e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2009
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-32693
Basic Energy Services, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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54-2091194 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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500 W. Illinois, Suite 100 |
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Midland, Texas
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79701 |
(Address of principal executive offices)
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(Zip code) |
(432) 620-5500
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated
filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
40,687,607
shares of the registrants Common Stock were outstanding as of October 29, 2009.
BASIC ENERGY SERVICES, INC.
Index to Form 10-Q
2
CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report contains certain statements that are, or may be deemed to be,
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.
We have based these forward-looking statements largely on our current expectations and projections
about future events and financial trends affecting the financial condition of our business. These
forward-looking statements are subject to a number of risks, uncertainties and assumptions,
including, among other things, the risk factors discussed in this quarterly report and other
factors, most of which are beyond our control.
The words believe, may, estimate, continue, anticipate, intend, plan, expect
and similar expressions are intended to identify forward-looking statements. All statements other
than statements of current or historical fact contained in this quarterly report are
forward-looking statements. Although we believe that the forward-looking statements contained in
this quarterly report are based upon reasonable assumptions, the forward-looking events and
circumstances discussed in this quarterly report may not occur and actual results could differ
materially from those anticipated or implied in the forward-looking statements.
Important factors that may affect our expectations, estimates or projections include:
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a decline in, or substantial volatility of, oil and gas prices, and any related changes
in expenditures by our customers; |
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the effects of future acquisitions on our business; |
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changes in customer requirements in markets or industries we serve; |
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competition within our industry; |
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general economic and market conditions; |
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our access to current or future financing arrangements; |
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our ability to replace or add workers at economic rates; and |
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environmental and other governmental regulations. |
Our forward-looking statements speak only as of the date of this quarterly report. Unless
otherwise required by law, we undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise.
This quarterly report includes market share and industry data and forecasts that we obtained
from internal company surveys (including estimates based on our knowledge and experience in the
industry in which we operate), market research, consultant surveys, publicly available information,
and industry publications and surveys. Industry surveys and publications, consultant surveys and
forecasts generally state that the information contained therein has been obtained from sources
believed to be reliable. Although we believe such information is accurate and reliable, we have not
independently verified any of the data from third party sources cited or used for our managements
industry estimates, nor have we ascertained the underlying economic assumptions relied upon
therein. For example, the number of onshore well servicing rigs in the U.S. could be lower than our
estimate to the extent our two larger competitors have continued to report as stacked rigs
equipment that is not actually complete or subject to refurbishment. Statements as to our position
relative to our competitors or as to market share refer to the most recent available data.
3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Basic Energy Services, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
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September 30, |
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December 31, |
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2009 |
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2008 |
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(Unaudited) |
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ASSETS
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Current assets: |
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Cash and cash equivalents |
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$ |
137,026 |
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$ |
111,135 |
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Restricted cash |
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14,316 |
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Trade accounts receivable, net of allowance of $5,129 and $5,838, respectively |
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98,753 |
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172,930 |
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Accounts receivable related parties |
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144 |
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148 |
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Income tax receivable |
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45,737 |
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3,324 |
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Inventories |
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11,124 |
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11,937 |
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Prepaid expenses |
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8,564 |
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6,838 |
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Other current assets |
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7,468 |
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6,508 |
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Deferred tax assets |
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27,040 |
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11,081 |
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Total current assets |
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350,172 |
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323,901 |
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Property and equipment, net |
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690,720 |
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740,879 |
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Deferred debt costs, net of amortization |
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8,218 |
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5,132 |
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Goodwill |
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202,749 |
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Other intangible assets, net of amortization |
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33,591 |
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36,004 |
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Other assets |
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2,634 |
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2,046 |
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Total assets |
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$ |
1,085,335 |
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$ |
1,310,711 |
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities: |
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Accounts payable |
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$ |
16,864 |
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$ |
28,291 |
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Accrued expenses |
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49,260 |
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47,139 |
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Current portion of long-term debt |
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27,784 |
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26,063 |
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Other current liabilities |
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462 |
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658 |
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Total current liabilities |
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94,370 |
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102,151 |
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Long-term debt, less unamortized discount on senior secured notes of $11,808 and $0, respectively |
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480,317 |
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454,260 |
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Deferred tax liabilities |
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137,617 |
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149,591 |
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Other long-term liabilities |
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9,941 |
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9,705 |
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Commitments and contingencies |
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Stockholders equity: |
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Preferred stock; $.01 par value; 5,000,000 shares authorized; none
designated or issued at September 30, 2009 and December 31, 2008, respectively |
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Common stock; $.01 par value; 80,000,000 shares authorized; 42,394,809 shares
issued, and 40,685,046 shares outstanding at September 30, 2009; 41,734,485 shares
issued, and 40,851,862 shares outstanding at December 31, 2008. |
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424 |
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417 |
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Additional paid-in capital |
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329,330 |
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325,785 |
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Retained earnings |
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47,318 |
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277,173 |
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Treasury stock, at cost, 1,709,763 and 882,623 shares at September 30, 2009 and December 31, 2008, respectively |
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(13,982 |
) |
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(8,371 |
) |
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Total stockholders equity |
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363,090 |
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595,004 |
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Total liabilities and stockholders equity |
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$ |
1,085,335 |
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$ |
1,310,711 |
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See accompanying notes to consolidated financial statements.
4
Basic Energy Services, Inc.
Consolidated Statements of Operations and Comprehensive Income
(in thousands, except per share amounts)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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(Unaudited) |
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(Unaudited) |
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Revenues: |
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Well servicing |
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$ |
38,434 |
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$ |
97,382 |
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$ |
123,647 |
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$ |
266,919 |
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Fluid services |
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49,782 |
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82,660 |
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163,847 |
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226,640 |
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Completion and remedial services |
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32,592 |
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85,541 |
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99,224 |
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233,578 |
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Contract drilling |
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4,150 |
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11,992 |
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11,776 |
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31,832 |
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Total revenues |
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124,958 |
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277,575 |
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398,494 |
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758,969 |
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Expenses: |
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Well servicing |
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29,051 |
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61,047 |
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93,793 |
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164,806 |
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Fluid services |
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38,471 |
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53,028 |
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118,439 |
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148,015 |
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Completion and remedial services |
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23,106 |
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46,798 |
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70,484 |
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125,236 |
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Contract drilling |
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3,305 |
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7,722 |
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9,912 |
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22,311 |
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General and administrative, including stock-based compensation
of $1,264 and $1,159 in three months ended September 30, 2009 and
2008, and $3,928 and $3,423 in the nine months ended September 30, 2009
and 2008, respectively |
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25,140 |
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30,552 |
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81,643 |
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83,212 |
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Depreciation and amortization |
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33,455 |
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29,271 |
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98,605 |
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86,035 |
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(Gain) loss on disposal of assets |
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514 |
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376 |
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1,853 |
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(208 |
) |
Goodwill impairment |
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204,014 |
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Total expenses |
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153,042 |
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228,794 |
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678,743 |
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629,407 |
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Operating income (loss) |
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(28,084 |
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48,781 |
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(280,249 |
) |
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129,562 |
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Other income (expense): |
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Interest expense |
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(9,760 |
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(6,315 |
) |
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(21,470 |
) |
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(20,117 |
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Interest income |
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135 |
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654 |
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528 |
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1,824 |
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Loss on early extinguishment of debt |
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(3,481 |
) |
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(3,481 |
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Other income (expense) |
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819 |
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(1,273 |
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1,071 |
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(7,708 |
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Income (loss) from continuing operations before income taxes |
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(40,371 |
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41,847 |
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(303,601 |
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103,561 |
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Income tax benefit (expense) |
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15,046 |
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(15,905 |
) |
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74,215 |
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(39,253 |
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Net income (loss) |
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$ |
(25,325 |
) |
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$ |
25,942 |
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$ |
(229,386 |
) |
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$ |
64,308 |
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Earnings per share of common stock: |
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Basic |
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$ |
(0.64 |
) |
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$ |
0.63 |
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$ |
(5.78 |
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$ |
1.58 |
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Diluted |
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$ |
(0.64 |
) |
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$ |
0.62 |
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$ |
(5.78 |
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$ |
1.54 |
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See accompanying notes to consolidated financial statements.
5
Basic Energy Services, Inc.
Consolidated Statements of Stockholders Equity
(in thousands, except share data)
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Additional |
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Total |
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Common Stock |
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Paid-In |
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Treasury |
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Retained |
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Stockholders |
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Shares |
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Amount |
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Capital |
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Stock |
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Earnings |
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Equity |
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Balance December 31, 2008 |
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41,734,485 |
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$ |
417 |
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$ |
325,785 |
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$ |
(8,371 |
) |
|
$ |
277,173 |
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$ |
595,004 |
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Issuances of restricted stock |
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660,324 |
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7 |
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(7 |
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431 |
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(431 |
) |
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Amortization of share based
compensation |
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3,903 |
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3,903 |
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Treasury stock issued as compensation
to Chairman of the Board |
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43 |
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(19 |
) |
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24 |
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Purchase of treasury stock |
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(6,139 |
) |
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(6,139 |
) |
Exercise of stock options / vesting of restricted stock |
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|
(351 |
) |
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54 |
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(19 |
) |
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|
(316 |
) |
Net loss |
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(229,386 |
) |
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(229,386 |
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Balance September 30, 2009 (unaudited) |
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42,394,809 |
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$ |
424 |
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|
$ |
329,330 |
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$ |
(13,982 |
) |
|
$ |
47,318 |
|
|
$ |
363,090 |
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See accompanying notes to consolidated financial statements.
6
Basic Energy Services, Inc.
Consolidated Statements of Cash Flows
(in thousands)
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Nine Months Ended September 30, |
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2009 |
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2008 |
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(Unaudited) |
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Cash flows from operating activities: |
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Net income (loss) |
|
$ |
(229,386 |
) |
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$ |
64,308 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
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Depreciation and amortization |
|
|
98,605 |
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|
86,035 |
|
Goodwill impairment |
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|
204,014 |
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Accretion on asset retirement obligation |
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|
110 |
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|
96 |
|
Change in allowance for doubtful accounts |
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(709 |
) |
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(42 |
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Amortization of deferred financing costs |
|
|
1,032 |
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|
722 |
|
Amortization of discount on senior secured notes |
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|
294 |
|
|
|
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Non-cash compensation |
|
|
3,928 |
|
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|
3,423 |
|
Loss on early extinguishment of debt |
|
|
3,481 |
|
|
|
|
|
(Gain) loss on disposal of assets |
|
|
1,853 |
|
|
|
(208 |
) |
Deferred income taxes |
|
|
(27,933 |
) |
|
|
19,080 |
|
|
|
|
|
|
|
|
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|
Changes in operating assets and liabilities, net of acquisitions: |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
74,890 |
|
|
|
(46,330 |
) |
Inventories |
|
|
813 |
|
|
|
(173 |
) |
Prepaid expenses and other current assets |
|
|
(2,238 |
) |
|
|
6,653 |
|
Other assets |
|
|
(568 |
) |
|
|
(151 |
) |
Accounts payable |
|
|
(11,427 |
) |
|
|
1,399 |
|
Excess tax expense (benefit) from exercise of employee stock
options / vesting of restricted stock |
|
|
351 |
|
|
|
(4,848 |
) |
Income tax payable |
|
|
(42,932 |
) |
|
|
2,154 |
|
Other liabilities |
|
|
90 |
|
|
|
(3,545 |
) |
Accrued expenses |
|
|
3,756 |
|
|
|
14,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
78,024 |
|
|
|
143,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(34,799 |
) |
|
|
(68,868 |
) |
Proceeds from sale of assets |
|
|
2,470 |
|
|
|
8,055 |
|
Change in restricted cash |
|
|
(14,316 |
) |
|
|
|
|
Payments for other long-term assets |
|
|
(1,539 |
) |
|
|
(2,118 |
) |
Payments for businesses, net of cash acquired |
|
|
(1,190 |
) |
|
|
(110,818 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(49,374 |
) |
|
|
(173,749 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from debt |
|
|
241,697 |
|
|
|
30,000 |
|
Payments of debt |
|
|
(230,401 |
) |
|
|
(16,987 |
) |
Purchase of treasury stock |
|
|
(6,139 |
) |
|
|
(1,179 |
) |
Excess tax (expense) benefit from exercise of employee stock
options / vesting of restricted stock |
|
|
(351 |
) |
|
|
4,848 |
|
Tax withholding from exercise of stock options |
|
|
(5 |
) |
|
|
(4,063 |
) |
Exercise of employee stock options |
|
|
39 |
|
|
|
6,583 |
|
Deferred loan costs and other financing activities |
|
|
(7,599 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(2,759 |
) |
|
|
19,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and equivalents |
|
|
25,891 |
|
|
|
(11,080 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents beginning of period |
|
|
111,135 |
|
|
|
91,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period |
|
$ |
137,026 |
|
|
$ |
80,861 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
7
BASIC ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
September 30, 2009 (unaudited)
1. Basis of Presentation and Nature of Operations
Basis of Presentation
The accompanying unaudited consolidated financial statements of Basic Energy Services, Inc.
and subsidiaries (Basic or the Company) have been prepared in accordance with accounting
principles generally accepted in the United States for interim financial reporting. Accordingly,
they do not include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have been made in the
accompanying unaudited financial statements.
