Pioneer Energy Services Reports First Quarter 2014 Results

SAN ANTONIO, April 29, 2014 /PRNewswire/ -- Pioneer Energy Services (NYSE: PES) today reported financial and operating results for the quarter ended March 31, 2014. Highlights include: 

• Production Services Segment revenue was $121.1 million in the first quarter, up 8% from the prior quarter.
• Well servicing rigs achieved a 95% utilization rate and an average hourly rate of $645.
• Drilling Services Segment margin per day was $8,987, up 6% over the prior quarter.
• Drilling rig utilization is currently 87%, with 40 of our 54 working rigs, or 74%, under term contracts.
• Planned growth for 2014 has expanded to nine well servicing rigs, three wireline units, three coiled tubing units and the potential for new 1,500 horsepower AC drilling rigs.
• Issued $300 million of 6.125% Senior Notes with proceeds used to repay a portion of our existing 9.875% Senior Notes.

Consolidated Financial Results

Revenues for the first quarter of 2014 were $239.0 million, up slightly from revenues of $238.2 million in the fourth quarter of 2013 ("the prior quarter") and up 4% from revenues of $229.7 million in the first quarter of 2013 ("the year-earlier quarter"). Revenues in the first quarter were positively impacted by higher revenues in our Production Services Segment due to increased demand, which was mostly offset by lower revenues in our Drilling Services Segment, primarily due to decreased utilization in the U.S. and Colombia.

Net loss as reported for the first quarter, which includes the impact of a loss on debt extinguishment of $7.9 million, was $2.6 million, or $0.04 per share, compared with a net loss of $2.5 million, or $0.04 per share in the prior quarter and a net loss of $1.3 million, or $0.02 per share in the year-earlier quarter. Adjusted net income⁽²⁾, which excludes the impact of the loss on debt extinguishment, was $2.4 million, and Adjusted diluted EPS⁽³⁾ was $0.04 for the first quarter. 

First quarter Adjusted EBITDA⁽¹⁾ was $63.3 million, up 13% from $55.8 million in the prior quarter and up 13% from $55.9 million in the year-earlier quarter. Our first quarter Adjusted EBITDA was positively impacted by $5.0 million related to a gain on the sale of our trucking assets, a settlement of litigation in our favor and a fuel cost reimbursement in Colombia.

Operating Results

Drilling Services Segment

Revenue for the Drilling Services Segment was $118.0 million in the first quarter, a 6% decrease from the prior quarter and an 11% decrease from the year-earlier quarter. The decrease in revenues for the first quarter as compared to the prior quarter was primarily due to decreased utilization of certain lower horsepower vertical drilling rigs early in the quarter which are now experiencing higher utilization. In addition, two drilling rigs in Colombia were not earning revenue during the first quarter.  One of these rigs in Colombia was being upgraded for its new contract while the other rig was idle due to well site preparation delays.

Currently, 54 rigs are earning revenues, of which 40, or 74%, are under term contracts. All eight of our drilling rigs in Colombia are currently under term contracts that extend through the end of 2014, six of which are currently working with the remaining two expected to be earning revenues again in early May.

Average drilling revenues per day in the first quarter were $25,471, down slightly from $25,567 in the prior quarter and up from $24,925 in the year-earlier quarter.  Dayrates remained firm during the first quarter, however, average drilling revenues per day had a slight decrease due to less revenue from turnkeys and certain reimbursable items.

Drilling Services Segment margin⁽⁴⁾ per day was $8,987 in the first quarter, up 6% from $8,518 in the prior quarter and up 9% from $8,258 in the year-earlier quarter primarily due to the gain on the sale of our trucking assets and the fuel cost reimbursement in Colombia.

Production Services Segment

Revenue for the Production Services Segment was $121.1 million in the first quarter, up 8% from the prior quarter and up 25% from the year-earlier quarter. The increases in our Production Services Segment's revenues and operating costs are primarily a result of the increased demand for our services. Well servicing pricing was $645 per hour in the first quarter, slightly down from $648 in the prior quarter due to job mix and up from $596 in the year-earlier quarter. Well servicing rig utilization increased to 95% in the first quarter, up from 85% in the prior quarter and 89% in the year-earlier quarter. Coiled tubing unit utilization was 50% in the first quarter, up from 49% in the prior quarter and 41% in the year-earlier quarter, which was driven by improved land activity that was offset by softer offshore activity due to weather during the first quarter.

