UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q |
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20222023
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File No. 001-34037
Commission Company Name: SUPERIOR ENERGY SERVICES, INCINC.
SUPERIOR ENERGY SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware | 87-4613576 | |||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||
1001 Louisiana Street, Suite 2900 Houston, TX (Address of principal executive offices) | 77002 (Zip Code) |
Registrant’s telephone number, including area code: (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. ☒x No
¨
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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒x No
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated filer ☐ | Accelerated filer ☐ | |
Non-accelerated filer ☒ | Smaller reporting company ☐ | |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒
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
The number of shares of the registrant’s Class A common stock outstanding on OctoberJuly 31, 20222023 was 19,998,695.
The number of shares of the registrant’s Class B common stock outstanding on OctoberJuly 31, 20222023 was 76,269152,030.
1
TABLE OF CONTENTS
Page | ||
3 | ||
PART I. | FINANCIAL INFORMATION | |
Item 1. | ||
4 | ||
5 | ||
| ||
|
| |
| ||
Notes to Unaudited Condensed Consolidated Financial Statements |
| |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
Item 3. |
| |
Item 4. |
| |
PART II. | OTHER INFORMATION | |
Item 1. |
| |
Item 1A. |
| |
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| |
|
| |
|
| |
|
| |
Item 6. |
| |
|
2
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q for the quarterly period ended SeptemberJune 30, 20222023 (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, 20212022 (the "Form 10-K"“Form 10-K”) and this Form 10-Q Part II, Item 1A, "Risk Factors". We undertake no obligation to update any of our forward-looking statements in this discussion.the Form 10-Q. 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)
|
| September 30, 2022 |
|
| December 31, 2021 |
|
| June 30, 2023 |
|
| December 31, 2022 |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 453,682 |
|
| $ | 314,974 |
|
| $ | 330,129 |
|
| $ | 258,999 |
|
Accounts receivable, net |
|
| 222,646 |
|
|
| 182,432 |
|
|
| 249,479 |
|
|
| 249,808 |
|
Income taxes receivable |
|
| 5,527 |
|
|
| 5,099 |
|
|
| 4,541 |
|
|
| 6,665 |
|
Prepaid expenses |
|
| 16,029 |
|
|
| 15,861 |
|
|
| 19,291 |
|
|
| 17,299 |
|
Inventory |
|
| 69,962 |
|
|
| 60,603 |
|
|
| 82,897 |
|
|
| 65,587 |
|
Investment in equity securities |
|
| 16,888 |
|
|
| 25,735 |
| ||||||||
Other current assets |
|
| 5,790 |
|
|
| 6,701 |
|
|
| 6,104 |
|
|
| 6,276 |
|
Assets held for sale |
|
| 18,314 |
|
|
| 37,528 |
|
|
| 1,369 |
|
|
| 11,978 |
|
Total current assets |
|
| 808,838 |
|
|
| 648,933 |
|
|
| 693,810 |
|
|
| 616,612 |
|
Property, plant and equipment, net |
|
| 283,906 |
|
|
| 356,274 |
|
|
| 298,567 |
|
|
| 282,376 |
|
Note receivable |
|
| 66,078 |
|
|
| 60,588 |
|
|
| 71,581 |
|
|
| 69,679 |
|
Restricted cash |
|
| 79,757 |
|
|
| 79,561 |
|
|
| 80,318 |
|
|
| 80,108 |
|
Other long-term assets, net |
|
| 48,636 |
|
|
| 54,152 |
| ||||||||
Deferred tax assets |
|
| 73,362 |
|
|
| 97,492 |
| ||||||||
Other assets, net |
|
| 42,978 |
|
|
| 44,745 |
| ||||||||
Total assets |
| $ | 1,287,215 |
|
| $ | 1,199,508 |
|
| $ | 1,260,616 |
|
| $ | 1,191,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts payable |
| $ | 51,398 |
|
| $ | 43,080 |
|
|
| 58,865 |
|
| $ | 31,570 |
|
Accrued expenses |
|
| 107,972 |
|
|
| 108,610 |
|
|
| 100,416 |
|
|
| 116,575 |
|
Income taxes payable |
|
| 15,900 |
|
|
| 8,272 |
|
|
| 11,687 |
|
|
| 11,682 |
|
Decommissioning liability |
|
| 26,329 |
|
|
| 9,770 |
| ||||||||
Liabilities held for sale |
|
| 3,666 |
|
|
| 5,607 |
|
|
| 3,090 |
|
|
| 3,349 |
|
Total current liabilities |
|
| 178,936 |
|
|
| 165,569 |
|
|
| 200,387 |
|
|
| 172,946 |
|
Decommissioning liability |
|
| 144,781 |
|
|
| 190,380 |
|
|
| 133,591 |
|
|
| 150,901 |
|
Deferred income taxes |
|
| 21,761 |
|
|
| 12,441 |
| ||||||||
Other long-term liabilities |
|
| 80,616 |
|
|
| 89,385 |
| ||||||||
Other liabilities |
|
| 45,186 |
|
|
| 84,281 |
| ||||||||
Total liabilities |
|
| 426,094 |
|
|
| 457,775 |
|
|
| 379,164 |
|
|
| 408,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
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 |
| ||||||||
Stockholders’ equity: |
|
|
|
|
|
| ||||||||||
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; |
|
| 2 |
|
|
| 1 |
| ||||||||
Class A Additional paid-in capital |
|
| 902,486 |
|
|
| 902,486 |
|
|
| 902,486 |
|
|
| 902,486 |
|
Class B Additional paid-in capital |
|
| 4,743 |
|
|
| 1,224 |
|
|
| 6,855 |
|
|
| 5,896 |
|
Accumulated deficit |
|
| (46,309 | ) |
|
| (162,178 | ) |
|
| (28,091 | ) |
|
| (125,699 | ) |
Total stockholders’ equity |
|
| 861,121 |
|
|
| 741,733 |
|
|
| 881,452 |
|
|
| 782,884 |
|
Total liabilities and stockholders’ equity |
| $ | 1,287,215 |
|
| $ | 1,199,508 |
|
| $ | 1,260,616 |
|
| $ | 1,191,012 |
|
See accompanying notes to unaudited condensed consolidated financial statements
4
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
|
| For the Three Months Ended |
| |||||
|
| September 30, 2022 |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Revenues: |
|
|
|
|
|
| ||
Services |
| $ | 99,763 |
|
| $ | 85,667 |
|
Rentals |
|
| 80,173 |
|
|
| 59,420 |
|
Product sales |
|
| 42,351 |
|
|
| 33,496 |
|
Total revenues |
|
| 222,287 |
|
|
| 178,583 |
|
Cost of revenues: |
|
|
|
|
|
| ||
Services |
|
| 66,205 |
|
|
| 71,688 |
|
Rentals |
|
| 25,816 |
|
|
| 26,011 |
|
Product sales |
|
| 24,060 |
|
|
| 28,371 |
|
Total cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 116,081 |
|
|
| 126,070 |
|
Depreciation, depletion, amortization and accretion: |
|
|
|
|
|
| ||
Services |
|
| 8,266 |
|
|
| 28,426 |
|
Rentals |
|
| 6,749 |
|
|
| 19,717 |
|
Product sales |
|
| 5,493 |
|
|
| 11,065 |
|
Total depreciation, depletion, amortization and accretion |
|
| 20,508 |
|
|
| 59,208 |
|
General and administrative expenses |
|
| 31,841 |
|
|
| 33,671 |
|
Restructuring expenses |
|
| 1,223 |
|
|
| 4,712 |
|
Other (gains) and losses, net |
|
| (13,397 | ) |
|
| (1,097 | ) |
Income (loss) from operations |
|
| 66,031 |
|
|
| (43,981 | ) |
Other income (expense): |
|
|
|
|
|
| ||
Interest income, net |
|
| 3,373 |
|
|
| 647 |
|
Other income (expense) |
|
| (6,838 | ) |
|
| (6,224 | ) |
Income (loss) from continuing operations before income taxes |
|
| 62,566 |
|
|
| (49,558 | ) |
Income tax (expense) benefit |
|
| (14,058 | ) |
|
| 9,518 |
|
Net income (loss) from continuing operations |
|
| 48,508 |
|
|
| (40,040 | ) |
Income (loss) from discontinued operations, net of income tax |
|
| 17 |
|
|
| (5,161 | ) |
Net income (loss) |
| $ | 48,525 |
|
| $ | (45,201 | ) |
|
|
|
|
|
|
| ||
Income (loss) per share - basic: |
|
|
|
|
|
| ||
Net income (loss) from continuing operations |
| $ | 2.42 |
|
| $ | (2.00 | ) |
Income (loss) from discontinued operations, net of income tax |
|
| - |
|
|
| (0.26 | ) |
Net income (loss) |
| $ | 2.42 |
|
| $ | (2.26 | ) |
|
|
|
|
|
|
| ||
Income (loss) per share - diluted: |
|
|
|
|
|
| ||
Net income (loss) from continuing operations |
| $ | 2.41 |
|
| $ | (2.00 | ) |
Income (loss) from discontinued operations, net of income tax |
|
| 0.01 |
|
|
| (0.26 | ) |
Net income (loss) |
| $ | 2.42 |
|
| $ | (2.26 | ) |
|
|
|
|
|
|
| ||
Weighted-average shares outstanding - basic |
|
| 20,024 |
|
|
| 19,999 |
|
Weighted-average shares outstanding - diluted |
|
| 20,090 |
|
|
| 19,999 |
|
See accompanying notes to unaudited condensed consolidated financial statements
5
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
|
| Successor |
|
|
| Predecessor |
| ||||||
|
| For the Nine Months Ended September 30, 2022 |
|
| For the Period |
|
|
| For the Period |
| |||
Revenues: |
|
|
|
|
|
|
|
|
|
| |||
Services |
| $ | 291,268 |
|
| $ | 209,133 |
|
|
| $ | 19,234 |
|
Rentals |
|
| 224,328 |
|
|
| 143,972 |
|
|
|
| 14,434 |
|
Product sales |
|
| 129,261 |
|
|
| 97,213 |
|
|
|
| 12,260 |
|
Total revenues |
|
| 644,857 |
|
|
| 450,318 |
|
|
|
| 45,928 |
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
| |||
Services |
|
| 199,903 |
|
|
| 166,801 |
|
|
|
| 15,080 |
|
Rentals |
|
| 74,664 |
|
|
| 60,960 |
|
|
|
| 5,876 |
|
Product sales |
|
| 74,862 |
|
|
| 69,391 |
|
|
|
| 8,817 |
|
Total cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 349,429 |
|
|
| 297,152 |
|
|
|
| 29,773 |
|
Depreciation, depletion, amortization and accretion: |
|
|
|
|
|
|
|
|
|
| |||
Services |
|
| 30,224 |
|
|
| 73,174 |
|
|
|
| 3,500 |
|
Rentals |
|
| 23,278 |
|
|
| 50,558 |
|
|
|
| 2,627 |
|
Product sales |
|
| 24,437 |
|
|
| 34,524 |
|
|
|
| 2,231 |
|
Total depreciation, depletion, amortization and accretion |
|
| 77,939 |
|
|
| 158,256 |
|
|
|
| 8,358 |
|
General and administrative expenses |
|
| 94,090 |
|
|
| 84,417 |
|
|
|
| 11,052 |
|
Restructuring expenses |
|
| 4,441 |
|
|
| 20,533 |
|
|
|
| 1,270 |
|
Other (gains) and losses, net |
|
| (30,263 | ) |
|
| (732 | ) |
|
|
| - |
|
Income (loss) from operations |
|
| 149,221 |
|
|
| (109,308 | ) |
|
|
| (4,525 | ) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
| |||
Interest income, net |
|
| 6,011 |
|
|
| 1,394 |
|
|
|
| 202 |
|
Reorganization items, net |
|
| - |
|
|
| - |
|
|
|
| 335,560 |
|
Other income (expense) |
|
| (6,362 | ) |
|
| (6,499 | ) |
|
|
| (2,105 | ) |
Income (loss) from continuing operations before income taxes |
|
| 148,870 |
|
|
| (114,413 | ) |
|
|
| 329,132 |
|
Income tax (expense) benefit |
|
| (32,813 | ) |
|
| 15,550 |
|
|
|
| (60,003 | ) |
Net income (loss) from continuing operations |
|
| 116,057 |
|
|
| (98,863 | ) |
|
|
| 269,129 |
|
Income (loss) from discontinued operations, net of income tax |
|
| (188 | ) |
|
| (33,967 | ) |
|
|
| (352 | ) |
Net income (loss) |
| $ | 115,869 |
|
| $ | (132,830 | ) |
|
| $ | 268,777 |
|
|
|
|
|
|
|
|
|
|
|
| |||
Income (loss) per share - basic: |
|
|
|
|
|
|
|
|
|
| |||
Net income (loss) from continuing operations |
| $ | 5.80 |
|
| $ | (4.94 | ) |
|
| $ | 18.13 |
|
Income (loss) from discontinued operations, net of income tax |
|
| (0.01 | ) |
|
| (1.70 | ) |
|
|
| (0.02 | ) |
Net income (loss) |
| $ | 5.79 |
|
| $ | (6.64 | ) |
|
| $ | 18.11 |
|
|
|
|
|
|
|
|
|
|
|
| |||
Income (loss) per share - diluted: |
|
|
|
|
|
|
|
|
|
| |||
Net income (loss) from continuing operations |
| $ | 5.78 |
|
| $ | (4.94 | ) |
|
| $ | 18.06 |
|
Income (loss) from discontinued operations, net of income tax |
|
| (0.01 | ) |
|
| (1.70 | ) |
|
|
| (0.03 | ) |
Net income (loss) |
| $ | 5.77 |
|
| $ | (6.64 | ) |
|
| $ | 18.03 |
|
|
|
|
|
|
|
|
|
|
|
| |||
Weighted-average shares outstanding - basic |
|
| 20,016 |
|
|
| 19,997 |
|
|
|
| 14,845 |
|
Weighted-average shares outstanding - diluted |
|
| 20,074 |
|
|
| 19,997 |
|
|
|
| 14,905 |
|
See accompanying notes to unaudited condensed consolidated financial statements
6
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(unaudited)
|
| For the Three Months Ended |
| |||||
|
| September 30, 2022 |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Net income (loss) |
| $ | 48,525 |
|
| $ | (45,201 | ) |
Change in cumulative translation adjustment, net of tax |
|
| - |
|
|
| - |
|
Comprehensive income (loss) |
| $ | 48,525 |
|
| $ | (45,201 | ) |
|
| Successor |
|
|
| Predecessor |
| ||||||
|
| For the Nine Months Ended September 30, 2022 |
|
| For the Period |
|
|
| For the Period |
| |||
Net income (loss) |
| $ | 115,869 |
|
| $ | (132,830 | ) |
|
| $ | 268,777 |
|
