Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
BAS > SEC Filings for BAS > Form 10-Q on 29-Apr-2013All Recent SEC Filings

Show all filings for BASIC ENERGY SERVICES INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for BASIC ENERGY SERVICES INC


29-Apr-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Overview

We provide a wide range of well site services to oil and natural gas drilling and producing companies, including completion and remedial services, fluid services and well site construction services, well servicing and contract drilling. Our results of operations reflect the impact of our acquisition strategy as a leading consolidator in the domestic land-based well services industry. Our acquisitions have increased our breadth of service offerings at the well site and expanded our market presence. In implementing our acquisition strategy, we purchased businesses and assets in six separate acquisitions from January 1, 2012 to March 31, 2013. Our total hydraulic horsepower increased from 271,000 at December 31, 2011 to 292,000 at March 31, 2013. Our weighted average number of fluid service trucks increased from 900 in the first quarter of 2012 to 964 in the first quarter of 2013. Our weighted average number of well servicing rigs increased from 423 in the first quarter of 2012 to 425 in the first quarter of 2013. These acquisitions, as well as market fluctuations, make our revenues, expenses and income not directly comparable between periods.

Our operating revenues from each of our segments, and their relative percentages of our total revenues, consisted of the following (dollars in millions):

                                                 Three Months Ended March 31,
                                                  2013                   2012
        Revenues:
        Completion and remedial services   $  118.4        39 %    $ 164.4        40 %
        Fluid services                     $   84.3        28 %    $  95.3        29 %
        Well servicing                     $   87.7        29 %    $  95.9        28 %
        Contract drilling                  $   14.0         4 %    $  15.3         3 %

        Total revenues                     $  304.4       100 %    $ 370.9       100 %

Our core businesses depend on our customers' willingness to make expenditures to produce, develop and explore for oil and natural gas in the United States. Industry conditions are influenced by numerous factors, such as the supply of and demand for oil and natural gas, domestic and worldwide economic conditions, political instability in oil producing countries and merger and divestiture activity among oil and natural gas producers. The volatility of the oil and natural gas industry, and the consequent impact on exploration and production activity, has adversely impacted, and could continue to adversely impact, the level of drilling and workover activity by some of our customers. This volatility affects the demand for our services and the price of our services.

During 2010, oil prices remained relatively stable following the increase in prices experienced during 2009. Oil prices increased during the first half of 2011 primarily due to political and economic instability in several oil producing countries and remained relatively stable during the last months of 2011 and throughout 2012 and the first quarter of 2013. This trend in oil prices has caused utilization and pricing for our services to stabilize in our oil-based operating areas, while utilization and pricing for our services in our natural gas-based operating areas remained depressed throughout the first quarter of 2013 due to low natural gas prices. Our outlook for 2013 continues to be based on the assumption that upstream spending and oilfield activity will be similar to the levels in 2012. We expect to see activity increase through the summer and into the fall with the second half of 2013 substantially busier than the first half.

We will continue to evaluate opportunities to expand our business through selective acquisitions and internal growth initiatives. Our capital investment decisions are determined by an analysis of the projected return on capital employed of each of those alternatives, which is substantially driven by the cost to acquire existing assets from a third party, the capital required to build new equipment and the point in the oil and natural gas commodity price cycle. Based on these factors, we make capital investment decisions that we believe will support our long-term growth strategy. While we believe our costs of integration for prior acquisitions have been reflected in our historical results of operations, integration of acquisitions may result in unforeseen operational difficulties or require a disproportionate amount of our management's attention.

We believe that the most important performance measures for our business segments are as follows:

Completion and Remedial Services - segment profits as a percent of revenues;

Fluid Services - trucking hours, revenue per truck, segment profits per truck and segment profits as a percent of revenues;

Well Servicing - rig hours, rig utilization rate, revenue per rig hour, profits per rig hour and segment profits as a percent of revenues; and

Contract Drilling - rig operating days, revenue per drilling day, profits per drilling day and segment profits as a percent of revenues.


Table of Contents

Segment profits are computed as segment operating revenues less direct operating costs. These measurements provide important information to us about the activity and profitability of our lines of business. For a detailed analysis of these indicators for our company, see "Segment Overview" below.

Selected Acquisitions

During 2012, we made four acquisitions that complemented our existing business segments. These included, among others:

Surface Stac, Inc.

On May 15, 2012, we acquired substantially all of the assets of Surface Stac, Inc for total consideration of $23.2 million in cash. This acquisition has been included in our completion and remedial servicing segment.

Salt Water Disposal of North Dakota LLC

On December 19, 2012, we acquired substantially all of the assets of Salt Water Disposal of North Dakota LLC for total consideration of $43.2 million in cash. This acquisition has been included in our fluid services segment.

