Pioneer Energy Services Reports Second Quarter 2019 Results

SAN ANTONIO, July 31, 2019 /PRNewswire/ -- Pioneer Energy Services (NYSE: PES) today reported financial and operating results for the quarter ended June 30, 2019. Second quarter highlights include:

• International drilling fleet was 86% utilized and generated an average margin per day of $11,023.
• Well servicing revenues increased 12% sequentially, largely driven by a 10% increase in rig hours.
• Domestic drilling fleet was 95% utilized and generated an average margin per day of $10,131.
• Cash and cash equivalents increased $3.3 million to $31.1 million sequentially.

Consolidated Financial Results

Revenues for the second quarter of 2019 were $152.8 million, up 4% from revenues of $146.6 million in the first quarter of 2019 ("the prior quarter"). Net loss for the second quarter of 2019 was $12.9 million, or $0.17 per share, compared with net loss of $15.1 million, or $0.19 per share, in the prior quarter. Adjusted net loss⁽¹⁾ for the second quarter was $11.8 million, and adjusted EPS⁽²⁾ was a loss of $0.15 per share. These results compare to an adjusted net loss of $10.5 million, and an adjusted EPS loss of $0.13 per share in the prior quarter which had higher adjustments for impairment charges and valuation allowance adjustments on deferred tax assets. Second quarter adjusted EBITDA⁽³⁾ was $20.7 million, up from $19.9 million in the prior quarter.

The increases in revenues and Adjusted EBITDA were primarily due to improvements in our international drilling and well servicing segments. Adjusted EBITDA also increased sequentially due to the reduced fair value of our phantom stock awards, for which we recognized a benefit of $0.8 million in the second quarter, while we recognized an expense of $0.8 million in the prior quarter. The increases in revenues and Adjusted EBITDA were partially offset by the impact of lower utilization and pricing in our coiled tubing services.

Operating Results

Production Services Business

Revenue from our production services business was $87.8 million in the second quarter, up 1% from the prior quarter. Well servicing revenues increased 12%, primarily driven by higher utilization for both maintenance and completion activity. Well servicing average revenue per hour was $569 in the second quarter, up from $558 in the prior quarter, while rig utilization was 60%, up from 54% in the prior quarter. Wireline services, our largest production services business, experienced an increase in perforating stage count of approximately 12%, yielding a revenue increase of 3%. The revenue increases in well servicing and wireline were offset by a 26% revenue decline in coiled tubing services. Both the Rockies and Eagle Ford districts faced more intense competition as completion activity slowed, which negatively impacted utilization and pricing. In addition, the Rockies experienced seasonal slowdowns due to wildlife stipulations, which ended in early May. Coiled tubing revenue days totaled 307 in the second quarter, as compared to 351 in the prior quarter, while revenue per day was $35,430, down from $42,131 in the prior quarter.

Gross margin as a percentage of revenue from our production services business was 17% in the second quarter, down from 20% in the prior quarter. The decrease in gross margin was primarily due to  utilization and pricing declines in coiled tubing services.      

Drilling Services Business

Revenue from our drilling services business was $65.1 million in the second quarter, reflecting a 9% increase from the prior quarter. Average margin per day was $10,396, up from $10,349 in the prior quarter.

Our domestic drilling fleet was 95% utilized with average revenues per day of $26,864 in the second quarter, up from $26,767 in the prior quarter. Domestic drilling average margin per day was $10,131 in the second quarter, down from $10,944 in the prior quarter, primarily due to increased expenses for routine annual maintenance requirements, stacked rig costs for one rig at the end of its contract, higher mobilization costs associated with a rig that moved to a different region under a new contract, and the benefit in the previous quarter of $0.3 million, or approximately $235 per day, from recognition of the early termination of a domestic drilling contract.