Change in cumulative translation adjustment, net of tax |
|
| - |
|
|
| - |
|
|
|
| 67,947 |
|
Comprehensive income (loss) |
| $ | 115,869 |
|
| $ | (132,830 | ) |
|
| $ | 336,724 |
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||
| June 30, |
|
| June 30, |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
| ||||
Services | $ | 106,130 |
|
| $ | 100,066 |
|
| $ | 199,420 |
|
| $ | 191,505 |
|
Rentals |
| 85,361 |
|
|
| 76,993 |
|
|
| 170,971 |
|
|
| 144,155 |
|
Product sales |
| 52,982 |
|
|
| 47,581 |
|
|
| 94,219 |
|
|
| 86,910 |
|
Total revenues |
| 244,473 |
|
|
| 224,640 |
|
|
| 464,610 |
|
|
| 422,570 |
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
| ||||
Services |
| 58,940 |
|
|
| 73,530 |
|
|
| 124,019 |
|
|
| 133,698 |
|
Rentals |
| 30,314 |
|
|
| 24,235 |
|
|
| 59,362 |
|
|
| 48,848 |
|
Product sales |
| 31,500 |
|
|
| 23,203 |
|
|
| 55,094 |
|
|
| 50,802 |
|
Total cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
| 120,754 |
|
|
| 120,968 |
|
|
| 238,475 |
|
|
| 233,348 |
|
Depreciation, depletion, amortization and accretion: |
|
|
|
|
|
|
|
|
|
|
| ||||
Services |
| 7,704 |
|
|
| 8,292 |
|
|
| 14,999 |
|
|
| 21,958 |
|
Rentals |
| 6,165 |
|
|
| 6,492 |
|
|
| 12,859 |
|
|
| 16,529 |
|
Product sales |
| 6,752 |
|
|
| 8,562 |
|
|
| 12,902 |
|
|
| 18,944 |
|
Total depreciation, depletion, amortization and accretion |
| 20,621 |
|
|
| 23,346 |
|
|
| 40,760 |
|
|
| 57,431 |
|
General and administrative expenses |
| 31,177 |
|
|
| 30,231 |
|
|
| 62,167 |
|
|
| 62,249 |
|
Restructuring expenses |
| - |
|
|
| 1,663 |
|
|
| 1,983 |
|
|
| 3,218 |
|
Other (gains) and losses, net |
| 47 |
|
|
| (18,013 | ) |
|
| (1,351 | ) |
|
| (16,866 | ) |
Income from operations |
| 71,874 |
|
|
| 66,445 |
|
|
| 122,576 |
|
|
| 83,190 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
| ||||
Interest income, net |
| 6,513 |
|
|
| 1,459 |
|
|
| 11,952 |
|
|
| 2,638 |
|
Other income (expense) |
| (1,836 | ) |
|
| (13,471 | ) |
|
| (3,988 | ) |
|
| 476 |
|
Income from continuing operations before income taxes |
| 76,551 |
|
|
| 54,433 |
|
|
| 130,540 |
|
|
| 86,304 |
|
Income tax expense |
| (9,147 | ) |
|
| (10,871 | ) |
|
| (33,212 | ) |
|
| (18,755 | ) |
Net income from continuing operations |
| 67,404 |
|
|
| 43,562 |
|
|
| 97,328 |
|
|
| 67,549 |
|
Income (loss) from discontinued operations, net of income tax |
| (9 | ) |
|
| (1,944 | ) |
|
| 280 |
|
|
| (205 | ) |
Net income | $ | 67,395 |
|
| $ | 41,618 |
|
| $ | 97,608 |
|
| $ | 67,344 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income (loss) per share - basic: |
|
|
|
|
|
|
|
|
|
|
| ||||
Net income from continuing operations | $ | 3.35 |
|
| $ | 2.18 |
|
| $ | 4.84 |
|
| $ | 3.38 |
|
Income (loss) from discontinued operations, net of income tax |
| - |
|
|
| (0.10 | ) |
|
| 0.01 |
|
|
| (0.01 | ) |
Net income | $ | 3.35 |
|
| $ | 2.08 |
|
| $ | 4.85 |
|
| $ | 3.37 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income (loss) per share - diluted: |
|
|
|
|
|
|
|
|
|
|
| ||||
Net income from continuing operations | $ | 3.35 |
|
| $ | 2.17 |
|
| $ | 4.83 |
|
| $ | 3.37 |
|
Income (loss) from discontinued operations, net of income tax |
| - |
|
|
| (0.10 | ) |
|
| 0.02 |
|
|
| (0.01 | ) |
Net income | $ | 3.35 |
|
| $ | 2.07 |
|
| $ | 4.85 |
|
| $ | 3.36 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| 20,126 |
|
|
| 20,024 |
|
|
| 20,116 |
|
|
| 20,011 |
|
Diluted |
| 20,143 |
|
|
| 20,076 |
|
|
| 20,136 |
|
|
| 20,065 |
|
See accompanying notes to unaudited condensed consolidated financial statements
75
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 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (45,201 | ) |
|
| (45,201 | ) |
Stock-based compensation expense, net |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 556 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 556 |
|
Balances, September 30, 2021 (Successor) |
|
| 19,999 |
|
| $ | 200 |
|
|
| 76 |
|
| $ | 1 |
|
| $ | 902,486 |
|
| $ | 640 |
|
| $ | - |
|
| $ | - |
|
| $ | (132,830 | ) |
| $ | 770,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
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 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 48,525 |
|
|
| 48,525 |
|
Stock-based compensation expense, net |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,976 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,976 |
|
Balances, September 30, 2022 (Successor) |
|
| 19,999 |
|
| $ | 200 |
|
|
| 76 |
|
| $ | 1 |
|
| $ | 902,486 |
|
| $ | 4,743 |
|
| $ | - |
|
| $ | - |
|
| $ | (46,309 | ) |
| $ | 861,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
| |||||||||||
|
| Common Stock |
|
| paid-in |
|
|
|
|
|
|
| ||||||||||||||||||||
|
| Class A |
|
| Class B |
|
| capital |
|
| Accumulated |
|
|
|
| |||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Class A |
|
| Class B |
|
| deficit |
|
| Total |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balances, December 31, 2021 |
|
| 19,999 |
|
| $ | 200 |
|
|
| 76 |
|
| $ | 1 |
|
| $ | 902,486 |
|
| $ | 1,224 |
|
| $ | (162,178 | ) |
| $ | 741,733 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 286,465 |
|
|
| 286,465 |
|
Cash dividends ($12.45 per share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (249,986 | ) |
|
| (249,986 | ) |
Stock-based compensation expense, net |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,807 |
|
|
| - |
|
|
| 4,807 |
|
Restricted stock units vested |
|
| - |
|
|
| - |
|
|
| 10 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Share withheld and retired |
|
| - |
|
|
| - |
|
|
| (2 | ) |
|
| - |
|
|
| - |
|
|
| (135 | ) |
|
| - |
|
|
| (135 | ) |
Shares placed in treasury |
|
| - |
|
|
| - |
|
|
| (4 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Balances, December 31, 2022 |
|
| 19,999 |
|
|
| 200 |
|
|
| 80 |
|
|
| 1 |
|
|
| 902,486 |
|
|
| 5,896 |
|
|
| (125,699 | ) |
|
| 782,884 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 30,213 |
|
|
| 30,213 |
|
Restricted stock units vested |
|
| - |
|
|
| - |
|
|
| 91 |
|
|
| 1 |
|
|
| - |
|
|
| (1 | ) |
|
| - |
|
|
| - |
|
Shares withheld and retired |
|
| - |
|
|
| - |
|
|
| (19 | ) |
|
| - |
|
|
| - |
|
|
| (1,116 | ) |
|
| - |
|
|
| (1,116 | ) |
Stock-based compensation expense, net |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,052 |
|
|
| - |
|
|
| 1,052 |
|
Balances, March 31, 2023 |
|
| 19,999 |
|
| $ | 200 |
|
|
| 152 |
|
| $ | 2 |
|
| $ | 902,486 |
|
| $ | 5,831 |
|
| $ | (95,486 | ) |
| $ | 813,033 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 67,395 |
|
|
| 67,395 |
|
Stock-based compensation expense, net |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,024 |
|
|
| - |
|
|
| 1,024 |
|
Balances, June 30, 2023 |
|
| 19,999 |
|
| $ | 200 |
|
|
| 152 |
|
| $ | 2 |
|
| $ | 902,486 |
|
| $ | 6,855 |
|
| $ | (28,091 | ) |
| $ | 881,452 |
|
See accompanying notes to unaudited condensed consolidated financial statements
86
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| For the Six Months Ended |
| |||||||||||||||||||||
|
| Successor |
|
|
| Predecessor |
|
| June 30, |
| |||||||||||||
|
| For the Nine Months Ended September 30, 2022 |
|
| For the Period |
|
|
| For the Period |
|
| 2023 |
|
|
| 2022 |
| ||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net income (loss) |
| $ | 115,869 |
|
| $ | (132,830 | ) |
|
| $ | 268,777 |
| ||||||||||
Adjustments to reconcile net income (loss) to net cash from operating activities: |
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net income |
| $ | 97,608 |
|
|
| $ | 67,344 |
| ||||||||||||||
Adjustments to reconcile net income to net cash from operating activities: |
|
|
|
|
|
|
| ||||||||||||||||
Depreciation, depletion, amortization and accretion |
|
| 77,939 |
|
|
| 189,758 |
|
|
|
| 10,499 |
|
|
| 40,760 |
|
|
|
| 57,431 |
| |
Deferred income taxes |
|
| 7,254 |
|
|
| (27,126 | ) |
|
|
| 54,322 |
|
|
| 23,795 |
|
|
|
| 1,687 |
| |
Amortization of credit facility costs |
|
| 381 |
|
|
| - |
|
|
|
| - |
| ||||||||||
Stock based compensation expense |
|
| 3,519 |
|
|
| 2,126 |
|
|
|
| 935 |
|
|
| 2,076 |
|
|
|
| 1,543 |
| |
Reorganization items, net |
|
| - |
|
|
| - |
|
|
|
| (354,279 | ) | ||||||||||
Bad debt |
|
| (106 | ) |
|
| (5,303 | ) |
|
|
| (210 | ) |
|
| 668 |
|
|
|
| (920 | ) | |
Gain on sale of assets and businesses |
|
| - |
|
|
| - |
|
|
|
| 58 |
| ||||||||||
Gain on sale of equity securities |
|
| (3,611 | ) |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
|
| (3,611 | ) | |
Unrealized gain on investment in equity securities |
|
| (908 | ) |
|
| 1,620 |
|
|
|
| - |
|
|
| - |
|
|
|
| (544 | ) | |
Other (gains) and losses, net |
|
| (37,148 | ) |
|
| 10,601 |
|
|
|
| - |
| ||||||||||
Other gains, net |
|
| (2,100 | ) |
|
|
| (23,296 | ) | ||||||||||||||
Washington State Tax Settlement |
|
| (27,068 | ) |
|
|
| - |
| ||||||||||||||
Decommissioning costs |
|
| (2,878 | ) |
|
|
| - |
| ||||||||||||||
Other reconciling items, net |
|
| 2,454 |
|
|
| 9,592 |
|
|
|
| 1,017 |
|
|
| (1,648 | ) |
|
|
| 2,783 |
| |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Accounts receivable |
|
| (37,072 | ) |
|
| (15,233 | ) |
|
|
| 3,602 |
|
|
| (506 | ) |
|
|
| (26,362 | ) | |
Prepaid expenses |
|
| (279 | ) |
|
| 4,749 |
|
|
|
| (340 | ) |
|
| (1,992 | ) |
|
|
| (2,652 | ) | |
Inventory and other current assets |
|
| (8,641 | ) |
|
| 15,983 |
|
|
|
| (221 | ) |
|
| (19,464 | ) |
|
|
| (5,358 | ) | |
Accounts payable |
|
| (3,296 | ) |
|
| 4,842 |
|
|
|
| (2,365 | ) |
|
| 16,707 |
|
|
|
| (1,986 | ) | |
Accrued expenses |
|
| (3,726 | ) |
|
| (31,439 | ) |
|
|
| 23,489 |
|
|
| (18,399 | ) |
|
|
| 144 |
| |
Income taxes |
|
| 7,200 |
|
|
| 10,676 |
|
|
|
| 340 |
|
|
| 2,129 |
|
|
|
| 2,185 |
| |
Other, net |
|
| 2,196 |
|
|
| (1,190 | ) |
|
|
| (241 | ) |
|
| (6,753 | ) |
|
|
| (144 | ) | |
Net cash from operating activities |
|
| 122,025 |
|
|
| 36,826 |
|
|
|
| 5,383 |
|
|
| 102,935 |
|
|
|
| 68,244 |
| |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Payments for capital expenditures |
|
| (42,901 | ) |
|
| (25,447 | ) |
|
|
| (3,035 | ) |
|
| (45,626 | ) |
|
|
| (20,514 | ) | |
Proceeds from sales of assets |
|
| 46,414 |
|
|
| 58,006 |
|
|
|
| 775 |
|
|
| 15,147 |
|
|
|
| 15,183 |
| |
Proceeds from sales of equity securities |
|
| 13,366 |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
|
| 13,366 |
| |
Net cash from investing activities |
|
| 16,879 |
|
|
| 32,559 |
|
|
|
| (2,260 | ) |
|
| (30,479 | ) |
|
|
| 8,035 |
| |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Credit facility costs |
|
| - |
|
|
| (14 | ) |
|
|
| (1,920 | ) | ||||||||||
Tax withholdings for vested restricted stock units |
|
| - |
|
|
| (1,485 | ) |
|
|
| - |
|
|
| (1,116 | ) |
| - |
|
| - |
|
Net cash from financing activities |
|
| - |
|
|
| (1,499 | ) |
|
|
| (1,920 | ) |
|
| (1,116 | ) |
|
|
| - |
| |
Effect of exchange rate changes on cash |
|
| - |
|
|
| - |
|
|
|
| 311 |
| ||||||||||
Net change in cash, cash equivalents, and restricted cash |
|
| 138,904 |
|
|
| 67,886 |
|
|
|
| 1,514 |
|
|
| 71,340 |
|
|
|
| 76,279 |
| |
Cash, cash equivalents, and restricted cash at beginning of period |
|
| 394,535 |
|
|
| 269,698 |
|
|
|
| 268,184 |
|
|
| 339,107 |
|
|
|
| 394,535 |
| |
Cash, cash equivalents, and restricted cash at end of period |
| $ | 533,439 |
|
| $ | 337,584 |
|
|
| $ | 269,698 |
|
| $ | 410,447 |
|
|
| $ | 470,814 |
|
See accompanying notes to unaudited condensed consolidated financial statements
97
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
(unless noted otherwise, amounts in thousands, except share data)
(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 makesuch that the information presented is not misleading.
