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-K on 24-Feb-2014All Recent SEC Filings

Show all filings for BASIC ENERGY SERVICES INC

Form 10-K for BASIC ENERGY SERVICES INC


24-Feb-2014

Annual Report


ITEM 7.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, well servicing and contract drilling services. 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 this strategy, we have purchased businesses and assets in 11 separate acquisitions from January 1, 2011 to December 31, 2013 for total consideration of $322.8 million. Our hydraulic horsepower capacity for pumping services increased from 142,000 at January 1, 2011 to 297,000 at December 31, 2013. Our weighted average number of fluid service trucks increased from 820 in the first quarter of 2011 to 986 in the fourth quarter of 2013. Our weighted average number of well servicing rigs increased from 412 in the first quarter of 2011 to 425 in the fourth quarter of 2013. Our weighted average number of drilling rigs increased from six in the first quarter of 2011 to 12 in the fourth quarter of 2013. These acquisitions make changes in 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):

                                                             Year Ended December 31,
                                                  2013                 2012            2011
Revenues:
Completion and remedial services            $   501.1    40%     $   586.1    43%    $   537.1    43%
Fluid services                                 343.9     27%        352.2     26%       332.0     27%
Well servicing                                 363.4     29%        376.3     27%       333.1     27%
Contract drilling                               54.5      4%         60.3      4%        41.1      3%
Total revenues                             $  1,262.9   100%    $  1,374.9   100%    $ 1,243.3   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, could adversely impact the level of drilling and workover activity by some of our customers. This volatility also affects the demand for our services and the price of our services. In addition, the discovery rate of new oil and natural gas reserves in our market areas also may have an impact on our business, even in an environment of stronger oil and natural gas prices. For a more comprehensive discussion of our industry trends, see "General Industry Overview" included in Items 1 and 2, Business and Properties, of this Annual Report on Form 10-K.

We derive a majority of our revenues from services supporting production from existing oil and natural gas operations. Demand for these production-related services, including well servicing and fluid services, tends to remain relatively stable, even in moderate oil and natural gas price environments, as ongoing maintenance spending is required to sustain production. As oil and natural gas prices reach higher levels, demand for all of our services generally increases as our customers engage in more well servicing activities relating to existing wells to maintain or increase oil and natural gas production from those wells. Because our services are required to support drilling and workover activities, our revenues will vary based on changes in capital spending by our customers as oil and natural gas prices increase or decrease.

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 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 2013 due to low natural gas prices. This extended low level of natural gas pricing has caused overcapacity and pricing pressure on all service lines, as the majority of the equipment in the North American market has been focused in oil-dominated areas.

Our revenues generally declined in 2013, primarily due to significant competition and rate pressure across all segments and geographies. This decline was most notable in our completion and remedial services segment. These declines were somewhat offset by increased fluid services activity, particularly with the addition of 10 salt water disposal facilities and 48 fluid service trucks during the year. We anticipate our customer base to begin their 2014 capital programs early in the year, and expect higher activity levels in 2014 accordingly. We also continue to anticipate high levels of competitive service capacity and wage competition through 2014. As the year progresses, we expect the higher levels of activity and wage pressure to create an environment in which pricing may increase. In some of our markets, overall service capacity may come into balance with activity levels to the extent where pricing may more than offset increases in wages and direct cost, allowing for modest incremental margin improvement.


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.

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.

Recent Strategic Acquisitions and Expansions

During the period from 2011 through 2013, we grew through acquisitions and capital expenditures. During 2011, we completed four acquisitions, of which the Maverick Companies was considered significant. During 2012, we completed four acquisitions, none of which were considered significant. During 2013, we completed three acquisitions that complemented our existing business segments, none of which were considered significant.

We discuss the aggregate purchase prices and related financing issues below in "Liquidity and Capital Resources" and present the pro forma effects of the acquisition of the Maverick Companies in Note 3 of the notes to our historical consolidated financial statements included in this report.

