state of the global economy, which impacts oil and natural gas consumption. Our operations continue to be disrupted due to the circumstances surrounding the COVID-19 pandemic. The significant business disruption resulting from the COVID-19 pandemic has impacted customers, vendors and suppliers in all geographical areas where we operate. The closure of non-essential business facilities and restrictions on travel put in place by governments around the world have significantly reduced economic activity. Also, the COVID-19 pandemic has impacted and may further impact the broader economies of affected countries, including negatively impacting economic growth, the proper functioning of financial and capital markets, foreign currency exchange rates and interest rates. There is increased economic optimism in 2021 as governments worldwide continue to distribute the COVID-19 vaccines. However, although vaccination campaigns are underway, several regions, including areas of the United States, have been and continue to deal with a rebound in the pandemic. There is also concern about whether vaccines will be effective against different strains of the virus that have developed and may develop in the future. Even though signs of economic recovery centered on COVID-19 mitigation, global vaccine distribution, and re-opening efforts make demand for oil and gas difficult to project, we believe demand is recovering and prices will be positively impacted.
Financial Condition and Sources of Liquidity
TheOur primary sources of liquidity during the period covered by this quarterly report on Form 10-Q have been cash and cash equivalents, availability under credit facilities, and cash generated from operations.our operations and from asset sales, and availability under our Credit Facility. As of June 30, 2021,2022, we had cash, cash equivalents and restricted cash of $285.9$470.8 million. During the Successor Period and the Current Predecessor Periodsix months ended June 30, 2022 net cash provided by operating activities was
$12.5 $68.2 million, and $5.3we received $28.5 million respectively. During the Successor Period and the Current Predecessor Period, $16.2 million and $0.7 million were received in cash proceeds from the sale of assets respectively.and equity securities in which we are invested. The primary uses of liquidity are to provide support for operating activities, restructuring activities and capital expenditures. We spent $20.5 million of cash on capital expenditures during the six months ended June 30, 2022.
At June 30, 2021, the borrowing base on the Credit Facility was $120.0 million and the Successor had $47.5 million of letters of credit outstanding that reduced the borrowing availability under the Credit Facility.
The energy industry faces growing negative sentiment in the market which may affect theour ability to access appropriate amounts of capital and under suitable terms.on terms favorable to us. While we have confidence in the level of support from our lenders, this negative sentiment in the energy industry has not only impacted our customers in North America, it isbut also affectingaffected the availability and the pricing for most credit lines extended to participants in the energy industry. From time to time, we may continue to enter into transactions to dispose of businesses or capital assets that no longer fit our long-term strategy.
Uses of Liquidity
The primary uses of liquidity are to provide support for operating activities, restructuring activities and capital expenditures. We have incurred significant costs associated with the Chapter 11 Cases, including fees for legal, financial and restructuring advisors to us, and certain of the creditors. During the Current Predecessor Period, the Predecessor incurred $18.3 million of advisory and professional fees relating to the Chapter 11 Cases and $12.0 million of fees paid in consideration for the commitment by the Backstop Commitment Parties to provide the Delayed-Draw Term Loan Facility upon the emergence from bankruptcy (which ultimately did not occur). The Successor spent $4.1 million of cash on capital expenditures during the Successor Period and the Predecessor spent $3.0 million of cash on capital expenditures during the Current Predecessor Period.
Debt Instruments
On the Emergence Date, pursuant to the Plan, the Former Parent, as parent guarantor, and SESI, as borrower,we entered into a Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders and letter of credit issuers named therein providing for a $120.0 million asset-based secured revolving credit facility (the “Credit Facility”),Credit Facility, all of which provides for revolving loans and is available for the issuancesissuance of letters of credit.credit (the “Credit Facility”). The issuance of letters of credit reduces availability under the Credit Facility on a dollar-for-dollar basis. The Credit Facility will mature on December 9, 2024. The borrowing base under the Credit Facility is determined by reference to SESI’s and its subsidiary guarantors’ (i) eligible accounts receivable, (ii) eligible inventory, (iii) solely during the period from February 2, 2021 until the earlier of December 9, 2022 and the date that unrestricted cash of SESI and its wholly-owned subsidiaries is less than $75.0 million, eligible premium rental drill pipe and (iv) so long as there are no loans outstanding at such time, certain cash of SESI and its subsidiary guarantors, less reserves established by the administrative agent in its permitted discretion. On June 30, 2021 approximately $45.0 million of undrawn letters of credit were outstanding under the Credit Facility.