During the first three months of 2013, we made two acquisitions that complemented our existing business segments including:

Atlas Environmental Consulting, Inc. and Atlas Oilfield Construction Company,
LLC

On February 16, 2013, we acquired all of the assets of Atlas Environmental Consulting, Inc. and Atlas Oilfield Construction Company, LLC, for total cash consideration of $13.2 million. This acquisition operates in our fluid services segment.

Petroleum Water Solutions, LLC

On February 22, 2013, we acquired all of the assets of Petroleum Water Solutions, LLC for total cash consideration of $3.3 million. This acquisition operates in our fluid services segment.

Segment Overview

Completion and Remedial Services

During the first three months of 2013, our completion and remedial services segment represented approximately 39% of our revenues. Revenues from our completion and remedial services segment are generally derived from a variety of services designed to complete and stimulate new oil and natural gas production or place cement slurry within the wellbores. Our completion and remedial services segment includes pumping services, rental and fishing tool operations, coiled tubing services, nitrogen services, cased-hole wireline services, snubbing, water treatment and underbalanced drilling.

Our pumping services concentrate on providing single truck, lower-horsepower cementing, acidizing and fracturing services in selected markets. Our total hydraulic horsepower capacity for our pressure pumping operations was 292,000 and 276,000 at March 31, 2013 and March 31, 2012, respectively.

In this segment, we generally derive our revenues on a project-by-project basis in a competitive bidding process. Our bids are generally based on the amount and type of equipment and personnel required, with the materials consumed billed separately. During periods of decreased spending by oil and gas companies, we may be required to discount our rates to remain competitive, which would cause lower segment profits.

The following is an analysis of our completion and remedial services segment for each of the quarters in 2012, the full year ended December 31, 2012 and the quarter ended March 31, 2013 (dollars in thousands):

                                                      Segment
                                       Revenues      Profits %
                      2012:
                      First Quarter    $ 164,420             41 %
                      Second Quarter   $ 156,560             41 %
                      Third Quarter    $ 143,348             39 %


Table of Contents
                                                      Segment
                                       Revenues      Profits %
                      Fourth Quarter   $ 121,742             34 %
                      Full Year        $ 586,070             39 %
                      2013:
                      First Quarter    $ 118,361             33 %

We gauge the performance of our completion and remedial services segment based on the segment's operating revenues and segment profits as a percent of revenues.

The decrease in completion and remedial services revenue to $118.4 million in the first quarter of 2013 from $121.7 million in the fourth quarter of 2012 resulted primarily from decreased revenue from our pumping equipment, due to relatively low drilling rig count and significant weather issues during the first quarter. The decrease in segment profits as a percentage of revenue from 34% in the fourth quarter of 2012 to 33% in the first quarter of 2013 was primarily due to lower utilization.

Fluid Services

During the first three months of 2013, our fluid services segment represented approximately 28% of our revenues. Revenues in our fluid services segment are earned from the sale, transportation, treatment, storage and disposal of fluids used in the drilling, production and maintenance of oil and natural gas wells. Revenues also include well site construction and maintenance services. The fluid services segment has a base level of business consisting of transporting and disposing of salt water produced as a by-product of the production of oil and natural gas. These services are necessary for our customers and generally have a stable demand but typically produce lower relative segment profits than other parts of our fluid services segment. Fluid services for completion and workover projects typically require fresh or brine water for making drilling mud, circulating fluids or frac fluids used during a job, and all of these fluids require storage tanks and hauling and disposal. Because we can provide a full complement of fluid sales, trucking, storage and disposal required on most drilling and workover projects, the add-on services associated with drilling and workover activity enable us to generate higher segment profits. The higher segment profits are due to the relatively small incremental labor costs associated with providing these services in addition to our base fluid services segment. Revenues from our well site construction services are derived primarily from preparing and maintaining access roads and well locations, installing small diameter gathering lines and pipelines, constructing foundations to support drilling rigs and providing maintenance services for oil and natural gas facilities. We typically price fluid services by the job, by the hour or by the quantities sold, disposed of or hauled.

The following is an analysis of our fluid services operations for each of the quarters in 2012, the full year ended December 31, 2012 and the quarter ended March 31, 2013 (dollars in thousands):

                                                                                              Segment
                                     Weighted                                                 Profits
                                      Average                                                   Per
                                     Number of                            Revenue Per          Fluid
                                   Fluid Service        Trucking         Fluid Service        Service        Segment
                                      Trucks              Hours              Truck             Truck        Profits %
2012:
First Quarter                                 900          580,700      $           106      $      36              34 %
Second Quarter                                918          552,400      $            99      $      35              36 %
Third Quarter                                 931          551,600      $            91      $      29              32 %
Fourth Quarter                                954          555,200      $            86      $      25              29 %
Full Year                                     926        2,239,900      $           380      $     125              33 %
2013:
First Quarter                                 963          555,600      $            88      $      27              31 %

We gauge activity levels in our fluid services segment based on trucking hours, revenue and segment profits per fluid service truck, and segment profits as a percent of revenues.

