Service & Supply | Quarterly / Earnings Reports | Oilfield Services | First Quarter (1Q) Update | Financial Results | Capital Markets | Drilling Activity
Seventy Seven Talks 'Challenging' 1Q; Posts Loss
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Seventy Seven Energy Inc. reported financial and operational results for the first quarter of 2015.
Key information related to SSE is as follows:
- Total Revenues were $429.8 million
- Adjusted EBITDA was $84.9 million
- Adjusted net loss per fully diluted share was $0.45; Net loss per fully diluted share was $0.78
- SSE plans to exercise the $100.0 million accordion under its Term Loan
Chief Executive Officer Jerry Winchester said: "2015 is proving to be as challenging as we thought it could be for our industry. Despite the fact that we expect the U.S. rig count to bottom in the near term, we are anticipating sustained headwinds across each of our business segments. That said, I believe we remain well positioned to weather the storm the industry is experiencing. We continue to focus on enhancing liquidity and plan to exercise the $100 million accordion feature under our term loan later this month. This transaction will strengthen our liquidity and, when coupled with availability under our revolving credit facility, provide us a greater ability to take advantage of opportunities to enhance shareholder value."
Sector Results
Drilling
SSE’s drilling segment contributed revenues of $166.1 million and adjusted EBITDA of $64.0 million during the first quarter of 2015, compared to revenues of $204.5 million and adjusted EBITDA of $87.7 million for the fourth quarter of 2014 and revenues of $180.4 million and adjusted EBITDA of $62.3 million for the first quarter of 2014. The decrease in revenues for the first quarter of 2015 compared to the fourth quarter of 2014 was primarily due to a 17% drop in revenue days associated with contracted rigs being idled during the second half of the quarter due to the reduction in U.S. drilling activity.
Revenues from non-CHK customers remained relatively flat from the fourth quarter of 2014 to the first quarter of 2015, increasing from 40% to 41% of total segment revenues, respectively. As of March 31, 2015, approximately 44% of our active rigs were contracted by non-CHK customers including a drilling revenue backlog of $116.2 million with an average duration of eight months. As of March 31, 2015, our drilling revenue backlog with CHK was $601.7 million with an average duration of 22 months.
Operating costs were $98.1 million during the first quarter of 2015, compared to $123.2 million for the fourth quarter of 2014 and $124.5 million for the first quarter of 2014. The decrease in operating costs was primarily due to lower labor-related costs and repairs and maintenance expenses driven by lower fleet utilization. Average operating costs per revenue day in the first quarter of 2015 increased 5% from the fourth quarter of 2014. As a percentage of drilling revenues, drilling operating costs were 59% for the first quarter of 2015, 60% for the fourth quarter of 2014 and 69% for the first quarter of 2014.
As of March 31, 2015, the Company’s marketed fleet consisted of 26 Tier 1 rigs, including 16 PeakeRigs™, 57 Tier 2 rigs and seven Tier 3 rigs. Additionally, 70% of the Company’s marketed fleet are multi-well pad capable rigs. SSE currently has nine additional contracted PeakeRigs™ under construction currently scheduled to be delivered over the next 11 months. At quarter end, 67 rigs were under contract and 23 were idle.
Hydraulic Fracturing
SSE’s hydraulic fracturing segment contributed revenues of $202.0 million and adjusted EBITDA of $26.3 million during the first quarter of 2015, compared to revenues of $213.0 million and adjusted EBITDA of $26.4 million for the fourth quarter of 2014 and revenues of $201.6 million and adjusted EBITDA of $20.2 million for the first quarter of 2014. The decrease in revenues from the fourth quarter of 2014 to the first quarter of 2015 was primarily due to a 16% decrease in revenue per stage, offset by a 12% increase in the number of stages completed, which was primarily due to higher utilization. As of March 31, 2015, our hydraulic fracturing revenue backlog, based on then current market prices, was $695.3 million with an average duration of 17 months.
Average operating costs per stage in the first quarter decreased 19% from the fourth quarter of 2014. The decrease in average operating costs per stage was primarily due to a reduction in product costs. As a percentage of hydraulic fracturing revenues, hydraulic fracturing operating costs were 85% for the first quarter of 2015, 89% for the fourth quarter of 2014 and 88% for the first quarter of 2014.
As of March 31, 2015, SSE owned 10 hydraulic fracturing fleets with an aggregate of 400,000 horsepower, and seven of these fleets were contracted by CHK in the Anadarko Basin and the Eagle Ford and Utica Shales.
