Pioneer Energy Services Reports Second Quarter 2018 Results

SAN ANTONIO, July 31, 2018 /PRNewswire/ -- Pioneer Energy Services (NYSE: PES) today reported financial and operating results for the quarter ended June 30, 2018. Second quarter and recent notable items include:

• Executed a three-year, new-build drilling contract for a 1,500-horsepower, AC pad-optimal rig at a premium to current spot market dayrates for operations in West Texas beginning in the first quarter of 2019.
• Revenues for our production services businesses increased 7% from the prior quarter and generated a gross margin of 23%.
• Domestic drilling services utilization was 100% during the quarter, with average margin per day of $9,550.

Consolidated Financial Results

Revenues for the second quarter of 2018 were $154.8 million, up 7% from revenues of $144.5 million in the first quarter of 2018 ("the prior quarter") and up 44% from revenues of $107.1 million in the second quarter of 2017 ("the year-earlier quarter"). The increase from the prior quarter is primarily attributable to increased demand and pricing in wireline and well servicing, as well as increased drilling rig utilization in Colombia.

Net loss for the second quarter of 2018 was $18.2 million, or $0.23 per share, compared with net loss of $11.1 million, or $0.14 per share, in the prior quarter and net loss of $20.2 million, or $0.26 per share, in the year-earlier quarter.  Adjusted net loss(1) for the second quarter was $14.8 million, and adjusted EPS(2) was a loss of $0.19 per share as compared to adjusted net loss of $6.9 million, or an adjusted EPS loss of $0.09 per share, in the prior quarter.

Second quarter adjusted EBITDA(3) was $16.9 million, down from $23.4 million in the prior quarter and up from $12.9 million in the year-earlier quarter. The decrease from the prior quarter was primarily due to a $5.4 million increase in phantom stock expense during the latest quarter associated with the increase in fair value of the awards, lower utilization in coiled tubing services and higher mobilization and standby activity in Colombia. The increase from the year-earlier quarter was due to higher demand for all of our service offerings as the market steadily improved with increasing commodity prices throughout 2017 and 2018, which was partially offset by the increased expense related to phantom stock unit awards.

Operating Results

Production Services Business

Revenue from our production services business was $97.4 million in the second quarter, up 7% from the prior quarter and up 42% from the year-earlier quarter. Gross margin as a percentage of revenue from our production services business was 23% in the second quarter, down slightly from 24% in the prior quarter and flat with 23% in the year-earlier quarter. The decrease from the prior quarter was primarily due to decreased utilization of our coiled tubing services fleet, primarily small diameter coil services, increased equipment rental costs and additional expenses related to the closure of field offices supporting the under-performing offshore market.

The increase in revenues from the prior quarter was driven by increased demand for our wireline and well servicing operations, each of which experienced revenue growth of 10% sequentially. As compared to the year-earlier quarter, demand has improved for all of our production services business segments, resulting in increased revenues of 42%.

The number of wireline jobs completed in the second quarter increased by 7% sequentially and increased by 4% as compared to the year-earlier quarter, and continue to be weighted to more completion-related jobs. Well servicing average revenue per hour was $540 in the second quarter, up from $518 in the prior quarter and up from $514 in the year-earlier quarter. Well servicing rig utilization was 49% in the second quarter, up from 47% in both the prior and year-earlier quarters. Coiled tubing revenue days totaled 350 in the second quarter, as compared to 414 in the prior quarter and 400 in the year-earlier quarter.

Drilling Services Business

Revenue from our drilling services business was $57.4 million in the second quarter, reflecting a 7% increase from the prior quarter and a 48% increase from the year-earlier quarter.

Domestic drilling services rig utilization was 100% for both the second quarter and the prior quarter, and up from 92% in the year-earlier quarter. Domestic drilling average revenues per day were $24,508 in the second quarter, down from $24,949 in the prior quarter and up from $22,657 in the year-earlier quarter. Domestic drilling average margin per day was $9,550 in the second quarter, down from $10,436 in the prior quarter and up from $7,505 in the year-earlier quarter. Margin was negatively impacted in the second quarter by higher repair and maintenance expenses, which are expected to return to more typical levels in the third quarter. The increases in revenue per day and margin per day from the year-earlier quarter were driven by increasing dayrates.

International rig utilization was 85% for the second quarter, up from 76% in the prior quarter and up from 36% in the year-earlier quarter. International drilling average revenues per day were $35,061, up from $32,020 in the prior quarter and up from $31,702 in the year-earlier quarter, primarily due to higher utilization in the second quarter, versus both comparative periods. International drilling average margin per day for the second quarter was $7,583, down from $8,455 in the prior quarter and down from $8,923 in the year-earlier quarter, as a result of higher-than-anticipated mobilization and standby activity in the second quarter.

Currently, all 16 of our domestic drilling rigs are earning revenues, 14 of which are under term contracts, and seven of our eight rigs in Colombia are earning revenue, resulting in current utilization of 96%. The domestic new-build drilling rig is expected to begin operations in the first quarter of 2019.

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.

Liquidity

Working capital at June 30, 2018 was $116.9 million, down from $130.6 million at December 31, 2017. Cash and cash equivalents, including restricted cash, were $63.5 million, down from $75.6 million at year-end 2017. In the first half of 2018, we used $31.5 million of cash for the purchase of property and equipment, and our cash provided by operations was $17.1 million.

Capital Expenditures

Cash capital expenditures during the six months ended June 30, 2018 were $31.5 million, including capitalized interest. We estimate total cash capital expenditures for 2018 to be approximately $65 million to $70 million, which includes $23 million for two large-diameter coiled tubing units, one of which was delivered in early July, three wireline units, two of which were delivered in January, high-pressure pump packages for completion operations, and the construction of the new-build drilling rig expected to be completed in 2019.

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 August 7th. To access the replay, dial (201) 612-7415 and enter the pass code 13681398.

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, including our ability to finance acquisitions, manage growth and effectively integrate acquisitions, 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, 2017, 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.

 

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SOURCE Pioneer Energy Services