As used herein, the “Company,” “we,” “us” and similar terms refer to (i) prior to the Emergence Date (as defined below), SESI Holdings, Inc. (formerly known as Superior Energy Services, Inc.) and its subsidiaries (“Predecessor”) and (ii) after the Emergence Date, Superior Energy Services, Inc. (formerly known as Superior Newco, Inc.) and its consolidated subsidiaries, (“Successor”). Due to our adoption of fresh start accounting, discussed below, our operations for the nine months ended September 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 September 30, 2021 (the “Successor Period”).unless otherwise specifically stated.
These financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10-K. As described below, as a result of the application of fresh start accounting and the effects of the implementation of the Plan (as defined below), the financial statements after the Emergence Date are not comparable with the consolidated financial statements on or before that date.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting primarily of normal recurring adjustments, necessary for a fair statement of our financial position as of SeptemberJune 30, 2022, and2023, our results of operations for the three and ninesix months ended SeptemberJune 30, 2023 and 2022, and 2021 andour cash flows for the ninesix months ended SeptemberJune 30, 20222023 and 2021.2022. The balance sheet as of December 31, 2021,2022, was derived from our audited annual financial statements, but does not contain all of the footnote disclosures from the annual financial statements.
Emergence from Voluntary Reorganization under Chapter 11
On December 7, 2020, certain of our direct and indirect wholly-owned domestic subsidiaries (the “Affiliate Debtors”) filed petitions for reorganization under the provisions of Chapter 11 of the Bankruptcy Code and, in connection therewith, filed the proposed Joint Prepackaged Plan of Reorganization (as amended, modified or supplemented from time to time, the “Plan”). On February 2, 2021 (the “Emergence Date”), the conditions to the effectiveness of the Plan were satisfied 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, 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, our historical financial statements on or before the Emergence Date are not a reliable indicator of our results of operations for any period after our adoption of fresh start accounting.
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.
10
(2) Revenue and Accounts Receivable
Disaggregation of Revenue
The following table presents our revenues by segment disaggregated by geography (in thousands):geography:
|
| For the Three Months Ended |
| |||||
|
| September 30, 2022 |
| |||||
|
| 2022 |
|
| 2021 |
| ||
U.S. land |
|
|
|
|
|
| ||
Rentals |
| $ | 39,673 |
|
| $ | 25,627 |
|
Well Services |
|
| 9,808 |
|
|
| 6,638 |
|
Total U.S. land |
|
| 49,481 |
|
|
| 32,265 |
|
|
|
|
|
|
|
| ||
U.S. offshore |
|
|
|
|
|
| ||
Rentals |
|
| 37,829 |
|
|
| 28,997 |
|
Well Services |
|
| 23,609 |
|
|
| 22,756 |
|
Total U.S. offshore |
|
| 61,438 |
|
|
| 51,753 |
|
|
|
|
|
|
|
| ||
International |
|
|
|
|
|
| ||
Rentals |
|
| 27,055 |
|
|
| 21,593 |
|
Well Services |
|
| 84,313 |
|
|
| 72,972 |
|
Total International |
|
| 111,368 |
|
|
| 94,565 |
|
Total Revenues |
| $ | 222,287 |
|
| $ | 178,583 |
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||||||||||||||||
|
| Successor |
|
|
| Predecessor |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||
|
| For the Nine Months Ended September 30, 2022 |
|
| For the Period |
|
|
| For the Period |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| |||||||
U.S. land |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Rentals |
| $ | 117,426 |
|
| $ | 57,525 |
|
|
| $ | 4,917 |
|
| $ | 44,730 |
|
| $ | 43,791 |
|
| $ | 89,863 |
|
| $ | 77,753 |
|
Well Services |
|
| 18,507 |
|
|
| 15,545 |
|
|
|
| 3,379 |
|
|
| 5,806 |
|
|
| 4,151 |
|
|
| 12,161 |
|
|
| 8,699 |
|
Total U.S. land |
|
| 135,933 |
|
|
| 73,070 |
|
|
|
| 8,296 |
|
|
| 50,536 |
|
|
| 47,942 |
|
|
| 102,024 |
|
|
| 86,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
U.S. offshore |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Rentals |
|
| 106,913 |
|
|
| 76,290 |
|
|
|
| 8,196 |
|
|
| 37,516 |
|
|
| 36,331 |
|
|
| 73,186 |
|
|
| 69,084 |
|
Well Services |
|
| 84,499 |
|
|
| 68,751 |
|
|
|
| 7,371 |
|
|
| 23,405 |
|
|
| 32,569 |
|
|
| 39,726 |
|
|
| 60,890 |
|
Total U.S. offshore |
|
| 191,412 |
|
|
| 145,041 |
|
|
|
| 15,567 |
|
|
| 60,921 |
|
|
| 68,900 |
|
|
| 112,912 |
|
|
| 129,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Rentals |
|
| 72,703 |
|
|
| 52,087 |
|
|
|
| 5,226 |
|
|
| 30,165 |
|
|
| 23,607 |
|
|
| 58,183 |
|
|
| 45,648 |
|
Well Services |
|
| 244,809 |
|
|
| 180,120 |
|
|
|
| 16,839 |
|
|
| 102,851 |
|
|
| 84,191 |
|
|
| 191,491 |
|
|
| 160,496 |
|
Total International |
|
| 317,512 |
|
|
| 232,207 |
|
|
|
| 22,065 |
|
|
| 133,016 |
|
|
| 107,798 |
|
|
| 249,674 |
|
|
| 206,144 |
|
Total Revenues |
| $ | 644,857 |
|
| $ | 450,318 |
|
|
| $ | 45,928 |
|
| $ | 244,473 |
|
| $ | 224,640 |
|
| $ | 464,610 |
|
| $ | 422,570 |
|
11
8
The following table presents our revenues by segment disaggregated by type (in thousands):type:
|
| For the Three Months Ended |
| |||||
|
| September 30, 2022 |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Services |
|
|
|
|
|
| ||
Rentals |
| $ | 15,301 |
|
| $ | 8,735 |
|
Well Services |
|
| 84,462 |
|
|
| 76,932 |
|
Total Services |
|
| 99,763 |
|
|
| 85,667 |
|
|
|
|
|
|
|
| ||
Rentals |
|
|
|
|
|
| ||
Rentals |
|
| 77,561 |
|
|
| 56,743 |
|
Well Services |
|
| 2,612 |
|
|
| 2,677 |
|
Total Rentals |
|
| 80,173 |
|
|
| 59,420 |
|
|
|
|
|
|
|
| ||
Product Sales |
|
|
|
|
|
| ||
Rentals |
|
| 11,695 |
|
|
| 10,739 |
|
Well Services |
|
| 30,656 |
|
|
| 22,757 |
|
Total Product Sales |
|
| 42,351 |
|
|
| 33,496 |
|
Total Revenues |
| $ | 222,287 |
|
| $ | 178,583 |
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||||||||||||||||
|
| Successor |
|
|
| Predecessor |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||
|
| For the Nine Months Ended September 30, 2022 |
|
| For the Period |
|
|
| For the Period |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| |||||||
Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Rentals |
| $ | 39,113 |
|
| $ | 24,591 |
|
|
| $ | 2,005 |
|
| $ | 17,875 |
|
| $ | 12,654 |
|
| $ | 35,020 |
|
| $ | 23,812 |
|
Well Services |
|
| 252,155 |
|
|
| 184,542 |
|
|
|
| 17,229 |
|
|
| 88,255 |
|
|
| 87,412 |
|
|
| 164,400 |
|
|
| 167,693 |
|
Total Services |
|
| 291,268 |
|
|
| 209,133 |
|
|
|
| 19,234 |
|
|
| 106,130 |
|
|
| 100,066 |
|
|
| 199,420 |
|
|
| 191,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Rentals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Rentals |
|
| 216,371 |
|
|
| 133,231 |
|
|
|
| 14,082 |
|
|
| 81,647 |
|
|
| 73,563 |
|
|
| 163,722 |
|
|
| 138,810 |
|
Well Services |
|
| 7,957 |
|
|
| 10,741 |
|
|
|
| 352 |
|
|
| 3,714 |
|
|
| 3,430 |
|
|
| 7,249 |
|
|
| 5,345 |
|
Total Rentals |
|
| 224,328 |
|
|
| 143,972 |
|
|
|
| 14,434 |
|
|
| 85,361 |
|
|
| 76,993 |
|
|
| 170,971 |
|
|
| 144,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Product Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Rentals |
|
| 41,558 |
|
|
| 28,080 |
|
|
|
| 2,252 |
|
|
| 12,889 |
|
|
| 17,512 |
|
|
| 22,490 |
|
|
| 29,863 |
|
Well Services |
|
| 87,703 |
|
|
| 69,133 |
|
|
|
| 10,008 |
|
|
| 40,093 |
|
|
| 30,069 |
|
|
| 71,729 |
|
|
| 57,047 |
|
Total Product Sales |
|
| 129,261 |
|
|
| 97,213 |
|
|
|
| 12,260 |
|
|
| 52,982 |
|
|
| 47,581 |
|
|
| 94,219 |
|
|
| 86,910 |
|
Total Revenues |
| $ | 644,857 |
|
| $ | 450,318 |
|
|
| $ | 45,928 |
|
| $ | 244,473 |
|
| $ | 224,640 |
|
| $ | 464,610 |
|
| $ | 422,570 |
|
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount or the earned amount but not yet invoiced and do not bear interest. We maintain ouran allowance for doubtful accounts at net realizable value. The allowance for doubtful accounts iscredit losses based on our best estimate of probable uncollectible amounts in existing accounts receivable. We assess individual customers and overall receivables balances to identify amounts that are believed to be uncertain of collection. The aging of the receivable balance as well as economic factors concerning the customer factor into the judgment and estimation of allowances, which often involve significant dollar amounts. Adjustments to the allowance for credit losses in future periods may be made based on changing customer conditions. Our allowance for doubtful accountscredit losses as of SeptemberJune 30, 20222023 and December 31, 20212022 was approximately $5.36.5 million and $2.26.1 million, respectively.
12
(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 inventory. Cost is determined using the first-in, first-out or weighted-average cost methods for finished goods and work-in-process. Supplies and consumables consist principally of products used in the services provided to our customers. The components of inventory balances are as follows (in thousands):follows:
|
| September 30, 2022 |
|
|
| December 31, 2021 |
| ||
Finished goods |
| $ | 36,838 |
|
|
| $ | 26,187 |
|
Raw materials |
|
| 9,562 |
|
|
|
| 9,753 |
|
Work-in-process |
|
| 5,398 |
|
|
|
| 4,253 |
|
Supplies and consumables |
|
| 18,164 |
|
|
|
| 20,410 |
|
Total |
| $ | 69,962 |
|
|
| $ | 60,603 |
|
| June 30, 2023 |
|
| December 31, 2022 |
| |||
Finished goods |
| $ | 45,319 |
|
| $ | 36,136 |
|
Raw materials |
|
| 7,898 |
|
|
| 8,351 |
|
Work-in-process |
|
| 13,759 |
|
|
| 4,718 |
|
Supplies and consumables |
|
| 15,921 |
|
|
| 16,382 |
|
Total |
| $ | 82,897 |
|
| $ | 65,587 |
|
Finished goods inventory includes component parts awaiting assembly of approximately $22.2 million and $20.7 million as of June 30, 2023 and December 31, 2022, respectively.
(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.
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 $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.
The following table presents our total decommissioning liability as of the periods indicated:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Wells |
| $ | 83,167 |
|
| $ | 97,810 |
|
Platform |
|
| 61,614 |
|
|
| 92,570 |
|
Decommissioning Liability |
|
| 144,781 |
|
|
| 190,380 |
|
Less: Note Receivable |
|
| (66,078 | ) |
|
| (60,588 | ) |
Decommissioning Liability, net of Note Receivable |
| $ | 78,703 |
|
| $ | 129,792 |
|
|
| June 30, 2023 |
|
| December 31, 2022 |
| ||
Wells |
| $ | 93,564 |
|
| $ | 96,171 |
|
Platform |
|
| 66,356 |
|
|
| 64,500 |
|
Total decommissioning liability |
|
| 159,920 |
|
|
| 160,671 |
|
Note receivable |
|
| (71,581 | ) |
|
| (69,679 | ) |
Total decommissioning liability, net of note receivable |
| $ | 88,339 |
|
| $ | 90,992 |
|
9
Accretion expense for the three and ninesix months ended SeptemberJune 30, 20222023 was $2.02.4 million and $7.44.7 million, respectively. Accretion expense for the three months ended September 30, 2021, the Successor Periodrespectively, and Predecessor Period was $1.4 million, $3.62.7 million and $0.55.4 million for the three and six months ended June 30, 2022, respectively. Additionally, during the six months ended June 30, 2023, we incurred well decommissioning costs of $5.5 million.
13
(5) Note Receivable
We have a decommissioning liability related to the acquisition of a single oil and gas property. Our note receivable arises fromconsists of a commitment from the seller of the oil and gas property for costs associated with the abandonment of the property.abandonment. Pursuant to an agreement with the seller, we invoice the seller an agreed upon amount at the completion of certain decommissioning activities.
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 410-20, 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 The gross amount of the seller’sseller's obligation was reduced to us is $106.9105.2 million and is recorded at its present value, which totaled $71.6 million as of June 30, 2022. As of September 30, 2022 the carrying value of the note receivable was $66.1 million.2023.
The discount on the note receivable which is currently based on an effective interest rate of 5.6%, and is amortized to interest income over the expected timing of the completion of the decommissioning activities, which are now expected to be completed during the second quarter of 2031. Interest receivable is considered paid in kind and is compounded into the carrying amount of the note.
Non-cash interest income related to the note receivable for the three and ninesix months ended SeptemberJune 30, 20222023 was $0.9 million and $2.91.9 million, respectively. Non-cash interest income related to the note receivable for the three and six months ended SeptemberJune 30, 2021, the Successor Period and Predecessor Period2022 was $1.2 million, $3.11.0 million and $0.42.0 million, respectively. As the interestInterest income on the note receivable is non-cash, it is included in other reconciling items, net in the condensed consolidated statementsCondensed Consolidated Statements of cash flows.Cash Flows.