Availability under the Credit Facility at any time is equal to the lesser of (i) the aggregate commitments under the Credit Facility and (ii) the borrowing base at such time. As of June 30, 2021, the2022, our borrowing base, underas defined in the Credit FacilityAgreement, was approximately $120.0 million and we had $47.5$34.3 million of letters of credit outstanding that reduced itsthe borrowing availability under the revolving credit facility. Subject to certain conditions, upon request and with the consent of the participating lenders, the total commitmentsavailability. We had no outstanding borrowings under the Credit Facility may be increasedas of June 30, 2022.
Unless all loans are paid off and letters of credit outstanding are cash collateralized and the Credit Facility terminated, the Credit Facility requires, subject to $170.0 million. SESI’s obligationspermitted exceptions, compliance with various covenants, including, but not limited to, limitations on the incurrence of indebtedness, permitted investments, liens on assets, making distributions, transactions with affiliates, mergers, consolidations, dispositions of assets and other provisions customary in similar types of agreements. The Credit Facility also requires compliance with a fixed charge coverage ratio of 1.0 to 1.0 if (a) an event of default has occurred and is continuing or (b) availability under the Credit Facility are guaranteed byis less than the Former Parent and allgreater of SESI’s material domestic subsidiaries and secured by substantially all$20.0 million or 15% of the personal propertylesser of the Former Parent, SESIaggregate commitments and SESI’s material domestic subsidiaries,the borrowing base. We were in each case, subject to certain customary exceptions.compliance with all required covenants as of June 30, 2022.
BorrowingsOther Matters
New Accounting Pronouncements
See Part 1, Item 1, “Unaudited Condensed Consolidated Financial Statements and Notes” – Note 17 – “New Accounting Pronouncements.”
Critical Accounting Policies and Estimates
There have been no changes to the critical accounting policies reported in our Annual Report on Form 10-K for the period ended December 31, 2021 (the “Form 10-K”) that affect our significant judgments and estimates used in the preparation of our Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. Please refer to the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in the Form 10-K.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks associated with foreign currency fluctuations and changes in interest rates. As of June 30, 2022, we did not hold financial instruments for trading purposes.
29
Foreign Currency Exchange Rates Risk
We do not hold derivatives for trading purposes or use derivatives with complex features. When we believe it is prudent, we may enter into forward foreign exchange contracts to hedge the impact of foreign currency fluctuations. We do not enter into forward foreign exchange contracts for trading purposes, and at June 30, 2022, we did not have any outstanding foreign currency forward contracts.
Interest Rate Risk
We are exposed to changes in interest rates on borrowings under our Credit Facility. Any borrowings under the Credit Facility will bear interest, at SESI’sour option, at either an adjusted LIBOR rate plus an applicable margin ranging from 3.00% to 3.50% per annum, or an alternate base rate plus an applicable margin ranging from 2.00% to 2.50% per annum, in each case on the basis of the then applicable consolidated fixed charge coverage ratio. In addition, SESI iswe are required to pay (i) a letter of credit fee, ranging from 3.00% to 3.50% per annum on the basis of the consolidated fixed charge coverage ratio on the aggregate face amount of all outstanding letters of credit, (ii) to the issuing lender of each letter of credit, a fronting fee of no less than 0.25% per annum on the outstanding amount of each such letter of credit and (iii) commitment feesfees. Upon the cessation of 0.50% per annum on the daily unused amount ofLIBOR, the Credit Facility in each case, quarterly in arrears.
The Credit Facility contains various covenants requiring compliance, including, but not limited to, limitations onprovides for the incurrenceuse of indebtedness, permitted investments, liens on assets, making distributions, transactions with affiliates, mergers, consolidations, dispositions of assets and other provisions customary in similar types of agreements. The Credit Facility requires compliance with a fixed charge coverage ratio of 1.0 to 1.0 if either (a) an event of default has occurred and is continuing or (b) availability under the Credit Facility is less than the greater of $20.0 million or 15% of the lesser of the aggregate commitments and the borrowing base. The covenant and other restrictions of the Credit Facility significantly restrict the ability to incur borrowings other than letters of credit.
See Part 1, Item 1, “Unaudited Condensed Consolidated Financial Statements and Notes” – Note 9 – “Debt”alternative benchmark rates for additional information regarding waivers to the Credit Facility and our inability to require the lenders to make any requested advances
until the conditions described therein are satisfied.
Other Matters
Off-Balance Sheet Arrangements and Hedging Activities
At June 30, 2021, the Successor had no off-balance sheet arrangements and no hedging contracts.
Recently Adopted Accounting Guidance
See Part 1, Item 1, “Unaudited Condensed Consolidated Financial Statements and Notes” – Note 22 – “New Accounting Pronouncements.”
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks associated with foreign currency fluctuations and changes in interest rates. A discussion of our market risk exposure in financial instruments follows.
Foreign Currency Exchange Rates Risk
Prior to the first quarter of 2021, the functional currency of the majority of the international subsidiaries was US dollars and the functional currency for certain of the international subsidiaries was the local currency.