Nature of Operations
Basic Energy Services, Inc. provides a range of well site services to oil and gas drilling and
producing companies, including well servicing, fluid services, completion and remedial services,
and contract drilling. These services are primarily provided using Basics fleet of equipment.
Basics operations are concentrated in the major United States onshore oil and gas producing
regions in Texas, New Mexico, Oklahoma, Arkansas, Kansas and Louisiana, and the Rocky Mountain
states.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Basic and its
wholly-owned subsidiaries. Basic has no variable interest in any other organization, entity,
partnership, or contract. All intercompany transactions and balances have been eliminated.
Estimates and Uncertainties
Preparation of the accompanying consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Areas where critical accounting estimates are made by
management include:
|
|
|
Depreciation and amortization of property and equipment and intangible assets |
|
|
|
|
Impairment of property and equipment, goodwill and intangible assets |
|
|
|
|
Allowance for doubtful accounts |
|
|
|
|
Litigation and self-insured risk reserves |
|
|
|
|
Fair value of assets acquired and liabilities assumed |
|
|
|
|
Stock-based compensation |
|
|
|
|
Income taxes |
|
|
|
|
Asset retirement obligations |
8
Revenue Recognition
Well Servicing Well servicing consists primarily of maintenance services, workover
services, completion services and plugging and abandonment services. Basic recognizes revenue when
services are performed, collection of the relevant receivables is probable, persuasive evidence of
an arrangement exists and the price is fixed or determinable. Basic prices well servicing by the
hour or by the day of service performed.
Fluid Services Fluid services consists primarily of the sale, transportation, storage and
disposal of fluids used in drilling, production and maintenance of oil and natural gas wells, and
well site construction and maintenance services. Basic recognizes revenue when services are
performed, collection of the relevant receivables is probable, persuasive evidence of an
arrangement exists and the price is fixed or determinable. Basic prices fluid services by the job,
by the hour or by the quantities sold, disposed of or hauled.
Completion and Remedial Services Completion and remedial services consists primarily of
pressure pumping services, focused on cementing, acidizing and fracturing, nitrogen units, coiled
tubing units, and rental and fishing tools. Basic recognizes revenue when services are performed,
collection of the relevant receivables is probable, persuasive evidence of an arrangement exists
and the price is fixed or determinable. Basic prices completion and remedial services by the hour,
day, or project depending on the type of service performed. When Basic provides multiple services
to a customer, revenue is allocated to the services performed based on the fair values of the
services.
Contract Drilling Contract drilling consists primarily of drilling wells to a specified
depth using shallow and medium depth rigs. Basic recognizes revenues based on either a daywork
contract, in which an agreed upon rate per day is charged to the customer, or a footage contract,
in which an agreed upon rate is charged per the number of feet drilled.
Taxes assessed on sales transactions are presented on a net basis and are not included in
revenue.
Inventories
For Rental and Fishing Tools, inventories consisting mainly of grapples and drill bits and are
stated at the lower of cost or market, with cost being determined on the average cost method. Other
inventories, consisting mainly of rig components, repair parts, drilling and completion materials
and gravel, are held for use in the operations of Basic and are stated at the lower of cost or
market, with cost being determined on the first-in, first-out (FIFO) method.
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 and additions and improvements that significantly extend the lives of the assets are
capitalized. Upon sale or other retirement of depreciable property, the cost and accumulated
depreciation and amortization are removed from the related accounts and any gain or loss is
reflected in operations. All property and equipment are depreciated or amortized (to the extent of
estimated salvage values) on the straight-line method. The components of a well servicing rig
generally require replacement or refurbishment during the well servicing rigs life and are
depreciated over their estimated useful lives, which ranges from 3 to 15 years. The costs of the
original components of a purchased or acquired well servicing rig are not maintained separately
from the base rig.
Impairments
Long-lived assets, such as property, plant, and equipment, and purchased intangibles subject
to amortization, are reviewed for impairment at least annually, or whenever, in managements
judgment, events or changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of such assets to estimated undiscounted future cash flows expected to be generated
by the assets. Expected future cash flows and carrying values are aggregated at their lowest
identifiable level. If the carrying amount of such assets exceeds its estimated future cash flows,
an impairment charge is recognized by the amount by which the carrying amount of such assets
exceeds the fair value of the assets. Assets to be disposed of would be separately presented in the
consolidated balance sheet and reported at the lower of the carrying amount or fair value less
costs to sell, and are no longer depreciated. The assets and liabilities, if material, of a
disposed group classified as held for sale would be presented separately in the appropriate asset
and liability sections of the consolidated balance sheet. These assets are normally sold within a
short period of time through a third party auctioneer.
9
Basics goodwill is considered to have an indefinite useful economic life and is not
amortized. Basic assesses impairment of its 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 two-step process is required for testing impairment. 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 units goodwill
is determined by allocating the units 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.
The Company performed an assessment of goodwill as of March 31, 2009. A triggering event
requiring this assessment was deemed to have occurred because the oil and gas services industry
continued to decline in the first quarter of 2009 and the Companys common stock price declined by
50% from December 31, 2008 to March 31, 2009. For Step One of the impairment testing, the Company
tested three reporting units for goodwill impairment: well servicing, fluid services, and
completion and remedial services. The Companys contract drilling reporting unit does not carry any
goodwill, and was not subject to the test.
To estimate the fair value of the reporting units, the Company used a weighting of the
discounted cash flow method and the public company guideline method of determining fair value of a
business unit. The Company weighted the discounted cash flow method 85% and public company
guideline method 15%, due to differences between the Companys reporting units and the peer
companies size, profitability and diversity of operations. In order to validate the reasonableness
of the estimated fair values obtained for the reporting units, a reconciliation of fair value to
market capitalization was performed for each unit on a stand-alone basis. A control premium,
derived from market transaction data, was used in this reconciliation to ensure that fair values
were reasonably stated in conjunction with the Companys capitalization. The measurement date for
the Companys common stock price and market capitalization was the closing price on March 31, 2009.
Based on the results of Step One of the impairment test, impairment was indicated in all three
of the assessed reporting units. As such, the Company was required to perform Step Two assessment
on all three of the reporting units. Step Two requires the allocation of the estimated fair value
to the tangible and intangible assets and liabilities of the respective unit. This assessment
indicated that $204.1 million was considered impaired as of March 31, 2009. This non-cash charge
eliminated all of the Companys goodwill.
Additionally, the Company performed an assessment of the Companys long-lived assets for
impairment. This assessment is performed as a comparison of the undiscounted future cash flows of
each reporting unit to the carrying value of the assets in each unit. No impairment was indicated
by this test.
Deferred Debt Costs
Basic capitalizes certain costs in connection with obtaining its borrowings, such as lenders
fees and related attorneys fees. These costs are amortized to interest expense using the effective
interest method.
Deferred debt costs were approximately $10.2 million net of accumulated amortization of $1.9
million and $7.6 million net of accumulated amortization of $2.4 million at September 30, 2009 and
December 31, 2008, respectively. Amortization of deferred debt costs totaled approximately $401,000
and $240,000 for the three months ended September 30, 2009 and 2008, respectively. For the nine
months ended September 30, 2009 and 2008, amortization of deferred debt costs totaled approximately
$1.0 million and $723,000, respectively.
The Company recorded a charge of $3.5 million during the third quarter of 2009 related to the
write-down of debt costs associated with the Companys revolving credit facility. The revolving
credit facility was terminated on July 31, 2009. Additionally, the Company incurred $5.0 million of
deferred debt costs associated with the issuance of the Companys Senior Secured Notes on July 31,
2009.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets not subject to amortization are tested for impairment
annually or more frequently if events or changes in circumstances indicate that the asset might be
impaired. Basic completes its assessment of goodwill impairment December 31 of each year.
As of September 30, 2009, Basic had no goodwill. All of the Companys goodwill was considered
impaired as of March 31, 2009.
10
Basics intangible assets subject to amortization consist of customer relationships and
non-compete agreements. The gross carrying amount of customer relationships subject to amortization
was $35.4 million as of September 30, 2009 and December 31, 2008. The gross carrying amount of
non-compete agreements subject to amortization totaled approximately $3.9 million and $4.4 million
at September 30, 2009 and December 31, 2008, respectively. Accumulated amortization related to
these intangible assets totaled approximately $5.7 million and $3.8 million at September 30, 2009
and December 31, 2008, respectively. Amortization expense for the three months ended September 30,
2009 and 2008 was approximately $790,000 and $695,000, respectively. Amortization expense for the
nine months ended September 30, 2009 and 2008 was approximately $2.4 million and $2.0 million,
respectively. Other intangibles net of accumulated amortization allocated to reporting units as of
September 30, 2009 were $350,000, $3.0 million, $24.6 million and $5.6 million for well servicing,
fluid services, completion and remedial services, and contract drilling, respectively.
Customer relationships are amortized over a 15-year life. Non-compete agreements are amortized
over a five-year life.
Stock-Based Compensation
Basics stock-based awards consist of stock options and restricted stock. Stock options issued
are valued on the grant date using the Black-Scholes-Merton option-pricing model and restricted
stock issued is valued based on the fair value of Basics common stock at grant date. All
stock-based awards are adjusted for an expected forfeiture rate and amortized over the vesting
period. Compensation expense of the unvested portion of awards granted as a private company and
outstanding as of January 1, 2006 will be based upon the intrinsic value method.
Income Taxes
Basic recognizes 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.
Basic recognized an effective tax benefit rate of 24% in the first nine months of 2009
compared to a tax rate of 38% in the first nine months of 2008. The lower effective tax rate in the
first nine months of 2009 was primarily due to the $204.0 million goodwill impairment charge. The
tax deductibility of the impairment charge was determined by the taxable basis of the goodwill
considered to be impaired. A portion of the Companys goodwill was not tax-deductible.
Interest charges are recorded in interest expense and penalties are recorded in income tax
expense.
Concentrations of Credit Risk
Financial instruments, which potentially subject Basic to concentration of credit risk,
consist primarily of temporary cash investments and trade receivables. Basic restricts investment
of temporary cash investments to financial institutions with high credit standing. Basics customer
base consists primarily of multi-national and independent oil and natural gas producers. Basic
performs ongoing credit evaluations of its customers but generally does not require collateral on
its trade receivables. Credit risk is considered by management to be limited due to the large
number of customers comprising its customer base. Basic maintains an allowance for potential credit
losses on its trade receivables, and such losses have been within managements expectations.