14
(6) Property, Plant and Equipment, Net
A summary of property, plant and equipment, net is as follows (in thousands):follows:
|
| September 30, 2022 |
|
| December 31, 2021 |
|
| June 30, 2023 |
|
| December 31, 2022 |
| ||||
Machinery and equipment |
| $ | 379,849 |
|
| $ | 360,353 |
|
| $ | 413,937 |
|
| $ | 378,907 |
|
Buildings, improvements and leasehold improvements |
|
| 71,965 |
|
|
| 75,374 |
|
|
| 70,394 |
|
|
| 70,816 |
|
Automobiles, trucks, tractors and trailers |
|
| 6,326 |
|
|
| 6,450 |
|
|
| 6,546 |
|
|
| 6,376 |
|
Furniture and fixtures |
|
| 19,563 |
|
|
| 19,668 |
|
|
| 19,384 |
|
|
| 19,373 |
|
Construction-in-progress |
|
| 6,696 |
|
|
| 6,700 |
|
|
| 11,756 |
|
|
| 5,185 |
|
Land |
|
| 26,796 |
|
|
| 28,671 |
|
|
| 26,698 |
|
|
| 26,695 |
|
Oil and gas producing assets |
|
| 178 |
|
|
| 44,700 |
|
|
| 12,339 |
|
|
| 11,714 |
|
Total |
|
| 511,373 |
|
|
| 541,916 |
|
|
| 561,054 |
|
|
| 519,066 |
|
Accumulated depreciation and depletion |
|
| (227,467 | ) |
|
| (185,642 | ) |
|
| (262,487 | ) |
|
| (236,690 | ) |
Property, plant and equipment, net |
| $ | 283,906 |
|
| $ | 356,274 |
|
| $ | 298,567 |
|
| $ | 282,376 |
|
Depreciation and depletion expense associated with our property, plant and equipment for the three and ninesix months ended SeptemberJune 30, 20222023 was $18.218.0 million and $69.835.6 million, respectively. DepreciationFor the three and six months ended June 30, 2022, depreciation and depletion expense excluding depreciationassociated with our property, plant and depletion related to assets held for sale, for the three months ended September 30, 2021, the Successor Period and Predecessor Periodequipment was $57.7 million, $154.220.4 million and $7.851.6 million, respectively.
Gains and losses on disposals of assets are recognized within other (gains) and losses, net in our statement of operations. Prior to emergence from bankruptcy, we recognized gains and losses on the disposal of assets within general and administrative expenses.
Other (gains) and losses, net for the three and nine months ended September 30, 2022 totaled $13.4 million and $30.3 million, respectively and for the three months ended September 30, 2021 and the Successor Period were $1.1 million and $0.7 million, respectively. Gains on the disposal of assets included in other (gains) and losses, net during the three and nine months ended September 30, 2022 were $13.4 million and $12.9 million, respectively and primarily relate to disposals of non-core businesses and assets within our Well Services segment.
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. 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.
(7) Debt
On the Emergence Date, pursuant to the Plan, we entered intoWe have a Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders and letter of credit issuers named therein providing for a $120.0 million asset-based secured revolving Credit Facility, all of which is available for the issuance of letters of credit (the “Credit Facility”). which matures in December 2024. 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.
As of SeptemberJune 30, 2022,2023, our borrowing base, as defined in the Credit Agreement, was approximately $120.0 million, and we had $40.334.7 million of letters of credit outstanding that reduced the borrowing availability. We had no outstanding borrowings under the Credit Facility as of SeptemberJune 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 permitted 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 is less than the greater of $20.0 million or 15% of the lesser of the aggregate commitments and the borrowing base.2023. We were in compliance with all required covenants as of SeptemberJune 30, 2022.2023.
15
(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.
10
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):basis:
|
| September 30, 2022 |
| |||||||||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| June 30, 2023 |
|
| December 31, 2022 |
| ||||||
Non-qualified deferred compensation assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other long-term assets, net |
| $ | - |
|
| $ | 14,873 |
|
| $ | - |
|
| $ | 14,873 |
|
| $ | 16,637 |
|
| $ | 16,299 |
|
Accrued expenses |
|
| - |
|
|
| 1,780 |
|
|
| - |
|
|
| 1,780 |
|
|
| 1,758 |
|
|
| 1,831 |
|
Other long-term liabilities |
|
| - |
|
|
| 15,205 |
|
|
| - |
|
|
| 15,205 |
|
|
| 14,927 |
|
|
| 15,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Investment in equity securities |
| $ | 16,888 |
|
| $ | - |
|
| $ | - |
|
| $ | 16,888 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| December 31, 2021 |
| |||||||||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||||||
Non-qualified deferred compensation assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Other long-term assets, net |
| $ | - |
|
| $ | 15,896 |
|
| $ | - |
|
| $ | 15,896 |
| ||||||||
Accrued expenses |
|
| - |
|
|
| 2,250 |
|
|
| - |
|
|
| 2,250 |
| ||||||||
Other long-term liabilities |
|
| - |
|
|
| 19,218 |
|
|
| - |
|
|
| 19,218 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Investment in equity securities |
| $ | 25,735 |
|
| $ | - |
|
| $ | - |
|
| $ | 25,735 |
|
Our non-qualified deferred compensation plans 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 a Level 2 in the fair value hierarchy. 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 fair value hierarchy.
The carrying amount of cash equivalents, accounts receivable, accounts payable and accrued expenses, as reflected in the consolidated balance sheets, approximates fair value due to the short maturities.
16
(9) Other income (expense)Income (Expense)
Other income (expense) primarily relaterelates 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 September 30, 2022, we held 2.4 million shares of Select common stock. During the three and nine months ended September 30, 2022, we recognized unrealized gains of $0.4 million and $0.9 million, respectively from our investment in equity securities. During the nine months ended September 30, 2022, we disposed of 1.7 million shares of Select for $13.4 million, and we recognized gains totaling $3.6 million, respectively, in connection with these transactions. No shares were disposed of during the three months ended September 30, 2022.
Losses on foreign currencies during the three and nine months ended September 30, 2022 were $7.01.7 million and $11.93.6 million for the three and six months ended June 30, 2023, respectively. LossesFor the three and six months ended June 30, 2022, losses on foreign currencies for the three months ended September 30, 2021, the Successor Period and the Predecessor Period were $4.5 million, $4.310.5 million and $2.14.9 million, respectively. Losses on foreign currencies during the nine months ended September 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. Gains and losses on foreign currencies are primarily related to our operations in Brazil and Argentina.
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 three and six months ended June 30, 2022, proceeds from the disposal of equity securities totaled $6.0 million and $13.4 million, respectively. All investments in equity securities were disposed of prior to December 31, 2022.
(10) Other (Gains) and Losses
Other (gains) and losses, net include gains and losses on the disposal of assets as well as impairments, if any, related to long-lived assets. During the three months ended June 30, 2023, other losses were immaterial. During the six months ended June 30, 2023, we recognized net gains of $1.4 million. During the three and six months ended June 30, 2022, we recognized net gains of $18.0 million and $16.9 million, respectively.
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”). Converting to a reef-in-place program reduced the estimated costs associated with decommissioning the wells and platform, and also impacted the time required to complete the decommissioning activities.
The reduction in cost estimates 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, such that as of June 30, 2022, our decommissioning liability was reduced by $53.0 million and the related note receivable was increased by $2.6 million. In accordance with ASC 410, the carrying value of our oil and gas producing assets was reduced by $38.2 million, which represented the net book value of our oil and gas assets at June 30, 2022. In connection with these changes, we recognized a gain of approximately $17.4 million, which is included in other (gains) and losses, net in our statement of operations.
(11) Segment Information
Business Segments
Our reportable segments are Rentals and Well Services.
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 handling accessories, manufacturing and rental of bottom hole assemblies, and rentals of accommodation units.
11
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, and onshore international production services. The Well Services segment also includes the operations of our offshore oil and gas property.
We evaluate the performance of our reportable segments based on income or loss from operations. The segment measure is calculated as segment revenues less segment operating expenses, including general and administrative expenses, depreciation, depletion, amortization and accretion expense restructuring expenses and other gains(gains) and losses.losses, net. 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):follows:
For the Three Months Ended June 30, 2023 |
|
|
|
| Well |
|
| Corporate and |
|
| Consolidated |
| ||||
| Rentals |
|
| Services |
|
| Other |
|
| Total |
| |||||
Revenues |
| $ | 112,411 |
|
| $ | 132,062 |
|
| $ | - |
|
| $ | 244,473 |
|
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 35,021 |
|
|
| 85,733 |
|
|
| - |
|
|
| 120,754 |
|
Depreciation, depletion, amortization and accretion |
|
| 12,553 |
|
|
| 7,204 |
|
|
| 864 |
|
|
| 20,621 |
|
General and administrative expenses |
|
| 6,993 |
|
|
| 11,391 |
|
|
| 12,793 |
|
|
| 31,177 |
|
Restructuring expenses |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Other (gains) and losses, net |
|
| (262 | ) |
|
| 309 |
|
|
| - |
|
|
| 47 |
|
Income (loss) from operations |
| $ | 58,106 |
|
| $ | 27,425 |
|
| $ | (13,657 | ) |
| $ | 71,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
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 |
|
17
For the Six Months Ended June 30, 2023 |
|
|
|
| Well |
|
| Corporate and |
|
| Consolidated |
| ||||
| Rentals |
|
| Services |
|
| Other |
|
| Total |
| |||||
Revenues |
| $ | 221,232 |
|
| $ | 243,378 |
|
| $ | - |
|
| $ | 464,610 |
|
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 71,489 |
|
|
| 166,986 |
|
|
| - |
|
|
| 238,475 |
|
Depreciation, depletion, amortization and accretion |
|
| 24,721 |
|
|
| 14,281 |
|
|
| 1,758 |
|
|
| 40,760 |
|
General and administrative expenses |
|
| 14,195 |
|
|
| 22,890 |
|
|
| 25,082 |
|
|
| 62,167 |
|
Restructuring expenses |
|
| - |
|
|
| - |
|
|
| 1,983 |
|
|
| 1,983 |
|
Other gains, net |
|
| (293 | ) |
|
| (1,058 | ) |
|
| - |
|
|
| (1,351 | ) |
Income (loss) from operations |
| $ | 111,120 |
|
| $ | 40,279 |
|
| $ | (28,823 | ) |
| $ | 122,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
For the Six Months Ended June 30, 2022 |
|
|
|
| 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 three months ended September 30, 2022 |
|
|
|
| Well |
|
| Corporate and |
|
| Consolidated |
| ||||
|
| Rentals |
|
| Services |
|
| Other |
|
| Total |
| ||||
Revenues |
| $ | 104,557 |
|
| $ | 117,730 |
|
| $ | - |
|
| $ | 222,287 |
|
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 33,638 |
|
|
| 82,443 |
|
|
| - |
|
|
| 116,081 |
|
Depreciation, depletion, amortization and accretion |
|
| 12,554 |
|
|
| 6,900 |
|
|
| 1,054 |
|
|
| 20,508 |
|
General and administrative expenses |
|
| 7,020 |
|
|
| 10,220 |
|
|
| 14,601 |
|
|
| 31,841 |
|
Restructuring expenses |
|
| - |
|
|
| - |
|
|
| 1,223 |
|
|
| 1,223 |
|
Other (gains) and losses, net |
|
| (4,946 | ) |
|
| (8,082 | ) |
|
| (369 | ) |
|
| (13,397 | ) |
Income (loss) from operations |
| $ | 56,291 |
|
| $ | 26,249 |
|
| $ | (16,509 | ) |
| $ | 66,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
For the three months ended September 30, 2021 |
|
|
|
| Well |
|
| Corporate and |
|
| Consolidated |
| ||||
|
| Rentals |
|
| Services |
|
| Other |
|
| Total |
| ||||
Revenues |
| $ | 76,217 |
|
| $ | 102,366 |
|
| $ | - |
|
| $ | 178,583 |
|
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 32,638 |
|
|
| 93,432 |
|
|
| - |
|
|
| 126,070 |
|
Depreciation, depletion, amortization and accretion |
|
| 41,641 |
|
|
| 15,615 |
|
|
| 1,952 |
|
|
| 59,208 |
|
General and administrative expenses |
|
| 7,184 |
|
|
| 13,445 |
|
|
| 13,042 |
|
|
| 33,671 |
|
Restructuring expenses |
|
| - |
|
|
| - |
|
|
| 4,712 |
|
|
| 4,712 |
|
Other (gains) and losses, net |
|
| 800 |
|
|
| (1,897 | ) |
|
| - |
|
|
| (1,097 | ) |
Income (loss) from operations |
| $ | (6,046 | ) |
| $ | (18,229 | ) |
| $ | (19,706 | ) |
| $ | (43,981 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2022 (Successor) |
|
|
|
| Well |
|
| Corporate and |
|
| Consolidated |
| ||||
|
| Rentals |
|
| Services |
|
| Other |
|
| Total |
| ||||
Revenues |
| $ | 297,042 |
|
| $ | 347,815 |
|
| $ | - |
|
| $ | 644,857 |
|
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 101,250 |
|
|
| 248,179 |
|
|
| - |
|
|
| 349,429 |
|
Depreciation, depletion, amortization and accretion |
|
| 46,099 |
|
|
| 28,290 |
|
|
| 3,550 |
|
|
| 77,939 |
|
General and administrative expenses |
|
| 20,944 |
|
|
| 32,823 |
|
|
| 40,323 |
|
|
| 94,090 |
|
Restructuring expenses |
|
| - |
|
|
| - |
|
|
| 4,441 |
|
|
| 4,441 |
|
Other (gains) and losses, net |
|
| (4,886 | ) |
|
| (25,008 | ) |
|
| (369 | ) |
|
| (30,263 | ) |
Income (loss) from operations |
| $ | 133,635 |
|
| $ | 63,531 |
|
| $ | (47,945 | ) |
| $ | 149,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
For the Period February 3, 2021 through September 30, 2021 (Successor) |
|
|
|
| Well |
|
| Corporate and |
|
| Consolidated |
| ||||
|
| Rentals |
|
| Services |
|
| Other |
|
| Total |
| ||||
Revenues |
| $ | 185,902 |
|
| $ | 264,416 |
|
| $ | - |
|
| $ | 450,318 |
|
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 75,433 |
|
|
| 221,719 |
|
|
| - |
|
|
| 297,152 |
|
Depreciation, depletion, amortization and accretion |
|
| 111,781 |
|
|
| 41,991 |
|
|
| 4,484 |
|
|
| 158,256 |
|
General and administrative expenses |
|
| 16,986 |
|
|
| 35,029 |
|
|
| 32,402 |
|
|
| 84,417 |
|
Restructuring expenses |
|
| - |
|
|
| - |
|
|
| 20,533 |
|
|
| 20,533 |
|
Other (gains) and losses, net |
|
| 1,360 |
|
|
| (2,092 | ) |
|
| - |
|
|
| (732 | ) |
Income (loss) from operations |
| $ | (19,658 | ) |
| $ | (32,231 | ) |
| $ | (57,419 | ) |
| $ | (109,308 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
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 |
| ||||
September 30, 2022 |
| $ | 526,759 |
|
| $ | 607,840 |
|
| $ | 152,616 |
|
| $ | 1,287,215 |
|
December 31, 2021 |
|
| 379,453 |
|
|
| 636,256 |
|
|
| 183,799 |
|
|
| 1,199,508 |
|
|
|
|
| Well |
|
| Corporate |
|
| Consolidated |
| |||||
| Rentals |
|
| Services |
|
| and Other |
|
| Total |
| |||||
June 30, 2023 |
| $ | 507,753 |
|
| $ | 568,452 |
|
| $ | 184,411 |
|
| $ | 1,260,616 |
|
December 31, 2022 |
|
| 432,437 |
|
|
| 533,327 |
|
|
| 225,248 |
|
|
| 1,191,012 |
|
18
12
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 regions. We attribute revenue to various countries based on the location where services are performed or the destination of the drilling products or equipment sold or rented. Long-lived assets consist 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
|
| For the Three Months Ended |
| |||||
|
| 2022 |
|
| 2021 |
| ||
United States |
| $ | 110,919 |
|
| $ | 84,018 |
|
Other countries |
|
| 111,368 |
|
|
| 94,565 |
|
Total |
| $ | 222,287 |
|
| $ | 178,583 |
|
|
| Successor |
|
|
| Predecessor |
| ||||||
|
| For the Nine Months Ended September 30, 2022 |
|
| For the Period |
|
|
| For the Period |
| |||
United States |
| $ | 327,345 |
|
| $ | 218,111 |
|
|
| $ | 23,863 |
|
Other countries |
|
| 317,512 |
|
|
| 232,207 |
|
|
|
| 22,065 |
|
Total |
| $ | 644,857 |
|
| $ | 450,318 |
|
|
| $ | 45,928 |
|
Long-Lived Assets
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
United States |
| $ | 209,008 |
|
| $ | 231,388 |
|
Other countries |
|
| 74,898 |
|
|
| 124,886 |
|
Total |
| $ | 283,906 |
|
| $ | 356,274 |
|
19
(11)(12) Stock-Based Compensation Plans
OurWe have a Management Incentive Plan (“MIP”), which provides the issuance of up to 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”)To date, grants under the MIP and approved a special granthave been in the form of 72,050 RSUs and 288,199 PSUsshares of Class B common stock (“RSAs”), restricted stock units which was intended to satisfy stock awards for the next three years. Additional grants will be issued for new hiressettled in Class B common stock upon the satisfaction of time-based vesting conditions (“RSUs”) and promotions.performance stock units which will be settled in Class B common stock upon the satisfaction of time and performance-based vesting conditions (“PSUs”).
