Service & Supply | Quarterly / Earnings Reports | Oilfield Services | First Quarter (1Q) Update | Financial Results | Capital Markets
Forbes' Well Service, Fluid Logistics Segments See Rate Drop
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Forbes Energy Services Ltd. announced financial and operating results for the three months ended March 31, 2015.
Selected financial information for 1Q:
- Consolidated revenues were $84.3 million for the first quarter of 2015, compared to $111.7 million for the fourth quarter of 2014.
- Gross profit decreased to $23.8 million, or 28.2% of revenues, in the first quarter of 2015, compared to $25.9 million, or 23.2% of revenues, in the fourth quarter of 2014.
- GAAP net loss attributable to common shares was $4.6 million, or $0.21 per diluted share, for the first quarter of 2015, compared to net loss attributable to common shares of $4.2 million, or $0.19 per diluted share for the fourth quarter of 2014.
- Adjusted EBITDA totaled $14.6 million in the first quarter of 2015, compared to $16.4 million in the fourth quarter of 2014.
Overview
Forbes' president and chief executive officer, John Crisp, stated, "Considering the market climate of the past few months, the Company's financial state at the close of the year's first quarter was relatively resilient. Our team took some aggressive steps in cutting costs going into the new year. By addressing it early in the cycle, we were able to realize the efforts by mid-quarter, which helped offset the expected decline in revenues.
"Our team also took a strong defensive approach to maintaining our relative market position. Rates were deeply affected by this but utilization volumes remain relatively high, which we anticipate to leverage with additional reductions in our operating costs. We expect the current state to be the theme for the remainder of 2015, and we plan to continue monitoring the business on a daily basis."
Results of Operations
The overall oil and gas industry has experienced a significant decline in activity that began in October 2014, and has extended through the first quarter of 2015. Crude oil experienced nearly a 50% decline in price from $90.74 per barrel on October 1, 2014 to $47.72 as of March 31, 2015. Contemporaneously, U.S. land drilling rig count also has fallen roughly 50% from 1,922 to 1,028, an extremely rapid and unprecedented decline that very few predicted. As of May 11, 2015, crude oil closed at $59.23, and the U.S. land drilling rig count fell further to 894, marking the 22ndstraight week of declines in rig count. The uncertain prospects for U.S. drilling activity have led the Company to a cautious outlook for the next few quarters.
The substantial decline in commodity prices caused a significant pullback in E&P expenditures, which led to the significant decline in activity and subsequently to a decrease in the Company's pricing in the first quarter. Competition remains fierce as operators continue to reduce their spending and cost structure.
Consolidated Results of Operations
Well service and fluid logistics hours fell by 26.4% and 13.7%, respectively, between the first quarter of 2015, and the previous quarter as a result of the decrease in drilling activity.
In addition, rates have been reduced in both of the Company's operating segments as customers sought relief from the loss in revenues and cash flow resulting from the precipitous decline in the average price of oil. These rate reductions and the decreased activity mentioned above resulted in the decreased revenues reported for the current quarter.
Consolidated direct operating expenses for both segments for the three months ended March 31, 2015, were $60.5 million compared to $85.9 million in the prior quarter. This decrease in expense was driven by lower operating hours resulting from the industry downturn and by cost reduction initiatives. Improvements in consolidated operating expenses as a percentage of revenues resulted from reductions in head count and wages, control of overtime and non-productive time, lower fuel costs, and more aggressive cost management of other expenses.
Gross profit decreased to $23.8 million, or 28.2% of revenues, in the first quarter of 2015, compared to $25.9 million, or 23.2%, in the fourth quarter of 2014, driven by the above factors.
Well Servicing Segment
The Well Servicing segment comprised 60.7% of consolidated revenues for the three months ended March 31, 2015. Segment revenues decreased to $51.2 million, compared to $71.9 million in the fourth quarter of 2014. Well servicing segment revenues are substantially dependent on the prevailing market rates for workover rigs. Rates dropped slightly in the first quarter of 2015, and activity levels measured in hours dropped more significantly, by 26.4%. This decrease in hours worked is due to lower expenditures by the Company's customers in the current oil and gas market.
