Pioneer Energy Services Reports Second Quarter 2012 Results

SAN ANTONIO, Aug. 7, 2012 /PRNewswire/ -- Pioneer Energy Services (NYSE: PES) today reported financial and operating results for the three months ended June 30, 2012. Financial and operational highlights include: 

  • Changed our name to better reflect our broader lines of business;
  • Production Services revenue up another 3% over prior quarter and represents 48% of total revenues;
  • Nine wireline units, seven well servicing rigs and one coiled tubing unit added since end of first quarter;
  • First three new-build drilling rigs are currently working;
  • 77% of working drilling rigs are operating under term drilling contracts.

Financial Results

Revenues for the second quarter of 2012 were $229.8 million, a 1% decrease from $232.0 million for the first quarter of 2012 ("the prior quarter") and a 34% increase over $171.3 million for the second quarter of 2011 ("the year-earlier quarter").  The increase in second quarter revenues as compared to the year-earlier quarter was primarily due to higher utilization and pricing for both the Drilling Services Segment and Production Services Segment, fleet additions and the contributions from our new coiled tubing business that was acquired at year end 2011. 

Net income for the second quarter was $9.7 million, or $0.15 per diluted share, compared with net income for the prior quarter of $14.2 million, or $0.23 per diluted share, and net income for the year-earlier quarter of $3.7 million, or $0.07 per diluted share.

Second quarter Adjusted EBITDA(1) was $63.3 million, a 10% decrease from $70.1 million in the prior quarter and a 40% increase over Adjusted EBITDA of $45.1 million in the year-earlier quarter.

Operating Results

Revenue for the Drilling Services Segment was $119.0 million in the second quarter, a 4% decrease from the prior quarter and a 12% increase from the year-earlier quarter. Utilization was 89% for our drilling rig fleet that had 62 rigs for most of the second quarter, up from 87% in the prior quarter when the fleet count was 64 rigs and 69% in the year-earlier quarter when the fleet count was 71 rigs. The change in the drilling rig count was primarily due to the retirement of seven rigs effective September 30, 2011 and two more rigs effective March 31, 2012.  Our current fleet count is 66 rigs after the delivery of our first four new-build drilling rigs.

Second quarter average drilling revenues were $23,658 per day as compared to $24,547 per day in the prior quarter and $23,981 per day in the year-earlier quarter. Drilling Services margin(2) per day was $8,032 in the second quarter as compared to $8,537 in the prior quarter and $7,504 in the year-earlier quarter. Average Drilling Services revenues per day and margin per day were higher in the prior quarter primarily due to higher turnkey revenue and a fuel cost reimbursement for our rigs operating in Colombia during the period.  In addition, Drilling Services margin in the second quarter was negatively impacted by approximately $0.9 million in costs associated with moving and stacking two rigs in Colombia and three rigs in South Texas.

Revenue for the Production Services Segment was $110.8 million in the second quarter, up 3% from the prior quarter and up 71% from the year-earlier quarter. Second quarter Production Services margin(2) as a percentage of revenue was 41%, compared to 44% in the prior quarter and 42% in the year-earlier quarter. The decrease in Production Services margin was primarily due to reduced utilization of our coiled tubing unit fleet during the second quarter of 2012.  However, our well servicing rig utilization increased to 97% during the second quarter, compared to 92% in the prior quarter and 90% in the year-earlier quarter, while pricing grew to $592 from $581 per hour as compared to the prior quarter and $524 per hour in the year-earlier quarter. 

"We are excited to be announcing our new name that more accurately reflects the service diversification we have been building over the last four years since we acquired our Production Services business," said Wm. Stacy Locke, President and CEO of Pioneer Energy Services.  "With our growth in the Production Services Segment, including the recent addition of coiled tubing services, we can now offer our long standing drilling clients a broad array of additional services.

"We have recently started deploying our new-build drilling rigs, with the first three of the ten new-build rigs now deployed and operating under long-term contracts and a fourth new-build rig currently moving to its first location. The remaining six new-build drilling rigs will go to work under multi-year term contracts, with three rigs expected to be deployed by year end and three rigs in the first quarter of 2013.

"Due to low natural gas prices and increased competition for energy services in oil and liquids-rich basins, we expect to see moderate pricing and utilization pressure for Drilling Services in the third quarter, which should be partially offset by the impact of deploying our new-build drilling rigs. We anticipate drilling rig utilization to average between 85% and 87% and Drilling Services margin to be approximately $7,500 to $8,000 per day, which is flat to slightly down from the second quarter.