Revenue per fluid service truck increased to $88,000 in the first quarter of 2013 compared to the fourth quarter of 2012, primarily due to increases in disposal revenue associated with a full quarter impact of the Salt Water Disposal of North Dakota acquisition. Segment profit percentage increased to 31% for the first quarter of 2013 compared to 29% for the fourth quarter of 2012, primarily due to the holiday impact of the fourth quarter, along with lower repair and maintenance costs.


Table of Contents

Well Servicing

During the first three months of 2013, our well servicing segment represented approximately 29% of our revenues. Revenue in our well servicing segment is derived from maintenance, workover, completion, manufacturing and plugging and abandonment services. We provide maintenance-related services as part of the normal, periodic upkeep of producing oil and natural gas wells.
Maintenance-related services represent a relatively consistent component of our business. Workover and completion services generate more revenue per hour than maintenance work due to the use of auxiliary equipment, but demand for workover and completion services fluctuates more with the overall activity level in the industry. We also have a rig manufacturing and servicing facility that builds new workover rigs, performs large-scale refurbishments of used workover rigs and provides maintenance services on previously manufactured rigs.

We typically charge our well servicing rig customers for services on an hourly basis at rates that are determined by the type of service and equipment required, market conditions in the region in which the rig operates, the ancillary equipment provided on the rig and the necessary personnel. Depending on the type of job, we may also charge by the project or by the day. We measure the activity levels of our well servicing rigs on a weekly basis by calculating a rig utilization rate based on a 55-hour work week per rig. Our fleet increased from a weighted average number of 423 rigs in the first quarter of 2012 to 425 in the first quarter of 2013.

The following is an analysis of our well servicing operations for each of the quarters in 2012, the full year ended December 31, 2012 and the quarter ended March 31, 2013:

                                Weighted
                                 Average                            Rig                                Profits
                                Number of          Rig          Utilization         Revenue Per        Per Rig        Segment
                                  Rigs            Hours            Rate              Rig Hour           Hour         Profits %
2012:
First Quarter                          423        231,300               76.5 %     $         393      $     117              30 %
Second Quarter                         431        232,500               75.4 %     $         399      $     111              27 %
Third Quarter                          431        226,400               73.5 %     $         402      $     124              30 %
Fourth Quarter                         429        203,000               66.2 %     $         393      $     108              28 %
Full Year                              429        893,200               72.9 %     $         397      $     115              29 %
2013:
First Quarter                          425        210,800               69.4 %     $         399      $     108              26 %

We gauge activity levels in our well servicing segment based on rig hours, rig utilization rate, revenue per rig hour, segment profits per rig hour and segment profits as a percent of revenues. Revenue per rig hour and profits per rig hour in the table above do not include revenues and profits from the rig manufacturing and maintenance division of this business segment.

Rig utilization increased to 69% in the first quarter of 2013 compared to 66% in the fourth quarter of 2012. Higher utilization resulted from increased rig hours due to the absence of the holiday impact in the first quarter of 2013. Our segment profit percentage decreased to 26% during the first quarter of 2013 from 28% during the fourth quarter of 2012 due to the reset of unemployment taxes at the beginning of the year.

Contract Drilling

During the first three months of 2013, our contract drilling segment represented approximately 4% of our revenues. Revenues from our contract drilling segment are derived primarily from the drilling of new wells.

Within this segment, we typically charge our drilling rig customers at a "daywork" daily rate, or "footage" at an established rate per number of feet drilled. We measure the activity level of our drilling rigs on a weekly basis by calculating a rig utilization rate based on a seven-day work week per rig. Our contract drilling rig fleet had a weighted average of twelve rigs during the first quarter of 2012 and 2013.


Table of Contents

The following is an analysis of our contract drilling segment for each of the quarters in 2012, the full year ended December 31, 2012 and the quarter ended March 31, 2013:

                   Weighted
                   Average           Rig          Revenue Per        Profits
                  Number of       Operating        Drilling        Per Drilling       Segment
                     Rigs           Days              Day               Day          Profits %
 2012:
 First Quarter            12             967     $      15,800     $       5,200             33 %
 Second Quarter           12           1,007     $      15,500     $       5,800             37 %
 Third Quarter            12             957     $      15,800     $       5,300             34 %
 Fourth Quarter           12             892     $      16,000     $       5,100             32 %
 Full Year                12           3,823     $      15,800     $       5,300             34 %
 2013:
 First Quarter            12             850     $      16,500     $       5,700             35 %

We gauge activity levels in our drilling operations based on rig operating days, revenue per drilling day, profits per drilling day and segment profits as a percent of revenues.