Awards made underThe RSAs vest over a period of three years, subject to earlier vesting and forfeiture on terms and conditions set forth in the forms of RSUapplicable award agreements for our employeesagreement. RSUs granted in 2022 generally vest in three equal annual installments over the three-year period, subject generally to continued employment and the other terms and conditions set forth in the forms of the RSU award agreements. Awards made underRSUs granted in 2021 vested in full during the forms PSU award agreementscurrent quarter. PSUs may be earned between 25% and 100% of the target award based on achievement of share price goals set forth in the forms of the PSU award agreements and will vest to the extent that share price goals are achieved based on the terms and conditions set forth in the forms of the PSU award agreements.
On July 18,The following sets forth issuances under the MIP for the six months ended June 30, 2023 and 2022 the Board and the Compensation Committee approved an RSU award agreement for 79,375 RSUs. The RSUs generally vest in three equal annual installments over a three-year period commencing on the first anniversary of January 20, 2022, subject to terms and conditions set forth in the forms of RSU award agreements.:
|
| Grants of Share-Based Awards |
| |||||||||||||||||
|
|
|
|
| July/ |
|
|
|
|
|
|
|
|
|
| |||||
|
| June |
|
| August |
|
| March |
|
| July |
|
|
|
| |||||
|
| 2021 |
|
| 2021 |
|
| 2022 |
|
| 2022 |
|
| Total |
| |||||
Awards outstanding, December 31, 2022 |
|
| 29,976 |
|
|
| 37,947 |
|
|
| 72,050 |
|
|
| 88,215 |
|
|
| 228,188 |
|
Vested |
|
| (14,988 | ) |
|
| (37,947 | ) |
|
| (24,017 | ) |
|
| (29,405 | ) |
|
| (106,357 | ) |
Awards outstanding, June 30, 2023 |
|
| 14,988 |
|
|
| - |
|
|
| 48,033 |
|
|
| 58,810 |
|
|
| 121,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Estimated grant date fair value |
| $ | 39.53 |
|
| $ | 39.53 |
|
| $ | 58.80 |
|
| $ | 58.80 |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Unamortized grant date fair value, December 31, 2022 (in millions) |
| $ | 0.9 |
|
| $ | - |
|
| $ | 3.1 |
|
| $ | 4.2 |
|
| $ | 8.2 |
|
Unamortized grant date fair value, June 30, 2023 (in millions) |
| $ | 0.5 |
|
| $ | - |
|
| $ | 2.4 |
|
| $ | 3.2 |
|
| $ | 6.1 |
|
Additionally, on July 18, 2022, the Board and the Compensation Committee approved accelerated vesting with respect to 15,642
|
| Grants of Share-Based Awards |
|
|
| |||||||||||||
|
|
|
|
| July/ |
|
|
|
|
|
|
|
|
| ||||
|
| June |
|
| August |
|
| March |
|
|
|
|
|
| ||||
|
| 2021 |
|
| 2021 |
|
| 2022 |
|
| Total |
|
|
| ||||
Awards outstanding, December 31, 2021 |
|
| 76,269 |
|
|
| 50,596 |
|
|
| - |
|
|
| 126,865 |
|
|
|
Granted |
|
| - |
|
|
| - |
|
|
| 72,050 |
|
|
| 72,050 |
|
|
|
Vested |
|
| (25,423 | ) |
|
| - |
|
|
| - |
|
|
| (25,423 | ) |
|
|
Awards outstanding, June 30, 2022 |
|
| 50,846 |
|
|
| 50,596 |
|
|
| 72,050 |
|
|
| 173,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Estimated grant date fair value |
| $ | 39.53 |
|
| $ | 39.53 |
|
| $ | 58.80 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Unamortized grant date fair value, December 31, 2021 (in millions) |
| $ | 2.4 |
|
| $ | 1.4 |
|
| $ | - |
|
| $ | 3.8 |
|
|
|
Unamortized grant date fair value, June 30, 2022 (in millions) |
| $ | 1.8 |
|
| $ | 0.6 |
|
| $ | 3.9 |
|
| $ | 6.3 |
|
|
|
outstanding restricted shares of our Class B common stock granted by us on June 1, 2021.
During the three and ninesix months ended SeptemberJune 30, 2022,2023, we recognized $2.0 million and $3.5 million, respectively, in compensation expense associated with grants of restricted stock awards and RSUs. During the nine months ended September 30, 2021 and the Successor Period, we recognized $2.31.0 million and $2.1 million, respectively, in compensation costexpense associated with grants of restricted stockRSAs and RSUs. During the three and six months ended June 30, 2022, we recognized $1.0 million and $1.5 million, respectively, in compensation expense associated with grants of RSAs and RSUs. We are currently not amortizing our PSUs as we have not concluded that it is probable that the performance condition will be achieved.
(13) Income Taxes
The effective tax rate on income from continuing operations for the three and six months ended June 30, 2023 was 11.9% and 25.4%, respectively, and was 20.0% and 21.7% for the three and six months ended June 30, 2022, respectively. The U.S federal statutory rate for all periods was 21%. The effective tax rates for all periods were unfavorably impacted by our current and ongoing operations in foreign jurisdictions which have tax rates significantly in excess of the U.S. federal statutory rate.
As a result of13
The effective tax rate for the consummation of the Plan, restricted stock units issued prior to the Emergence Date were cancelled for zero consideration. We recognizedthree months ended June 30, 2023 was also favorably impacted by approximately $0.914.9 million in compensation costsincome tax benefits from reversals of uncertain tax positions in foreign jurisdictions and adjustments to valuation allowances on foreign operations.
The effective tax rate for the six months ended June 30, 2023 was also unfavorably impacted by the identification of an error in the tax provision for the year ended December 31, 2022 pertaining to certain net operating loss carryforwards that should have been eliminated as part of a worthless stock deduction taken in the fourth quarter of 2022. As such, we recognized an additional income tax expense of $7.6 million during the Predecessor Period priorthree months ended March 31, 2023 with a corresponding decrease to cancellationdeferred tax assets to correct this immaterial misstatement. Management has determined that this misstatement was not material to any of the pre-Emergence outstanding restricted stock units.
20its previously issued financial statements.
(12) Income Taxes
The effective tax rate for the three and ninesix months ended SeptemberJune 30, 2022 was 22.5% and 22.0%, respectively, on income from continuing operations. The effective tax rate is different from the U.S. federal statutory rate of 21.0% primarilyalso impacted from non-deductible items, foreign tax rates that differ from the U.S. federal statutory rate, the release of valuation allowance primarily based on current period incomeallowances in certain jurisdictions and foreign losses for which no tax benefit is beingwas recorded.
We had $
In recording deferred income4.3 million of unrecognized tax assets, we consider whether it is more likely than not some portion orbenefits as of June 30, 2023, 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 periods in which those deferred income tax assets would be deductible. Our annualizedimpact our effective tax rate for the nine months ended September 30, 2022 includes a tax benefit of $18.5 million related to the release of a valuation allowance previously recorded against U.S. foreign tax credit and general business 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 U.S., and certain attributes promoting use of the foreign tax credit carryovers, when combined with our view on the remaining 2022 outlook, we determined thereif recognized. It is now significant positive evidence for our ability to utilize available U.S. foreign tax credit carryforwards and general business credits in 2022. The amount of 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 havereasonably possible $38.21.0 million of U.S. foreignunrecognized tax credit deferredbenefits could be settled in the next twelve months due to the conclusion of tax assets that continueaudits or statutes of limitations expiration. It is our policy to have a valuation allowance against them. We will continuerecognize interest and applicable penalties, if any, related to evaluateuncertain tax positions in income tax expense. Unrecognized tax benefits as of December 31, 2022 were $14.0 million and were impacted by the realizabilityreversals of our U.S. foreignuncertain 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.positions during the six months ended June 30, 2023.
On August 16, 2022, the Inflation Reduction Act (the IRA) was signed into law in the U.S. Among other changes, the IRA introduced a corporate minimum tax on certain corporations with average adjusted financial statement income over a three-tax year period in excess of $1.0 billion and an excise tax on certain stock repurchases by certain covered corporations for taxable years beginning after December 31, 2022 and several tax incentives to promote clean energy. Based on our current analysis and pending future guidance to be issued by Treasury, we do not believe these provisions will have a material impact on our consolidated financial statements.
The effective tax rate for the three months ended September 30, 2021, the Successor Period and the Predecessor Period was 19.2%, 13.6% and 18.2%, respectively, on income from
continuing operations. The tax rate during the three months ended September 30, 2021 and the Successor Period is different from the U.S. federal statutory rate of 21.0% primarily from non-deductible items and foreign losses for which no tax benefit is being recorded. The tax rate in the Predecessor Period is different from the U.S. federal statutory rate of 21.0% primarily due the adoption of fresh start accounting during the period.
We had $15.2 million and $15.0 million of unrecognized tax benefits as of September 30, 2022 and December 31, 2021, 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 $11.4 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.
(13)(14) Earnings per Share
Our common equity consists of Class A Common Stock and Class B Common Stock (the “Common Stock”).
Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of shares of Common Stock outstanding during the period. Diluted earnings per share is computed using the weighted average number of Common Stock outstanding during the period plus any potentially dilutive Common Stock, such as restricted stock awards, restricted stock units, and performance-based units calculated using the treasury stock method.
The following table presents the reconciliation between the weighted average number of shares for basic and diluted earnings per share.
21
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||||||||||||||||||||||||
|
| Successor |
|
|
| Predecessor |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||||||
|
| For the Three Months Ended |
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
|
| For the Period |
|
|
| For the Period |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| |||||||||
Weighted-average shares outstanding - basic |
|
| 20,024 |
|
|
| 19,999 |
|
|
| 20,016 |
|
|
| 19,997 |
|
|
|
| 14,845 |
|
|
| 20,126 |
|
|
| 20,024 |
|
|
| 20,116 |
|
|
| 20,011 |
|
Potentially dilutive stock awards and units |
|
| 66 |
|
|
| - |
|
|
| 58 |
|
|
| - |
|
|
|
| 60 |
|
|
| 17 |
|
|
| 52 |
|
|
| 20 |
|
|
| 54 |
|
Weighted-average shares outstanding - diluted |
|
| 20,090 |
|
|
| 19,999 |
|
|
| 20,074 |
|
|
| 19,997 |
|
|
|
| 14,905 |
|
|
| 20,143 |
|
|
| 20,076 |
|
|
| 20,136 |
|
|
| 20,065 |
|
22
(14)(15) 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. Adjustments for legal costs and reserves are included as a component of cost of revenues in our consolidated statement of operations. 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 isAs previously reported in the Form 10-K and Form 10-Q for the quarter ended March 31, 2023, we are currently involved in legal proceedings with two former employees regarding the payment of royalties for a patentable product paid for by the subsidiary and developed while they worked for the subsidiary. Those former employees have filed two lawsuits in the Harris County District Court, in which the former employees allege that the royalty payments they had invoiced at 25% and for which they received payments in the invoiced amounts since 2010, instead should have been paid at a rate of 50%. The first lawsuit (the “First Case”), filed in May 2018, sought to recover alleged unpaid royalties from May 2014 through May 2019. The second lawsuit (the “Second Case”) was filed in the same district court against the same subsidiary of ours, brought the same claims, and sought damages post-judgment from the First Case until the discontinuation of the leasing of the product at issue by the subsidiary at the end of 2019.
In both lawsuits, the district court ruled against our subsidiary and entered final judgments, which we fully secured with a bond. We strongly disagreed with the result and believed the district court committed several legal errors that should be corrected by reversal of the judgments. Accordingly, we pursued separate appeals in the Fourteenth Court of Appeals.
In August 2022, in the appeal from the First Case, the Fourteenth Court of Appeals ruled in favor of our subsidiary on the plaintiffs’ claims for a combined 50% royalty. The Court of Appeals ruled that because the plaintiffs invoiced our subsidiary for a combined 25% royalty and accepted payments in that amount every month since 2010, the plaintiffs forever waived any claim to any royalties in any amount other than a combined 25% royalty, net of expenses. The Court of Appeals reversed the judgment in the First Case and remanded to the trial court to assess damages, if any, owed for royalties between January 2018 and May 2019.
The appeal from the judgment in the Second Case was abated by the Fourteenth Court of Appeals pending the resolution of the appeal in the First Case.
On October 7, 2022, our subsidiary reached a confidential settlement with the plaintiffs to resolve any and all disputes between them. At the request of both parties in the appeals from both the First Case and the Second Case, the Fourteenth Court of Appeals has reversed the respective judgments entered by the district court. Our subsidiary is in the process of filing appropriate motions in the district court to enter take-nothing judgments and to release the supersedeas bonds filed by our subsidiary in both cases.
