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Basic Energy Services Sees Decrease Across All Segments
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Basic Energy Services, Inc. announced its financial and operating results for the first quarter ended March 31, 2015.
First Quarter 2015 Highlights
First quarter 2015 revenue declined 35% to $261.7 million from $400.9 million in the fourth quarter of 2014 as all lines of services experienced reduced activity levels and pricing pressures. First quarter 2015 revenue decreased 21% from $331.3 million generated in the first quarter of 2014. All metrics for the first quarter of 2014 were adjusted for the divestiture of Basic's barge rig operations in March 2014 for comparability purposes.
For the first quarter of 2015, Basic reported a net loss of $32.6 million, or a loss of $0.81 per basic and diluted share. This compares to a net loss of $18.8 million, or a loss of $0.45 per basic and diluted share, reported in the fourth quarter of 2014. The fourth quarter of 2014 included a tax-effected, non-cash charge of $23.5 million ($34.7 million before tax), or $0.56 per basic and diluted share, for impairment of all the goodwill associated with the well servicing and fluid services segments. Excluding this special item, Basic reported net income of $4.7 million, or $0.11 per basic and diluted share. In the first quarter of 2014, Basic reported a net loss of $3.3 million, or a loss of $0.08 per basic and diluted share.
Roe Patterson, Basic's President and Chief Executive Officer, stated, "Our first quarter results reflect the overall impact of the rapid decline in oil prices that began during the fourth quarter of 2014. This challenging environment has triggered drastic capital spending reductions by our customers, resulting in the scaling back of our operations to fit operating cash flow in order to preserve liquidity and match customer activity. As customers reduce their service needs, pricing concessions have been required to maximize our utilization levels across all of our lines of business. In addition, our first quarter performance was impacted by severe weather disruptions that further reduced our revenue.
"First quarter margins were most impacted in our completion and remedial services driven by a rapid decline in the U.S. land drilling rig count. We continue to face fierce rate competition in the completion lines of business across all of our operating areas, with pricing discounts reaching as high as 40% from their peak levels in 2014.
"We have maintained our strategy of protecting market share, maximizing utilization, and reducing rates as necessary in all segments. We continue our efforts to lower input costs and right-size our workforce. Our overall headcount is now 20% lower than its peak of mid fourth quarter 2014. As we allocate assets into markets where activity is strongest, we continue to high-grade our marketed fleet and to stack excess equipment. We have increased our stacked well servicing rig count by 40 during the first quarter and added to it during April.
"We have successfully employed these defensive strategies in previous down cycles, and combined with the strength of our current financial position, these strategies should allow us to withstand the effects of a prolonged downturn in activity. In light of these challenging operating conditions, we have scaled back our 2015 capital expenditure plan down below our original estimate of $100 million, having already shifted primarily to a maintain-and-sustain revenue mode. At current activity levels, this number could be as low as $75 million for 2015.
"During the month of March, we saw less of a sequential reduction in activity levels compared to the previous month-over-month period, and we are starting to see some signs of flattening utilization levels. However, it is still too early to predict whether the second quarter will reflect a potential floor for activity. Looking ahead, we currently anticipate our second quarter revenue to be down 10% to 15% sequentially, as declines in activity and continued pricing pressures will likely combine to reduce utilization. Generating free cash flow and preserving liquidity remains our main financial focus.
"This week, we amended our existing revolver from a cash flow-based facility to an asset-based facility. This amendment allows us to maintain ample liquidity, while eliminating potential covenant compliance issues we may have faced later in the year due to market conditions. We will share more details on this amendment on the quarterly earnings call."
Adjusted EBITDA decreased to $27.3 million, or 10% of revenues for the first quarter of 2015, from $85.6 million, or 21% of revenue in the fourth quarter of 2014. In the first quarter of 2014, Basic generated Adjusted EBITDA of $65.4 million, or 19% of revenue, including the impact of the barge rig operations. Adjusted EBITDA is defined as net income before interest, taxes, depreciation and amortization, and the net gain or loss from the disposal of assets. EBITDA and Adjusted EBITDA, which are not measures determined in accordance with United States generally accepted accounting principles, are defined and reconciled in note 3 under the accompanying financial tables.