The increase in revenue per day to $16,500 in the first quarter of 2013 from $16,000 in the fourth quarter of 2012 was due primarily to higher utilization from our greater depth, higher rate rigs. Segment profit percentage increased to 35% in the first quarter of 2013 from 32% in the fourth quarter of 2012 due to higher day rates and lower repairs and maintenance expense.

Operating Cost Overview

Our operating costs are comprised primarily of labor, including workers' compensation and health insurance, repair and maintenance, fuel and insurance. The majority of our employees are paid on an hourly basis. We also incur costs to employ personnel to sell and supervise our services and perform maintenance on our fleet. These costs are not directly tied to our level of business activity. Compensation for our administrative personnel in local operating yards and in our corporate office is accounted for as general and administrative expenses. Repair and maintenance is performed by our crews, company maintenance personnel and outside service providers. Insurance is generally a fixed cost regardless of utilization and relates to the number of rigs, trucks and other equipment in our fleet, employee payroll and safety record.

Critical Accounting Policies and Estimates

Our unaudited consolidated financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of our critical accounting policies is included in Note 2 of the notes to our historical audited consolidated financial statements in our most recent annual report on Form 10-K. The following is a discussion of our critical accounting policies and estimates.

Critical Accounting Policies

We have identified below certain accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows and that require the application of significant judgment by management.

Property and Equipment. Property and equipment are stated at cost or at estimated fair value at acquisition date if acquired in a business combination. Expenditures for repairs and maintenance are charged to expenses as incurred. We also review the capitalization of refurbishment of workover rigs as described in Note 2 of the notes to our unaudited consolidated financial statements.

Impairments. We review our assets for impairment at least annually, or whenever, in management's judgment, events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recovered over its remaining service life. Provisions for asset impairment are charged to income when the sum of the estimated future cash flows, on an undiscounted basis, is less than the asset's carrying amount. When impairment is indicated, an impairment charge is recorded based on an estimate of future cash flows on a discounted basis.

Self-Insured Risk Accruals. We are self-insured up to retention limits with regard to workers' compensation, general liability claims, and medical and dental coverage of our employees. We generally maintain no physical property damage coverage on our workover rig fleet, with the exception of certain of our 24-hour workover rigs and newly


Table of Contents

manufactured rigs. We have deductibles per occurrence for workers' compensation, general liability claims, and medical and dental coverage of $1.0 million, $1.0 million and $300,000, respectively. We have lower deductibles per occurrence for automobile liability. We maintain accruals in our consolidated balance sheets related to self-insurance retentions based upon third-party actuarial data and claims history.

Revenue Recognition. We recognize revenues when the services are performed, collection of the relevant receivables is probable, persuasive evidence of the arrangement exists and the price is fixed and determinable.

Income Taxes. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in the period that includes the statutory enactment date. A valuation allowance for deferred tax assets is recognized when it is more likely than not that the benefit of deferred tax assets will not be realized.

Critical Accounting Estimates

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the balance sheet date and the amounts of revenues and expenses recognized during the reporting period. We analyze our estimates based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. However, actual results could differ from such estimates. The following is a discussion of our critical accounting estimates.

Depreciation and Amortization. In order to depreciate and amortize our property and equipment and our intangible assets with finite lives, we estimate the useful lives and salvage values of these items. Our estimates may be affected by such factors as changing market conditions, technological advances in the industry or changes in regulations governing the industry.

Impairment of Property and Equipment. Our analysis for potential impairment of property and equipment requires us to estimate undiscounted future cash flows. Actual impairment charges are recorded using an estimate of discounted future cash flows. The determination of future cash flows requires us to estimate rates and utilization in future periods and such estimates can change based on market conditions, technological advances in the industry or changes in regulations governing the industry.

Impairment of Goodwill. Our goodwill is considered to have an indefinite useful economic life and is not amortized. We assess impairment of our goodwill annually as of December 31 or on an interim basis if events or circumstances indicate that the fair value of the asset has decreased below its carrying value. A qualitative assessment of whether it is more likely than not that the fair value of the reporting unit is less than its carrying value is allowed but not required. If it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then the two-step impairment test is performed. In the two-step test, first, the fair value of each reporting unit is compared to its carrying value to determine whether an indication of impairment exists. If impairment is indicated, then the fair value of the reporting unit's goodwill is determined by allocating the unit's fair value to its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. The amount of impairment for goodwill is measured as the excess of its carrying value over its fair value.

Allowance for Doubtful Accounts. We estimate our allowance for doubtful accounts based on an analysis of historical collection activity and specific identification of overdue accounts. Factors that may affect this estimate include (1) changes in the financial positions of our significant customers and
(2) a decline in commodity prices that could affect our entire customer base.

. . .

  Add BAS to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for BAS - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.