Beginning with the first quarter of 2021, as part of adopting a new accounting policy at fresh start accounting, the functional currency of certain international subsidiaries changed from the local currency to US dollars. This brings alignment so that our functional currency is US dollars. Management considered the economic factors outlined in FASB ASC Topic No. 830 - Foreign Currency Matters in the determination of the functional currency. Management concluded thatborrowing rate, and the predominancecessation of factors support the useLIBOR will not have a material impact on us. However, as of the Successor parent’s currency as the functional currency and resulted in a change in functional currency to US dollars for all international subsidiaries.
The change in functional currency is applied on a prospective basis beginning with the first quarter of 2021 and translation adjustments for prior periods will continue to remain as a component of accumulated other comprehensive loss.
We do not hold derivatives for trading purposes or use derivatives with complex features. When prudent, we enter into forward foreign exchange contracts to hedge the impact of foreign currency fluctuations. We do not enter into forward foreign exchange contracts for trading or speculative purposes. At June 30, 2021, the Successor2022, we had no outstanding foreign currency forward contracts.borrowings under the Credit Facility.
Interest Rate Risk
At June 30, 2021, the Successor had no variable rate debt outstanding.
Commodity Price Risk
Our revenues, profitability and future rate of growth significantly depend upon the market prices of oil and natural gas. Lower prices may also reduce the amount of oil and natural gas that can economically be produced.
For additional discussion, see Part 1, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
Inflation Risk
Based on our analysis of the period presented, we believe that inflation has not had a material effect on our operating results. There can be no assurance that future inflation will not have an adverse impact on our operating results and financial condition.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
Our management has established and maintains a system of disclosure controls and procedures to provide reasonable assurances that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is appropriately recorded, processed, summarized and reported within the time periods specified by the SEC. In addition, our disclosure controls and procedures include, without limitation, controls and proceduresare designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. In addition, the disclosure controls and procedures provide reasonable assurance that such information is accumulated and communicated to management, including its Chief Executive Officerour CEO and Chief Financial Officer, or persons performing similar functions,CFO, as appropriate, to allow timely decisions regarding required disclosure. An evaluation was carried out, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”)CEO and Chief Financial Officer (“CFO”),CFO, regarding the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures as of June 30, 20212022 were not effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods required byspecified in the SEC’s rules and forms, and is accumulated and communicated to
management, including our CEO and CFO, as appropriate, to allow timely decisions regarding disclosures as a result of the material weakness in our internal control over financial reporting described below.required disclosure.
Material Weakness in Internal Control Over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness was identified in our internal control over financial reporting as we did not effectively operate control activities to appropriately consider all potential income tax alternatives relating to uncertain tax positions.
This material weakness did not result in a misstatement to the consolidated financial statements, however this material weakness could result in a misstatement of the income tax related accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
Management’s Plan to Remediate Material Weakness
In order to address the material weakness described above under “Material weakness in internal control over financial reporting”, our management has implemented a remediation plan to address the control deficiency that led to this material weakness, including the following:
Reinforcing our controls for identifying and reviewing potential uncertain tax positions; and
Reinforcing our controls to evaluate, resolve, and document the related conclusions and accounting treatment for uncertain tax positions.
Although we have implemented the enhancements described above, the material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Based on its evaluation, the controls described above have not had sufficient time for management to conclude that they are operating effectively. Therefore, the material weakness described above existed at June 30, 2021 and will continue to exist until the controls described above have had sufficient time for management to conclude that they are effective.
Changes in Internal Control Over Financial Reporting
There have been no changes in internal control over financial reporting during the quarter ended June 30, 20212022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are involved in various legal actions incidental to our business. The outcomeHowever, based on current circumstances, we do not believe that the ultimate resolution of these proceedings is unpredictable.after considering available defenses and any insurance coverage or indemnification rights will have a material adverse effect on our financial position, results of operations or cash flows. See Part 1, Item 1, “Unaudited Condensed Consolidated Financial Statements and Notes”Notes – Note 1913 – “Contingencies.”
For more information on the Chapter 11 Cases, see Part 1, Item 1, “Unaudited Condensed Consolidated Financial Statements and Notes” – Note 1 – “Basis of Presentation”and Part 1, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Item 1A. Risk Factors
For information regarding certain risks relating to our operations, any of which could negatively affect our business, financial condition, operating results or prospects, see Part I, Item 1A, “Risk Factors” of the Annual Report. ThereExcept as set forth below, there have been no material changes to the risk factorsRisk Factors which we previously disclosed underin our Form 10-K.
Our business may be materially and adversely impacted by U.S. and global market and economic conditions, including impacts relating to inflation and supply chain disruptions.
