Pioneer Energy Services Reports Third Quarter 2012 Results

Nov 01, 2012, 06:30 ET from Pioneer Energy Services

SAN ANTONIO, Nov. 1, 2012 /PRNewswire/ -- Pioneer Energy Services (NYSE: PES) today reported financial and operating results for the three months ended September 30, 2012. Financial and operational highlights include: 

  • Five wireline units, four well servicing rigs and one coiled tubing unit have been added since the end of the second quarter.
  • Production Services margin(2) represented 51% of the Company's total margin for the third quarter.
  • Five new-build drilling rigs are currently working with the sixth new-build rig rigging up at its first location, all under long-term contracts. 
  • 79% of working drilling rigs are operating under term drilling contracts.

Consolidated Financial Results

Revenues for the third quarter of 2012 were $229.8 million, flat with revenue in the second quarter of 2012 ("the prior quarter"), but a 22% increase over $187.7 million for the third quarter of 2011 ("the year-earlier quarter").  The increase from the year-earlier quarter was primarily due to fleet additions as well as higher utilization and pricing for both the Drilling Services Segment and the Production Services Segment and due to the contribution from our new coiled tubing business. 

Net income for the third quarter was $2.6 million, or $0.04 per diluted share, compared with $9.7 million, or $0.15 per diluted share in the prior quarter and $6.7 million, or $0.11 per diluted share in the year-earlier quarter.

Third quarter Adjusted EBITDA(1) was $55.6 million, a 12% decrease from $63.3 million in the prior quarter and an 8% increase over Adjusted EBITDA of $51.6 million in the year-earlier quarter.

Operating Results

Drilling Services Segment

Revenue for the Drilling Services Segment was $125.7 million in the third quarter, a 6% increase from the prior quarter and a 16% increase from the year-earlier quarter. Third quarter utilization was 86%, down from 89% in the prior quarter, but up from 71% in the year-earlier quarter.

Our current fleet count is 68 drilling rigs, which includes six new-build drilling rigs that are now operating under long-term contracts. Our drilling rig fleet count has fluctuated due to the addition of new-build rigs during 2012, offset by the retirement of seven rigs effective September 30, 2011 and two more rigs effective March 31, 2012. 

Average drilling revenues increased to $24,101 per day as compared to $23,658 in the prior quarter and $23,340 in the year-earlier quarter.  The increase in the third quarter when compared to the prior quarter was primarily due to the contribution of the new-build drilling rigs, higher revenue for our Colombian operations and higher turnkey revenue.  Drilling Services margin(2) per day was $7,187 in the third quarter as compared to $8,032 in the prior quarter and $7,797 in the year-earlier quarter. Drilling Services margin per day was lower than both of the prior periods due to moderate pricing and utilization pressure and due to increased mobilization and labor costs incurred as rigs stacked out.  Also, the earnings benefit of deploying our new-build rigs was partially offset by higher operating costs during the initial start-up phase.

Production Services Segment

Revenue for the Production Services Segment was $104.1 million in the third quarter, down 6% from the prior quarter and up 32% from the year-earlier quarter. Production Services margin(2) as a percentage of revenue was 37%, compared to 41% in the prior quarter and 44% in the year-earlier quarter. The Production Services margin in the third quarter was negatively impacted by Hurricane Isaac with a reduction in revenues of approximately $2 million for operations in Louisiana, in particular, coiled tubing operations.  Also, the wireline operations had pricing and utilization pressure that was greater than anticipated.  Well servicing rig utilization declined to 91% from 97% in the prior quarter and 92% in the year-earlier quarter, while pricing increased to $606 per hour from $592 in the prior quarter and $555 in the year-earlier quarter. 

"Revenue growth in our Drilling Services segment was primarily driven by our continued roll-out of our new-build drilling rigs," said Wm. Stacy Locke, President and CEO of Pioneer Energy Services. 

"We now have five of our ten new-build drilling rigs deployed, with the sixth new-build rig currently rigging up at its first location. We expect to deploy another new-build drilling rig by year-end and the remaining three new-build rigs during the first quarter of 2013.  Due to construction delays, the term contract for one of the remaining new-build rigs was terminated during the third quarter and we are actively marketing the rig.  As a result, the remaining nine new-build drilling rigs are secured by multi-year term contracts. In Colombia, we had six of our eight drilling rigs operating under contract during the third quarter with our seventh rig returning to work in mid-November. 

"While market conditions continue to be challenging, we believe that our focus on service and safety position us to compete well in all our markets.  In the fourth quarter of 2012, we anticipate drilling rig utilization to average between 83% and 85% and Drilling Services Segment margin to be approximately $7,000 to $7,300 per day.

"Operating results for our Production Services Segment were impacted by disruptions from Hurricane Isaac in Louisiana as well as pricing and utilization pressure on our wireline operations that was more than expected.  We continue our focus on improving the performance of our coiled tubing business and expect some modest improvement in the fourth quarter.  Revenue in the third quarter from our well servicing rigs held steady with slightly higher hourly rates, offset by lower utilization at 91%, which is still very good. 