Oilfield Rentals
SSE’s oilfield rentals segment contributed revenues of $32.5 million and adjusted EBITDA of $7.8 million during the first quarter of 2015, compared to revenues of $39.3 million and adjusted EBITDA of $15.5 million for the fourth quarter of 2014 and revenues of $35.9 million and adjusted EBITDA of $10.0 million for the first quarter of 2014. Revenues from non-CHK customers as a percentage of total segment revenues increased from 27% in the fourth quarter of 2014 to 44% in the first quarter of 2015. Revenues during the quarter were negatively impacted by the reduction in U.S. drilling and completions activity.
Operating costs were $23.6 million during the first quarter of 2015, compared to $24.6 million for the fourth quarter of 2014 and $25.9 million for the first quarter of 2014. The decrease in operating costs was due to a reduction in repairs and maintenance spending. As a percentage of oilfield rental revenues, operating costs were 73% for the first quarter of 2015, 63% for the fourth quarter of 2014 and 72% for the first quarter of 2014. The primary reason for this increase quarter-over-quarter was associated with labor-related cost.
Oilfield Trucking
SSE’s oilfield trucking segment contributed revenues of $29.2 million and adjusted EBITDA of ($8.4) million during the first quarter of 2015, compared to revenues of $37.6 million and adjusted EBITDA of $3.8 million for the fourth quarter of 2014 and revenues of $56.2 million and adjusted EBITDA of $2.1 million for the first quarter of 2014. The decline in financial performance was primarily due to the challenge of syncing labor costs with activity levels due to the sharp decline in demand for rig mobilization services in the second half of the quarter.
General and Administrative Expenses
General and administrative expenses were $33.9 million in the first quarter of 2015, compared to $35.2 million in the fourth quarter of 2014 and $20.9 million in the first quarter of 2014. General and administrative expenses include non-cash compensation of $9.5 million and $10.4 million, charges of $5.6 million and $8.7 million for services provided by CHK pursuant to the transition services agreement, and severance-related costs of $1.4 million and $1.4 million for the first quarter of 2015 and the fourth quarter of 2014, respectively. During the first quarter of 2014, we were a wholly-owned subsidiary of CHK and the majority of our general and administrative expense was recognized on an allocated basis.
Liquidity
We have provided notice to the administrative agent and existing lenders under our term loan credit agreement to request incremental term commitments in an aggregate principal amount of $100.0 million to be secured on a junior lien basis with the collateral securing the existing borrowings under the agreement. Pursuant to the accordion feature of the agreement, we may select, at our discretion, incremental term lender(s) from among the existing lenders and any additional banks, financial institutions and other institutional lenders or investors, subject to the consent of (i) such proposed incremental term lender and (ii) the administrative agent. We expect to select the incremental term lender(s) and, subject to market conditions, close on the incremental term loan credit agreement in May 2015.
As of March 31, 2015, SSE had $65.3 million in borrowings outstanding under its $275.0 million revolving bank credit facility. As of May 1, 2015, we had outstanding borrowings of $30.0 million, letters of credit of $5.8 million, and had availability of $239.2 million. Capital expenditures totaled $40.6 million during the first quarter of 2015, which primarily consisted of investment in new PeakeRigs™. SSE currently expects its total capital expenditures to be approximately $200.0 million for 2015. Once SSE has completed its planned growth capital expenditures, it intends to shift its focus toward using excess cash flows from operations to reduce outstanding long-term debt.
Financial Results
SSE reported total revenues of $429.8 million for the first quarter of 2015, a 13% decrease compared to revenues of $494.9 million for the fourth quarter of 2014 and a 6% decrease compared to adjusted revenues of $459.0 million for the first quarter of 2014. Adjusted EBITDA for the first quarter of 2015 was $84.9 million, a 22% decrease compared to $108.5 million for the fourth quarter of 2014 and in line with $85.8 million for the first quarter of 2014.
Adjusted net loss, which excludes a non-recurring charge due to a change in depreciation estimate, impairments, losses on sales of property and equipment, and severance related costs, was ($21.6) million, or ($0.45) per fully diluted share. Net loss for the first quarter of 2015 was ($37.6) million, or ($0.78) per fully diluted share, compared to net loss of ($9.4) million, or ($0.20) per fully diluted share, for the fourth quarter of 2014 and net loss of ($18.6) million, or ($0.40) per fully diluted share, for the first quarter of 2014.
Adjusted revenues, adjusted operating costs, adjusted EBITDA and adjusted net loss are non-GAAP financial measures.