"Our Production Services Segment has continued to perform well, with the wireline and well servicing operations both generating record results in the second quarter. Our coiled tubing services business unit had some performance issues in April and May, but generated better results in June. Currently, our coiled tubing business is on track to have an improved third quarter due to higher utilization. Since the end of the first quarter, we have added nine wireline units, seven well servicing rigs and one coiled tubing unit.  We plan to add another three wireline units, six well servicing rigs and two coiled tubing units by year end.

"We anticipate some market pressures in the third quarter, which should be offset by the impact of our fleet additions. Production Services revenues are expected to be flat to 3% down, and margin as a percentage of revenues is expected be flat in the third quarter," Locke said.

Liquidity

Working capital was $61.9 million at June 30, 2012, compared to $129.9 million at December 31, 2011. Our cash and cash equivalents at the end of the second quarter were $20.4 million, down from $86.2 million at year-end 2011. 

The change in cash and cash equivalents during the first half of 2012 is primarily due to $193.9 million used for purchases of property and equipment, partially offset by cash provided by operations of $91.7 million. As of July 20, 2012, we had $35 million outstanding and $9.0 million in committed letters of credit under our $250 million Revolving Credit Facility, resulting in borrowing availability under our Revolving Credit Facility of $206 million.

Capital Expenditures

For the quarter ended June 30, 2012, total cash capital expenditures were $98.8 million. Currently, we expect to spend approximately $325 million to $345 million in 2012, which includes a portion of the construction costs for new-build drilling rigs, upgrades to certain drilling rigs, additional well servicing rigs, wireline units, coiled tubing units and routine capital expenditures. We expect to fund the remaining capital expenditures from operating cash flow in excess of our working capital requirements and from borrowings under our Revolving Credit Facility.

Conference Call

Pioneer Energy Services' management team will hold a conference call today at 11:00 a.m. Eastern Time (10:00 a.m. Central Time), to discuss these results. To participate in the call, dial (480) 629-9866 ten minutes early and ask for the Pioneer Energy Services' conference call. A replay will be available after the call and will be accessible until August 14. To access the replay, dial (303) 590-3030 and enter the pass code 4552859#. A broadcast of the conference call will also be webcast on the Internet and accessible from Pioneer Energy Services' Web site at www.pioneeres.com. To listen to the live call, visit Pioneer Energy Services' Web site at least 10 minutes early to register and download any necessary audio software.  An archive will be available shortly after the call. For more information, please contact Donna Washburn at DRG&L at (713) 529-6600 or e-mail dmw@drg-l.com.

About Pioneer

Pioneer Energy Services provides contract land drilling services to independent and major oil and gas operators in Texas, Louisiana, the Mid-Continent, Rocky Mountain and Appalachian regions and internationally in Colombia through its Drilling Services Segment. Pioneer also provides well, wireline, coiled tubing and fishing and rental services to producers in the U.S. Gulf Coast, offshore Gulf of Mexico, Mid-Continent and Rocky Mountain regions through its Production Services Segment.

Cautionary Statement Regarding Forward-Looking Statements, Non-GAAP Financial Measures and Reconciliations

Statements we make in this news release that express a belief, expectation or intention, as well as those that are not historical fact, are forward-looking statements that are subject to risks, uncertainties and assumptions. Our actual results, performance or achievements, or industry results, could differ materially from those we express in this news release as a result of a variety of factors, including general economic and business conditions and industry trends; levels and volatility of oil and gas prices; decisions about onshore exploration and development projects to be made by oil and gas exploration and production companies; risks associated with economic cycles and their impact on capital markets and liquidity; the continued demand for the drilling services or production services in the geographic areas where we operate; the highly competitive nature of our business; our future financial performance, including availability, terms and deployment of capital; future compliance with covenants under our senior secured revolving credit facility and our senior notes; the supply of marketable drilling rigs, well servicing rigs, coiled tubing and wireline units within the industry; the continued availability of drilling rig, well servicing rig, coiled tubing and wireline unit components; the continued availability of qualified personnel; the success or failure of our acquisition strategy, including our ability to finance acquisitions, manage growth and effectively integrate acquisitions; and changes in, or our failure or inability to comply with, governmental regulations, including those relating to the environment. We have discussed many of these factors in more detail in our annual report on Form 10-K for the year ended December 31, 2011. These factors are not necessarily all the important factors that could affect us. Unpredictable or unknown factors we have not discussed in this news release, or in our annual report on Form 10-K, could also have material adverse effects on actual results of matters that are the subject of our forward-looking statements.  All forward-looking statements speak only as of the date on which they are made and we undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise.  We advise our shareholders that they should (1) be aware that important factors not referred to above could affect the accuracy of our forward-looking statements and (2) use caution and common sense when considering our forward-looking statements.