"We are continuing to add equipment in certain markets and have added five wireline units, four well servicing rigs and one coiled tubing unit since the end of the second quarter. We plan to add another three well servicing rigs and two coiled tubing units by year end.

"We anticipate some continued market pressures in the fourth quarter along with the normal reduction in activity due to seasonality. Production Services revenues are expected to be down 5% to 10%, and margin as a percentage of revenues is expected be flat to slightly down in the fourth quarter," Locke said.

Liquidity

Working capital was $70.5 million at September 30, 2012, compared to $129.9 million at December 31, 2011. Our cash and cash equivalents at the end of the third quarter were $6.3 million, down from $86.2 million at year-end 2011. 

The change in cash and cash equivalents during the first nine months of 2012 is primarily due to $291.1 million used for purchases of property and equipment, partially offset by cash provided by operations of $129.3 million and $79.1 million provided by net proceeds from the issuance of debt.

As of October 19, 2012, we had $100 million outstanding and $9.0 million in committed letters of credit under our $250 million Revolving Credit Facility, resulting in borrowing availability of $141 million.

Capital Expenditures

Cash capital expenditures in the third quarter were $97.2 million. Currently, we expect to spend a total of approximately $335 million to $355 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.

Following the delivery of the final three new-build drilling rigs in the first quarter of 2013, the Company plans to reduce capital spending and use operating cash flows in excess of working capital requirements to reduce debt levels.

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) 629-9692 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 November 8. To access the replay, dial (303) 590-3030 and enter the pass code 4567839#.  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.

   - Financial Statements and Operating Information Follow -

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

PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (in thousands, except per share data) (unaudited)

Three months ended

Nine months ended

September 30,

June 30,

September 30,

2012

2011

2012

2012

2011

Revenues:

Drilling services

$

125,662

$

108,764

$

119,048

$

369,014

$

315,043

Production services

104,111

78,887

110,776

322,561

197,242

Total revenues

229,773

187,651

229,824

691,575

512,285

Costs and expenses:

Drilling services

88,188

72,430

78,631

247,896

213,129

Production services

65,395

44,394

65,683

191,774

115,376

Depreciation and amortization

42,067

32,992

39,989

120,429

97,672

General and administrative

21,269

17,705

22,265

64,677

48,086

Bad debt (recovery) expense

(368)

322

(56)

(515)

377

Impairment of equipment

484

1,032

484

Total costs and expenses

216,551

168,327

206,512

625,293

475,124

Income from operations

13,222

19,324

23,312

66,282

37,161

Other (expense) income:

Interest expense

(9,453)

(6,137)

(7,650)

(26,658)

(21,659)

Other

307

(1,193)

20

1,259

(6,956)

Total other expense

(9,146)

(7,330)

(7,630

(25,399)

(28,615)

Income before income taxes

4,076

11,994

15,682)

40,883

8,546

Income tax expense

(1,461)

(5,250)

(5,997)

(14,411)

(4,187)

Net income

$

2,615

$

6,744

$

9,685

$

26,472

$

4,359

Income per common share:

Basic

$

0.04

$

0.11

$

0.16

$

0.43

$

0.08

Diluted

$

0.04

$

0.11

$

0.15

$

0.42

$

0.08

Weighted-average number of shares outstanding:

Basic

61,881

59,898

61,768

61,743

56,045

Diluted

62,825

61,428

62,620

62,695

57,522

PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (in thousands)

September 30,

2012

December 31,

2011

(unaudited)

(audited)

ASSETS

Current assets:

Cash and cash equivalents

$

6,291

$

86,197

Receivables, net of allowance for doubtful accounts

173,535

145,234

Deferred income taxes

16,109

15,433

Inventory

12,177

11,184

Prepaid expenses and other current assets

10,019

11,564

Total current assets

218,131

269,612

Net property and equipment

982,724

793,956

Intangible assets, net of accumulated amortization of $22,174 and $17,397 as of September 30, 2012 and December 31, 2011, respectively

46,020

52,680

Goodwill

41,683

41,683

Noncurrent deferred income taxes

373

735

Other long-term assets

14,253

14,088

Total assets

$

1,303,184

$

1,172,754

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

84,919

$

66,440

Current portion of long-term debt

872

872

Prepaid drilling contracts

2,880

3,966

Accrued expenses

58,961

68,402

Total current liabilities

147,632

139,680

Long-term debt, less current portion

498,502

418,728

Noncurrent deferred income taxes

107,727

94,745

Other long-term liabilities

6,988

9,156

Total liabilities

760,849

662,309

Total shareholders' equity

542,335

510,445

Total liabilities and shareholders' equity

$

1,303,184

$

1,172,754

PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited)

Nine months ended

September 30,

2012

2011

Cash flows from operating activities:

Net income

$

26,472

$

4,359

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

120,429

97,672

Allowance for doubtful accounts

2

390

(Gain) loss on dispositions of property and equipment

(1,230)

628

Stock-based compensation expense

5,541

5,314

Amortization of debt issuance costs, discount and premium

2,224

2,657

Impairment of equipment

1,032

484

Deferred income taxes

12,270

2,656

Change in other long-term assets

(1,964)