Basic did not have any one customer which represented 10% or more of consolidated revenue
during the three months ended September 30, 2009 or 2008.
Asset Retirement Obligations
Basic records the fair value of an asset retirement obligation as a liability in the period in
which it incurs a legal obligation associated with the retirement of tangible long-lived assets and
capitalizes an equal amount as a cost of the asset depreciating it over the life of the asset.
Subsequent to the initial measurement of the asset retirement obligation, the obligation is
adjusted at the end of each quarter to reflect the passage of time, changes in the estimated future
cash flows underlying the obligation, acquisition or construction of assets, and settlements of
obligations.
11
Environmental
Basic is subject to extensive federal, state and local environmental laws and regulations.
These laws, which are constantly changing, regulate the discharge of materials into the environment
and may require Basic to remove or mitigate the adverse environmental effects of disposal or
release of petroleum, chemical and other substances at various sites. Environmental expenditures
are expensed or capitalized depending on the future economic benefit. Expenditures that relate to
an existing condition caused by past operations and that have no future economic benefits are
expensed. Liabilities for expenditures of a non-capital nature are recorded when environmental
assessment and/or remediation is probable and the costs can be reasonably estimated.
Litigation and Self-Insured Risk Reserves
Basic estimates its reserves related to litigation and self-insured risks based on the facts
and circumstances specific to the litigation and self-insured claims, its past experience with
similar claims and the likelihood of the future event occurring. Basic maintains accruals in the
consolidated balance sheets to cover self-insurance retentions (See note 6).
Recent Accounting Pronouncements
In June 2009, the FASB issued ASU No. 2009-01, The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles (ASU No. 2009-01), which became
effective for the Company on July 1, 2009. ASU No. 2009-01 establishes the FASB Accounting
Standards Codification as the source of authoritative accounting principles recognized by the FASB
to be applied by nongovernmental entities in the preparation of financial statements in conformity
with GAAP. ASU No. 2009-01 is not expected to change GAAP and did not have a material impact on the
Companys consolidated financial statements.
In August 2009, the FASB issued ASU No. 2009-05, Measuring Liabilities at Fair Value (ASU
No. 2009-05), which became effective for the Company on August 27, 2009. ASU No. 2009-05 issues
guidance related to measuring the fair value of a liability where there is no market for the
transfer of the liability. One or more of the following techniques should be used in valuing the
liability:
|
|
|
the quoted price of an investment in the identical liability traded as an asset, |
|
|
|
|
the quoted prices for similar liabilities, or |
|
|
|
|
other fair value technique per principles in accountings standards, such as
discounted cash flow. |
This update has not changed the techniques the Company uses to measure the fair value of
liabilities and has not had a material impact on the Companys consolidated financial statements.
3. Acquisitions
In the first nine months of 2009 Basic did not acquire any businesses. In 2008, Basic acquired
either substantially all of the assets or all of the outstanding capital stock of each of the
following businesses, each of which was accounted for using the purchase method of accounting (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash Paid (net of |
|
|
|
Closing Date |
|
cash acquired) |
|
Xterra Fishing and Rental Tools Co. |
|
January 28, 2008 |
|
$ |
21,473 |
|
Lackey Construction, LLC |
|
January 30, 2008 |
|
|
4,328 |
|
B&S Disposal, LLC and B&S Equipment, Ltd |
|
April 30, 2008 |
|
|
7,071 |
|
Triple N Services, Inc. |
|
May 27, 2008 |
|
|
17,315 |
|
Azurite
Services Company, Inc., Azurite Leasing Company, LLC and Freestone Disposal, L.P. (collectively, Azurite) |
|
September 26, 2008 |
|
|
60,977 |
|
|
|
|
|
|
|
|
|
Total 2008 |
|
|
|
|
|
$ |
111,164 |
|
|
|
|
|
|
|
|
|
The operations of each of the acquisitions listed above are included in Basics statement
of operations as of each respective closing date. The acquisition of Azurite in 2008 has been
deemed material and is discussed below in further detail.
Contingent Earn-out Arrangements and Purchase Price Allocations
Contingent earn-out arrangements are generally arrangements entered into on certain
acquisitions to encourage the owner/manager to continue operating and building the business after
the purchase transaction. The contingent earn-out arrangements of the related
12
acquisitions are
generally linked to certain financial measures and performance of the assets acquired in the
various acquisitions. All amounts paid or reasonably accrued for related to the contingent earn-out
payments are reflected as increases to the goodwill associated with the acquisition or compensation
expense depending on the terms and conditions of the earn-out arrangement.
Azurite
On September 26, 2008, Basic acquired substantially all of the assets of Azurite Services
Company, Inc., Azurite Leasing Company, LLC, and Freestone Disposal, L.P. (collectively, Azurite)
for $61.0 million in cash. This acquisition operates in our fluid services line of business and
expanded our operations in the East Texas markets. The following table summarizes the fair value of
the assets acquired and liabilities assumed at the date of acquisition for Azurite (in thousands):
|
|
|
|
|
Property and Equipment |
|
$ |
54,456 |
|
Intangible Assets (1) |
|
|
1,862 |
|
Goodwill (2) |
|
|
4,659 |
|
|
|
|
|
|
|
|
|
|
Total Assets Acquired |
|
$ |
60,977 |
|
|
|
|
|
|
|
|
(1) |
|
Consists of customer relationships of $1,832, amortizable over 15 years, and non-compete
agreements of $30, amortizable over five years. |
|
(2) |
|
All of which is expected to be deductible for tax purposes. |
The following unaudited pro forma results of operations have been prepared as though the
Azurite acquisition had been completed on January 1, 2008. Pro forma amounts are based on the
purchase price allocations of the significant acquisitions and are not necessarily indicative of
the results that may be reported in the future (in thousands, except per share data).
|
|
|
|
|
|
|
Nine Months Ended |
|
|
September 30, 2008 |
Revenues |
|
$ |
794,187 |
|
|
|
|
|
|
Net income |
|
$ |
66,750 |
|
|
|
|
|
|
Earnings per common share basic |
|
$ |
1.64 |
|
Earnings per common share diluted |
|
$ |
1.60 |
|
Basic does not believe the pro forma effect of the remainder of the acquisitions
completed in 2008 are material, either individually or when aggregated, to the reported results of
operations.
13
4. Property and Equipment
Property and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Land |
|
$ |
5,809 |
|
|
$ |
4,689 |
|
Buildings and improvements |
|
|
34,060 |
|
|
|
29,913 |
|
Contract drilling equipment |
|
|
60,250 |
|
|
|
60,340 |
|
Well service units and equipment |
|
|
387,900 |
|
|
|
379,167 |
|
Fluid services equipment |
|
|
134,969 |
|
|
|
136,814 |
|
Brine and fresh water stations |
|
|
10,481 |
|
|
|
10,203 |
|
Frac/test tanks |
|
|
130,722 |
|
|
|
128,845 |
|
Pressure pumping equipment |
|
|
159,871 |
|
|
|
156,406 |
|
Construction equipment |
|
|
25,667 |
|
|
|
22,483 |
|
Disposal facilities |
|
|
57,313 |
|
|
|
49,878 |
|
Vehicles |
|
|
38,937 |
|
|
|
41,129 |
|
Rental equipment |
|
|
38,641 |
|
|
|
36,898 |
|
Aircraft |
|
|
4,251 |
|
|
|
4,119 |
|
Other |
|
|
29,210 |
|
|
|
21,758 |
|
|
|
|
|
|
|
|
|
|
|
1,118,081 |
|
|
|
1,082,642 |
|
Less accumulated depreciation and amortization |
|
|
427,361 |
|
|
|
341,763 |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
690,720 |
|
|
$ |
740,879 |
|
|
|
|
|
|
|
|
Basic is obligated under various capital leases for certain vehicles and equipment that
expire at various dates during the next five years. The gross amount of property and equipment and
related accumulated amortization recorded under capital leases and included above consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Light vehicles |
|
$ |
26,391 |
|
|
$ |
30,141 |
|
Well service units and equipment |
|
|
2,238 |
|
|
|
1,194 |
|
Fluid services equipment |
|
|
56,901 |
|
|
|
56,010 |
|
Pressure pumping equipment |
|
|
27,180 |
|
|
|
20,492 |
|
Construction equipment |
|
|
1,034 |
|
|
|
3,679 |
|
Software |
|
|
10,231 |
|
|
|
9,464 |
|
Other |
|
|
|
|
|
|
705 |
|
|
|
|
|
|
|
|
|
|
|
123,975 |
|
|
|
121,685 |
|
Less accumulated amortization |
|
|
43,014 |
|
|
|
37,370 |
|
|
|
|
|
|
|
|
|
|
$ |
80,961 |
|
|
$ |
84,315 |
|
|
|
|
|
|
|
|
Amortization of assets held under capital leases of approximately $5.2 million and $3.8
million for the three months ended September 30, 2009 and 2008 and $15.3 million and $10.5 million
for the nine months ended September 30, 2009 and 2008, respectively, is included in depreciation
and amortization expense in the consolidated statements of operations.
14
5. Long-Term Debt
Long-term debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Credit Facilities: |
|
|
|
|
|
|
|
|
Revolver |
|
$ |
|
|
|
$ |
180,000 |
|
7.125% Senior Notes |
|
|
225,000 |
|
|
|
225,000 |
|
11.625% Senior Secured Notes |
|
|
225,000 |
|
|
|
|
|
Unamortized discount |
|
|
(11,808 |
) |
|
|
|
|
Capital leases and other notes |
|
|
69,909 |
|
|
|
75,323 |
|
|
|
|
|
|
|
|
|
|
|
508,101 |
|
|
|
480,323 |
|
Less current portion |
|
|
27,784 |
|
|
|
26,063 |
|
|
|
|
|
|
|
|
|
|
$ |
480,317 |
|
|
$ |
454,260 |
|
|
|
|
|
|
|
|
Senior Notes
On April 12, 2006, Basic issued $225.0 million of 7.125% Senior Notes due April 2016 (the
Senior Notes) in a private placement. Proceeds from the sale of the Senior Notes were used to
retire the outstanding balance on the $90.0 million Term B Loan and to pay down approximately $96.0
million under our previous revolving credit facility. Interest payments on the Senior Notes are due
semi-annually, on April 15 and October 15. The Senior Notes are unsecured. Under the terms of the
sale of the Senior Notes, Basic was required to take appropriate steps to offer to exchange other
Senior Notes with the same terms that have been registered with the Securities and Exchange
Commission for the private placement Senior Notes. Basic completed the exchange offer for all of
the Senior Notes on October 16, 2006.
The Senior Notes are redeemable at the option of Basic on or after April 15, 2011 at the
specified redemption price as described in the indenture governing the Senior Notes. Prior to April
15, 2011, Basic may redeem the Senior Notes, in whole or in part, at a redemption price equal to
100% of the principal amount of the Senior Notes redeemed plus the Applicable Premium as defined in
the indenture.
Following a change of control, as defined in the indenture, Basic will be required to make an
offer to repurchase all or any portion of the Senior Notes at a purchase price of 101% of the
principal amount, plus accrued and unpaid interest to the date of repurchase.
Pursuant to the indenture, Basic is subject to covenants that limit the ability of Basic and
its restricted subsidiaries to, among other things: incur additional indebtedness, pay dividends or
repurchase or redeem capital stock, make certain investments, incur liens, enter into certain types
of transactions with affiliates, limit dividends or other payments by restricted subsidiaries, and
sell assets or consolidate or merge with or into other companies. These limitations are subject to
a number of important qualifications and exceptions set forth in the indenture. Basic was in
compliance with the restrictive covenants at September 30, 2009.