Our Indian subsidiary, SES Energy Services India Pvt. Ltd, entered into a contract with an Indian oil and gas company to provide an offshore vessel for well stimulation. A dispute arose over the performability of the terms of the contract. The contract was terminated by the customer. The maximum liability under the contract is capped at approximately $7.3 million, of which approximately $3.5 million has been claimed via revocation of performance bank guarantees.
In October 2022, we had a hearing before the Washington State BoardDepartment of Tax Appeals (the “Tax Board”)Revenue in relation to a dispute arising in April 2019 pertaining to a use tax assessment from 2016 as a result of the construction of a vessel by one of our subsidiaries. AsThe matter was appealed to the Washington State Board of September 30, 2022,Tax Appeals, which affirmed the assessment including interest and penalties, totaled $26.8 million. Whileon May 22, 2023. On June 20, 2023, we are confident thatappealed this decision to Whatcom County Superior Court where it is currently pending review. In order to appeal the assessment is legally insupportable, if the Tax Board upholds the assessmentto Whatcom County Superior Court, we will be responsible for payment ofpaid the full $27.1 million assessment within thirty days of the decision. Although we are unable to estimate the probability of the outcome of this matter or the range of reasonably possible loss, if any, we have reserved an amount we believe to be adequate to cover any final assessment levied by the state.on May 31, 2023.
23
14
(15)(16) Discontinued Operations
The following table summarizes the components of discontinued operations, net of tax (in thousands):tax:
|
| For the Three Months Ended |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Revenues |
| $ | - |
|
| $ | 16,985 |
|
Cost of services |
|
| - |
|
|
| 17,543 |
|
Depreciation, depletion, amortization and accretion |
|
| - |
|
|
| 146 |
|
General and administrative expenses |
|
| 289 |
|
|
| 2,379 |
|
Other (gains) and losses, net |
|
| (303 | ) |
|
| 3,815 |
|
Loss from operations |
|
| 14 |
|
|
| (6,898 | ) |
Other income (expense) |
|
| - |
|
|
| 238 |
|
Loss from discontinued operations before tax |
|
| 14 |
|
|
| (6,660 | ) |
Income tax benefit (expense) |
|
| 3 |
|
|
| 1,499 |
|
Income (loss) from discontinued operations, net of income tax |
| $ | 17 |
|
| $ | (5,161 | ) |
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
General and administrative expenses |
| $ | (72 | ) |
| $ | 1,711 |
|
| $ | 389 |
|
| $ | 5,453 |
|
Other (gains) and losses, net |
|
| 79 |
|
|
| 750 |
|
|
| (748 | ) |
|
| (5,193 | ) |
Income (loss) from discontinued operations before tax |
|
| (7 | ) |
|
| (2,461 | ) |
|
| 359 |
|
|
| (260 | ) |
Income tax benefit (expense) |
|
| (2 | ) |
|
| 517 |
|
|
| (79 | ) |
|
| 55 |
|
Income (loss) from discontinued operations, net of income tax |
| $ | (9 | ) |
| $ | (1,944 | ) |
| $ | 280 |
|
| $ | (205 | ) |
|
| Successor |
|
|
| Predecessor |
| ||||||
|
| For the Nine Months Ended September 30, 2022 |
|
| For the Period |
|
|
| For the Period |
| |||
Revenues |
| $ | - |
|
| $ | 85,351 |
|
|
| $ | 10,719 |
|
Cost of services |
|
| - |
|
|
| 77,936 |
|
|
|
| 10,398 |
|
Depreciation, depletion, amortization and accretion |
|
| - |
|
|
| 31,502 |
|
|
|
| 2,141 |
|
General and administrative expenses |
|
| 5,742 |
|
|
| 8,597 |
|
|
|
| 1,119 |
|
Other (gains) and losses, net |
|
| (5,496 | ) |
|
| 11,333 |
|
|
|
| - |
|
Loss from operations |
|
| (246 | ) |
|
| (44,017 | ) |
|
|
| (2,939 | ) |
Other income (expense) |
|
| - |
|
|
| 188 |
|
|
|
| 2,485 |
|
Loss from discontinued operations before tax |
|
| (246 | ) |
|
| (43,829 | ) |
|
|
| (454 | ) |
Income tax benefit (expense) |
|
| 58 |
|
|
| 9,862 |
|
|
|
| 102 |
|
Income (loss) from discontinued operations, net of income tax |
| $ | (188 | ) |
| $ | (33,967 | ) |
|
| $ | (352 | ) |
The following summarizes the assets and liabilities related to discontinued operations (in thousands):operations:
|
| September 30, 2022 |
|
| December 31, 2021 |
|
| June 30, 2023 |
|
| December 31, 2022 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts receivable, net |
| $ | 2,111 |
|
| $ | 7,469 |
|
| $ | - |
|
| $ | 350 |
|
Property, plant and equipment, net |
|
| 16,042 |
|
|
| 29,328 |
|
|
| 1,355 |
|
|
| 11,468 |
|
Other assets |
|
| 161 |
|
|
| 731 |
|
|
| 14 |
|
|
| 160 |
|
Total assets held for sale |
| $ | 18,314 |
|
| $ | 37,528 |
|
| $ | 1,369 |
|
| $ | 11,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts payable |
| $ | 134 |
|
| $ | 652 |
|
| $ | - |
|
| $ | 86 |
|
Accrued expenses |
|
| 3,309 |
|
|
| 4,268 |
|
|
| 3,090 |
|
|
| 3,192 |
|
Other liabilities |
|
| 223 |
|
|
| 687 |
|
|
| - |
|
|
| 71 |
|
Total liabilities held for sale |
| $ | 3,666 |
|
| $ | 5,607 |
|
| $ | 3,090 |
|
| $ | 3,349 |
|
24
Significant operating non-cash items and cash flows from investing activities for our discontinued operations were as follows (in thousands):follows:
|
| Successor |
|
|
| Predecessor |
| ||||||
|
| For the Nine Months Ended September 30, 2022 |
|
| For the Period |
|
|
| For the Period |
| |||
Cash flows from discontinued operating activities: |
|
|
|
|
|
|
|
|
|
| |||
(Gain)/loss on sale of assets |
| $ | - |
|
| $ | - |
|
|
| $ | (43 | ) |
Other (gains) and losses, net |
|
| (5,496 | ) |
|
| 11,333 |
|
|
|
| - |
|
Depreciation, depletion, amortization and accretion |
|
| - |
|
|
| 31,502 |
|
|
|
| 2,141 |
|
Cash flows from discontinued investing activities: |
|
|
|
|
|
|
|
|
|
| |||
Proceeds from sales of assets |
|
| 18,782 |
|
|
| 53,225 |
|
|
|
| 486 |
|
|
| For the Six Months Ended |
| |||||
|
| June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Cash flows from discontinued operating activities: |
|
|
|
|
|
| ||
Other gains, net |
| $ | (748 | ) |
| $ | (5,193 | ) |
Cash flows from discontinued investing activities: |
|
|
|
|
|
| ||
Proceeds from sales of assets |
| $ | 11,308 |
|
| $ | 13,861 |
|
(16)(17) 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 Nine Months Ended September 30, 2022 |
|
| For the Period |
|
|
| For the Period |
| |||
Cash, cash equivalents, and restricted cash, beginning of period |
|
|
|
|
|
|
|
|
|
| |||
Cash and cash equivalents |
| $ | 314,974 |
|
| $ | 172,768 |
|
|
| $ | 188,006 |
|
Restricted cash-current |
|
| - |
|
|
| 16,751 |
|
|
|
| - |
|
Restricted cash-non-current |
|
| 79,561 |
|
|
| 80,179 |
|
|
|
| 80,178 |
|
Cash, cash equivalents, and restricted cash, beginning of period |
| $ | 394,535 |
|
| $ | 269,698 |
|
|
| $ | 268,184 |
|
|
|
|
|
|
|
|
|
|
|
| |||
Cash, cash equivalents, and restricted cash, end of period |
|
|
|
|
|
|
|
|
|
| |||
Cash and cash equivalents |
| $ | 453,682 |
|
| $ | 258,024 |
|
|
| $ | 172,768 |
|
Restricted cash-current |
|
| - |
|
|
| - |
|
|
|
| 16,751 |
|
Restricted cash-non-current |
|
| 79,757 |
|
|
| 79,560 |
|
|
|
| 80,179 |
|
Cash, cash equivalents, and restricted cash, end of period |
| $ | 533,439 |
|
| $ | 337,584 |
|
|
| $ | 269,698 |
|
|
| June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Cash and cash equivalents |
| $ | 258,999 |
|
| $ | 314,974 |
|
Restricted cash-non-current |
|
| 80,108 |
|
|
| 79,561 |
|
Cash, cash equivalents, and restricted cash, beginning of period |
| $ | 339,107 |
|
| $ | 394,535 |
|
|
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 330,129 |
|
| $ | 391,219 |
|
Restricted cash-non-current |
|
| 80,318 |
|
|
| 79,595 |
|
Cash, cash equivalents, and restricted cash, end of period |
| $ | 410,447 |
|
| $ | 470,814 |
|
15
(17)(18) New Accounting Pronouncements
Recently Issued Accounting Standards
In June 2016, the FASB issued
On January 1, 2023, we adopted Financial Accounting Standards Board (FASB) ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”)Statements. This update improves financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope by using, which replaces the incurred loss impairment methodology from previous U.S. GAAP with the Current Expected Credit Losses (the “CECL”) model.losses model (CECL). 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. We estimate expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This update will applyupdated guidance applies to (i) loans, accounts receivable, trade receivables, arising from revenue transactions.and other financial assets measured at amortized cost, and (ii) loan commitments and other off-balance sheet credit exposures. The new standard is effective for us beginning on January 1, 2023. We have concluded that the adoption of ASU 2016-13 willthis standard update did not have a material impact on our consolidated financial statements.Condensed Consolidated Financial Statements.
16
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.
25
(18) Subsequent Events
On October 7, 2022, our subsidiary reached a confidential settlement with the plaintiffs to resolve any and all disputes between them. At the request of both parties in the appeals from both the First Case and the Second Case, the Fourteenth Court of Appeals has reversed the respective judgments entered by the district court. Our subsidiary is in the process of filing appropriate motions in the district court to enter take-nothing judgments and to release the supersedeas bonds filed by our subsidiary in both cases.
In October 2022, we had a hearing before the Washington State Board of Tax Appeals (the “Tax Board”) in relation to a dispute arising in April 2019 pertaining to a use tax assessment from 2016 as a result of the construction of a vessel by one of our subsidiaries. As of September 30, 2022, the assessment, including interest and penalties, totaled $26.8 million. While we are confident that the assessment is legally insupportable, if the Tax Board upholds the assessment we will be responsible for payment of the full assessment within thirty days of the decision. Although we are unable to estimate the probability of the outcome of this matter or the range of reasonably possible loss, if any, we have reserved an amount we believe to be adequate to cover any final assessment levied by the state.
26
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. In addition, the following discussion and analysis and information contains forward-looking statements about our business, operations and financial performance based on our current expectations that involve risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated by these forward-looking statements as a result of many factors. including, but not limited to, those identified below and thoseany discussed in the sections titled “Risk Factors” and under the heading “Information Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q.
17
Executive Summary
General
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.
Historically, we provided a wide variety of services and products to many markets within the energy industry. Our core businesses focus on products and services that we believe meet the criteria of:
The result of this approach is a portfolio of business lines grounded in our core mission of providing high quality products and services while maintaining the trust and serving the needs of our customers, with an emphasis on free cash flow generation and capital efficiency.
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.below:
|
| Three months ended |
|
|
|
| Nine months ended |
|
|
|
| For the Three Months Ended |
|
|
| For the Six Months Ended |
|
|
| ||||||||||||||||||||
|
| September 30, |
| June 30, |
|
|
|
| September 30, |
|
|
|
| June 30, |
| March 31, |
|
|
| June 30, |
| June 30, |
|
|
| ||||||||||||||
|
| 2022 |
|
| 2022 |
|
| % Change |
| 2022 |
|
| 2021 |
|
| % Change |
| 2023 |
|
| 2023 |
|
| % Change | 2023 |
|
| 2022 |
|
| % Change | ||||||||
Worldwide Rig Count (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
U.S.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Land |
|
| 745 |
|
|
| 704 |
|
| 5.8% |
|
| 692 |
|
|
| 437 |
|
| 58.4% |
|
| 722 |
|
|
| 744 |
|
| (3.0%) |
| 699 |
|
|
| 663 |
|
| 5.4% |
Offshore |
|
| 16 |
|
|
| 15 |
|
| 6.7% |
|
| 15 |
|
|
| 13 |
|
| 15.4% |
|
| 18 |
|
|
| 16 |
|
| 12.5% |
| 20 |
|
|
| 15 |
|
| 33.3% |
Total |
|
| 761 |
|
|
| 719 |
|
| 5.8% |
|
| 707 |
|
|
| 450 |
|
| 57.1% |
|
| 740 |
|
|
| 760 |
|
| (2.6%) |
| 719 |
|
|
| 678 |
|
| 6.0% |
International (2) |
|
| 857 |
|
|
| 816 |
|
| 5.0% |
|
| 832 |
|
|
| 735 |
|
| 13.2% |
|
| 960 |
|
|
| 915 |
|
| 4.9% |
| 938 |
|
|
| 819 |
|
| 14.5% |
Worldwide Total |
|
| 1,618 |
|
|
| 1,535 |
|
| 5.4% |
|
| 1,539 |
|
|
| 1,185 |
|
| 29.9% |
|
| 1,700 |
|
|
| 1,675 |
|
| 1.5% |
| 1,657 |
|
|
| 1,497 |
|
| 10.7% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Commodity Prices (average) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Crude Oil (West Texas Intermediate) |
| $ | 93.06 |
|
| $ | 108.83 |
|
| (14.5%) |
| $ | 98.96 |
|
| $ | 65.05 |
|
| 52.1% |
| $ | 73.54 |
|
| $ | 72.43 |
|
| 1.5% | $ | 72.97 |
|
| $ | 102.01 |
|
| (28.5%) |
Natural Gas (Henry Hub) |
| $ | 7.99 |
|
| $ | 7.48 |
|
| 6.8% |
| $ | 6.71 |
|
| $ | 3.62 |
|
| 85.4% |
| $ | 2.16 |
|
| $ | 2.65 |
|
| (18.4%) | $ | 2.41 |
|
| $ | 6.07 |
|
| (60.3%) |
2718
Comparison of the Results of Operations for the Three Months Ended September 30, 2022 and June 30, 20222023 and March 31, 2023
We reported net income from continuing operations for the three months ended SeptemberJune 30, 20222023 (the “Current Quarter”) of $48.5$67.4 million on revenue of $222.3$244.5 million. This compares to a net income from continuing operations for the three months ended June 30, 2022March 31, 2023 (the “Prior Quarter”) of $43.6$29.9 million on revenues of $224.6$220.1 million. Net income from continuing operations for the Current Quarter includes net gains of $13.4 million from the disposal of assets and $6.8 million of expense primarily related to foreign currency losses during the quarter. Net income from continuing operations for the Prior Quarter includes a $17.4 million gain from revisions to estimates related to our decommissioning liability and $13.5 million of expense primarily related to foreign currency losses during the quarter totaling $10.5 million and both realized and unrealized losses, net of $4.1 million on our investment in equity securities of Select Energy Services, Inc (“Select”).