This news release contains non-GAAP financial measures as defined by SEC Regulation G.  A reconciliation of each such measure to its most directly comparable GAAP financial measure, together with an explanation of why management believes that these non-GAAP financial measures provide useful information to investors, is provided in the following tables.





















(1)

Adjusted EBITDA is a financial measure that is not in accordance with GAAP, and should not be considered (i) in isolation of, or as a substitute for, net income (loss), (ii) as an indication of operating performance or cash flows from operating activities or (iii) as a measure of liquidity. In addition, Adjusted EBITDA does not represent funds available for discretionary use. We define Adjusted EBITDA as income (loss) before interest income (expense), taxes, depreciation, amortization and any impairments. We use this measure, together with our GAAP financial metrics, to assess our financial performance and evaluate our overall progress towards meeting our long-term financial objectives. We believe that this non-GAAP financial measure is useful to investors and analysts in allowing for greater transparency of our operating performance and makes it easier to compare our results with those of other companies within our industry. Adjusted EBITDA, as we calculate it, may not be comparable to Adjusted EBITDA measures reported by other companies. A reconciliation of Adjusted EBITDA to net income (loss) is set forth below.











(2)

Drilling Services margin represents contract drilling revenues less contract drilling operating costs. Production Services margin represents production services revenues less production services operating costs. We believe that Drilling Services margin and Production Services margin are useful measures for evaluating financial performance, although they are not measures of financial performance under GAAP. However, Drilling Services margin and Production Services margin are common measures of operating performance used by investors, financial analysts, rating agencies and Pioneer management. A reconciliation of Drilling Services margin and Production Services margin to net income (loss) as reported is included in the tables to this press release. Drilling Services margin and Production Services margin as presented may not be comparable to other similarly titled measures reported by other companies.











Contacts:

Lorne E. Phillips, CFO

Pioneer Energy Services Corp.

(210) 828-7689

 

Lisa Elliott / lelliott@drg-l.com  

Anne Pearson / apearson@drg-l.com

DRG&L / (713) 529-6600

 


- Financial Statements and Operating Information Follow -


PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)






Three months ended


Six months ended


June 30,


March 31,


June 30,


2012


2011


2012


2012


2011





Revenues:










Drilling services

$

119,048



$

106,523



$

124,304



$

243,352



$

206,279


Production services

110,776



64,762



107,674



218,450



118,355


Total revenues

229,824



171,285



231,978



461,802



324,634












Costs and expenses:










Drilling services

78,631



73,190



81,077



159,708



140,699


Production services

65,683



37,754



60,696



126,379



70,982


Depreciation and amortization

39,989



32,424



38,373



78,362



64,680


General and administrative

22,265



15,860



21,143



43,408



30,381


Bad debt (recovery) expense

(56)



139



(91)



(147)



55


Impairment of equipment





1,032



1,032














Total costs and expenses

206,512



159,367



202,230



408,742



306,797


Income from operations

23,312



11,918



29,748



53,060



17,837












Other (expense) income:










Interest expense

(7,650)



(7,983)



(9,555)



(17,205)



(15,522)


Other

20



754



932



952



(5,763)


Total other expense

(7,630)



(7,229)



(8,623)



(16,253)



(21,285)












Income (loss) before income taxes

15,682



4,689



21,125



36,807



(3,448)


Income tax (expense) benefit

(5,997)



(1,039)



(6,953)



(12,950)



1,063












Net income (loss)

$

9,685



$

3,650



$

14,172



$

23,857



$

(2,385)












Income (loss) per common share:










Basic

$

0.16



$

0.07



$

0.23



$

0.39



$

(0.04)


Diluted

$

0.15



$

0.07



$

0.23



$

0.38



$

(0.04)












Weighted-average number of shares outstanding:










Basic

61,768



54,205



61,578



61,673



54,087


Diluted

62,620



55,881



62,647



62,624



54,087






PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands)






June 30,

2012


December 31,

2011


(unaudited)


(audited)





ASSETS




Current assets:




Cash and cash equivalents

$

20,380



$

86,197


Receivables, net of allowance for doubtful accounts

167,493



145,234


Deferred income taxes

14,350



15,433


Inventory

13,211



11,184


Prepaid expenses and other current assets

13,333



11,564


Total current assets

228,767



269,612






Net property and equipment

939,445



793,956


Intangible assets, net of amortization

48,205



52,680


Goodwill

41,683



41,683


Noncurrent deferred income taxes

1,242



735


Other long-term assets

12,066



14,088


Total assets

$

1,271,408



$

1,172,754






LIABILITIES AND SHAREHOLDERS' EQUITY




Current liabilities:




Accounts payable

$

95,189



$

66,440


Current portion of long-term debt

871



872


Prepaid drilling contracts

4,071



3,966


Accrued expenses

66,754



68,402


Total current liabilities

166,885



139,680






Long-term debt, less current portion

453,290



418,728


Noncurrent deferred income taxes

105,689



94,745


Other long-term liabilities

7,607



9,156


Total liabilities

733,471



662,309


Total shareholders' equity

537,937



510,445


Total liabilities and shareholders' equity

$

1,271,408



$

1,172,754




PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)




Six months ended


June 30,


2012


2011





Cash flows from operating activities:




Net income (loss)

$

23,857



$

(2,385)


Adjustments to reconcile net income (loss) to net cash provided by operating activities:




Depreciation and amortization

78,362



64,680


Allowance for doubtful accounts

370



56


Loss (gain) on dispositions of property and equipment

(1,004)



691


Stock-based compensation expense

3,670



3,483


Amortization of debt issuance costs, discount and premium

1,475



2,044


Impairment of equipment

1,032




Deferred income taxes

11,221



(2,843)


Change in other long-term assets

744



1,432


Change in other long-term liabilities

(1,549)



1,655


Changes in current assets and liabilities

(26,480)



(15,202)


Net cash provided by operating activities

91,698



53,611






Cash flows from investing activities:




Acquisition of production services businesses



(2,000)


Purchases of property and equipment

(193,884)



(79,196)


Proceeds from sale of property and equipment

1,957



2,000


Proceeds from sale of auction rate securities



12,569


Net cash used in investing activities

(191,927)



(66,627)






Cash flows from financing activities:








Debt repayments

(863)



(13,742)


Proceeds from issuance of debt

35,000



17,000


Debt issuance costs

(23)



(3,186)


Proceeds from exercise of options

655



2,091


Purchase of treasury stock

(357)



(352)


Excess tax benefit of stock option exercises



696


Net cash (used in) provided by financing activities

34,412



2,507






Net decrease in cash and cash equivalents

(65,817)



(10,509)


Beginning cash and cash equivalents

86,197



22,011


Ending cash and cash equivalents

$

20,380



$

11,502






PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES

Operating Statistics

(in thousands, except average number of drilling rigs, utilization rate, revenue days and per day information)

(unaudited)






Three months ended


Six months ended


June 30,


March 31,


June 30,


2012


2011


2012


2012


2011











Drilling Services Segment:










Revenues

$

119,048



$

106,523



$

124,304



$

243,352



$

206,279


Operating costs

78,631



73,190



81,077



159,708



140,699


Drilling Services margin (1)

$

40,417



$

33,333



$

43,227



$

83,644



$

65,580












Average number of drilling rigs (3)

62.5



71.0



64.0



63.2



71.0


Utilization rate

89

%


69

%


87

%


88

%


67

%

Revenue days

5,032



4,442



5,064



10,096



8,593












Average revenues per day

$

23,658



$

23,981



$

24,547



$

24,104



$

24,005


Average operating costs per day

15,626



16,477



16,010



15,819



16,374


Drilling Services margin per day (2)

$

8,032



$

7,504



$

8,537



$

8,285



$

7,631












Production Services Segment:










Revenues

$

110,776



$

64,762



$

107,674



$

218,450



$

118,355


Operating costs

65,683



37,754



60,696



126,379



70,982


Production Services margin (1)

$

45,093



$

27,008



$

46,978



$

92,071



$

47,373












Combined:










Revenues

$

229,824



$

171,285



$

231,978



$

461,802



$

324,634


Operating Costs

144,314



110,944



141,773



286,087



211,681


Combined margin

$

85,510



$

60,341



$

90,205



$

175,715



$

112,953












Adjusted EBITDA (4) & (5)

$

63,321



$

45,096



$

70,085



$

133,406



$

76,754



(1) Drilling Services margin represents contract drilling revenues less contract drilling operating costs. Production Services margin represents production services revenue less production services operating costs.  We believe that Drilling Services margin and Production Services margin are useful measures for evaluating financial performance, although they are not measures of financial performance under generally accepted accounting principles. However, Drilling Services margin and Production Services margin are common measures of operating performance used by investors, financial analysts, rating agencies and Pioneer's management. A reconciliation of Drilling Services margin and Production Services margin to net income (loss) as reported is included in the table on the following page. Drilling Services margin and Production Services margin as presented may not be comparable to other similarly titled measures reported by other companies.