As part of the issuance of the above-mentioned Senior Notes, Basic incurred debt issuance
costs of approximately $4.6 million, which are being amortized to interest expense using the
effective interest method over the term of the Senior Notes.
The Senior Notes are jointly and severally guaranteed by Basic and all of its restricted
subsidiaries. Basic Energy Services, Inc., the ultimate parent company, does not have any
independent operating assets or operations. Subsidiaries other than the restricted subsidiaries
that are guarantors are minor.
Senior Secured Notes
On July 31, 2009, Basic completed the issuance and sale of $225.0 million aggregate principal
amount of 11.625% Senior Secured Notes due 2014 (the Senior Secured Notes). The Senior Secured
Notes are jointly and severally, and unconditionally, guaranteed on a senior secured basis
initially by all of Basics current subsidiaries other than two immaterial subsidiaries.
As of September 30, 2009, these two subsidiaries held no assets and performed no operations.
The Senior
Secured Notes and the related guarantees were offered and sold in private transactions in
accordance with Rule 144A and
15
Regulation S under the Securities Act of 1933, as amended. Under the terms of the sale of the Senior
Secured Notes, Basic is required to take appropriate steps to offer to exchange other Senior
Secured Notes with the same terms that have been registered with the Securities and Exchange
Commission for the private placement Senior Secured Notes. For more information about the offer to
exchange the Senior Secured Notes, see note 14.
The net proceeds from the issuance of the Senior Secured Notes were $207.9 million after
discounts and offering expenses. Basic used the net proceeds from the offering, along with other
funds, to repay all outstanding indebtedness under its revolving credit facility, which Basic
terminated in connection with the offering.
The Senior Secured Notes and the related guarantees were issued pursuant to an indenture dated
as of July 31, 2009 (the Indenture), by and among Basic, the guarantors party thereto and The
Bank of New York Mellon Trust Company, N.A., a national banking association, as trustee. The
obligations under the Indenture are secured as set forth in the Indenture and in the Security
Agreement (as defined below), in favor of the trustee, by a first-priority lien (other than
Permitted Collateral Liens, as defined in the Indenture) in favor of the trustee, on the Collateral
(as defined below) described in the Security Agreement.
Interest on the Senior Secured Notes accrues at a rate of 11.625% per year. Interest on the
Senior Secured Notes is payable semi-annually in arrears on February 1 and August 1 of each year,
commencing on February 1, 2010. The Senior Secured Notes mature on August 1, 2014.
The Indenture contains covenants that, among other things, limit Basics ability and the
ability of certain of its subsidiaries to: incur additional indebtedness, pay dividends or
repurchase or redeem capital stock, make certain investments, incur liens, enter into certain types
of transactions with its affiliates, limit dividends or other payments by its restricted
subsidiaries to Basic, sell assets (including Collateral under the Security Agreement), or
consolidate or merge with or into other companies. These limitations are subject to a number of
important exceptions and qualifications. Basic was in compliance with the restrictive covenants at
September 30, 2009.
If Basic or its restricted subsidiaries sell, transfer or otherwise dispose of assets or other
rights or property that constitute Collateral (including the same or the issuance of equity
interests in a restricted subsidiary that owns Collateral such that it thereafter is no longer a
restricted subsidiary, a Collateral Disposition), Basic is required to deposit any cash or cash
equivalent proceeds constituting net available proceeds into a segregated account under the sole
control of the trustee that includes only proceeds from the Collateral Disposition and interest
earned thereon (an Asset Sale Proceeds Account). The Asset Sale Proceeds Account will be subject
to a first-priority lien in favor of the trustee, and the proceeds are subject to release from the
account for specified uses. These permitted uses include: acquiring additional assets of a type
constituting Collateral (Additional Assets), provided the trustee has or is immediately granted a
perfected first-priority security interest (subject only to Permitted Collateral Liens) in such
Additional Assets, and repurchasing or redeeming the Senior Secured Notes.
Upon an Event of Default (as defined in the Indenture), the trustee or the holders of at least
25% in aggregate principal amount of the Senior Secured Notes then outstanding may declare the
entire principal of all the Senior Secured Notes to be due and payable immediately.
Basic may, at its option, redeem all or part of the Senior Secured Notes, at any time on or
after February 1, 2012, at a redemption price equal to 100% of the principal amount thereof, plus a
premium declining ratably to par and accrued and unpaid interest to the date of redemption. Basic
may redeem some or all of the Senior Secured Notes before February 1, 2012, at a redemption price
equal to 100% of the principal amount of the Senior Secured Notes to be redeemed, plus the
Applicable Premium (as defined in the Indenture) and accrued and unpaid interest to the date of
redemption.
In addition, at any time before February 1, 2012, Basic, at its option, may redeem up to 35%
of the aggregate principal amount of the Senior Secured Notes issued under the Indenture with the
net cash proceeds of one or more qualified equity offerings at a redemption price of 111.625% of
the principal amount of the Senior Secured Notes to be redeemed, plus accrued and unpaid interest
to the date of redemption, as long as at least 65% of the aggregate principal amount of the Senior
Secured Notes issued under the Indenture remains outstanding immediately after the occurrence of
such redemption, and such redemption occurs within 90 days of the date of the closing of any such
qualified equity offering.
If Basic experiences certain kinds of changes of control, holders of the Senior Secured
Notes will be entitled to require Basic to purchase all or a portion of the Senior Secured Notes at
101% of their principal amount, plus accrued and unpaid interest to the date of repurchase.
16
On July 31, 2009, Basic and each of the guarantors party to the Indenture (the Grantors)
entered into a Security Agreement (the Security Agreement) in favor of The Bank of New York
Mellon Trust Company, N.A., a national banking association, as trustee under the Indenture, to
secure payment of the Senior Secured Notes and related guarantees. The Liens (as defined in the
Security Agreement) granted by each of the Grantors under the Security Agreement consist of a
security interest in all of the following personal property now owned or at any time thereafter
acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire
any right, title or interest and whether existing as of the date of the Security Agreement or
thereafter coming into existence (together with the Aircraft Collateral (as defined in the Security
Agreement), the Collateral), as collateral security for the prompt and complete payment and
performance when due (whether at the stated maturity, by acceleration or otherwise) of the
obligations of the Grantors under the Indenture, the related Senior Secured Notes and the security
documents:
(i) all Commercial Tort Claims;
(ii) all Contracts (as defined in the Security Agreement);
(iii) all Documents;
(iv) all Equipment (other than the Aircraft Collateral);
(v) all General Intangibles (excluding Payment Intangibles except to the extent included
pursuant to clause (xv) below);
(vi) all Goods (as defined in the Security Agreement);
(vii) all Intellectual Property (as defined in the Security Agreement);
(viii) all Investment Property;
(ix) all Letter-of-Credit Rights (whether or not the letter of credit is evidenced by a
writing);
(x) all Supporting Obligations;
(xi) each Asset Sale Proceeds Account (as defined in the Security Agreement) and all
deposits, Securities and Financial Assets (as defined in the Security Agreement) therein and
interest or other income thereon and investments thereof, and all property of every type and
description in which any proceeds of any Collateral Disposition or other disposition of Collateral
are invested or upon which the trustee is at any time granted, or required to be granted, a Lien to
secure the Obligations (as defined in the Security Agreement) as set forth in Section 4.12 of the
Indenture and all proceeds and products of the Collateral described in this clause (xi);
(xii) all other personal property (other than Excluded Property), whether tangible or
intangible, not otherwise described above;
(xiii) whatever is received (whether voluntary or involuntary, whether cash or non cash,
including proceeds of insurance and condemnation awards, rental or lease payments, accounts,
chattel paper, instruments, documents, contract rights, general intangibles, equipment and/or
inventory) upon the lease, sale, charter, exchange, transfer, or other disposition of any of the
Collateral described in clauses (i) through (xii) above;
(xiv) all books and records pertaining to the Collateral; and
(xv) to the extent not otherwise included, all Proceeds, Supporting Obligations and
products (including, without limitation, any Accounts, Chattel Paper, Instruments or Payment
Intangibles constituting Proceeds, Supporting Obligations or products) of any and all of the
foregoing and all collateral security and guarantees given by any Person with respect to any of the
foregoing; provided, that notwithstanding the foregoing provisions, Collateral shall not include
Excluded Property.
Excluded Property means the following, whether now owned or at any time hereafter acquired by any
Grantor or in which such Grantor now has or at any time in the future may acquire any right, title
or interest and whether now existing or hereafter coming into existence: Maritime Assets (as
defined in the Security Agreement), cash and cash equivalents (as such terms are defined by GAAP)
other than those maintained in an Asset Sales Proceeds Account, Securities Accounts containing only
cash and cash equivalents other than any Asset Sale Proceeds Account and Security Entitlements
relating to any such Securities Account, equity interests in any subsidiary of any Grantor,
Inventory, trucks, trailers and other motor vehicles covered by a certificate of title law of any
state, property and/or transactions to which Article 9 of the UCC does not apply pursuant to
Section 9-109 thereof, certain computer software and Equipment acquired prior to the date thereof
and subject to a lien securing purchase money indebtedness as of the date thereof if (but only to
the extent that) the applicable documentation relating to such lien prohibits the granting of a
lien on such Equipment, Equipment leased by any Grantor, other than pursuant to a capitalized
lease, if (but only to the extent that) the lien securing the Equipment prohibits the granting of a
lien on such Equipment, certain General Intangibles, governmental approvals or other rights arising
under any contracts, instruments, permits, licenses or other documents if the granting of a
security interest therein would cause a breach of a restriction on the granting of a security
interest therein or the assignment thereof in favor of a third party, subject to
exceptions as set forth in the Security Agreement, and Accounts, Chattel Paper, Instruments and
Payment Intangibles to the extent they are not Proceeds, Supporting Obligations or products of the
Collateral.
17
The following capitalized terms are used above are as defined in the Uniform Commercial Code
(UCC) of the State of New York, or such other jurisdiction as may be applicable under the terms
of the Security Agreement) on the date of the Security
Agreement: Accounts, Chattel Paper, Commercial Tort Claims, Deposit Account, Documents,
Electronic Chattel Paper, Equipment, Financial Assets, General Intangibles, Instruments, Inventory,
Investment Property, Letter-of-Credit Rights, Payment Intangibles, Proceeds, Securities, Securities
Accounts, Security Entitlements, Supporting Obligations, and Tangible Chattel Paper.
Under the Security Agreement, each Grantor must maintain a perfected security interest in
favor of the trustee and take all steps necessary from time to time in order to maintain the
trustees first-priority security interest (other than Permitted Collateral Liens). If an event of
default were to occur under the Indenture, the Senior Secured Notes, the guarantees relating to the
Senior Secured Notes, the Security Agreement or any other agreement, instrument or certificate that
is entered into to secure payment or performance of the Senior Secured Notes, the trustee would be
empowered to exercise all rights and remedies of a secured party under the UCC, in addition to all
other rights and remedies under the applicable agreements.
Other Debt
Basic has a variety of other capital leases and notes payable outstanding that are generally
customary in its business. None of these debt instruments are individually material.
Basics interest expense consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
Cash payments for interest |
|
$ |
13,242 |
|
|
$ |
14,910 |
|
Commitment and other fees paid |
|
|
157 |
|
|
|
155 |
|
Amortization of debt issuance costs and discount on senior secured notes |
|
|
1,327 |
|
|
|
723 |
|
Change in accrued interest |
|
|
6,741 |
|
|
|
4,046 |
|
Other |
|
|
3 |
|
|
|
283 |
|
|
|
|
|
|
|
|
|
|
$ |
21,470 |
|
|
$ |
20,117 |
|
|
|
|
|
|
|
|
Losses on Extinguishment of Debt
In
July 2009, upon the termination of the Companys revolving credit facility,
Basic wrote off unamortized debt issuance costs of approximately $3.5 million.