Selected 2011 Acquisitions

During 2011, we made four acquisitions that complemented our existing business segments. These included, among others:

The Maverick Companies

On July 8, 2011, we acquired all the equity interests of Maverick Stimulation Company, LLC, Maverick Coil Tubing Services, LLC, Maverick Thru-Tubing Services, LLC, Maverick Solutions, LLC, The Maverick Companies, LLC, MCM Holdings, LLC, and MSM Leasing LLC (collectively, the "Maverick Companies") for total consideration of $186.3 million in cash. This acquisition has been included in our completion and remedial services segment.

Selected 2012 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 services 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.

Selected 2013 Acquisitions

During 2013, we made three acquisitions that complemented our existing business segments. These included, among others:

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 $13.0 million. This acquisition has been included in our fluid services segment.


Segment Overview

Completion and Remedial Services

In 2013, our completion and remedial services segment represented 40% of our revenues. Revenues from our completion and remedial services segment are generally derived from a variety of services designed to stimulate 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 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 pumping services was approximately 297,000 horsepower at December 31, 2013, compared to 291,000 horsepower and 271,000 horsepower at December 31, 2012 and December 31, 2011, respectively.

Our rental and fishing tool business operates 23 rental and fishing tool stores in selected markets as of December 31, 2013.

Our snubbing services operate 37 units throughout our geographic footprint as of December 31, 2013. We entered the snubbing business in 2009 with the acquisition of Team Snubbing Services, which operated in Arkansas. We further expanded our snubbing business in 2010 through the acquisition of Platinum Pressure Services, Inc., which operated in Texas, Oklahoma, Arkansas, Louisiana and Pennsylvania.

We have operations in the wireline, coiled tubing services, nitrogen services, water treatment and the underbalanced drilling services businesses. For a description of our wireline, underbalanced drilling services, coiled tubing services, nitrogen services, water treatment, and snubbing operations, please read "Overview of Our Segments and Services - Completion and Remedial Services Segment" included in Items 1 and 2, Business and Properties, of this Annual Report on Form 10-K.

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 and years in the years ended December 31, 2011, 2012 and 2013 (dollars in thousands):

                                              Segment
  Completion & Remedial      Revenues        Profits %
  2011:
  First Quarter         $           97,507      44%
  Second Quarter        $          121,807      44%
  Third Quarter         $          157,121      46%
  Fourth Quarter        $          160,699      45%
  Full Year             $          537,134      45%
  2012:
  First Quarter         $          164,420      41%
  Second Quarter        $          156,560      41%
  Third Quarter         $          143,348      39%
  Fourth Quarter        $          121,742      34%
  Full Year             $          586,070      39%
  2013:
  First Quarter         $          118,361      33%
  Second Quarter        $          132,216      35%
  Third Quarter         $          127,119      35%
  Fourth Quarter        $          123,441      35%
  Full Year             $          501,137      35%

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.

Fluid Services

In 2013, our fluid services segment represented 27% of our revenues. Revenues in our fluid services segment are earned from the sale, transportation, storage and disposal of fluids used in the drilling, production and maintenance of oil and natural gas wells. Revenues also include water treatment, 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 operations. 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. Revenue from water treatment services results from the treatment and reselling of produced water and flowback to customers for the purposes of reusing as frac water. 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 segment for each of the quarters and years in the years ended December 31, 2011, 2012 and 2013 (dollars in thousands):

                   Weighted Average                  Revenue Per    Segment Profits
                   Number of Fluid                  Fluid Service      Per Fluid        Segment
   Fluid Services   Service Trucks    Truck Hours       Truck        Service Truck     Profits %
  2011:
  First Quarter                820       494,700    $          88   $             29      33%
  Second Quarter               837       525,700    $          97   $             36      37%
  Third Quarter                869       563,900    $         101   $             38      37%
  Fourth Quarter               875       570,800    $         104   $             38      37%
  Full Year                    850     2,155,100    $         391   $            141      36%
  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                972       555,600    $          88   $             27      31%
  Second Quarter               972       568,500    $          88   $             27      31%
  Third Quarter                970       578,900    $          89   $             27      31%
  Fourth Quarter               986       579,400    $          89   $             26      29%
  Full Year                    975     2,282,400    $         353   $            107      30%

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

Well Servicing

In 2013, our well servicing segment represented 29% of our revenues. Revenue in our well servicing segment is derived from maintenance, workover, completion and plugging and abandonment services, as well as rig manufacturing operations. 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 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. We measure the activity level of our well servicing rigs on a weekly basis by calculating a rig utilization rate based on a 55-hour work week per rig.

