Pioneer Energy Services (PES) Misses Q2 EPS by 9c, Revenues In-Line

Pioneer Energy Services (NYSE: PES) reported Q2 EPS of ($0.19), $0.09 worse than the analyst estimate of ($0.10). Revenue for the quarter came in at $154.8 million versus the consensus estimate of $154.83 million.

Comments from our President and CEO

"Our second quarter results reflect solid top-line performance," said Wm. Stacy Locke, President and Chief Executive Officer. \"Despite continued strong demand for our services, we experienced some higher-than-anticipated expenses in all businesses during the quarter, which impacted our bottom line.

"Our domestic drilling operations delivered another strong quarter of results with utilization of 100% and a margin per day of $9,550. Higher repair and maintenance costs, largely attributable to the timing of annual inspections and re-certifications of rig masts, substructures and mud pumps, depressed margin per day relative to the first quarter. Our 16 domestic drilling rigs performed very well during the quarter allowing us to renew several contracts at higher dayrates and for longer term contract durations. In addition, we executed a three-year term contract with an existing client for a new-build drilling rig. This new-build will require an incremental investment of approximately $10 million to complete and will utilize stacked equipment previously ordered in 2014. We expect the rig to begin operations in the Permian in the first quarter of 2019.

"Similarly, our seven operating rigs in Colombia performed well during the quarter; however, two of the rigs experienced unanticipated events that negatively impacted our margins. One rig had two long mobilizations during the quarter that resulted in less than 30 days of full dayrate revenues, and another rig was placed on standby for a portion of June. The outlook for Colombia is bright and we expect margins to gradually improve in future quarters.

"In production services, demand for our onshore services increased sequentially and remains stable. Our strategic focus continues to be on the key shale provinces in the U.S.; therefore, in June, we exited the wireline and coiled tubing offshore markets due to reduced activity, and began redeploying and divesting of certain assets. We absorbed some additional costs associated with this strategic decision in the second quarter.

"Both wireline and well services performed well in the quarter. Demand continued to weaken for small diameter coil services; however, demand for large diameter coil is robust. We took delivery of a new 2 3/8" coiled tubing unit in July and this unit immediately went to work. We have an additional large diameter coiled tubing unit scheduled for delivery in the fourth quarter of 2018.

"Lateral lengths are increasing in all shale plays in the U.S. driving increased demand for large diameter coil and greater pumping capacities. Some operators are preferring to perform drill outs with a well servicing rig rather than a coiled tubing unit. These operators also require larger pump capacities and other ancillary equipment. We are positioning Pioneer to be a leader in this ever-changing marketplace.

"While we have experienced some near-term activity moderation in wireline and coiled tubing, it is not related to softness in the Permian due to takeaway capacity limitations. Several of our key clients in other markets in the U.S. are temporarily delayed due to events such as changing out frac providers, permitting issues, and being caught up on their backlog of uncompleted wells, but we are optimistic that activity will increase in the fall. The vast majority of Pioneer\'s exposure to the Permian is in land contract drilling with eight rigs which are fully contracted through 2018 and much of 2019. While we have limited exposure to the Permian on the production services side of our business, we are currently evaluating new, higher-margin opportunities that we see developing there," Mr. Locke said.

Third Quarter 2018 Guidance

In the third quarter of 2018, revenue from our production services business segments is estimated to be down 3% to 5% as compared to the second quarter of 2018. Margin from our production services business is estimated to be 23% to 25% of revenue. Domestic drilling services rig utilization is expected to be 100% and generate average margins per day of approximately $9,700 to $10,200. International drilling services rig utilization is estimated to average 85% to 87% and generate average margins per day of approximately $8,000 to $9,000.

For earnings history and earnings-related data on Pioneer Energy Services (PES) click here.

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