6. Commitments and Contingencies
Environmental
Basic is subject to various federal, state and local environmental laws and regulations that
establish standards and requirements for protection of the environment. Basic cannot predict the
future impact of such standards and requirements which are subject to change and can have
retroactive effectiveness. Basic continues to monitor the status of these laws and regulations.
Management believes that the likelihood of any of these items resulting in a material adverse
impact to Basics financial position, liquidity, capital resources or future results of operations
is remote.
Currently, Basic has not been fined, cited or notified of any environmental violations that
would have a material adverse effect upon its financial position, liquidity or capital resources.
However, management does recognize that by the very nature of its business, material costs could be
incurred in the near term to bring Basic into total compliance. The amount of such future
expenditures is not determinable due to several factors including the unknown magnitude of possible
contamination, the unknown timing and extent of
the corrective actions which may be required, the determination of Basics liability in
proportion to other responsible parties and the extent to which such expenditures are recoverable
from insurance or indemnification.
Litigation
From time to time, Basic is a party to litigation or other legal proceedings that Basic
considers to be a part of the ordinary course of business. Basic is not currently involved in any
legal proceedings that it considers probable or reasonably possible, individually or in the
aggregate, to result in a material adverse effect on its financial condition, results of operations
or liquidity.
18
Self-Insured Risk Accruals
Basic is self-insured up to retention limits as it relates to workers compensation and
medical and dental coverage of its employees. Basic generally maintains no physical property damage
coverage on its workover rig fleet, with the exception of certain of its 24-hour workover rigs and
newly manufactured rigs. Basic has deductibles per occurrence for workers compensation and medical
and dental coverage of $500,000 and $250,000, respectively. Basic has lower deductibles per
occurrence for automobile liability and general liability. Basic maintains accruals in the
accompanying consolidated balance sheets related to self-insurance retentions by using third-party
data and claims history.
At September 30, 2009 and December 31, 2008, self-insured risk accruals totaled approximately
$14.5 million net of a $30,000 receivable for medical and dental coverage and $15.4 million net of
a $992,000 receivable for medical and dental coverage, respectively.
7. Stockholders Equity
Common Stock
At September 30, 2009 and December 31, 2008, Basic had 80,000,000 shares of common stock, par
value $.01 per share, authorized.
During the year ended December 31, 2008, Basic issued 447,255 shares of newly-issued common
stock and 138,675 shares of treasury stock for the exercise of stock options.
In March 2008, Basic granted various employees 361,700 unvested shares of common stock which
vest over a five-year period. Also, in March 2008, Basic granted the Chairman of the Board 4,000
shares of common stock which vested immediately in lieu of annual cash director fees. In October
2008, Basic granted a vice president 5,000 shares of restricted common stock which vest over a
three-year period.
In March 2008, the Compensation Committee of Basics Board of Directors approved grants of
performance-based stock awards to certain members of management. In March 2009, it was determined
that 93,500 shares, or 100% of the target number of shares, were earned based on the Companys
achievement of certain earnings per share growth and return on capital employed performance over
the performance period from January 1, 2006 through December 31, 2008, as compared to other members
of a defined peer group. These shares remain subject to vesting over a three-year period, with the
first shares vesting on March 15, 2010.
In March 2009, Basic granted various employees 571,824 unvested shares of common stock which
vest over a five-year period. Also, in March 2009, Basic granted the Chairman of the Board 4,000
shares of common stock which vested immediately in lieu of annual cash director fees.
In May 2009, consistent with its director compensation practices, Basic granted a new board
member 37,500 shares of restricted common stock which vest over a three-year period.
During the nine months ended September 30, 2009, Basic issued 5,000 shares of common stock
from treasury stock for the exercise of stock options.
Treasury Stock
On October 13, 2008, Basic announced that its Board of Directors authorized the repurchase of
up to $50.0 million of Basics shares of common stock from time to time in open market or private
transactions, at Basics discretion. The number of shares purchased and the timing of purchases are
based on several factors, including the price of the common stock, general market conditions,
available cash and alternative investment opportunities. During the year ended December 31, 2008,
Basic repurchased 897,558 shares at a total price of $8.8 million (an average of $9.82 per share),
inclusive of commissions and fees. During the first nine months of 2009, Basic repurchased 809,093
shares at a total price of $6.0 million (an average of $7.41 per share), inclusive of commissions
and fees. The stock repurchase program was suspended by the Board of Directors during the first
quarter of 2009.
19
Basic also acquired treasury shares through net share settlements for payment of payroll taxes
upon the vesting of restricted stock. Basic acquired a total of 52,877 shares through net share
settlements during 2008 and 18,810 shares through net share settlements during the first nine
months of 2009.
Preferred Stock
At September 30, 2009 and December 31, 2008, Basic had 5,000,000 shares of preferred stock,
par value $.01 per share, authorized, of which none was designated, issued or outstanding.
8. Incentive Plan
In May 2003, Basics board of directors and stockholders approved the Basic 2003 Incentive
Plan (as amended effective May 26, 2009) (the Plan), which provides for granting of incentive
awards in the form of stock options, restricted stock, performance awards, bonus shares, phantom
shares, cash awards and other stock-based awards to officers, employees, directors and consultants
of Basic. The Plan assumed awards of the plans of Basics successors that were awarded and remained
outstanding prior to adoption of the Plan. The Plan provides for the issuance of 7,100,000 shares.
The Plan is administered by the Plan committee, and in the absence of a Plan committee, by the
Board of Directors, which determines the awards and the associated terms of the awards and
interprets its provisions and adopts policies for implementing the Plan. The number of shares
authorized under the Plan and the number of shares subject to an award under the Plan will be
adjusted for stock splits, stock dividends, recapitalizations, mergers and other changes affecting
the capital stock of Basic.
The fair value of each option award is estimated on the date of grant using the
Black-Scholes-Merton option-pricing model. Basic is required to estimate the expected forfeiture
rate and only recognize expense for those options expected to vest. During the three months ended
September 30, 2009 and 2008, compensation expense related to share-based arrangements was
approximately $1.3 million and $1.2 million, respectively. For compensation expense recognized
during the three months ended September 30, 2009 and 2008, Basic recognized a tax benefit of
approximately $471,000 and $441,000 respectively. During the nine months ended September 30, 2009
and 2008, compensation expense related to share-based arrangements was approximately $3.9 million
and $3.4 million, respectively. For compensation expense recognized during the nine months ended
September 30, 2009 and 2008, Basic recognized a tax benefit of approximately $1.5 and $1.3 million
respectively.
Options granted under the Plan expire 10 years from the date they are granted, and generally
vest over a three to five-year service period.
20
The following table reflects the summary of stock options outstanding at September 30, 2009
and the changes during the nine months then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
Aggregate |
|
|
|
Number of |
|
|
Average |
|
|
Remaining |
|
|
Instrinsic |
|
|
|
Options |
|
|
Exercise |
|
|
Contractual |
|
|
Value |
|
|
|
Granted |
|
|
Price |
|
|
Term (Years) |
|
|
(000s) |
|
Non-statutory stock options: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of period |
|
|
1,608,675 |
|
|
$ |
11.11 |
|
|
|
|
|
|
|
|
|
Options granted |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Options forfeited |
|
|
(22,500 |
) |
|
$ |
13.60 |
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
(5,000 |
) |
|
$ |
6.98 |
|
|
|
|
|
|
|
|
|
Options expired |
|
|
(96,500 |
) |
|
$ |
6.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of
period |
|
|
1,484,675 |
|
|
$ |
11.39 |
|
|
|
5.08 |
|
|
$ |
3,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of
period |
|
|
1,118,800 |
|
|
$ |
9.16 |
|
|
|
4.71 |
|
|
$ |
2,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected
to vest, end of
period |
|
|
1,474,425 |
|
|
$ |
11.30 |
|
|
|
5.07 |
|
|
$ |
3,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of share options exercised during the nine months ended
September 30, 2009 and 2008 was approximately $15,000 and $11.7 million, respectively.
On March 13, 2009, the Compensation Committee of Basics Board of Directors approved grants of
performance-based stock awards to certain members of management. The performance-based awards are
tied to the Companys achievement of certain earnings per share growth and return on capital
employed performance over the performance period from January 1, 2007 through December 31, 2009, as
compared to other members of a defined peer group. The number of shares to be issued will range
from 0% to 150% of the target number of shares of 265,000 depending on the performance noted above.
Any shares earned at the end of the performance period will then remain subject to vesting over a
three-year period, with the first shares vesting March 15, 2011. As of September 30, 2009, it was
estimated that none of the performance based awards will be earned.
A summary of the status of the Companys non-vested share grants at September 30, 2009 and
changes during the nine months ended September 30, 2009 is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Number of |
|
|
Grant Date Fair |
|
Nonvested Shares |
|
Shares |
|
|
Value Per Share |
|
Nonvested at beginning
of period |
|
|
599,325 |
|
|
$ |
21.41 |
|
Granted during period |
|
|
616,324 |
|
|
|
6.50 |
|
Vested during period |
|
|
(87,975 |
) |
|
|
18.75 |
|
Forfeited during period |
|
|
(52,650 |
) |
|
|
15.81 |
|
Performance based earned (1) |
|
|
14,025 |
|
|
|
21.17 |
|
|
|
|
|
|
|
|
|
Nonvested at end of period |
|
|
1,089,049 |
|
|
$ |
13.46 |
|
|
|
|
|
|
|
|
|
21
|
|
|
(1) |
|
In March 2008 certain members of management were awarded grants of performance-based stock
awards. The number of shares to be earned ranged from 0% to 150% of target depending on the
Companys achievement of certain EPS and return on capital employed performance compared to a
peer group. The performance period for purposes of these grants was January 1, 2006 through
December 31, 2008. As of December 31, 2008 it was estimated that 85% of the target shares
would be earned and in March 2009 it was determined that 100% of the target shares had been
earned. These shares remain subject to vesting over a three-year period, with the first shares
vesting in March 2010. |
As of September 30, 2009, there was approximately $11.3 million of total unrecognized
compensation related to non-vested share-based compensation arrangements granted under the Plan.
That cost is expected to be recognized over a weighted-average period of 3.04 years. The total fair
value of share-based awards vested during the nine months ended September 30, 2009 and 2008 was
approximately $4.1 million and $10.2 million, respectively. The actual tax benefit realized for the
tax deduction from vested share-based awards was $188,000 and $1.3 million for the nine months
ended September 30, 2009 and 2008, respectively.
Cash received from share option exercises under the Plan was approximately $35,000 and $2.5
million for the nine months ended September 30, 2009 and 2008, respectively. The actual tax benefit
realized for the tax deductions from options exercised was $6,000 and $4.5 million for the nine
months ended September 30, 2009 and 2008, respectively.
The Company has a history of issuing treasury and newly-issued shares to satisfy share option
exercises.
9. Related Party Transactions
Basic had receivables from employees of approximately $144,000 and $148,000 as of September
30, 2009 and December 31, 2008, respectively. During 2006, Basic entered into a lease agreement
with Darle Vuelta Cattle Co., LLC, an affiliate of the Chief Executive Officer, for approximately
$69,000. The term of the lease is five years and will continue on a year-to-year basis unless
terminated by either party.