International drilling rig utilization was 86% for the second quarter, up from 81% in the prior quarter. Average revenues per day were $40,806, up from $37,316 in the prior quarter, while average margin per day for the second quarter was $11,023, up from $8,894 in the prior quarter. The increases in revenue per day and margin per day were due to a greater number of days drilling in the current quarter, versus the prior quarter, as well as dayrate increases on certain rigs of approximately $1,000 per day.

Currently, 16 of our 17 domestic drilling rigs are earning revenues, 14 of which are under term contracts. Nine rigs are working in the Permian, five in Appalachia and two in the Bakken. Seven of the nine rigs in the Permian have contracts up for renewal in the third or fourth quarters of 2019. Five of those seven contracts have been extended or verbally agreed to be renewed, and two contracts are currently in negotiations to be extended. All contracts are expected to be renewed at roughly overall flat dayrates. In Appalachia, one rig is stacked and a second rig may stack in the third quarter; however, we expect the remaining four rigs to continue earning for the remainder of the year. In the Bakken, both of the contracted rigs expiring in the fourth quarter are in negotiations to be extended into the first quarter of 2020.

In Colombia, six of our eight rigs are currently earning revenue under daywork contracts. While overall demand for rigs remains strong, there are several rigs that may begin new contracts, move to a different current client or move to a new client which could cause a temporary reduction in utilization. Despite short-term uncertainty on certain contracts, we do expect five to seven of the rigs to remain active for the remainder of 2019.

Comments from our President and CEO 

"We had solid performance once again from our drilling services segments which helped us generate favorable operating results and increase our cash position in the quarter," said Wm. Stacy Locke, President and Chief Executive Officer. "In Colombia, we are pleased with the improvement in average margins per day and level of demand for the premium 1,500 horsepower rig class, which gives us confidence that demand for our rigs in that market will remain solid in 2020 despite uncertainty about certain contract extensions for the balance of 2019. We are very pleased with our Colombian team delivering first-rate operational and safety performance while at the same time generating some of the best financial results in many years.

"Our domestic drilling operations have proven to be strong and resilient, also delivering best-in-class safety and operational performance. Utilization rates for our domestic rigs continue to be strong and dayrates have remained steady, although we do anticipate some softness in the second half of the year, particularly in the Appalachian region, where we currently have one rig idle. Our outlook for our domestic operations remains positive.

"Our production services revenue improved sequentially; however, our gross margins fell below expectations. Despite challenging market conditions, we are focused on improving margins through realignment of certain businesses and reducing costs. Our well servicing business benefited from customers dedicating capital to well maintenance to boost or maintain production volumes. We also experienced higher utilization for completion-related services in this business. While our wireline revenue improved sequentially, coiled tubing activity was lower due to excess equipment capacity and seasonal factors in the Rockies. Poor visibility concerning completion activity in the second half of 2019 creates uncertainty regarding production services activity levels in the next two quarters. We do expect some customers to pause operations due to budget constraints for a period of time during the second half of 2019.

"For the remainder of the year, we remain focused on cash flow generation. We expect the second half of 2019 to be cash flow positive, with the third quarter likely to reflect a use of cash due to the semi-annual bond payment in September. Remaining capital expenditures will be routine maintenance in nature as the majority of discretionary spending was completed in the first half of 2019. While the Term Loan does not mature until December 2021, we are proactively exploring various strategic and other alternatives to address the uncertainties related to our ability to refinance our outstanding debts as their maturities approach," concluded Mr. Locke.

Third Quarter 2019 Guidance

In the third quarter of 2019, we expect continued weakness in coiled tubing services, a modest softening in well servicing, and certain clients reducing activity in wireline services. As a result, we expect revenue from our production services business segments to be down approximately 3% to 6% as compared to the second quarter of 2019, and margins to be flat at approximately 17% of revenue.

Due to the potential for an additional stacked rig in the Appalachia market, we expect domestic drilling services rig utilization to average approximately 88% to 92%, and generate average margins per day of approximately $9,700 to $10,200. Similarly, with the contract uncertainty in Colombia, we expect international drilling services rig utilization to average approximately 70% to 75%, and generate average margins per day of approximately $9,000 to $10,000.