2,136

Change in other long-term liabilities

(2,168)

824

Changes in current assets and liabilities

(33,296)

(40,915)

Net cash provided by operating activities

129,312

76,205

Cash flows from investing activities:

Acquisition of production services businesses

(5,000)

Purchases of property and equipment

(291,051)

(140,565)

Proceeds from sale of property and equipment

2,433

2,261

Proceeds from sale of auction rate securities

12,569

Net cash used in investing activities

(288,618)

(130,735)

Cash flows from financing activities:

Debt repayments

(869)

(113,158)

Proceeds from issuance of debt

80,000

74,000

Debt issuance costs

(58)

(3,220)

Proceeds from exercise of options

684

2,344

Proceeds from stock, net of underwriters' commissions and offering costs of $5,707

94,340

Purchase of treasury stock

(357)

(452)

Excess tax benefit of stock option exercises

522

Net cash (used in) provided by financing activities

79,400

54,376

Net decrease in cash and cash equivalents

(79,906)

(154)

Beginning cash and cash equivalents

86,197

22,011

Ending cash and cash equivalents

$

6,291

$

21,857

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

Nine months ended

September 30,

June 30,

September 30,

2012

2011

2012

2012

2011

Drilling Services Segment:

Revenues

$

125,662

$

108,764

$

119,048

$

369,014

$

315,043

Operating costs

88,188

72,430

78,631

247,896

213,129

Drilling Services margin (1)

$

37,474

$

36,334

$

40,417

$

121,118

$

101,914

Average number of drilling rigs

66.0

71.0

62.5

64.1

71.0

Utilization rate

86%

 

71%

 

89%

 

87%

 

68%

 

Revenue days

5,214

4,660

5,032

15,310

13,253

Average revenues per day

$

24,101

$

23,340

$

23,658

$

24,103

$

23,771

Average operating costs per day

16,914

15,543

15,626

16,192

16,082

Drilling Services margin per day (2)

$

7,187

$

7,797

$

8,032

$

7,911

$

7,689

Production Services Segment:

Revenues

$

104,111

$

78,887

$

110,776

$

322,561

$

197,242

Operating costs

65,395

44,394

65,683

191,774

115,376

Production Services margin (1)

$

38,716

$

34,493

$

45,093

$

130,787

$

81,866

Combined:

Revenues

$

229,773

$

187,651

$

229,824

$

691,575

$

512,285

Operating Costs

153,583

116,824

144,314

439,670

328,505

Combined margin

$

76,190

$

70,827

$

85,510

$

251,905

$

183,780

Adjusted EBITDA (3) & (4)

$

55,596

$

51,607

$

63,321

$

189,002

$

128,361

(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)

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 (4).

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

Nine months ended

September 30,

June 30,

September 30,

2012

2011

2012

2012

2011

Combined margin

$

76,190

$

70,827

$

85,510

$

251,905

$

183,780

General and administrative

(21,269)

(17,705)

(22,265)

(64,677)

(48,086)

Bad debt (recovery) expense

368

(322)

56

515

(377)

Other income (expense)

307

(1,193)

20

1,259

(6,956)

Adjusted EBITDA (3) & (4)

55,596

51,607

63,321

189,002

128,361

Depreciation and amortization

(42,067)

(32,992)

(39,989)

(120,429)

(97,672)

Impairment of equipment

(484)

(1,032)

(484)

Interest expense

(9,453)

(6,137)

(7,650)

(26,658)

(21,659)

Income tax expense

(1,461)

(5,250)

(5,997)

(14,411)

(4,187)

Net income

$

2,615

$

6,744

$

9,685

$

26,472

$

4,359

(4)

Our Adjusted EBITDA for the nine months ended September 30, 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

Nine months ended

September 30,

June 30,

September 30,

2012

2011

2012

2012

2011

Drilling Services Segment:

Routine and tubulars

$

17,887

$

7,032

$

7,330

$

33,723

$

25,567

Discretionary

8,569

26,019

19,414

44,175

45,490

New-builds and acquisitions

47,985

14,414

46,126

134,593

26,237

74,441

47,465

72,870

212,491

97,294

Production Services Segment:

Routine

4,306

1,737

3,443

11,478

5,477

Discretionary

8,091

7,477

8,751

27,051

20,201

New-builds and acquisitions

10,329

4,690

13,711

40,031

17,593

22,726

13,904

25,905

78,560

43,271

Net cash used for purchases of property and equipment

97,167

61,369

98,775

291,051

140,565

Net effect of accruals

(13,762)

(1,531)

10,201

13,707

17,773

Total capital expenditures

$

83,405

$

59,838

$

108,976

$

304,758

$

158,338

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

11

30

1200 to 2000 HP

6

22

28

Total

33

35

68

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

27

38

Total

33

35

68

Production Services Segment:

Well servicing rig horsepower ratings:

550 HP

95

600 HP

10

Total

105

Wireline units

120

Coiled tubing units

11

SOURCE Pioneer Energy Services



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