Well servicing gross margins decreased to $14.8 million in the first quarter of 2015 from $18.9 million in the fourth quarter of 2014. As a percentage of revenues, gross margin increased to 28.9% in the first quarter of 2015 compared to 26.3% in the previous quarter. Gross margin percentage increased in the first quarter of 2015, for the reasons stated above under Consolidated Results of Operations.
The Company recorded approximately 88,985 well service hours for the first quarter of 2015, compared to 120,869 in the fourth quarter of 2014. Capital expenditures during the first quarter of 2015 were $3.3 million for swabbing rigs and related equipment, and the associated costs of placing this equipment in service.
At March 31, 2015, Forbes' Well Servicing segment had a fleet of 171 service rigs, comprised of 159 workover rigs and 12 swabbing rigs. Also included in the Company's well servicing operations are nine tubing testing units, six coiled tubing spreads, four electromagnetic scan trucks and related assets and equipment.
Fluid Logistics Segment
The Fluid Logistics segment comprised 39.3% of consolidated revenues for the three months ended March 31, 2015. Revenues for the segment decreased to $33.1 million in the first quarter of 2015, compared to $39.8 million in the previous quarter. This decrease was driven by a decline in utilization and rates. Rates dropped slightly in the first quarter of 2015, while hours decreased by 13.7%. This decrease in hours worked resulted from customers' lower expenditures in the current oil and gas market.
Gross profit for the Fluid Logistics segment for the quarter was $9.0 million, or 27.1% of revenues, compared to $7.0 million, or 17.5% of revenues, in the prior quarter. The increase in margin percentage was due to the reasons stated above under Consolidated Results of Operations.
The Company recorded 238,947 truck hours during the first quarter of 2015, compared to 276,957 hours in the fourth quarter of 2014. Capital expenditures during the first quarter of 2015, amounted to $700 thousand for specialized mixing tanks. The Company's heavy truck fleet totaled 587 at March 31, 2015, which included 451 vacuum trucks.
Liquidity and Capital Resources
As of March 31, 2015 and May 11, 2015, the Company had $54.3 million and $66.5 million, respectively, in unrestricted cash. There were no cash borrowings on the Company's revolver, and there was approximately $7.6 million in letters of credit outstanding against the revolver. Including the remaining availability on the revolver of $71.8 million, total liquidity was $126.1 million as of March 31, 2015.
The Company has $295.2 million in contractual debt comprised of $280.0 million in senior notes and $15.2 million in notes and capital leases on equipment and insurance notes. Of its total debt, $286.3 million of the outstanding contractual debt was classified as long-term debt and $8.9 million as short-term debt outstanding or the current portion of long-term debt. The Company also has $300 thousand of non-interest bearing short-term equipment vendor financings for well servicing rigs and other equipment included in accounts payable.
Net cash provided by operating activities totaled $21.4 million for the three months ended March 31, 2015, compared to $18.7 million for the three months ended December 31, 2014. The increase in cash provided by operating activities was primarily due to various changes in working capital in the normal course of business, primarily related to accounts receivable and accounts payable.
Cash flows used in investing activities was $400 thousand for the three months ending March 31, 2015, compared to $17.4 million for the three months ended December 31, 2014. The change was primarily related to a reduction in the cash paid for the purchase of property and equipment of $2.0 million for the current quarter as the Company adjusted to the current market environment compared to $19.0 million for the three months ended December 31, 2014.
Capital expenditures for equipment received during the three months ended March 31, 2015 amounted to $4.0 million comprised of additions to the Company's fluid logistics segment of approximately $700 thousand and additions to its well servicing segment of approximately $3.3 million. As stated above, cash paid by the Company for the $4.0 million of capital expenditures for equipment received during the three months ended March 31, 2015 was $2.0 million.
Planned capital expenditures for the balance of 2015, include two swabbing rigs for approximately $350,000 each, ordered prior to 2015, and equipment purchases related to operating lease maturities estimated at approximately $4.1 million. The Company has an option to purchase certain leased equipment for cash or it may potentially finance the purchase price through installment notes with the lessors, although there can be no assurances regarding such financing.
Cash flows used in financing activities for the three months ended March 31, 2015, were $1.6 million, compared to $1.5 million in the previous quarter, which were primarily principal payments on our equipment notes.
The Company maintains its revolving credit facility with Regions Bank and other lenders. While this facility remains available for general corporate purposes, including financing capital expenditures if necessary, the intended use is primarily for financial stability in the current downturn.