We acquired our rig manufacturing business in May 2010. We manufacture workover rigs for internal purposes as well as to sell to outside companies. Our rig manufacturing operation also performs large scale refurbishments and maintenance services to used workover rigs.


The following is an analysis of our well servicing segment for each of the quarters and years in the years ended December 31, 2011, 2012 and 2013. The revenues do not include revenues associated with rig manufacturing operations:

                  Weighted Average                  Rig           Revenue         Profits
                     Number of         Rig      Utilization       Per Rig         Per Rig     Segment
   Well Service         Rigs          Hours        Rate             Hour           Hour      Profits %
  2011:
  First Quarter               412    184,700       62.7%      $            356   $     105      30%
  Second Quarter              412    205,700       69.8%      $            376   $     122      32%
  Third Quarter               415    222,100       74.8%      $            386   $     117      31%
  Fourth Quarter              417    217,100       72.8%      $            398   $     132      33%
  Full Year                   414    829,600       70.1%      $            380   $     119      31%
  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      27%
  YTD 2012                    429    893,200       72.9%      $            397   $     115      29%
  2013:
  First Quarter               425    210,800       69.4%      $            399   $     117      30%
  Second Quarter              425    223,900       73.7%      $            408   $     111      27%
  Third Quarter               425    227,100       74.7%      $            404   $     124      30%
  Fourth Quarter              425    199,400       65.6%      $            404   $     113      27%
  YTD 2012                    425    861,200       70.9%      $            404   $     114      27%

We gauge activity levels in our well servicing rig operations based on rig hours, rig utilization rate, revenue per rig hour, profits per rig hour and segment profits as a percent of revenues.

Contract Drilling

In 2013, our contract drilling segment represented 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. Depending on the type of job, we may also charge by the project. 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. We acquired six used drilling rigs during 2011 from several different companies. We acquired two drilling rigs during the first quarter of 2012, which increased our total number of drilling rigs to 12.


The following is an analysis of our contract drilling segment for each of the quarters and years in the years ended December 31, 2011, 2012 and 2013 (dollars in thousands):

                    Weighted Average      Rig                            Profits
                         Number        Operating      Revenue            (Loss)          Segment
  Contract Drilling     of Rigs          Days         Per Day            Per Day        Profits %
  2011:
  First Quarter                   6         522    $       13,500   $           4,900      36%
  Second Quarter                 10         714    $       13,700   $           3,300      24%
  Third Quarter                  10         802    $       14,600   $           4,700      32%
  Fourth Quarter                 10         851    $       14,700   $           5,000      34%
  Full Year                       9       2,889    $       14,200   $           4,500      31%
  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      25%
  Second Quarter                 12         846    $       16,500   $           5,000      30%
  Third Quarter                  12         833    $       16,500   $           5,500      34%
  Fourth Quarter                 12         781    $       16,400   $           5,800      35%
  Full Year                      12       3,310    $       16,500   $           5,500      33%

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.

Operating Cost Overview

Our operating costs are comprised primarily of labor costs, including workers' compensation and health insurance, repair and maintenance, fuel and insurance. A 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 our safety record.

Critical Accounting Policies and Estimates

Our 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 these policies is included in Note 2 of the notes to our historical consolidated financial statements. The following is a discussion of our critical accounting policies and estimates.

Critical Accounting Policies

We have identified below accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows and which 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 expense as incurred. We also review the capitalization of refurbishment of workover rigs as described in Note 2 of the notes to our historical consolidated financial statements.

Impairments. We review our assets for impairment at a minimum 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. Impairment is indicated when the sum of the estimated future cash flows, on an undiscounted basis, is less than the asset's carrying amount. When impairment is identified and fair value is less than carrying value, an impairment charge is recorded to income 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 manufactured rigs. We have deductibles per occurrence for workers' compensation, general liability claims, and medical and dental coverage of $5 . . .

  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
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.