Pioneer Energy Services Reports Fourth Quarter 2017 Results

SAN ANTONIO, Feb. 16, 2018 /PRNewswire/ -- Pioneer Energy Services (NYSE: PES) today reported financial and operating results for the quarter ended December 31, 2017. Notable items and recent developments include:

• Entered into a new $175 million term loan and a $75 million revolving asset-based lending facility in November, which provides improved liquidity, less restrictive covenants, and extended debt maturities.
• Domestic drilling services utilization was 100% with an average margin per day of $9,411 in the fourth quarter.
• In Colombia, the seventh drilling rig is preparing to mobilize to begin operations early in the second quarter, which will lead to approximately 87% utilization.
• Coiled tubing revenue increased 29%, and generated 24% gross margins in the fourth quarter.
• Completed another year of safety excellence with a Total Recordable Incident Rate of less than 1.0.

Consolidated Financial Results

Revenues for the fourth quarter of 2017 were $126.3 million, up 8% from revenues of $117.3 million in the third quarter of 2017 ("the prior quarter") and up 77% from revenues of $71.5 million in the fourth quarter of 2016 ("the year-earlier quarter"). The increase from the prior quarter is primarily attributable to an increase in drilling activity in Colombia, where we ended the year with six drilling rigs working.

Net loss for the fourth quarter of 2017 was $12.6 million, or $0.16 per share, compared with net loss of $17.2 million, or $0.22 per share, in the prior quarter and net loss of $36.1 million, or $0.53 per share, in the year-earlier quarter.  Adjusted net loss(1) for the fourth quarter was $11.1 million, and adjusted EPS(2) was a loss of $0.14 per share as compared to adjusted net loss of $11.3 million, or an adjusted EPS loss of $0.15 per share, in the prior quarter.

The Tax Cuts and Jobs Act of 2017 was enacted in late December and significantly changed U.S. tax law by, among other things, lowering corporate income tax rates and repealing of the alternative minimum tax ("AMT").  Due to the reduction in tax rates, net deferred tax assets were re-valued resulting in a tax expense which was then fully offset by a reduction of the valuation allowance.  Additionally, the repeal of the AMT resulted in a $5.4 million tax benefit for the year-ended December 31, 2017 due to a reduction in the valuation allowance.

Fourth quarter adjusted EBITDA⁽³⁾ was $17.0 million, up from $14.0 million in the prior quarter as two additional rigs were mobilized in Colombia and began operations in the quarter, and up from $0.9 million in the year-earlier quarter. The increase from the year-earlier quarter was due to increased demand for all of our service offerings as the market steadily improved with increasing commodity prices throughout 2017.

Operating Results

Production Services Business

Revenue from our production services business was $76.0 million in the fourth quarter, up 2% from the prior quarter and up 86% from the year-earlier quarter. Gross margin as a percentage of revenue from our production services business was 22% in the fourth quarter, flat with the prior quarter and up when compared with 14% in the year-earlier quarter.

The increase in revenues from our production services business from the prior quarter was driven by our coiled tubing services segment, for which revenues were up 29%, reflecting increased demand and revenue rates for our large-diameter, completion-related services. As compared to the year-earlier quarter, activity and revenue rates have improved for all of our production services business segments resulting in increased revenues of 86%. Fourth quarter results for our production services business reflect the impact of icy, winter weather conditions and the usual holiday-related activity slowdown at year-end.

The number of wireline jobs completed in the fourth quarter decreased by 6% sequentially, and increased by 11% as compared to the year-earlier quarter. Well servicing average revenue per hour was $518 in the fourth quarter, down from $529 in the prior quarter and up from $481 in the year-earlier quarter. Well servicing rig utilization was 40% in the fourth quarter, 43% in the prior quarter and 40% in the year-earlier quarter. Coiled tubing revenue days totaled 423 in the fourth quarter and 368 in the prior quarter while revenue days in the year-earlier quarter totaled 332.

Drilling Services Business

Revenue from our drilling services business was $50.3 million in the fourth quarter, an 18% increase from the prior quarter and a 64% increase from the year-earlier quarter.

Domestic drilling services rig utilization was 100% for both the fourth quarter and the prior quarter, up from 56% in the year-earlier quarter. Domestic drilling average revenues per day were $23,993 in the fourth quarter, up from $23,872 in the prior quarter and up from $22,225 in the year-earlier quarter. Domestic drilling average margin per day was $9,411 in the fourth quarter, up from $9,083 in the prior quarter and up from $8,044 in the year-earlier quarter driven by increasing dayrates and minimal operational downtime.

International drilling services rig utilization was 65% for the fourth quarter, up from 38% in the prior quarter and up from 24% in the year-earlier quarter. International drilling average revenues per day were $31,188, up from $26,159 in the prior quarter and up from $27,913 in the year-earlier quarter. International drilling average margin per day for the fourth quarter was $6,582, up from $2,777 in the prior quarter and up from $676 in the year-earlier quarter. In the fourth quarter, we achieved the highest level of utilization in Colombia since year-end 2014.