Production Services Segment margin⁽⁴⁾ as a percentage of revenue was 36% in the first quarter, up from 34% in the prior quarter and slightly down from 37% in the year-earlier quarter.

Comments from Our President and CEO 

"We achieved solid results in the first quarter, with unseasonably high activity levels in our Production Services Segment and higher Drilling Services Segment margin, which led to a 13% quarter over quarter increase in Adjusted EBITDA. We also reduced interest expense going forward with the successful refinancing of our Senior Notes. In March, we issued $300 million of 6.125% Senior Notes to replace a majority of the 9.875% Senior Notes, which will save approximately $12 million in annualized interest expense. This reduced expense supports our strategy to grow our free cash flow to fund organic growth and continued debt reduction. 

"We believe that recent market improvements support new equipment additions in 2014. Recently, we committed to add another six well servicing rigs and two coiled tubing units which will result in a total of nine well servicing rigs and three coiled tubing units to be added in 2014. Our planned growth for our wireline business remains at three units to be added during 2014. We are also discussing potential term contracts with clients for new 1,500 horsepower AC drilling rigs, with similar specifications to the rigs that we successfully deployed over the last two years. We will continue to watch the market and use a measured approach to capital budgeting that will both improve our balance sheet and allow us to take advantage of upturns in the market to grow our business.

"With the recent market improvements, we expect certain drilling contracts will have some modest dayrate increases when they are renewed in the second quarter with the associated earnings benefit recognized mostly in the second half of the year. We also believe that the increased demand and high utilization in our Production Services Segment businesses will lead to improved pricing later in the year," continued Locke.

Second Quarter Guidance

In the second quarter of 2014, drilling rig utilization is expected to average between approximately 85% and 88%, based on a fleet of 62 rigs. Drilling Services Segment margin is expected to be approximately $8,500 to $8,700 per day.

Production Services Segment revenue in the second quarter is expected to be up approximately 5% to 6% as compared to the first quarter. Production Services Segment margin as a percentage of revenues is expected to be up approximately 1% to 2% as compared to the first quarter.

Liquidity

Working capital at March 31, 2014 was $129.5 million, up from $118.5 million at December 31, 2013. Our cash and cash equivalents were $20.8 million, down from $27.4 million at year-end 2013. 

The decrease in cash and cash equivalents during the three months ended March 31, 2014 is primarily due to $31.7 million used for purchases of property and equipment and $21.7 million of cash used in our financing activities, which were mostly offset by $41.2 million of cash provided by operating activities and $5.5 million of proceeds from the sale of assets.

In March 2014, we issued $300 million of 6.125% Senior Notes and used $99.5 million of the proceeds to fund the tender of the 9.875% Senior Notes issued in 2010 and 2011. On May 1, 2014, we intend to use the remaining net proceeds to fund a portion of the redemption of $200.5 million of 2010 and 2011 Senior Notes and have classified $210.4 million of those funds as restricted cash on our condensed consolidated balance sheet. Upon redemption, we will recognize a loss on debt extinguishment of approximately $14.6 million for the redemption premium, net unamortized discount and unamortized debt issuance costs.

We currently have $80.0 million outstanding and $14.0 million in committed letters of credit under our $250 million Revolving Credit Facility.

Capital Expenditures

Cash capital expenditures in the first quarter were $31.7 million, including capitalized interest. We estimate that our total cash capital expenditures in 2014 will be approximately $135 million to $145 million. The total 2014 capital expenditure budget includes nine well servicing rigs, three coiled tubing units, three wireline units, upgrades to certain drilling rigs and routine capital expenditures.

Conference Call

Pioneer Energy Services' management team will hold a conference call today at 10:00 a.m. Eastern Time (9:00 a.m. Central Time), to discuss these results. To participate in the call, dial (480) 629-9771 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 May 6. To access the replay, dial (303) 590-3030 and enter the pass code 4663724#.

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.  A replay will be available shortly after the call. For more information, please contact Donna Washburn at Dennard • Lascar Associates, LLC at (713) 529-6600 or e-mail [email protected].

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 the following 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, decisions about exploration and development projects to be made by oil and gas exploration and production companies, economic cycles and their impact on capital markets and liquidity, the continued demand for 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, changes in technology and improvements in our competitors' equipment, 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, 2013. 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 for the year ended  December 31, 2013 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.

 - Financial Statements and Operating Information Follow -

SOURCE Pioneer Energy Services