Business Segment Results
Completion and Remedial Services
Completion and remedial services revenue dropped by 45% to $112.8 million in the first quarter of 2015 from $203.4 million in the prior quarter. The sequential decrease in revenue resulted primarily from reduced activity in our pumping and coil tubing services, due to the general decline in completion activity, driven by the significant reduction in the drilling rig count during the first quarter. In the first quarter of 2014, this segment generated $137.5 million in revenue.
As of March 31, 2015, Basic had approximately 443,000 hydraulic horsepower ("HHP"), flat compared to the end of the previous quarter and 301,000 HHP as of March 31, 2014. Weighted average HHP for the first quarter of 2015 was 443,000 compared to 427,000 in the fourth quarter of 2014.
Segment profit in the first quarter of 2015 decreased 59% to $31.5 million compared to $77.1 million in the prior quarter. Segment margin for the 2015 first quarter decreased 990 basis points to 28% compared to the previous quarter, due mainly to decremental margins on the lower revenue base. During the first quarter of 2014, segment profit was $51.0 million, or 37% of revenue.
Fluid Services
Fluid services revenue in the first quarter of 2015 decreased 21% to $73.8 million compared to $93.8 million in the prior quarter. The decrease in revenue was due to lower utilization as well as reduced rates, particularly in our higher margin service lines. During the first quarter of 2014, this segment generated $92.8 million in revenue.
The weighted average number of fluid services trucks increased to 1,046 during the first quarter of 2015, compared to 1,043 during the fourth quarter of 2014 and 1,006 during the first quarter of 2014. Truck hours of 595,100 during the first quarter of 2015 decreased 10% from the 661,900 generated in the fourth quarter of 2014, and decreased 2% compared to 607,200 in the same period in 2014.
The average revenue per fluid service truck decreased to $71,000 from $90,000 in the fourth quarter of 2014 mainly due to the decreases in overall rates, disposal utilization and skim oil revenues. In the comparable quarter of 2014, average revenue per fluid truck was $92,000.
Segment profit in the first quarter of 2015 was $19.7 million, compared to a profit of $26.6 million in the prior quarter, with segment profit margin decreasing by 170 basis points to 27%, caused by lower levels of frac tank rentals and skim oil revenues, and a 50 basis point impact from the annual reset of payroll taxes. Segment profit in the same period in 2014 was $26.1 million, or 28% of revenue.
Well Servicing
Well servicing revenues decreased 28% to $63.7 million during the first quarter of 2015 compared to $88.0 million in the prior quarter, due to significantly lower utilization resulting from price cuts related to the competitive market environment, a general decline in our customers' capital and operating budgets, and adverse winter weather during the first quarter. Revenues from the Taylor manufacturing operations were $1.8 million in the first quarter of 2015 compared to $3.0 million in the prior quarter. In the first quarter of 2014, well servicing revenues were $87.5 million, adjusted for the sale of our barge operations in March 2014. All amounts and percentages below have been adjusted for the sale of our barge rigs in the first quarter of 2014.
At March 31, 2015, the well servicing rig count was 421, the same as the end of the prior quarter and at March 31, 2014. Rig hours were 163,900 in the first quarter of 2015, down from 204,400 in the previous quarter and down from 209,700 hours in the comparable quarter of last year. Rig utilization was 55% in the first quarter of 2015, down from 67% in the prior quarter and down from 70% in the first quarter of 2014.
Excluding revenues associated with the Taylor manufacturing operations, revenue per well servicing rig hour was $377 in the first quarter of 2015, compared to $416 in the previous quarter and to $407 reported in the first quarter of 2014. The first quarter decline was due to pricing concessions given to customers in all operating markets.