We expect general and administrative expense to be approximately $20 million in the third quarter of 2019 partially due to higher phantom stock compensation expense relative to the prior quarter.

Liquidity

Working capital at June 30, 2019 was $106.5 million, up from $103.7 million at March 31, 2019, and down from $110.3 million at December 31, 2018. Cash and cash equivalents, including restricted cash, were $31.1 million, up from $27.9 million at March 31, 2019, and down from $54.6 million at year-end 2018. During the six months ended June 30, 2019, we used $31.4 million of cash for the purchase of property and equipment, and our cash provided by operations was $4.0 million.

Capital Expenditures

Cash capital expenditures during the six months ended June 30, 2019 were $31.4 million, including capitalized interest. We estimate total cash capital expenditures for 2019 to be approximately $50 million, which includes approximately $8 million for final payments on the construction of the new-build drilling rig that began operations in the first quarter, and previous commitments on high-pressure pump packages for coiled tubing completion operations.

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, dial (412) 902-0003 approximately 10 minutes prior to the call and ask for the Pioneer Energy Services conference call. A telephone replay will be available after the call until August 7^th. To access the replay, dial (201) 612-7415 and enter the pass code 13692092.

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 our web site at least 10 minutes early to register and download any necessary audio software. For more information, please contact Donna Washburn at Dennard Lascar Investor Relations at (713) 529-6600 or e-mail [email protected].

About Pioneer

Pioneer Energy Services provides well servicing, wireline, and coiled tubing services to producers in the U.S. Gulf Coast, Mid-Continent and Rocky Mountain regions through its three production services business segments. Pioneer also provides contract land drilling services to oil and gas operators in Texas, the Mid-Continent and Appalachian regions and internationally in Colombia through its two drilling services business segments.

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 made in good faith that are subject to risks, uncertainties and assumptions. These forward-looking statements are based on our current beliefs, intentions, and expectations and are not guarantees or indicators of future performance. Our actual results, performance or achievements, or industry results, could differ materially from those we express in the foregoing discussion 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, the continued demand for drilling services or production services in the geographic areas where we operate, decisions about exploration and development projects to be made by oil and gas exploration and production companies, the highly competitive nature of our business, technological advancements and trends in our industry and improvements in our competitors' equipment, the loss of one or more of our major clients or a decrease in their demand for our services, future compliance with covenants under debt agreements, including our senior secured term loan, our senior secured revolving asset-based credit facility, and our senior notes, future compliance with the listing requirements of the NYSE, operating hazards inherent in our operations, the supply of marketable drilling rigs, well servicing rigs, coiled tubing units and wireline units within the industry, the continued availability of new components for drilling rigs, well servicing rigs, coiled tubing units and wireline units, the continued availability of qualified personnel, the success or failure of our acquisition strategy, the occurrence of cybersecurity incidents, the political, economic, regulatory and other uncertainties encountered by our operations, and changes in, or our failure or inability to comply with, governmental regulations, including those relating to the environment. We have discussed many of these factors in more detail in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019 and in our Annual Report on Form 10-K for the year ended December 31, 2018, including under the headings "Risk Factors" in Item 1A and "Special Note Regarding Forward-Looking Statements" in the Introductory Note to Part I. These factors are not necessarily all the important factors that could affect us. Other unpredictable or unknown factors could also have material adverse effects on actual results of matters that are the subject of our forward-looking statements. All forward-looking statements speak only as of the date on which they are made and we undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise. We advise our shareholders that they should (1) recognize that important factors not referred to above could affect the accuracy of our forward-looking statements and (2) use caution and common sense when considering our forward-looking statements.

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 U.S. Generally Accepted Accounting Principles (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.

 - Financial Statements and Operating Information Follow -

SOURCE Pioneer Energy Services