|
| Three months ended |
|
| Change |
| For the Three Months Ended |
|
| Change | ||||||||||||||||||
|
| September 30, |
| June 30, |
|
|
|
|
|
|
| June 30, |
| March 31, |
|
|
|
| ||||||||||
|
| 2022 |
|
| 2022 |
|
| $ |
|
| % |
| 2023 |
|
| 2023 |
|
| $ |
|
| % | ||||||
Revenues: |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Rentals |
| $ | 104,557 |
|
| $ | 103,729 |
|
| $ | 828 |
|
| 0.8% |
| $ | 112,411 |
|
| $ | 108,821 |
|
| $ | 3,590 |
|
| 3.3% |
Well Services |
|
| 117,730 |
|
|
| 120,911 |
|
|
| (3,181 | ) |
| (2.6%) |
|
| 132,062 |
|
|
| 111,316 |
|
|
| 20,746 |
|
| 18.6% |
Total revenues |
|
| 222,287 |
|
|
| 224,640 |
|
|
| (2,353 | ) |
|
|
|
| 244,473 |
|
|
| 220,137 |
|
|
| 24,336 |
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Cost of revenues |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Rentals |
|
| 33,638 |
|
|
| 35,860 |
|
|
| (2,222 | ) |
| (6.2%) |
|
| 35,021 |
|
|
| 36,468 |
|
|
| (1,447 | ) |
| (4.0%) |
Well Services |
|
| 82,443 |
|
|
| 85,108 |
|
|
| (2,665 | ) |
| (3.1%) |
|
| 85,733 |
|
|
| 81,253 |
|
|
| 4,480 |
|
| 5.5% |
Total cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 116,081 |
|
|
| 120,968 |
|
|
| (4,887 | ) |
|
|
|
| 120,754 |
|
|
| 117,721 |
|
|
| 3,033 |
|
|
|
Depreciation, depletion, amortization and accretion |
|
| 20,508 |
|
|
| 23,346 |
|
|
| (2,838 | ) |
| (12.2%) |
|
| 20,621 |
|
|
| 20,139 |
|
|
| 482 |
|
| ** |
General and administrative expenses |
|
| 31,841 |
|
|
| 30,231 |
|
|
| 1,610 |
|
| 5.3% |
|
| 31,177 |
|
|
| 30,990 |
|
|
| 187 |
|
| ** |
Restructuring expenses |
|
| 1,223 |
|
|
| 1,663 |
|
|
| (440 | ) |
| (26.5%) |
|
| - |
|
|
| 1,983 |
|
|
| (1,983 | ) |
| ** |
Other (gains) and losses, net |
|
| (13,397 | ) |
|
| (18,013 | ) |
|
| 4,616 |
|
| ** |
|
| 47 |
|
|
| (1,398 | ) |
|
| 1,445 |
|
| (103.4%) |
Income (loss) from operations |
|
| 66,031 |
|
|
| 66,445 |
|
|
| (414 | ) |
|
| ||||||||||||||
Income from operations |
|
| 71,874 |
|
|
| 50,702 |
|
|
| 21,172 |
|
|
| ||||||||||||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Interest income, net |
|
| 3,373 |
|
|
| 1,459 |
|
|
| 1,914 |
|
| 131.2% |
|
| 6,513 |
|
|
| 5,439 |
|
|
| 1,074 |
|
| 19.7% |
Other income (expense) |
|
| (6,838 | ) |
|
| (13,471 | ) |
|
| 6,633 |
|
| ** | ||||||||||||||
Income (loss) from continuing operations before income taxes |
|
| 62,566 |
|
|
| 54,433 |
|
|
| 8,133 |
|
|
| ||||||||||||||
Income tax (expense) benefit |
|
| (14,058 | ) |
|
| (10,871 | ) |
|
| (3,187 | ) |
| 29.3% | ||||||||||||||
Net income (loss) from continuing operations |
|
| 48,508 |
|
|
| 43,562 |
|
|
| 4,946 |
|
|
| ||||||||||||||
Other expense |
|
| (1,836 | ) |
|
| (2,152 | ) |
|
| 316 |
|
| ** | ||||||||||||||
Income from continuing operations before income taxes |
|
| 76,551 |
|
|
| 53,989 |
|
|
| 22,562 |
|
|
| ||||||||||||||
Income tax expense |
|
| (9,147 | ) |
|
| (24,065 | ) |
|
| 14,918 |
|
| (62.0%) | ||||||||||||||
Net income from continuing operations |
|
| 67,404 |
|
|
| 29,924 |
|
|
| 37,480 |
|
|
| ||||||||||||||
Income (loss) from discontinued operations, net of income tax |
|
| 17 |
|
|
| (1,944 | ) |
|
| 1,961 |
|
| (100.9%) |
|
| (9 | ) |
|
| 289 |
|
|
| (298 | ) |
| (103.1%) |
Net income (loss) |
| $ | 48,525 |
|
| $ | 41,618 |
|
| $ | 6,907 |
|
|
| ||||||||||||||
Net income |
| $ | 67,395 |
|
| $ | 30,213 |
|
| $ | 37,182 |
|
|
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
** Not a meaningful percentage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues and Cost of Revenues
Revenues from our Rentals segment increased $0.8by $3.6 million, or 0.8%3.3%, in the Current Quarter as compared to the Prior Quarter primarily due to increased International market activity for our premium drill pipe product lines and accommodation rentals in our U.S. offshore market. These increases resulted in an increased gross margin of 68.8% for the Current Quarter as compared to 66.5% in the Prior Quarter.
Revenues from our Well Services segment in the Current Quarter increased $20.7 million, or 18.6%, from the Prior Quarter. The increase in revenue is driven by our International markets which experienced continued improvements in both production and well control services. Additionally, our U.S. offshore market was impacted by stronger performance from our completion services business unit. Cost of revenues decreased $2.2increased $4.5 million, or 6.2%5.5%, in the Current Quarter as compared to the Prior Quarter as a result of the increases in revenue discussed above. Gross margin for the Current Quarter also increased to 35.1% as compared to 27.0% for the Prior Quarter.
Other (gains) and losses, net
Other losses were immaterial in the Current Quarter compared to other gains of $1.4 million for the Prior Quarter. IncreaseOther (gains) and losses, net include gains and losses on the disposal of assets, as well as impairments, if any, related to long-lived assets.
Interest Income, net
Interest income, net was $6.5 million compared to $5.4 million for the Prior Quarter. The increase in utilizationinterest income was driven by interest derived on overnight money market accounts primarily in Argentina and the U.S.
19
Income Taxes
The effective tax rate on income from continuing operations for the Current Quarter and Prior Quarter was 11.9% and 44.6%, respectively. The U.S federal statutory rate for both periods was 21%. The effective tax rates for both periods were unfavorably impacted by our current and ongoing operations in foreign jurisdictions which have tax rates significantly in excess of the U.S. federal statutory rate.
The effective tax rate in the Current Quarter was also favorably impacted by approximately $14.9 million in income tax benefits from reversals of uncertain tax positions in foreign jurisdictions and adjustments to valuation allowances on foreign operations.
The effective tax rate for the Prior Quarter was also unfavorably impacted by recognition of a $7.6 million immaterial misstatement arising from certain net operating loss carryforwards that should have been eliminated as part of a worthless stock deduction taken in the fourth quarter of 2022.
We had $4.3 million of unrecognized tax benefits as of June 30, 2023, all of which would impact our effective tax rate if recognized. It is reasonably possible $1.0 million of unrecognized tax benefits could be settled in the next twelve months due to the conclusion of tax audits or statute of limitations expirations. 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, 2023 and 2022
We reported net income from continuing operations for the six months ended June 30, 2023 (the “Current Period”) of $97.3 million on revenue of $464.6 million. This compares to a net income from continuing operations for the six months ended June 30, 2022 (the “Prior Year Period") of $67.5 million on revenues of $422.6 million.
|
| For the Six Months Ended |
|
|
|
|
|
| ||||||
|
| June 30, |
|
| Change | |||||||||
|
| 2023 |
|
| 2022 |
|
| $ |
|
| % | |||
Revenues: |
|
|
|
|
|
|
|
|
|
|
| |||
Rentals |
| $ | 221,232 |
|
| $ | 192,485 |
|
| $ | 28,747 |
|
| 14.9% |
Well Services |
|
| 243,378 |
|
|
| 230,085 |
|
| $ | 13,293 |
|
| 5.8% |
Total revenues |
|
| 464,610 |
|
|
| 422,570 |
|
|
| 42,040 |
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
| |||
Rentals |
|
| 71,489 |
|
|
| 67,612 |
|
|
| 3,877 |
|
| 5.7% |
Well Services |
|
| 166,986 |
|
|
| 165,736 |
|
|
| 1,250 |
|
| 0.8% |
Total cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 238,475 |
|
|
| 233,348 |
|
|
| 5,127 |
|
|
|
Depreciation, depletion, amortization and accretion |
|
| 40,760 |
|
|
| 57,431 |
|
|
| (16,671 | ) |
| (29.0%) |
General and administrative expenses |
|
| 62,167 |
|
|
| 62,249 |
|
|
| (82 | ) |
| ** |
Restructuring expenses |
|
| 1,983 |
|
|
| 3,218 |
|
|
| (1,235 | ) |
| (38.4%) |
Other gains, net |
|
| (1,351 | ) |
|
| (16,866 | ) |
|
| 15,515 |
|
| (92.0%) |
Income from operations |
|
| 122,576 |
|
|
| 83,190 |
|
|
| 39,386 |
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
| |||
Interest income, net |
|
| 11,952 |
|
|
| 2,638 |
|
|
| 9,314 |
|
| 353.1% |
Other income (expense) |
|
| (3,988 | ) |
|
| 476 |
|
|
| (4,464 | ) |
| (937.8%) |
Income from continuing operations before income taxes |
|
| 130,540 |
|
|
| 86,304 |
|
|
| 44,236 |
|
|
|
Income tax expense |
|
| (33,212 | ) |
|
| (18,755 | ) |
|
| (14,457 | ) |
| 77.1% |
Net income from continuing operations |
|
| 97,328 |
|
|
| 67,549 |
|
|
| 29,779 |
|
|
|
Income (loss) from discontinued operations, net of income tax |
|
| 280 |
|
|
| (205 | ) |
|
| 485 |
|
| (236.6%) |
Net income |
| $ | 97,608 |
|
| $ | 67,344 |
|
| $ | 30,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
** Not a meaningful percentage |
|
|
|
|
|
|
|
|
|
|
|
Revenues and Cost of Revenues
Revenues from our Rentals segment increased $28.7 million, or 14.9%, in the Current Period as compared to the Prior Year Period. Cost of revenues increased $3.9 million, or 5.7%, in the Current Period as compared to the Prior Year Period. This increase was due to an increase in both average rig count and commodity prices when compared to the Prior Year Period. During the Current Period, we experienced increased revenue from both premium drill pipe in all our markets and bottom hole assembly accessories in our onshore U.S market, which contributed to a slightan increase in gross margin which was 67.8%67.7% for the Current QuarterPeriod as compared to 65.4%64.9% in the Prior Quarter.Year Period.
20
Revenues from our Well Services segment decreased $3.2increased $13.3 million, or 2.6%5.8%, in the Current QuarterPeriod as compared to the Prior Quarter.Year Period, primarily as a result of improvements in our production and well control services in our International markets. Cost of revenues decreased $2.7increased $1.3 million, or 3.1%0.8%, in the Current QuarterPeriod as compared to the Prior Quarter. GrossYear Period. The increase in cost of revenues was driven by the increase in overall segment revenues and gross margin for the Current QuarterPeriod increased to 30.0%31.4% as compared to 29.6%28.0% for the Prior Quarter 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.Year Period.
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 expense for the Current QuarterPeriod decreased $2.8$16.7 million, or 12.2%29.0%, as compared to the Prior Quarter.Year Period. Depreciation expense isfor the Prior Year Period 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,
28
amortization and accretion expense for 2022 is expected to be approximately $102.8 million as compared to $228.2 million for the full year 2021.
General and AdministrativeRestructuring Expenses
General and administrative expenses for the Current Quarter increased $1.6 million, or 5.3%, as compared to the Prior Quarter. The increase is primarily related to an increase in professional fees for accounting and consulting services, partially offset by a decrease in employee related costs, including benefits and incentive compensation.
Other (gains) and losses, net
Other (gains) and losses, net for the Current Quarter were $13.4 million compared to $18.0 million for the Prior Quarter. Other (gains) and losses, net primarilyRestructuring expenses relate to charges recorded as part of our strategic disposal of low margin assets in line with our efforts to reconfigure our organization both operationally and financially (the “Transformation Project”) and includes gains/losses onfinancially. Current Period restructuring expenses decreased $1.2 million, or 38.4%, as compared to the disposal of assets, as well as impairments, if any, related to long-lived assets. Prior Year Period.
Other (gains) and losses, net for the Current Quarter include net
Other gains declined by $15.5 million due to inclusion of $13.4 million primarily related to disposals of non-core businesses and assets within our Well Services segment. Other (gains) and losses, net for the Prior Quarter includes a gain of $17.4 million gain from revisions in estimates related to our decommissioning liability.liability in the Prior Year Period.
Interest Income Net(Expense), net
Interest income, net for the Current Quarter was $3.4increased by $9.3 million, compared to $1.5 million for the Prior Quarter. Theprimarily from an increase in interest income was driven by interest derived on overnight money market accounts primarilyfrom operations in our Corporate and Argentina and the United States.offices.
Other Income (Expense)
Other income (expense) primarily relate to re-measurement gains and losses associated with our foreign currencies and realized and unrealized gains and losses on our investment in equity securities.
Losses on foreign currencies during the Current Quarter were $7.0 million and primarily related to our operations in Brazil and Argentina. Losses on foreign currencies during the Prior Quarter were $10.5 million primarily related to our operations in Brazil. Losses on foreign currencies during the Prior 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.
Unrealized gains on our investment in equity securities for the Current Quarter were $0.4 million. Unrealized gains on our investment in equity securities for the Prior Quarter were $5.9 million. During the Current Quarter, we did not dispose of any shares. During the Prior Quarter, we disposed of 0.7 million shares for $6.0 million, and recognized gains totaling $1.9 million in connection with these transactions.