Segment profit in the first quarter of 2015 was $11.3 million compared to $19.8 million in the prior quarter and $21.0 million during the same period in 2014. Segment profit margin decreased to 18% in the first quarter of 2015 from 23% in the previous quarter. The first quarter profit margin was negatively impacted by pricing concessions given to customers beginning in the latter part of the fourth quarter of 2014, as well as downhole issues, resulting in a 360 basis point impact to margins, and a 75 basis point impact from the reset of payroll taxes. In the first quarter of 2014, adjusted segment profit was 25% of revenue. Segment profit from the Taylor manufacturing operations was $255,000 in the first quarter of 2015 compared to $432,000 in the prior quarter and $134,000 in the first quarter of 2014.
Contract Drilling
Contract drilling revenue decreased 27% to $11.5 million during the first quarter of 2015 from $15.7 million in the prior quarter. During the first quarter of 2014, this segment generated $13.5 million in revenue. Basic operated 12 drilling rigs during the first quarter of 2015, the same number of rigs as in the previous quarter as well as the first quarter of 2014. Revenue per drilling day in the first quarter of 2015 was $17,000, up from $16,600 in the previous quarter and up from $16,500 in the first quarter of 2014. The increase in revenue per drilling day is due to an early termination payment of $732,000 on the long-term contract of one of our rigs.
Rig operating days during the first quarter of 2015 decreased 29% to 674 compared to 948 in the prior quarter, resulting in rig utilization of 62% during the first quarter of 2015 compared to 86% during the prior quarter. In the comparable period in 2014, rig operating days were 821, producing a utilization of 76%.
Segment profit in the first quarter of 2015 was $4.0 million, a 23% decrease compared to profit of $5.1 million in the prior quarter and a decrease from $4.4 million in the first quarter of 2014. Segment margin for the first quarter of 2015 was 34% of revenues compared to 33% from the prior quarter. Last year in the comparable period, segment margin was 32%.
G&A Expense
General and administrative expense in the first quarter of 2015 was $39.2 million, or 15% of revenue, compared to $43.3 million, or 11% of revenue, for the prior quarter. The lower G&A expense was primarily due to the impact of cost savings initiatives initiated during the first quarter, reduced personnel costs and lower incentive compensation expense. G&A expense in the first quarter of 2014 was $39.6 million, or 12% of revenue.
Tax Benefit
Basic's tax benefit for the first quarter of 2015 was $17.9 million, compared to a tax benefit of $7.3 million in the fourth quarter of 2014. Excluding the special item in the fourth quarter of 2014, tax expense was $3.9 million. The tax benefit in the first quarter of 2015 had an effective rate of 35%, compared to the prior quarter's effective tax adjusted expense rate of 45%. The tax benefit of $1.4 million in the first quarter of 2014 translated into an effective tax rate of 30%.
Cash and Total Liquidity
On March 31, 2015, Basic had cash and cash equivalents of approximately $105 million, up from $80 million at December 31, 2014 and down from $117 million on March 31, 2014.
On April 21, 2015, Basic amended its existing revolving credit facility with the current syndicate of lenders. The amendment revises the revolver from the existing $300 million cash-flow based facility to a $250 million asset-based facility. The facility includes a $100 million accordion feature, which could maximize the revolver to $350 million. The borrowing base is comprised of eligible accounts receivable and equipment. This amendment also eliminates the existing cash flow-based covenants. Certain secured leverage ratio and fixed charge ratio maintenance covenants will apply if availability under the Facility declines below certain thresholds. Total pro forma liquidity at March 31, 2015 would be approximately $230 million.
Capital Expenditures
Total capital expenditures during the first quarter 2015, including capital leases of $8.3 million, were approximately $34.1 million, comprised of $12.0 million for expansion projects, $19.6 million for sustaining and replacement projects and $2.5 million for other projects. Expansion capital spending included $5.6 million for the well servicing segment, $5.4 million for the completion and remedial services segment, and $1.0 million for the fluid services segment. Other capital expenditures were mainly for facilities and IT infrastructure.