(Pioneer Energy Services, 30.Oct.2018) — Pioneer Energy Services reported financial and operating results for the quarter ended September 30, 2018. Third quarter and recent notable items include:
— Domestic drilling fleet was fully utilized during the third quarter, and generated an average margin per day of $10,237, up 7% from the prior quarter.
— In Colombia, we expect to execute a contract with a new, multi-national client to begin operations later in the fourth quarter.
— Steady improvement in well servicing activity as the outlook for completion-related services in our operating areas continues to strengthen.
Consolidated Financial Results
Revenues for the third quarter of 2018 were $149.3 million, down 4% from revenues of $154.8 million in the second quarter of 2018 and up 27% from revenues of $117.3 million in the third quarter of 2017 (“the year-earlier quarter”). The decrease from the prior quarter is primarily attributable to weaker activity levels in wireline, which was partially offset by increased revenues in all other segments.
Net loss for the third quarter of 2018 was $5.2 million, or $0.07 per share, compared with net loss of $18.2 million, or $0.23 per share, in the prior quarter and net loss of $17.2 million, or $0.22 per share, in the year-earlier quarter. Adjusted net loss(1) for the third quarter was $5.6 million, and adjusted EPS(2) was a loss of $0.07 per share as compared to adjusted net loss of $14.8 million, and an adjusted EPS loss of $0.19 per share in the prior quarter, and adjusted net loss of $11.3 million, and an adjusted EPS loss of $0.15 per share in the year-earlier quarter.
Third quarter adjusted EBITDA(3) was $28.6 million, up from $16.9 million in the prior quarter and up from $14.0 million in the year-earlier quarter. The increase from the prior quarter was primarily due to a $9.7 million decrease in phantom stock compensation expense associated with the decrease in the fair value of the awards. Phantom stock compensation benefit during the third quarter was $3.7 million, while expense during the prior quarter was $6.1 million. The increase in adjusted EBITDA from the prior quarter was also due to improved margin per day in domestic drilling, and improved gross margin in both coiled tubing and well servicing. The increase from the year-earlier quarter was due to higher demand and pricing for all of our service offerings.
Operating Results
Production Services Business
Revenue from our production services business was $89.6 million in the third quarter, down 8% from the prior quarter and up 20% from the year-earlier quarter. Gross margin as a percentage of revenue from our production services business was 24% in the third quarter, up from 23% in the prior quarter and up from 22% in the year-earlier quarter. Despite the sequential decrease in revenue, which was attributable to softer wireline services activity and exacerbated by weather conditions in Texas, gross margin improved due to increased utilization in our coiled tubing segment and slightly improved utilization and pricing in our well servicing segment. During the third quarter, demand for our large-diameter coiled tubing services increased. Our well servicing segment also saw modest increases in completion-related services.
The decrease in production services revenues from the prior quarter was attributable to certain wireline customers that delayed completion activities in various regions in which we operate as well as a reduction in activity from weather-related events in the Gulf Coast region. This decline in wireline revenues was partially offset by increased demand for our coiled tubing and well servicing operations, both of which also experienced revenue growth sequentially. As compared to the year-earlier quarter, revenue rates have improved for all of our production services business segments, resulting in revenue growth of 20%.
Well servicing average revenue per hour was $552 in the third quarter, up from $540 in the prior quarter and up from $529 in the year-earlier quarter. Well servicing rig utilization was 51% in the third quarter, up from 49% in the prior quarter, and up from 43% in the year-earlier quarter. Coiled tubing revenue days totaled 362 in the third quarter, as compared to 350 in the prior quarter and 368 in the year-earlier quarter. The number of wireline jobs completed in the third quarter decreased 11% sequentially and decreased 3% as compared to the year-earlier quarter.
Drilling Services Business
Revenue from our drilling services business was $59.7 million in the third quarter, reflecting a 4% increase from the prior quarter and a 40% increase from the year-earlier quarter.
Our domestic drilling fleet was fully utilized during the current, prior and year-earlier quarters. Domestic drilling average revenues per day were $25,076 in the third quarter, up from $24,508 in the prior quarter and up from $23,873 in the year-earlier quarter. Domestic drilling average margin per day was $10,237 in the third quarter, up from $9,550 in the prior quarter and up from $9,084 in the year-earlier quarter. Revenue per day increased as compared to the prior and year-earlier quarters primarily due to certain contracts that re-priced at higher dayrates. Margin per day increased primarily from improvement in supplies, repair and maintenance costs that returned to normalized levels, as well as improvement in average dayrates from several rigs which repriced higher between $2,000 per day and $5,000 per day, offset by two rigs which re-priced lower by approximately $5,000 per day in August and September.