Currently, all 16 of our domestic drilling rigs are earning revenues, 14 of which are under term contracts, and six of our eight rigs in Colombia are earning revenue, resulting in current utilization of 92%.

Comments from our President and CEO 

"Looking back at 2017, we took numerous steps to strengthen our business, make all of our service lines more competitive in the current environment, and further drive efficiencies to lower costs and increase profitability," said Wm. Stacy Locke, Pioneer President and Chief Executive Officer.

"Continuing our multi-year fleet transformation program, during 2017 we sold two less competitive domestic drilling rigs, 16 older wireline units and two smaller-diameter coiled tubing units.  We also exchanged 20 older well servicing rigs for 20 new-model well servicing rigs, and took delivery of four new wireline units.

"We have taken delivery of two additional wireline units in 2018 and have ordered a third wireline unit and a new large-diameter coiled tubing unit to improve our positioning in the well-completion business that drove revenue growth throughout 2017. We will continue to evaluate additional, yet modest, accretive organic growth opportunities over the course of the year in all service lines; however, those decisions will be based on our ability to fund those opportunities through cash flow from operations or the sale of assets.

"Our continued focus on providing best-in-class service and performance in our core services: drilling, wireline, well servicing and coiled tubing; has positioned us well for the improved market conditions we see today.  We are very encouraged by the sustained higher oil prices and the increased demand for our services.

"Our domestic and international drilling operations continue to perform at high levels. Our industry-leading domestic drilling average margins per day increased another 4% to $9,411 per day in the fourth quarter, as compared to the prior quarter. In Colombia, we expect to have seven of eight rigs working by the second quarter. The outlook in both domestic and international markets is very positive for 2018.

"In production services, activity remained strong in the fourth quarter, and we anticipate higher demand in 2018, as rig count and completion activity gradually increase. Higher demand will allow us to activate idled equipment and improve pricing in all three businesses in 2018. Throughout 2017, we used idle equipment to expand into new markets, and we will continue to seek new opportunities in 2018. In wireline services, we established a leadership position in three key markets. In coiled tubing services, we successfully established a new market position, which immediately contributed to the revenue growth in the fourth quarter. We also established a new market position in well servicing; however, 2017 remained somewhat sluggish for a majority of the year. So far in 2018, with higher oil prices, we see utilization increasing.

"Late in 2017, we closed on a new $175 million term loan and $75 million asset-based lending facility to replace our $150 million revolving credit facility.  This transaction provides significant liquidity, relief from restrictive covenants, and extends our debt maturities, which will allow us to better participate in the gradually strengthening market," Mr. Locke said.

First Quarter 2018 Guidance

In the first quarter of 2018, revenue from our production services business segments is estimated to be up approximately 10% to 15% as compared to the fourth quarter of 2017. Margin from our production services business is estimated to be 24% to 26% of revenue in the first quarter. Domestic drilling services rig utilization in the first quarter is estimated to be 100% and generate average margins per day of approximately $9,400 to $9,700. International drilling services rig utilization is estimated to average 70% to 75%, and generate average margins per day of approximately $7,000 to $8,000.

Liquidity

In November 2017, we entered into a new $175 million term loan and a $75 million senior secured revolving asset-based lending facility. We used the proceeds from the term loan to, among other things, repay and retire the outstanding balance on our previous revolving credit facility.

Working capital at December 31, 2017 was $130.6 million, up from $48.0 million at December 31, 2016. Cash and cash equivalents were $73.6 million, up from $10.2 million at year-end 2016.

During 2017, we used $63.3 million of cash for the purchases of property and equipment and used $5.8 million in operating activities, primarily funded by $119.2 million of net borrowings (net of debt issuance costs), $12.6 million of proceeds from the sale of assets, as well as $3.3 million of insurance proceeds received from drilling rig and wireline unit damages.

Capital Expenditures

Cash capital expenditures during 2017 were $63.3 million, including capitalized interest. We estimate total cash capital expenditures for 2018 to be approximately $55 million, which includes approximately $40 million of routine capital expenditures and $15 million of discretionary spending for the purchase of one large-diameter coiled tubing unit and remaining payments on three wireline units, two of which were delivered in January, and additional drilling and production services equipment. As the year progresses, we will continue to evaluate additional discretionary spending as long as it can be funded by cash from operations or proceeds from sales of non-strategic assets.

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 23^rd. To access the replay, dial (201) 612-7415 and enter the pass code 13675319.

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 Pioneer Energy Services' Web site at least 10 minutes early to register and download any necessary audio software.  A replay will be available shortly after the call. For more information, please contact Donna Washburn at Dennard Lascar Investor Relations, LLC at (713) 529-6600 or e-mail dwashburn@dennardlascar.com.

About Pioneer

Pioneer Energy Services provides well servicing, wireline, and coiled tubing services to producers in the U.S. Gulf Coast, offshore Gulf of Mexico, 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 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.

 - Financial Statements and Operating Information Follow -

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SOURCE Pioneer Energy Services