10. Earnings Per Share
Basics basic earnings per common share are determined by dividing net earnings applicable to
common stock by the weighted average number of common shares actually outstanding during the
period. Diluted earnings per common share is based on the increased number of shares that would be
outstanding assuming conversion of dilutive outstanding securities using the as if converted
method. The following table sets forth the computation of basic and diluted earnings per share (in
thousands, except share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Numerator (both basic and diluted): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(25,325 |
) |
|
$ |
25,942 |
|
|
$ |
(229,386 |
) |
|
$ |
64,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share |
|
|
39,595,392 |
|
|
|
40,988,436 |
|
|
|
39,713,071 |
|
|
|
40,762,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
|
|
|
|
685,428 |
|
|
|
|
|
|
|
769,307 |
|
Unvested restricted stock |
|
|
|
|
|
|
113,382 |
|
|
|
|
|
|
|
230,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share |
|
|
39,595,392 |
|
|
|
41,787,246 |
|
|
|
39,713,071 |
|
|
|
41,762,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share: |
|
$ |
(0.64 |
) |
|
$ |
0.63 |
|
|
$ |
(5.78 |
) |
|
$ |
1.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share: |
|
$ |
(0.64 |
) |
|
$ |
0.62 |
|
|
$ |
(5.78 |
) |
|
$ |
1.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and unvested restricted stock shares of approximately 202,000 and 454,000
were excluded in the computation of diluted earnings per share for the three months and nine months
ended September 30, 2009, respectively, as the effect would have been anti-dilutive due to the net
loss in each of these periods.
22
11. Business Segment Information
Basics reportable business segments are Well Servicing, Fluid Services, Completion and
Remedial Services, and Contract Drilling. The following is a description of the segments:
Well Servicing: This business segment encompasses a full range of services performed with a
mobile well servicing rig, including the installation and removal of downhole equipment and
elimination of obstructions in the well bore to facilitate the flow of oil and gas. These services
are performed to establish, maintain and improve production throughout the productive life of an
oil and gas well and to plug and abandon a well at the end of its productive life. Well servicing
equipment and capabilities such as Basics are essential to facilitate most other services
performed on a well.
Fluid Services: This segment utilizes a fleet of trucks and related assets, including
specialized tank trucks, storage tanks, water wells, disposal facilities, construction and other
related equipment. Basic employs these assets to provide, transport, store and dispose of a variety
of fluids, as well as provide well site construction and maintenance services. These services are
required in most workover, completion and remedial projects and are routinely used in daily
producing well operations.
Completion and Remedial Services: This segment utilizes a fleet of pressure pumping units,
coiled tubing units, air compressor packages specially configured for underbalanced drilling
operations, cased-hole wireline units and an array of specialized rental equipment and fishing
tools. The largest portion of this business consists of pressure pumping services focused on
cementing, acidizing and fracturing services in niche markets.
Contract Drilling: This segment utilizes shallow and medium depth rigs and associated
equipment for drilling wells to a specified depth for customers on a contract basis.
Basics management evaluates the performance of its operating segments based on operating
revenues and segment profits. Corporate expenses include general corporate expenses associated with
managing all reportable operating segments. Corporate assets consist principally of working capital
and debt financing costs.
23
The following table sets forth certain financial information with respect to Basics
reportable segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completion |
|
|
|
|
|
|
|
|
|
|
|
|
Well |
|
|
Fluid |
|
|
and Remedial |
|
|
Contract |
|
|
Corporate |
|
|
|
|
|
|
Servicing |
|
|
Services |
|
|
Services |
|
|
Drilling |
|
|
and Other |
|
|
Total |
|
Three Months Ended September 30, 2009 (Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
38,434 |
|
|
$ |
49,782 |
|
|
$ |
32,592 |
|
|
$ |
4,150 |
|
|
$ |
|
|
|
$ |
124,958 |
|
Direct operating costs |
|
|
(29,051 |
) |
|
|
(38,471 |
) |
|
|
(23,106 |
) |
|
|
(3,305 |
) |
|
|
|
|
|
$ |
(93,933 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profits |
|
$ |
9,383 |
|
|
$ |
11,311 |
|
|
$ |
9,486 |
|
|
$ |
845 |
|
|
$ |
|
|
|
$ |
31,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
12,565 |
|
|
$ |
9,363 |
|
|
$ |
7,892 |
|
|
$ |
1,838 |
|
|
$ |
1,797 |
|
|
$ |
33,455 |
|
Capital expenditures, (excluding acquisitions) |
|
$ |
3,610 |
|
|
$ |
2,690 |
|
|
$ |
2,267 |
|
|
$ |
528 |
|
|
$ |
517 |
|
|
$ |
9,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2008 (Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
97,382 |
|
|
$ |
82,660 |
|
|
$ |
85,541 |
|
|
$ |
11,992 |
|
|
$ |
|
|
|
$ |
277,575 |
|
Direct operating costs |
|
|
(61,047 |
) |
|
|
(53,028 |
) |
|
|
(46,798 |
) |
|
|
(7,722 |
) |
|
|
|
|
|
|
(168,595 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profits |
|
$ |
36,335 |
|
|
$ |
29,632 |
|
|
$ |
38,743 |
|
|
$ |
4,270 |
|
|
$ |
|
|
|
$ |
108,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
11,327 |
|
|
$ |
7,909 |
|
|
$ |
6,974 |
|
|
$ |
1,764 |
|
|
$ |
1,297 |
|
|
$ |
29,271 |
|
Capital expenditures, (excluding acquisitions) |
|
$ |
9,228 |
|
|
$ |
6,442 |
|
|
$ |
5,681 |
|
|
$ |
1,437 |
|
|
$ |
1,057 |
|
|
$ |
23,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009 (Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
123,647 |
|
|
$ |
163,847 |
|
|
$ |
99,224 |
|
|
$ |
11,776 |
|
|
$ |
|
|
|
$ |
398,494 |
|
Direct operating costs |
|
|
(93,793 |
) |
|
|
(118,439 |
) |
|
|
(70,484 |
) |
|
|
(9,912 |
) |
|
|
|
|
|
$ |
(292,628 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profits |
|
$ |
29,854 |
|
|
$ |
45,408 |
|
|
$ |
28,740 |
|
|
$ |
1,864 |
|
|
$ |
|
|
|
$ |
105,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
37,034 |
|
|
$ |
27,596 |
|
|
$ |
23,260 |
|
|
$ |
5,418 |
|
|
$ |
5,297 |
|
|
$ |
98,605 |
|
Capital expenditures, (excluding acquisitions) |
|
$ |
13,070 |
|
|
$ |
9,739 |
|
|
$ |
8,209 |
|
|
$ |
1,912 |
|
|
$ |
1,869 |
|
|
$ |
34,799 |
|
Identifiable assets |
|
$ |
257,429 |
|
|
$ |
199,312 |
|
|
$ |
195,933 |
|
|
$ |
42,840 |
|
|
$ |
389,821 |
|
|
$ |
1,085,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2008 (Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
266,919 |
|
|
$ |
226,640 |
|
|
$ |
233,578 |
|
|
$ |
31,832 |
|
|
$ |
|
|
|
$ |
758,969 |
|
Direct operating costs |
|
|
(164,806 |
) |
|
|
(148,015 |
) |
|
|
(125,236 |
) |
|
|
(22,311 |
) |
|
|
|
|
|
|
(460,368 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profits |
|
$ |
102,113 |
|
|
$ |
78,625 |
|
|
$ |
108,342 |
|
|
$ |
9,521 |
|
|
$ |
|
|
|
$ |
298,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
33,294 |
|
|
$ |
23,245 |
|
|
$ |
20,497 |
|
|
$ |
5,185 |
|
|
$ |
3,814 |
|
|
$ |
86,035 |
|
Capital expenditures, (excluding acquisitions) |
|
$ |
26,651 |
|
|
$ |
18,607 |
|
|
$ |
16,407 |
|
|
$ |
4,150 |
|
|
$ |
3,053 |
|
|
$ |
68,868 |
|
Identifiable assets |
|
$ |
307,739 |
|
|
$ |
264,261 |
|
|
$ |
333,780 |
|
|
$ |
72,008 |
|
|
$ |
333,054 |
|
|
$ |
1,310,842 |
|
The following table reconciles the segment profits reported above to the operating income
as reported in the consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Segment profits |
|
$ |
31,025 |
|
|
$ |
108,980 |
|
|
$ |
105,866 |
|
|
$ |
298,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses |
|
|
(25,140 |
) |
|
|
(30,552 |
) |
|
|
(81,643 |
) |
|
|
(83,212 |
) |
Depreciation and amortization |
|
|
(33,455 |
) |
|
|
(29,271 |
) |
|
|
(98,605 |
) |
|
|
(86,035 |
) |
Gain (loss) on disposal of assets |
|
|
(514 |
) |
|
|
(376 |
) |
|
|
(1,853 |
) |
|
|
208 |
|
Goodwill impairment |
|
|
|
|
|
|
|
|
|
|
(204,014 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
(28,084 |
) |
|
$ |
48,781 |
|
|
$ |
(280,249 |
) |
|
$ |
129,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
12. Supplemental Schedule of Cash Flow Information
The following table reflects non-cash financing and investing activity during the following
periods:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Capital leases issued for equipment |
|
$ |
16,188 |
|
|
$ |
35,663 |
|
Contingent earnout accrual |
|
$ |
1,340 |
|
|
$ |
435 |
|
Asset retirement obligation additions |
|
$ |
18 |
|
|
$ |
143 |
|
Basic paid no income taxes during the nine months ended September 30, 2009. Basic paid
income taxes of approximately $17.3 million during the nine months ended September 30, 2008. Basic
paid interest of approximately $13.2 million and $14.9 million during the nine months ended
September 30, 2009 and 2008, respectively.
13. Fair Value Measurements
Fair value is the price that would be received to sell an asset or the amount paid to transfer
a liability in an orderly transaction between market participants (an exit price) at the
measurement date. Fair value is a market based measurement considered from the perspective of a
market participant. The Company uses market data or assumptions that market participants would use
in pricing the asset or liability, including assumptions about risk and the risks inherent in the
inputs to the valuation. These inputs can be readily observable, market corroborated, or
unobservable. If observable prices or inputs are not available, unobservable prices or inputs are
used to estimate the current fair value, often using an internal valuation model. These valuation
techniques involve some level of management estimation and judgment, the degree of which is
dependent on the item being valued. The Company primarily applies a market approach for recurring
fair value measurements using the best available information while utilizing valuation techniques
that maximize the use of observable inputs and minimize the use of unobservable inputs.
There is a fair value hierarchy that prioritizes the inputs used to measure fair value. The
hierarchy gives the highest priority to quoted prices in active markets for identical assets or
liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3
measurement). The Company classifies fair value balances based on the observability of those
inputs. The three levels of the fair value hierarchy are as follows:
Level 1Quoted prices in active markets for identical assets or liabilities that the Company
has the ability to access. Active markets are those in which transactions for the asset or
liability occur in sufficient frequency and volume to provide pricing information on an ongoing
basis.
Level 2Inputs are other than quoted prices in active markets included in Level 1, which are
either directly or indirectly observable. These inputs are either directly observable in the
marketplace or indirectly observable through corroboration with market data for substantially
the full contractual term of the asset or liability being measured.
Level 3Inputs reflect managements best estimate of what market participants would use in
pricing the asset or liability at the measurement date. Consideration is given to the risk
inherent in the valuation technique and the risk inherent in the inputs to the model.
In valuing certain assets and liabilities, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. For disclosure purposes, assets and liabilities are
classified in their entirety in the fair value hierarchy level based on the lowest level of input
that is significant to the overall fair value measurement. The Companys assessment of the
significance of a particular input to the fair value measurement requires judgment and may affect
the placement within the fair value hierarchy levels.