(2) Drilling Services margin per revenue day represents the Drilling Services' average revenue per revenue day less average operating costs per revenue day.



(3) Effective March 31, 2012, we had 62 drilling rigs in our fleet, which excluded the two drilling rigs which were retired for spare equipment.



(4) Adjusted EBITDA is a financial measure that is not in accordance with GAAP, and should not be considered (i) in isolation of, or as a substitute for, net income (loss), (ii) as an indication of operating performance or cash flows from operating activities or (iii) as a measure of liquidity.  In addition, Adjusted EBITDA does not represent funds available for discretionary use. We define Adjusted EBITDA as income (loss) before interest income (expense), taxes, depreciation, amortization and any impairments. We use this measure, together with our GAAP financial metrics, to assess our financial performance and evaluate our overall progress towards meeting our long-term financial objectives. We believe that this non-GAAP financial measure is useful to investors and analysts in allowing for greater transparency of our operating performance and makes it easier to compare our results with those of other companies within our industry. Adjusted EBITDA, as we calculate it, may not be comparable to Adjusted EBITDA measures reported by other companies. A reconciliation of Adjusted EBITDA to net income (loss) is set forth below.



See following page for footnote (5).






PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES

Reconciliation of Combined Drilling Services and Production Services

Margin and Adjusted EBITDA to Net Income (Loss)

(in thousands)

(unaudited)






Three months ended


Six months ended


June 30,


March 31,


June 30,


2012


2011


2012


2012


2011











Combined margin

$

85,510



$

60,341



$

90,205



$

175,715



$

112,953












General and administrative

(22,265)



(15,860)



(21,143)



(43,408)



(30,381)


Bad debt recovery (expense)

56



(139)



91



147



(55)


Other income (expense) (5)

20



754



932



952



(5,763)


Adjusted EBITDA (4) & (5)

63,321



45,096



70,085



133,406



76,754












Depreciation and amortization

(39,989)



(32,424)



(38,373)



(78,362)



(64,680)


Impairment of equipment





(1,032)



(1,032)




Interest expense

(7,650)



(7,983)



(9,555)



(17,205)



(15,522)


Income tax (expense) benefit

(5,997)



(1,039)



(6,953)



(12,950)



1,063


Net income (loss)

$

9,685



$

3,650



$

14,172



$

23,857



$

(2,385)



(5) Our Adjusted EBITDA for the six months ended June 31, 2011 was reduced by a $7.3 million net-worth tax expense for our Colombian operations that was a non-recurring charge and was included in other (expense) income.






PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES

Capital Expenditures

(in thousands)

(unaudited)






Three months ended


Six months ended


June 30,


March 31,


June 30,


2012


2011


2012


2012


2011











Drilling Services Segment:










Routine and tubulars

$

7,330



$

8,484



$

8,506



$

15,836



$

18,535


Discretionary

19,414



11,271



16,192



35,606



19,471


New-builds and acquisitions

46,126



11,823



40,482



86,608



11,823



72,870



31,578



65,180



138,050



49,829


Production Services Segment:










Routine

3,443



2,026



3,729



7,172



3,740


Discretionary

8,751



8,152



10,209



18,960



12,724


New-builds and acquisitions

13,711



6,061



15,991



29,702



12,903



25,905



16,239



29,929



55,834



29,367


Net cash used for purchases of property and equipment

98,775



47,817



95,109



193,884



79,196


Net effect of accruals

10,201



15,989



17,268



27,469



19,304


Total capital expenditures

$

108,976



$

63,806



$

112,377



$

221,353



$

98,500






PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES

Drilling Rig, Well Servicing Rig, Wireline and Coiled Tubing Unit

Current Information






Rig Type




Mechanical


Electric


Total Rigs

Drilling Services Segment:












Drilling rig horsepower ratings:






550 to 700 HP

1





1


750 to 950 HP

7



2



9


1000 HP

19



12



31


1200 to 2000 HP

6



19



25


Total

33



33



66








Drilling rig depth ratings:






Less than 10,000 feet

3



2



5


10,000 to 13,900 feet

19



6



25


14,000 to 25,000 feet

11



25



36


Total

33



33



66








Production Services Segment:












Well servicing rig horsepower ratings:






400 HP





1


550 HP





91


600 HP





10


Total





102








Wireline units





117








Coiled tubing units





11








SOURCE Pioneer Energy Services



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