Service & Supply | Quarterly / Earnings Reports | Oilfield Services | Third Quarter (3Q) Update

Seventy Seven Energy Reports Half Idle Rig Fleet

Share Print Bookmark    |    Wednesday,October 28,2015

Seventy Seven Energy Inc. has reported financial and operational results for the third quarter of 2015.

Highlights:

Drilling

• SSE’s drilling segment contributed revenues of $80.3 million and adjusted EBITDA of $33.9 million during the third quarter of 2015, compared to revenues of $100.4 million and adjusted EBITDA of $38.3 million for the second quarter of 2015 and revenues of $200.4 million and adjusted EBITDA of $82.4 million for the third quarter of 2014. The decrease in revenues for the third quarter of 2015 compared to the second quarter of 2015 was primarily due to a 21% decline in revenue days associated with additional contracted rigs being idled during the quarter.
• The percentage of revenues from non-CHK customers increased from 36% to 42% of total segment revenues for the third quarter of 2015 compared to the second quarter of 2015. As of September 30, 2015, approximately 58% of SSE’s active rigs were contracted by non-CHK customers and SSE had a total drilling revenue backlog of $505.3 million with an average duration of 16 months.
• Operating costs were $41.4 million during the third quarter of 2015, compared to $57.1 million for the second quarter of 2015 and $133.0 million for the third quarter of 2014. Average operating costs per revenue day in the third quarter of 2015 decreased 11% from the second quarter of 2015, primarily driven by a 16% decrease in labor-related costs per revenue day. As a percentage of drilling revenues, drilling operating costs were 52% for the third quarter of 2015, 57% for the second quarter of 2015 and 66% for the third quarter of 2014.
• As of September 30, 2015, the Company’s marketed fleet of 92 rigs consisted of 32 Tier 1 rigs, including 21 PeakeRigs™, 57 Tier 2 rigs and three Tier 3 rigs. Additionally, 75% of the Company’s marketed fleet are multi-well pad capable rigs. SSE currently has five additional contracted PeakeRigs™ under construction that are backed by term contracts and scheduled to be delivered over the next eight months. As of September 30, 2015, 51 rigs were under contract, of which 25 were idle.

Hydraulic Fracturing

• SSE’s hydraulic fracturing segment contributed revenues of $118.1 million and adjusted EBITDA of $8.2 million during the third quarter of 2015, compared to revenues of $163.4 million and adjusted EBITDA of $18.2 million for the second quarter of 2015 and revenues of $245.1 million and adjusted EBITDA of $54.5 million for the third quarter of 2014. The decrease in revenues from the second quarter of 2015 to the third quarter of 2015 was primarily due to an 11% decrease in revenue per stage. Revenues from non-CHK customers as a percentage of total segment revenues increased from 21% in the second quarter of 2015 to 27% in the third quarter of 2015. As of September 30, 2015, SSE’s hydraulic fracturing revenue backlog was $387.6 million with an average duration of 14 months.
• Average operating costs per stage in the third quarter decreased 9% from the second quarter of 2015. The decrease in average operating costs per stage for the third quarter of 2015 compared to the second quarter of 2015 was primarily due to an 11% decline in product costs per stage, which is the result of reducing proppant and fracturing fluid costs by leveraging SSE’s logistics infrastructure competitive advantage. As a percentage of hydraulic fracturing revenues, hydraulic fracturing operating costs were 88% for the third quarter of 2015, 86% for the second quarter of 2015 and 78% for the third quarter of 2014.
• As of September 30, 2015, SSE owned 10 hydraulic fracturing fleets with an aggregate of 400,000 horsepower operating in the Anadarko Basin and the Eagle Ford and Utica Shales.

Oilfield Rentals

• SSE’s oilfield rentals segment contributed revenues of $15.0 million and adjusted EBITDA of ($0.9) million during the third quarter of 2015, compared to revenues of $17.8 million and adjusted EBITDA of ($4.1) million for the second quarter of 2015 and revenues of $38.9 million and adjusted EBITDA of $13.7 million for the third quarter of 2014. Revenues from non-CHK customers as a percentage of total segment revenues increased from 62% in the second quarter of 2015 to 77% in the third quarter of 2015. Revenues during the quarter were negatively impacted by the reduction in drilling and completions activity by SSE’s customers.
• Operating costs were $14.0 million during the third quarter of 2015, compared to $20.2 million for the second quarter of 2015 and $27.0 million for the third quarter of 2014. As a percentage of oilfield rental revenues, operating costs were 93% for the third quarter of 2015, 114% for the second quarter of 2015 and 69% for the third quarter of 2014. The decrease in operating costs as a percentage of revenues in the third quarter of 2015 compared to the second quarter of 2015 was due to declines in labor-related costs and sub-contracting services. The increase in operating costs as a percentage of revenue in the third quarter of 2015 compared to the third quarter of 2014 was due to significant declines in fleet utilization and increased pricing pressure.

Former Oilfield Trucking

During the second quarter of 2015, SSE sold its drilling rig and logistics business and water hauling assets. As of June 30, 2015, there were no remaining assets or operations in the oilfield trucking segment.

General and Administrative Expenses

General and administrative expenses were $26.7 million in the third quarter of 2015, compared to $34.8 million in the second quarter of 2015 and $32.7 million in the third quarter of 2014. General and administrative expenses include non-cash compensation of $8.3 million and $8.6 million, and severance-related costs of $1.5 million and $3.1 million for the third quarter of 2015 and the second quarter of 2015, respectively. During the second quarter of 2015, general and administrative expenses included $2.7 million for services provided by CHK pursuant to the transition services agreement which was terminated during the second quarter of 2015.

Liquidity

As of September 30, 2015, SSE had cash of $156.2 million and working capital of $168.7 million. SSE also had $152.7 million in availability under its revolving bank credit facility, which included no borrowings and $10.2 million in outstanding letters of credit. As of October 23, 2015, SSE had cash on hand of $126.8 million.

Capital expenditures totaled $61.1 million for the third quarter of 2015, which primarily consisted of investment in new PeakeRigs™. For the nine months ended September 30, 2015, capital expenditures totaled $151.8 million. SSE currently expects its total year-end 2015 capital expenditures to be under $200.0 million.

During the third quarter of 2015, SSE repurchased and cancelled $10.0 million in aggregate principal amount of its 6.5% Senior Notes due 2022 for $4.9 million. SSE recognized a gain on extinguishment of debt of $5.0 million, which includes accelerated amortization of deferred financing costs of $0.1 million. For the nine months ended September 30, 2015, SSE repurchased and cancelled $50.0 million in aggregate principal amount of the 2022 Notes in multiple transactions for $31.3 million. SSE recognized gains on extinguishment of debt of $18.1 million, which includes accelerated amortization of deferred financing costs of $0.6 million. From time to time SSE may use cash on hand in excess of its budgeted capital expenditures to repurchase and cancel its outstanding long-term debt or common stock, subject to approval by its Board of Directors.