Pioneer Energy Services Reports Fourth Quarter 2018 Results

SAN ANTONIO, Feb. 19, 2019 /PRNewswire/ -- Pioneer Energy Services (NYSE: PES) today reported financial and operating results for the quarter ended December 31, 2018. Fourth quarter and recent notable items include:

• Domestic drilling fleet was fully utilized and generated an average margin per day of $10,252.
• International drilling fleet generated its highest average margin per day since 2014. Also, two drilling rigs that had been idle during the quarter commenced operations in December for two separate clients resulting in seven rigs earning revenue at year-end.
• Well servicing and coiled tubing both generated sequential revenue increases despite seasonal activity slowdowns and lower commodity prices.

Consolidated Financial Results

Revenues for the fourth quarter of 2018 were $141.5 million, down 5% from revenues of $149.3 million in the third quarter of 2018 ("the prior quarter"). Net loss for the fourth quarter of 2018 was $14.5 million, or $0.19 per share, compared with net loss of $5.2 million, or $0.07 per share, in the prior quarter. Adjusted net loss(1) for the fourth quarter was $13.6 million, and adjusted EPS(2) was a loss of $0.17 per share. These results compare to an adjusted net loss of $5.6 million, and an adjusted EPS loss of $0.07 per share in the prior quarter. Fourth quarter adjusted EBITDA(3) was $20.8 million, down from $28.6 million in the prior quarter.

The decrease in revenues and adjusted EBITDA from the prior quarter was primarily due to lower completion-related activity in our wireline services business, which was partially offset by improved margins in our international drilling operations. Additionally, our adjusted EBITDA during the fourth quarter decreased by $1.0 million as compared to the prior quarter due to the change in fair value of our phantom stock awards, for which we recognized a benefit in the third and fourth quarters of $3.7 million and $2.7 million, respectively.

Operating Results

Production Services Business

Revenue from our production services business was $82.3 million in the fourth quarter, down 8% from the prior quarter. Gross margin as a percentage of revenue from our production services business was 19% in the fourth quarter, down from 24% in the prior quarter.

The decrease in production services revenues from the prior quarter was attributable to lower wireline completion-related activity as certain customers curtailed completion activities amidst declining commodity prices. The overall decrease in production service revenue was partially offset by sequential increases in well servicing and coiled tubing revenues. We continued to expand our 24-hour drill-out, completion-related activity, primarily in West Texas, which led to a sequential increase in revenue for the well servicing business. Our coiled tubing business benefited from the full impact of large diameter equipment added during the prior quarter.

Well servicing average revenue per hour was $571 in the fourth quarter, up from $552 in the prior quarter. Well servicing rig utilization was 50% in the fourth quarter, down slightly from 51% in the prior quarter. Coiled tubing revenue days totaled 346 in the fourth quarter, as compared to 362 in the prior quarter. The number of wireline jobs completed in the fourth quarter decreased by 10% sequentially.

Drilling Services Business

Revenue from our drilling services business was $59.2 million in the fourth quarter, reflecting a 1% decrease from the prior quarter. Margin per day was $10,872, up from $9,428 in the prior quarter.

Our domestic drilling fleet was fully utilized during the current and prior quarters with average revenues per day of $25,794 in the fourth quarter, up from $25,076 in the prior quarter. Domestic drilling average margin per day was $10,252 in the fourth quarter, up slightly from $10,237 in the prior quarter due to certain rigs repricing upward by approximately $1,000 to $4,000 per day during the quarter, but offset by one rig repricing downward by approximately $5,000 per day from a legacy contract.

International drilling rig utilization was 71% for the fourth quarter, down from 76% in the prior quarter. Average revenues per day were $41,230, up from $41,158 in the prior quarter, while average margin per day for the fourth quarter was $12,590, up from $7,327 in the prior quarter. The increase in revenue per day and margin per day was primarily due to negotiated reimbursements of certain operating costs of approximately $1.3 million, as well as demobilization revenue related to one contract. Although utilization in the fourth quarter was down sequentially, two idle rigs were mobilized and began operations in December.

Currently, all 16 of our domestic drilling rigs are earning revenues, 13 of which are under term contracts, and six of our eight rigs in Colombia are earning revenue under daywork contracts. In our domestic drilling operations, we expect our contracted new-build drilling rig to be deployed to West Texas and begin operations in late first quarter of 2019.

Comments from our President and CEO 

"In 2018, we generated significantly improved results over 2017 with our drilling services business achieving 35% revenue growth and a 42% increase in gross margin, while our production services business achieved 31% revenue growth and a 35% increase in gross margin," said Wm. Stacy Locke, President and Chief Executive Officer.  "Strong demand for our U.S. drilling services positioned us to continue to generate industry-leading margins throughout the year, despite the downward repricing of four rigs from legacy new-build contracts. Our fleet of top performing U.S. drilling rigs remains fully utilized, and continues to experience strong demand. In Colombia, we diversified our client base and finished 2018 with seven rigs earning revenue for five customers. Our international drilling operations had a particularly favorable year with 104% revenue growth and a 115% improvement in gross margin.

"Looking forward, we have solid term contract protection in our drilling services business, and select dayrate increases that were negotiated in the fourth quarter will positively impact the business in 2019. We expect drilling demand for high spec rigs to remain strong, particularly in West Texas where we will be delivering a new-build rig in the first quarter on a three-year term contract. Demand has been firm in Colombia with seven rigs currently contracted, although one of the seven will not be earning revenue for part of the first quarter due to a required mast repair, but is expected to return to work in the second quarter.