Our revenue is derived from the caption “Risk Factors”services and products that we offer to major, national and independent oil and natural gas exploration and production companies around the world for the various phases of their respective well’s economic life cycles. Given the concentration of our business activities in the Annual Report exceptoil and gas industry, we will be particularly exposed to certain economic downturns. United States and global market and economic conditions have been, and continue to be, disrupted and volatile due to many factors, including the ongoing COVID-19 pandemic, component shortages and related supply chain challenges, geopolitical developments such as set forth below. Additional risksthe conflict between Ukraine and uncertainties not currently knownRussia, and increasing inflation rates and the responses by central banking authorities to control such inflation, among others.
General business and economic conditions that could affect us and our customers include fluctuations in economic growth, debt and equity capital markets, liquidity of the global financial markets, the availability and cost of credit, investor and consumer confidence, and the strength of the economies in which we and our customers operate. A weak economic environment could result in significant decreases in demand for our products and services, including the delay or cancellation of current or anticipated projects. In particular, rising inflation rates in the United States have begun to affect businesses across many industries, including ours, by increasing the costs of labor, equipment, parts, consumables and shipping. A high inflationary environment may also cause customers to defer or decrease their expenditures on the services and products that we currently deem immaterial may materiallyprovide. In addition, supply chain disruptions and delays, could adversely affect our ability to provide our services and deliver our products in a timely manner, which could impair our ability to meet customer demand and result in lost sales, increased supply chain costs or damage to our reputation. Any of foregoing these economic conditions could have a material adverse effect on our business, financial condition, orand results of operations or result in changes to the risk factors previously disclosed under the caption “Risk Factors” in our Annual Report. The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding any statement in this report or elsewhere. The following information should be read in conjunction with the condensed consolidated financial statements and related notes herein and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this quarterly report on Form 10-Q.operations.
In connection with the preparation of our consolidated financial statements as of and for the quarter ended March 31, 2021, our previous independent registered public accounting firm identified a material weakness in our internal control over financial reporting related to the design of our control to engage the appropriate specialists to assist in evaluating the income tax consequences of complex non-routine transactions, such as the Plan. If we are not able to remediate the material weakness and otherwise to maintain an effective system of internal control over financial reporting in the future, our financial statements may be materially misstated and investors may lose confidence in the accuracy and completeness of our financial reports. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. We are working to remediate the material weakness and are taking steps to strengthen our internal control over financial reporting. While we are undertaking efforts to remediate this material weakness, the material weakness will not be considered remediated until our remediation plan has been fully implemented, the applicable controls operate for a sufficient period of time, and we have concluded, through testing, that the newly implemented and enhanced controls are operating effectively. At this time, we cannot predict the success of such efforts or the outcome of our assessment of the remediation efforts. We cannot assure you that our efforts will remediate this material weakness in our internal control over financial reporting, or that additional material weaknesses will not be identified in the future.
Item 2. Unregistered Sales of Equity Securities and Use of ProceedsProceeds
On June 1, 2021,March 28, 2022, the Board and the Compensation Committee approved new forms of restricted stock unit (“RSU”) award agreements and forms of performance stock unit (“PSU”) award agreements (collectively, the issuance (without giving effect to tax withholding) of 113,840 restricted shares of Class B common stock (or 76,269 shares of Class B common stock after giving effect to tax withholding)“Award Agreements”) under the Company’s Management Incentive Plan to certainMIP, and approved the grant of 72,050 RSUs and 288,199 PSUs.
Awards made under the Company’s non-employee directors and officers (the “Restricted Stock Grants”). The Restricted Stock Grants willforms of RSU award agreements for our employees generally vest in three equal annual installments over athe three-year period, of three years, subject to earlier vesting and forfeiture on terms and conditions set forth in the applicableforms of RSU award agreement. The issuanceagreements. Awards made under the forms PSU award agreements may be earned between 25% and 100% of the restricted Class B common stock is exempt from registration undertarget award based on achievement of share price goals set forth in the Securities Actforms of 1933, as amended, pursuantPSU award agreements and will vest to section 4(a)(2)the extent that share price goals are achieved based on the terms and conditions set forth in the forms of the Securities Act and/or Regulation D promulgated thereunder.PSU award agreements.
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None to report.
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Item 6. Exhibits
Exhibit No. | Description |
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101.INS* | Inline XBRL Instance Document |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document |
104* |
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*Filed herewith
^Management contract or compensatory plan or arrangement
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SUPERIOR ENERGY SERVICES, INC.
(Registrant)
Date: |
| By: | /s/ |
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| |||
( | |||
By: | /s/ James W. Spexarth | ||
James W. Spexarth | |||
Executive Vice President and Chief Financial Officer | |||
(Principal Financial Officer) | |||
`
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