Income Taxes
The effective tax rate for the Current Quarter and Prior Quarter was 22.5% and 20.0%, respectively, on income from continuing operations. The effective tax rate for the Current Quarter is different from the U.S. federal statutory rate of 21.0% 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 different from the U.S. federal statutory rate of 21.0% primarily from non-deductible items and foreign losses for which no tax benefit was recorded.
Unrecognized tax benefit as of the Current Quarter and Prior Quarter was $15.2 million and $15.7 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 $11.4 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.
29
Comparison of the Results of Operations for the Nine Months Ended September 30, 2022 and 2021
The period from February 3, 2021 through September 30, 2021 (the “Successor Period”) and the period from January 1, 2021 through February 2, 2021 (the “Predecessor Period”) are distinct reporting periods as a result of our emergence from bankruptcy. References in these results of operations to changes in comparison to the nine months ended September 30, 2022 (the “Current Period)” combine the Successor Period and Predecessor Period results for the nine months ended September 30, 2021 (the “Combined Period”) in order to provide some comparability of such information. While this combined presentation is not presented according to generally accepted accounting principles in the United States of America (“GAAP”) and no comparable GAAP measures are presented, management believes that providing this financial information is the most relevant and useful method for making comparisons to the Current Period as reviewing the Successor Period results in isolation would not be useful in identifying trends in or reaching conclusions regarding our overall operating performance.
We reported net income from continuing operations for the Current Period of $116.1 million on revenue of $644.9 million. This compares to net income from continuing operations for the Combined Period of $170.3 million on revenues of $496.2 million.
|
| Successor |
|
|
| Predecessor |
|
| Non-GAAP |
|
| Change | |||||||||||
|
| For the Nine Months Ended September 30, 2022 |
|
| For the Period |
|
|
| For the Period |
|
| For the Combined Nine Months Ended September 30, 2021 |
|
| $ |
|
| % | |||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Rentals |
| $ | 297,042 |
|
| $ | 185,902 |
|
|
| $ | 18,339 |
|
| $ | 204,241 |
|
| $ | 92,801 |
|
| 45.4% |
Well Services |
|
| 347,815 |
|
|
| 264,416 |
|
|
|
| 27,589 |
|
|
| 292,005 |
|
|
| 55,810 |
|
| 19.1% |
Total revenues |
|
| 644,857 |
|
|
| 450,318 |
|
|
|
| 45,928 |
|
|
| 496,246 |
|
|
| 148,611 |
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Rentals |
|
| 101,250 |
|
|
| 75,433 |
|
|
|
| 7,839 |
|
|
| 83,272 |
|
|
| 17,978 |
|
| 21.6% |
Well Services |
|
| 248,179 |
|
|
| 221,719 |
|
|
|
| 21,934 |
|
|
| 243,653 |
|
|
| 4,526 |
|
| 1.9% |
Total cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
| 349,429 |
|
|
| 297,152 |
|
|
|
| 29,773 |
|
|
| 326,925 |
|
|
| 22,504 |
|
|
|
Depreciation, depletion, amortization and accretion |
|
| 77,939 |
|
|
| 158,256 |
|
|
|
| 8,358 |
|
|
| 166,614 |
|
|
| (88,675 | ) |
| (53.2%) |
General and administrative expenses |
|
| 94,090 |
|
|
| 84,417 |
|
|
|
| 11,052 |
|
|
| 95,469 |
|
|
| (1,379 | ) |
| (1.4%) |
Restructuring expenses |
|
| 4,441 |
|
|
| 20,533 |
|
|
|
| 1,270 |
|
|
| 21,803 |
|
|
| (17,362 | ) |
| (79.6%) |
Other (gains) and losses, net |
|
| (30,263 | ) |
|
| (732 | ) |
|
|
| - |
|
|
| (732 | ) |
|
| (29,531 | ) |
| ** |
Income (loss) from operations |
|
| 149,221 |
|
|
| (109,308 | ) |
|
|
| (4,525 | ) |
|
| (113,833 | ) |
|
| 263,054 |
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest income, net |
|
| 6,011 |
|
|
| 1,394 |
|
|
|
| 202 |
|
|
| 1,596 |
|
|
| 4,415 |
|
| 276.6% |
Reorganization items, net |
|
| - |
|
|
| - |
|
|
|
| 335,560 |
|
|
| 335,560 |
|
|
| (335,560 | ) |
| (100.0%) |
Other income (expense) |
|
| (6,362 | ) |
|
| (6,499 | ) |
|
|
| (2,105 | ) |
|
| (8,604 | ) |
|
| 2,242 |
|
| ** |
Income (loss) from continuing operations before income taxes |
|
| 148,870 |
|
|
| (114,413 | ) |
|
|
| 329,132 |
|
|
| 214,719 |
|
|
| (65,849 | ) |
|
|
Income tax (expense) benefit |
|
| (32,813 | ) |
|
| 15,550 |
|
|
|
| (60,003 | ) |
|
| (44,453 | ) |
|
| 11,640 |
|
| (26.2%) |
Net income (loss) from continuing operations |
|
| 116,057 |
|
|
| (98,863 | ) |
|
|
| 269,129 |
|
|
| 170,266 |
|
|
| (54,209 | ) |
|
|
Income (loss) from discontinued operations, net of income tax |
|
| (188 | ) |
|
| (33,967 | ) |
|
|
| (352 | ) |
|
| (34,319 | ) |
|
| 34,131 |
|
| (99.5%) |
Net income (loss) |
| $ | 115,869 |
|
| $ | (132,830 | ) |
|
| $ | 268,777 |
|
| $ | 135,947 |
|
| $ | (20,078 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
** Not a meaningful percentage |
|
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Revenues and Cost of Revenues
Revenues from our Rentals segment increased $92.8 million, or 45.4%, in the Current Period as compared to the Combined Period. Cost of revenues increased $18.0 million, or 21.6%, in the Current Period as compared to the Combined Period. This increase was due to an increase in both average rig count and commodity prices when compared to the Combined Period. During the Current Period, we experienced increases in utilization and pricing of both premium drill pipe and bottom hole assembly accessories, which contributed to an increase in gross margin which was 65.9% for the Current Period as compared to 59.2% in the Combined Period.
Revenues from our Well Services segment increased $55.8 million, or 19.1%, in the Current Period as compared to the Combined Period. Cost of revenues increased $4.5 million, or 1.9%, in the Current Period as compared to the Combined Period. Gross margin for
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the Current Period increased to 28.6% as compared to 16.6% 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 expense for the Current Period decreased $88.7 million, or 53.2%, as compared to the Combined Period. Depreciation expense is 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 expected to be approximately $102.8 million as compared to $228.2 million for the full year 2021.
Restructuring Expenses
Restructuring expenses for the Current Period decreased of $17.4 million, or 79.6%, as compared to the Combined Period, and primarily relate to costs associated with the Transformation Project.
Other (gains) and losses, net
Other (gains) and losses, net for the Current Period were $30.3 million compared to $0.7 million in the Combined Period. Other (gains) and losses, net primarily relate to charges recorded as part of our strategic disposal of low margin assets in line with our Transformation Project and includes gains/losses on the disposal of assets, as well as impairments, if any, related to long-lived assets. Other (gains) and losses, net for the Current Period include net gains of $12.9 million primarily related to disposals of non-core businesses and assets within our Well Services segment and a gain of $17.4 million from revisions in estimates related to our decommissioning liability.
Interest Income, Net
Interest income, net for the Current Period was $6.0 million compared to $1.6 million for the Combined Period. The increase in interest income was driven by interest derived on overnight money market accounts primarily in Argentina and the United States.
Other Income (Expense)
Losses on foreign currencies during the Current Period and CombinedPrior Year Period were $11.9$3.6 million and $6.4$4.9 million, respectively. Losses on foreign currencies during the CurrentPrior Year Period also 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 gainslosses, net on our investment in equity securities for the CurrentPrior Year Period were $4.5$4.2 million. During the CurrentPrior Year Period, we disposed of 1.7 million shares for $13.4 million. All investments in equity securities were disposed of prior to December 31, 2022.
Income Taxes
The effective tax rate on income from continuing operations for the Current Period and Prior Year Period was 25.4% and 21.7%, respectively. The U.S federal statutory rate for both periods was 21%. The effective tax rates for both periods were unfavorably impacted by our current and ongoing operations in foreign jurisdictions which have tax rates significantly in excess of the U.S. federal statutory rate.
The effective tax rate for the Current Period and Combined Period was 22.0% and 20.7%, respectively, onalso unfavorably impacted by a $7.6 million immaterial misstatement recognized in the first quarter of 2023 arising from certain net operating loss carryforwards that should have been eliminated as part of a worthless stock deduction taken in the fourth quarter of 2022, partially offset by favorable impacts of approximately $14.9 million from income from continuing operations. The effective tax rate for the Current Period is different from the U.S. federal statutory rate of 21.0% 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 Combined Period is different from the U.S. federal statutory rate of 21.0% primarily from non-deductible items, foreign losses for which no tax benefit was recorded and the adoption of fresh start accounting during the period.
Unrecognized tax benefit as of September 30, 2022 was $15.2 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 $11.4 million of unrecognized tax benefits could be settled in the next twelve months duerelated to the conclusionreversals 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.foreign jurisdictions and adjustments to valuation allowances on foreign operations.
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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.
Financial Condition and Liquidity
Our primary sources of liquidity have been cash and cash equivalents, cash generated from our operations and from asset sales, and availability under our Credit Facility. As of SeptemberJune 30, 2022,2023, we had cash, cash equivalents and restricted cash of $533.4$410.4 million. During the ninesix months ended SeptemberJune 30, 20222023 net cash provided by operating activities was $122.0$102.9 million, and we received $59.8$15.1 million in cash proceeds from the sale of assets and equity securities in which we are invested.assets. The primary uses of liquidity are to provide support for operating activities restructuring activities and capital expenditures. We spent $42.9$45.6 million of cash on capital expenditures during the ninesix months ended SeptemberJune 30, 2022.2023.
The energy industry faces growing negative sentiment in the market which may affect our ability to access capital 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, but also affected the availability and pricing for most credit lines extended to participants in the energy industry. From time to time, we may enter into transactions to dispose of businesses or capital assets that no longer fit our long-term strategy.
Distributions to Shareholders
The Board has continued to evaluate strategic alternatives in the third quarter. We now expect to pay a distribution to shareholders in the fourth quarter of 2022.
Debt Instruments
On the Emergence Date, pursuant to the Plan, we entered intoWe have a Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders and letter of credit issuers named therein providing for a $120.0 million asset-based secured revolving Credit Facility, all of which is available for the issuance of letters of credit (the “Credit Facility”)., which matures in December 2024. 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.
As of SeptemberJune 30, 2022,2023, our borrowing base, as defined in the Credit Agreement, was approximately $120.0 million and we had $40.3$34.7 million of letters of credit outstanding that reduced the borrowing availability. We had no outstanding borrowings under the Credit Facility as of SeptemberJune 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 permitted 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 is less than the greater of $20.0 million or 15% of the lesser of the aggregate commitments and the borrowing base.2023. We were in compliance with all required covenants as of SeptemberJune 30, 2022.2023.
Other Matters
New Accounting Pronouncements
See Part 1, Item 1, “Unaudited Condensed Consolidated Financial Statements and Notes” – Note 1718 – “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, 20212022 (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
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“Management’s “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 September 30, 2022, we did not hold financial instruments for trading purposes.commodity prices.
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 SeptemberAs of June 30, 2022,2023, 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 our option, at either an adjusted LIBOR rate plus an applicable margin ranging from 3.00% to 3.50% per annum, or an alternate base rate plus an applicable margin ranging from 2.00% to 2.50% per annum, in each case on the basis of the consolidated fixed charge coverage ratio. In addition, we are required to pay (i) a letter of credit fee, (ii) to the issuing lender of each letter of credit, a fronting fee and (iii) commitment fees. Upon the cessation of LIBOR, the Credit Facility provides for the use of alternative benchmark rates for the determination of the borrowing rate, and the cessation of LIBOR will not have a material impact on us. However, as of September 30, 2022, we had no outstanding borrowings under the Credit Facility.
Commodity Price Risk
Our revenues, profitability and future rate of growth significantly depend upon the market prices of oil and natural gas. Lower prices may also reduce the amount of oil and gas that can economically be produced.
Inflation Risk22
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 disclosure controls and procedures are 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 our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. An evaluation was carried out, under the supervision and with the participation of our management, including our CEO and 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 SeptemberJune 30, 20222023 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 specified 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 required disclosure.disclosure as a result of the material weakness in our internal control over financial reporting described below.
Material Weakness in Internal Control Over Financial Reporting
A material weakness is defined as 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.
Management identified a material weakness in our internal control over financial reporting as we did not design and maintain effective controls to review the reasonableness of assumptions determined by, and accuracy of calculations performed by, our external tax service providers. This material weakness resulted in an adjustment to deferred tax benefit and income tax benefit that was recorded in the consolidated financial statements as of and for the year ended December 31, 2022. Additionally, this material weakness could result in misstatements of income tax related balances that would result in a material misstatement to the annual or interim consolidated financial statements which would not be prevented or detected.
Remediation Plan for Material Weakness
In order to address the material weakness described above, management has implemented a remediation plan that includes implementing enhancements to our controls around reviewing the reasonableness of assumptions determined by, and the accuracy of calculations performed by, our external tax service providers. As we continue to evaluate and work to improve our internal control over financial reporting, we may determine to take additional measures to address the material weakness.
Based on its evaluation, the controls described above have not had sufficient time for management to conclude that the controls are operating effectively. Therefore, the material weakness described above existed at June 30, 2023, 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 beenOther than the changes related to the remediation plan above, there were no changes in internal control over financial reporting during the quarter ended SeptemberJune 30, 20222023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are involved in various legal actions incidental to our business. However, based on current circumstances, we do not believe that the ultimate resolution of these proceedings 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 – Note 14 – Contingencies.”
Item 1A. Risk Factors
As of SeptemberJune 30, 2022,2023, there have been no material changes in risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as updated by our quarterly reports on Form 10-Q for the quarters ended March 31, 2022 and June 30, 2022.10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There has been no share repurchase activity during the three months ended September 30, 2022.24
Item 3. Defaults Upon Senior Securities
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 |
Officer’s certification pursuant to Section 1350 of Title 18 of the U.S. Code. | |
Officer’s certification pursuant to Section 1350 of Title 18 of the U.S. Code. | |
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* | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith
^ Management contract or compensatory plan or arrangement
# This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.
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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/ Brian K. Moore |
Brian K. Moore | |||
President and Chief Executive Officer | |||
(Principal Executive Officer) | |||
By: | /s/ James W. Spexarth | ||
James W. Spexarth | |||
Executive Vice President and Chief Financial Officer | |||
(Principal Financial Officer) |
`
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