"Our production services business should see steady improvement throughout the first quarter with typical seasonal weakness in January and February, and finishing stronger in March. We expect to continue to benefit from our investment in coiled tubing with the addition of two large diameter units in 2018 and the ongoing expansion of 24-hour drill-out, completion activities that we introduced in late 2018 in our well servicing business. We anticipate that market dynamics for wireline services could remain challenging in early 2019.

"While the market conditions remain uncertain and visibility limited, we are focused on maintaining capital expenditure discipline with an expectation of being cash flow neutral for 2019. In addition, we will continue to explore asset sales to unlock additional liquidity and enhance our ability to reduce debt."

First Quarter 2019 Guidance

In the first quarter of 2019, revenue from our production services business segments could range from down 3% to up 3% as compared to the fourth quarter of 2018 depending on a number of factors such as weather and the timing of certain clients resuming operations. Margin from our production services business is estimated to be 18% to 21% 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 80% to 83%, and generate average margins per day of approximately $9,000 to $10,000.

We expect general and administrative expense to be approximately $20 million to $21 million in the first quarter of 2019, which as it relates to phantom stock compensation expense, is based on the closing price of our common stock of $1.23 per share at December 31, 2018.

Liquidity

Working capital at December 31, 2018 was $110.3 million, down from $130.6 million at December 31, 2017. Cash and cash equivalents, including restricted cash, were $54.6 million, down from $75.6 million at year-end 2017. During the year ended December 31, 2018, we used $67.1 million of cash for the purchase of property and equipment, and our cash provided by operations was $39.7 million.

Capital Expenditures

Cash capital expenditures during the year ended December 31, 2018 were $67.1 million, including capitalized interest. We estimate total cash capital expenditures for 2019 to be approximately $55 million to $60 million, which includes approximately $7 million for final payments on the construction of the new-build drilling rig that is expected to begin operations in the first quarter, and previous commitments on high-pressure pump packages for coiled tubing completion operations.

Conference Call

Pioneer Energy Services' management team will hold a conference call today at 11:00 a.m. Eastern Time (10:00 a.m. Central Time) to discuss these results. To participate, dial (412) 902-0003 approximately 10 minutes prior to the call and ask for the Pioneer Energy Services conference call. A telephone replay will be available after the call until February 26th. To access the replay, dial (201) 612-7415 and enter the pass code 13686777.

The conference call will also be webcast on the Internet and accessible from Pioneer Energy Services' web site at www.pioneeres.com. To listen to the live call, visit our web site at least 10 minutes early to register and download any necessary audio software. For more information, please contact Donna Washburn at Dennard Lascar Investor Relations at (713) 529-6600 or e-mail [email protected].

About Pioneer

Pioneer Energy Services provides well servicing, wireline, and coiled tubing services to producers in the U.S. Gulf Coast, Mid-Continent and Rocky Mountain regions through its three production services business segments. Pioneer also provides contract land drilling services to oil and gas operators in Texas, the Mid-Continent and Appalachian regions and internationally in Colombia through its two drilling services business segments.

Cautionary Statement Regarding Forward-Looking Statements,Non-GAAP Financial Measures and Reconciliations

Statements we make in this news release that express a belief, expectation or intention, as well as those that are not historical fact, are forward-looking statements made in good faith that are subject to risks, uncertainties and assumptions. Our actual results, performance or achievements, or industry results, could differ materially from those we express in the following discussion as a result of a variety of factors, including general economic and business conditions and industry trends, levels and volatility of oil and gas prices, the continued demand for drilling services or production services in the geographic areas where we operate, decisions about exploration and development projects to be made by oil and gas exploration and production companies, the highly competitive nature of our business, technological advancements and trends in our industry and improvements in our competitors' equipment, the loss of one or more of our major clients or a decrease in their demand for our services, future compliance with covenants under debt agreements, including our senior secured term loan, our senior secured revolving asset-based credit facility, and our senior notes, operating hazards inherent in our operations, the supply of marketable drilling rigs, well servicing rigs, coiled tubing units and wireline units within the industry, the continued availability of new components for drilling rigs, well servicing rigs, coiled tubing units and wireline units, the continued availability of qualified personnel, the success or failure of our acquisition strategy, the occurrence of cybersecurity incidents, the political, economic, regulatory and other uncertainties encountered by our operations, and changes in, or our failure or inability to comply with, governmental regulations, including those relating to the environment. We have discussed many of these factors in more detail in our Annual Report on Form 10-K for the year ended December 31, 2018, including under the headings "Special Note Regarding Forward-Looking Statements" in the Introductory Note to Part I and "Risk Factors" in Item 1A. These factors are not necessarily all the important factors that could affect us. Other unpredictable or unknown factors could also have material adverse effects on actual results of matters that are the subject of our forward-looking statements. All forward-looking statements speak only as of the date on which they are made and we undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise. We advise our shareholders that they should (1) recognize that important factors not referred to above could affect the accuracy of our forward-looking statements and (2) use caution and common sense when considering our forward-looking statements.

This news release contains non-GAAP financial measures as defined by SEC Regulation G. A reconciliation of each such measure to its most directly comparable U.S. Generally Accepted Accounting Principles (GAAP) financial measure, together with an explanation of why management believes that these non-GAAP financial measures provide useful information to investors, is provided in the following tables.

 - Financial Statements and Operating Information Follow -

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SOURCE Pioneer Energy Services