The Companys asset retirement obligation related to its salt water disposal sites, brine
water wells, gravel pits and land farm sites, each of which is subject to rules and regulations
regarding usage and eventual closure, is measured using primarily Level 3 inputs. The significant
unobservable inputs to this fair value measurement include estimates of plugging, abandonment and
remediation costs, inflation rate and well life. The inputs are calculated based on historical data
as well as current estimated costs. The fair value is
25
calculated by taking the present value of the expected cash flow at the time of the closure of the site. The following table reflects the changes
in the fair value of the liability during the nine months ended September 30, 2009 (in thousands):
|
|
|
|
|
|
|
Asset |
|
|
|
Retirement |
|
|
|
Obligation |
|
Balance, December 31, 2008 |
|
$ |
1,796 |
|
|
|
|
|
|
Additional asset retirement obligation |
|
|
18 |
|
Accretion expense |
|
|
110 |
|
|
|
|
|
Balance, September 30, 2009 |
|
$ |
1,924 |
|
|
|
|
|
14. Subsequent Events
Management performed an evaluation of the Companys activity through October 30, 2009, the
date these financial statements were issued, noting the following subsequent event.
On October 16, 2009, Basic filed with the Securities and Exchange Commission a registration
statement relating to its offer to exchange the Senior Secured Notes sold in its July 2009 private
placement for senior secured notes, having substantially identical terms, that have been registered
under the Securities Act of 1933, as amended.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Managements Overview
We provide a wide range of well site services to oil and gas drilling and producing companies,
including well servicing, fluid services, completion and remedial services 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 this strategy,
we purchased businesses and assets in 40 separate acquisitions from January 1, 2004 to September
30, 2009. Our weighted average number of well servicing rigs increased from 279 in 2004 to 414 in
the third quarter of 2009 and our weighted average number of fluid service trucks increased from
386 to 805 in the same period. These acquisitions 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
2009 |
|
|
2008 |
|
|
|
|
Revenues: |
|
|
|
|
|
|
Well servicing |
|
$ |
123.6 |
|
|
|
31 |
% |
|
$ |
266.9 |
|
|
|
35 |
% |
Fluid services |
|
|
163.8 |
|
|
|
41 |
% |
|
|
226.6 |
|
|
|
30 |
% |
Completion and remedial services |
|
|
99.2 |
|
|
|
25 |
% |
|
|
233.6 |
|
|
|
31 |
% |
Contract drilling |
|
|
11.8 |
|
|
|
3 |
% |
|
|
31.8 |
|
|
|
4 |
% |
|
|
|
|
|
Total revenues |
|
$ |
398.4 |
|
|
|
100 |
% |
|
$ |
758.9 |
|
|
|
100 |
% |
|
|
|
|
|
Our core businesses depend on our customers willingness to make expenditures to produce,
develop and explore for oil and gas in the United States. Industry conditions are influenced by
numerous factors, such as the supply of and demand for oil and gas, domestic and worldwide economic
conditions, political instability in oil producing countries and merger and divestiture activity
among oil and gas producers. The volatility of the oil and 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.
26
In 2007, natural gas prices declined as an excess supply of natural gas began to develop,
mainly due to moderate U.S. weather patterns. Utilization for our services declined from 2006
levels as drilling activity flattened or declined in several of our markets and new equipment
entered the marketplace balancing supply and demand for our services. However, pricing for our
services improved in 2007 from 2006, mainly reflecting continued increases in labor costs, and
offset a portion the effect of the lower utilization of our services on our total revenues. By the
middle of 2008, oil and natural gas prices reached historic highs. However, in the second half of
2008, oil and natural gas prices decreased substantially, which caused significantly lower
utilization of our services in the fourth quarter of 2008. In the first half of 2009, utilization
and pricing for our services continued to decline from the fourth quarter of 2008. In the third
quarter of 2009, as oil prices began to increase, utilization and pricing for our services
stabilized and remained near second quarter 2009 levels.
While we see continued steady improvement in oil related activity, we anticipate tough market
conditions to prevail until gas driven activity increases to more fully absorb the excess service
capacity in each of our markets and segments.
We derive a majority of our revenues from services supporting production from existing oil and
gas operations. Demand for these production-related services, including well servicing and fluid
services, tends to remain relatively stable, even in moderate oil and gas price environments, as
ongoing maintenance spending is required to sustain production. As oil and gas prices fluctuate,
demand for all of our services changes correspondingly as our customers must balance maintenance
and capital expenditures against their available cash flows. Because our services are required to
support drilling and workover activities, we are also subject to changes in capital spending by our
customers as oil and gas prices increase or decrease. Adverse changes in capital markets have
caused a number of oil and gas producers to reduce their capital budgets for 2009. Limitations on
the availability of capital, or higher costs of capital, for financing expenditures may cause these
and other oil and gas producers to make additional reductions to capital budgets in the future even
if commodity prices return to historically high levels.
We believe that the most important performance measures for our lines of business are as
follows:
|
|
|
Well Servicing rig hours, rig utilization rate, revenue per rig hour and segment
profits as a percent of revenues; |
|
|
|
|
Fluid Services revenue per truck and segment profits as a percent of revenues; |
|
|
|
|
Completion and Remedial Services segment profits as a percent of revenues; and |
|
|
|
|
Contract Drilling rig operating days, revenue 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 below in Segment
Overview.
We will continue to evaluate opportunities to grow 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 for 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 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 managements attention. As discussed below
in Liquidity and Capital Resources, we also must meet certain financial covenants in order to
borrow money under our existing credit agreement to fund future acquisitions.
Selected 2008 Acquisitions
During the year 2008, we made several acquisitions that complemented our existing lines of
business. These included among others:
Xterra Fishing and Rental Tools Co.
On January 28, 2008, we acquired all of the outstanding capital stock of Xterra Fishing and
Rental Tools Co. (Xterra) for total consideration of $21.5 million cash. This acquisition
operates in our completion and remedial services line of business.
27
Azurite Services Company, Inc.
On September 26, 2008, we acquired substantially all of the operating assets of Azurite for
$61.0 million in cash. This acquisition operates in our fluid services line of business.
Segment Overview
Well Servicing
During the first nine months of 2009, our well servicing segment represented 31% of our
revenues. Revenue in our well servicing segment is derived from maintenance, workover, completion,
and plugging and abandonment services. We provide maintenance-related services as part of the
normal, periodic upkeep of producing oil and 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 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 our activity levels by the
total number of hours worked by all of the rigs in our fleet. We monitor our fleet utilization
levels, with full utilization deemed to be 55 hours per week per rig. Our fleet increased from a
weighted average number of 392 rigs in the first quarter of 2008 to 414 in the third quarter of
2009 through a combination of newbuild purchases and acquisitions and other individual equipment
purchases.
The following is an analysis of our well servicing operations for each of the quarters in
2008, the full year ended December 31, 2008 and the quarters ended March 31, 2009, June 30, 2009,
and September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
Rig |
|
|
|
|
|
Profits |
|
|
|
|
Number of |
|
Rig |
|
Utilization |
|
Revenue Per |
|
Per Rig |
|
Segment |
|
|
Rigs |
|
Hours |
|
Rate |
|
Rig Hour |
|
Hour |
|
Profits% |
2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
392 |
|
|
|
202,500 |
|
|
|
72.2 |
% |
|
$ |
398 |
|
|
$ |
158 |
|
|
|
39.8 |
% |
Second Quarter |
|
|
403 |
|
|
|
222,300 |
|
|
|
77.1 |
% |
|
$ |
400 |
|
|
$ |
152 |
|
|
|
37.9 |
% |
Third Quarter |
|
|
412 |
|
|
|
233,000 |
|
|
|
79.1 |
% |
|
$ |
418 |
|
|
$ |
156 |
|
|
|
37.3 |
% |
Fourth Quarter |
|
|
414 |
|
|
|
182,400 |
|
|
|
61.6 |
% |
|
$ |
418 |
|
|
$ |
141 |
|
|
|
33.8 |
% |
Full Year |
|
|
405 |
|
|
|
840,200 |
|
|
|
72.5 |
% |
|
$ |
408 |
|
|
$ |
152 |
|
|
|
37.3 |
% |
2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
414 |
|
|
|
132,300 |
|
|
|
44.7 |
% |
|
$ |
369 |
|
|
$ |
90 |
|
|
|
24.4 |
% |
Second Quarter |
|
|
414 |
|
|
|
110,500 |
|
|
|
37.3 |
% |
|
$ |
329 |
|
|
$ |
78 |
|
|
|
23.6 |
% |
Third Quarter |
|
|
414 |
|
|
|
122,900 |
|
|
|
41.5 |
% |
|
$ |
313 |
|
|
$ |
76 |
|
|
|
24.4 |
% |
We gauge activity levels in our well servicing segment based on rig utilization rate, revenue
per rig hour and segment profits per rig hour.
Rig utilization increased to 41.5% in the third quarter of 2009, compared to 37.3% in the
second quarter of 2009. The increase was caused by stabilization in oil and natural gas prices
during the third quarter of 2009, which caused a slight increase in demand for our services.
Although there was stabilization experienced in the economy and oil and gas prices, there was still
price pressure for our services, and our revenue per rig hour decreased to $313 in the third
quarter of 2009 compared to $329 in the second quarter of 2009. Through our continued cost cutting
measures, we were able to increase the segment profit percentage to 24.4% in the third quarter of
2009 from 23.6% in the second quarter of 2009.
Fluid Services
During the first nine months of 2009, our fluid services segment represented 41% 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 gas wells, and
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 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 contributions. Revenues from
28
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 gas facilities. 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. 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
2008, the full year ended December 31, 2008 and the quarters ended March 31, 2009, June 30, 2009,
and September 30, 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Segment Profits |
|
|
|
|
Average Number of |
|
Revenue Per |
|
Per Fluid |
|
|
|
|
Fluid Service |
|
Fluid Service |
|
Service |
|
Segment |
|
|
Trucks |
|
Truck |
|
Truck |
|
Profits% |
2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
644 |
|
|
$ |
111 |
|
|
$ |
39 |
|
|
|
35.0 |
% |
Second Quarter |
|
|
663 |
|
|
$ |
109 |
|
|
$ |
36 |
|
|
|
33.1 |
% |
Third Quarter |
|
|
683 |
|
|
$ |
121 |
|
|
$ |
43 |
|
|
|
35.8 |
% |
Fourth Quarter |
|
|
804 |
|
|
$ |
111 |
|
|
$ |
42 |
|
|
|
38.1 |
% |
Full Year |
|
|
699 |
|
|
$ |
452 |
|
|
$ |
161 |
|
|
|
35.6 |
% |
2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
814 |
|
|
$ |
80 |
|
|
$ |
25 |
|
|
|
31.4 |
% |
Second Quarter |
|
|
808 |
|
|
$ |
61 |
|
|
$ |
17 |
|
|
|
27.9 |
% |
Third Quarter |
|
|
805 |
|
|
$ |
62 |
|
|
$ |
14 |
|
|
|
22.7 |
% |
We gauge activity levels in our fluid services segment based on revenue and segment profits
per fluid service truck.
Revenue per fluid service truck remained relatively flat at $62,000 in the third quarter of
2009 compared to $61,000 in the second quarter of 2009. Segment profit percentage decreased to
22.7% in the third quarter of 2009 from 27.9% in the second quarter of 2009 which was driven by
increased competitive rate pressure and higher fuel and repair and maintenance costs.
Completion and Remedial Services
During the first nine months of 2009, our completion and remedial services segment represented
25% of our revenues. Revenues from our completion and remedial services segment are generally
derived from a variety of services designed to stimulate oil and gas production or place cement
slurry within the wellbores. Our completion and remedial services segment includes pressure
pumping, cased-hole wireline services, underbalanced drilling and rental and fishing tool
operations.
Our pressure pumping operations concentrate on providing lower-horsepower cementing, acidizing
and fracturing services in selected markets. Our total hydraulic horsepower capacity for our
pressure pumping operations was 139,000 and 134,000 at September 30, 2009 and September 30, 2008,
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.