International drilling rig utilization was 76% for the third quarter, down from 85% in the prior quarter and up from 38% in the year-earlier quarter. International drilling average revenues per day were $41,158, up from $35,061 in the prior quarter and up from $26,155 in the year-earlier quarter, while average margin per day for the third quarter was $7,327, down from $7,583 in the prior quarter and up from $2,773 in the year-earlier quarter. Utilization and margin per day in the third quarter were down sequentially as one rig was released in early September as a client made adjustments to its drilling program, and another rig incurred non-revenue days as it changed operators in August. The increase in revenue per day was primarily due to the recognition of demobilization revenues during the third quarter. Utilization is based on daywork days and mobilization days between wells, but does not include initial mobilization days on new contracts or demobilization days when contracts end, which impacted our utilization for the third quarter.
Currently, all 16 of our domestic drilling rigs are earning revenues, 14 of which are under term contracts, and five of our eight rigs in Colombia are earning revenue under daywork contracts, and one is earning revenue during demobilization. We expect to execute a contract for the one rig in Colombia that was idle for most of September, and it is expected to begin mobilizing in mid-November and begin drilling in early- to mid-December. A second rig was released in late October and is currently demobilizing; however, we are finalizing a new contract, and the rig is also expected to begin mobilizing in mid-November with an anticipated start date in early- to mid-December. In our domestic drilling operations, we continue to expect our contracted new-build drilling rig to be deployed to West Texas and begin operations in the first quarter of 2019.
“Our third quarter results were driven by steady improvement in our domestic drilling operations, which are benefiting from strong demand and upward trending dayrates,” said Wm. Stacy Locke, President and Chief Executive Officer. “Our fleet of top performing drilling rigs is securing new contracts at higher rates and staying fully utilized. The last remaining legacy new-build contract will reprice downward approximately $5,000 in the fourth quarter, but will be offset by three rigs repricing at higher dayrates between $2,000 per day and $5,000 per day. Our new-build rig is expected to mobilize to the Permian in the first quarter of 2019 to begin a three-year term contract with an existing client. Similar to our most recent new-builds, this rig can walk 150 feet, pass over wellheads 21 feet high, contains two 2,000 horsepower mud pumps, a 7,500 psi mud system, a 500-ton high torque topdrive and can rack approximately 25,000 feet of five inch drill pipe. We believe it will be one of the highest margin and top performing rigs in the U.S. The outlook for domestic drilling operations remains very bright.
“In Colombia, we had one rig idle for the month of September but we expect to execute a contract with a multi-national client to begin mobilizing the rig in mid-November and to commence drilling operations in early- to mid-December. This new opportunity reflects our efforts in expanding our client base in Colombia and our growing reputation as a provider of excellent service and safety. In late October, we experienced another round of dayrate adjustments where several rigs re-priced upward between $1,000 per day and $3,000 per day. We are seeing improvement in rig utilization and dayrates in Colombia across the industry, and we remain optimistic that our international drilling operations will experience stronger pricing and demand trends in 2019.”
“In our production services business, our high-spec well servicing rig fleet activity is gradually improving with modest increases in 24-hour work which includes drill-out completion work. We will be slowly adding the ancillary equipment necessary to provide operators with a complete drill-out solutions package and, as we add, we expect margins will improve. We see drill-out opportunity in a number of geographic areas. Similarly, coiled tubing activity and margins are improving as we adjust our fleet mix to more large-diameter coiled tubing units. Our new 2-3/8” unit delivered in July performed well during the quarter and, in December, we expect to deploy an additional new 2-3/8” coiled tubing unit that we anticipate will immediately begin contributing. Once this unit is delivered, five of our nine actively marketed units will be large-diameter pipe serving two good markets.”
“Although we anticipate the normal seasonal slowdown in the fourth quarter and some impact from operators’ exhausted capital budgets, we expect overall activity to remain healthy and improve as we enter into 2019.”
Fourth Quarter 2018 Guidance
In the fourth quarter of 2018, revenue from our production services business segments is estimated to be flat to down 4% as compared to the third quarter of 2018. Margin from our production services business is estimated to be 20% to 23% 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 67% to 72%, which is impacted by initial mobilization and demobilization days, and generate average margins per day of approximately $8,000 to $9,000. We expect to have seven rigs operating on daywork rates in Colombia by the end of the fourth quarter.
We expect general and administrative expense to be $19 million to $20 million in the fourth quarter of 2018, which as it relates to phantom stock compensation expense, is based on the closing price of our common stock at September 30, 2018, which was $2.95.
Liquidity
Working capital at September 30, 2018 was $120.1 million, down from $130.6 million at December 31, 2017. Cash and cash equivalents, including restricted cash, were $53.5 million, down from $75.6 million at year-end 2017. During the nine months ended September 30, 2018, we used $48.8 million of cash for the purchase of property and equipment, and our cash provided by operations was $21.5 million.
Capital Expenditures
Cash capital expenditures during the nine months ended September 30, 2018 were $48.8 million, including capitalized interest. We estimate total cash capital expenditures for 2018 to be approximately $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.
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