29
The following is an analysis of our completion and remedial services segment for each of the
quarters in 2008, the full year ended December 31, 2008 and the quarters ended March 31, 2009, June
30, 2009, and September 30, 20009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment |
|
|
Revenues |
|
Profits% |
2008: |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
68,458 |
|
|
|
47.7 |
% |
Second Quarter |
|
$ |
79,579 |
|
|
|
46.4 |
% |
Third Quarter |
|
$ |
85,541 |
|
|
|
45.3 |
% |
Fourth Quarter |
|
$ |
70,748 |
|
|
|
43.0 |
% |
Full Year |
|
$ |
304,326 |
|
|
|
45.6 |
% |
2009: |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
37,259 |
|
|
|
30.5 |
% |
Second Quarter |
|
$ |
29,373 |
|
|
|
26.9 |
% |
Third Quarter |
|
$ |
32,592 |
|
|
|
29.1 |
% |
We gauge the performance of our completion and remedial services segment based on the
segments operating revenues and segment profits.
The increase in completion and remedial revenue to $32.6 million in the third quarter of 2009
from $29.4 million in the second quarter of 2009 was caused by the stabilization of the economy and
oil and natural gas prices in the third quarter of 2009. There was also an increase in segment
profit percentage to 29.1% in the third quarter of 2009 from 26.9% in the second quarter of 2009
due to our cost cutting measures.
Contract Drilling
During the first nine months of 2009, our contract drilling segment represented 3% 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 which is based on a seven day
work week per rig. Our contract drilling rig fleet had a weighted average of nine rigs during the
four quarters of 2008 and the first, second and third quarters of 2009.
The following is an analysis of our contract drilling segment for each of the quarters in
2008, the full year ended December 31, 2008 and the quarters ended March 31, 2009, June 30, 2009,
and September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
Rig |
|
|
|
|
|
|
|
|
Number of |
|
Operating |
|
Revenue |
|
Profits |
|
Segment |
|
|
Rigs |
|
Days |
|
Per Day |
|
Per Day |
|
Profits% |
2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
9 |
|
|
|
645 |
|
|
$ |
14,700 |
|
|
$ |
3,800 |
|
|
|
25.7 |
% |
Second Quarter |
|
|
9 |
|
|
|
699 |
|
|
$ |
14,800 |
|
|
$ |
4,000 |
|
|
|
27.2 |
% |
Third Quarter |
|
|
9 |
|
|
|
767 |
|
|
$ |
15,600 |
|
|
$ |
5,600 |
|
|
|
35.6 |
% |
Fourth Quarter |
|
|
9 |
|
|
|
666 |
|
|
$ |
14,900 |
|
|
$ |
5,400 |
|
|
|
36.2 |
% |
Full Year |
|
|
9 |
|
|
|
2,777 |
|
|
$ |
15,000 |
|
|
$ |
4,700 |
|
|
|
31.4 |
% |
2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
9 |
|
|
|
248 |
|
|
$ |
14,700 |
|
|
$ |
1,500 |
|
|
|
10.1 |
% |
Second Quarter |
|
|
9 |
|
|
|
314 |
|
|
$ |
12,700 |
|
|
$ |
2,100 |
|
|
|
16.3 |
% |
Third Quarter |
|
|
9 |
|
|
|
391 |
|
|
$ |
10,600 |
|
|
$ |
2,200 |
|
|
|
20.4 |
% |
We gauge activity levels in our drilling operations based on rig operating days, revenue per
day and profits per drilling day.
The increase in segment profits to 20.4% in the third quarter of 2009 from 16.3% in the second
quarter of 2009 was due primarily to the increase in rig operating days during the third quarter.
30
Operating Cost Overview
Our operating costs are comprised primarily of labor, 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 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 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 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
managements 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 assets 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 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 and medical and dental coverage of $500,000 and $250,000 respectively. We have lower
deductibles per occurrence for automobile liability and general liability. We maintain accruals in
our consolidated balance sheets related to self-insurance retentions by using third-party actuarial
data and historical 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
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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 industry or changes in regulations governing the industry.
Impairment of Property and Equipment. Our 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 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 two-step process is required for testing impairment. 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 units
goodwill is determined by allocating the units 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. As of September 30, 2009, we had no goodwill recorded on our balance sheet.
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 significant
customers and (2) a decline in commodity prices that could affect the entire customer base.
Litigation and Self-Insured Risk Reserves. We estimate our reserves related to litigation and
self-insured risk based on the facts and circumstances specific to the litigation and self-insured
risk claims and our past experience with similar claims. The actual outcome of litigated and
insured claims could differ significantly from estimated amounts. As discussed in Self-Insured
Risk Accruals above with respect to our critical accounting policies, we maintain accruals on our
balance sheet to cover self-insured retentions. These accruals are based on certain assumptions
developed using third-party data and historical data to project future losses. Loss estimates in
the calculation of these accruals are adjusted based upon actual claim settlements and reported
claims.
Fair Value of Assets Acquired and Liabilities Assumed. We estimate the fair value of assets
acquired and liabilities assumed in business combinations, which involves the use of various
assumptions. These estimates may be affected by such factors as changing market conditions,
technological advances in industry or changes in regulations governing the industry. The most
significant assumptions, and the ones requiring the most judgment, involve the estimated fair value
of property and equipment, intangible assets and the resulting amount of goodwill, if any. We test
annually for impairment the goodwill and intangible assets with indefinite useful lives recorded in
business combinations. This requires us to estimate the fair values of our own assets and
liabilities at the reporting unit level. Therefore, considerable judgment, similar to that
described above in connection with our estimation of the fair value of an acquired company, is
required to assess goodwill and certain intangible assets for impairment.
Cash Flow Estimates. Our estimates of future cash flows are based on the most recent available
market and operating data for the applicable asset or reporting unit at the time the estimate is
made. Our cash flow estimates are used for asset impairment analyses.
Stock-Based Compensation. Our stock-based awards consist of stock options and restricted
stock. Stock options issued are valued on the grant date using the Black-Scholes-Merton
option-pricing model and restricted stock issued is valued based on the fair value of our common
stock at grant date. All stock-based awards are adjusted for an expected forfeiture rate and
amortized over the vesting period. Compensation expense of the unvested portion of awards granted
as a private company and outstanding as of January 1, 2006 will be based upon the intrinsic value
method.
The fair value of common stock for options granted from July 1, 2004 through September 30,
2005 was estimated by management using an internal valuation methodology. We did not obtain
contemporaneous valuations by an unrelated valuation specialist because we were focused on internal
growth and acquisitions and because we had consistently used our internal valuation methodology for
previous stock awards.
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Income Taxes. The amount and availability of our loss carryforwards (and certain other tax
attributes) are subject to a variety of interpretations and restrictive tests. The utilization of
such carryforwards could be limited or lost upon certain changes in ownership and the passage of
time. Accordingly, although we believe substantial loss carryforwards are available to us, no
assurance can be given concerning the realization of such loss carryforwards, or whether or not
such loss carryforwards will be available in the future.
Asset Retirement Obligations. We record the fair value of an asset retirement obligation as a
liability in the period in which we incur a legal obligation associated with the retirement of
tangible long-lived assets and to capitalize an equal amount as a cost of the asset, depreciating
it over the life of the asset. Subsequent to the initial measurement of the asset retirement
obligation, the obligation is adjusted at the end of each quarter to reflect the passage of time,
changes in the estimated future cash flows underlying the obligation, acquisition or construction
of assets, and settlement of obligations.
Results of Operations
The results of operations between periods may not be comparable, primarily due to the
significant number of acquisitions made and their relative timing in the year acquired. See note 3
of the notes to our unaudited consolidated financial statements for more detail.
Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
Revenues. Revenues decreased by 55% to $125.0 million during the third quarter of 2009 from
$277.6 million during the same period in 2008. This decrease was primarily due to lower
expenditures by our customers for our services and increased price competition from our competitors
due to the lower expenditures by our customers.
Well servicing revenues decreased by 61% to $38.4 million during the third quarter of 2009
compared to $97.4 million during the same period in 2008. This decrease was due to the decrease in
rig utilization to 41.5% during the third quarter of 2009 from 79.1% during the third quarter of
2008, along with a decrease in revenue per rig hour to $313 during the third quarter of 2009 from
$418 during the third quarter of 2008. These decreases were due to decreased spending by our
customers for our services along with increased price competition from our competitors. Our average
number of well servicing rigs increased to 414 during the third quarter of 2009 compared to 412 in
the same period in 2008.
Fluid services revenues decreased by 40% to $49.8 million during the third quarter of 2009
compared to $82.7 million in the same period in 2008. This decrease was partially offset by the
Azurite acquisition in September 2008 which added 98 fluid service trucks and 632 frac tanks. Our
weighted average number of fluid service trucks increased to 805 during the third quarter of 2009
from 683 in the same period in 2008, although our revenue per fluid service truck decreased to
$62,000 in the third quarter of 2009 compared to $121,000 in the same period in 2008, which
reflects declines in both utilization and pricing for these services.
Completion and remedial services revenues decreased by 62% to $32.6 million during the third
quarter of 2009 compared to $85.5 million in the same period in 2008. The decrease in revenue
between these periods was due to decreased utilization of equipment due to the decline in oil and
natural gas prices. Increased market competition also caused significant rate declines. Total
hydraulic horsepower increased to 139,000 at September 30, 2009 from 134,000 at September 30, 2008.
Contract drilling revenues decreased by 65% to $4.2 million during the third quarter in 2009
compared to $12.0 million in the same period in 2008. The number of rig operating days decreased to
391 in third quarter of 2009 compared to 767 in the third quarter of 2008. This decrease was due to
fewer new well starts in the Permian Basin, in which our rigs operate.
Direct Operating Expenses. Direct operating expenses, which primarily consist of labor,
including workers compensation and health insurance, fuel and maintenance and repair costs,
decreased by 44% to $93.9 million during the third quarter of 2009 from $168.6 million in the same
period in 2008. This decrease was due to the lower activity levels in all of our segments.
Direct operating expenses for the well servicing segment decreased by 52% to $29.1 million
during the third quarter of 2009 as compared to $61.0 million for the same period in 2008, due
primarily to the decrease in rig hours to 122,900 in the third quarter of 2009 from 233,000 for the
same period in 2008. Segment profits decreased to 24% of revenues during the third quarter of 2009
compared to 37% for the same period in 2008, which reflects the faster decline in activity levels
and rates than in costs.
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Direct operating expenses for the fluid services segment decreased by 27% to $38.5 million
during the third quarter of 2009 as compared to $53.0 million for the same period in 2008, which is
due to lower activity levels. Segment profits were 23% of revenues during the third quarter of 2009
compared to 36% for the same period in 2008.
Direct operating expenses for the completion and remedial services segment decreased by 51% to
$23.1 million during the third quarter of 2009 as compared to $46.8 million for the same period in
2008 due primarily to decreased activity levels. Segment profits decreased to 29% of revenues
during the third quarter of 2009 compared to 45% for the same period in 2008, due to activity
levels and rates declining faster than costs.
Direct operating expenses for the contract drilling segment decreased by 57% to $3.3 million
during the third quarter of 2009 as compared to $7.7 million for the same period in 2008 due
primarily to lower activity levels. Segment profits for this segment were 20% of revenues during
the third quarter of 2009 compared to 36% for the same period in 2008.
General and Administrative Expenses. General and administrative expenses decreased by 18% to
$25.1 million during the third quarter of 2009 from $30.6 million for the same period in 2008,
which included $1.3 million and $1.2 million in stock-based compensation expense during the third
quarter of 2009 and 2008, respectively. The decrease is primarily due to cost cutting measures by
management.
Depreciation and Amortization Expenses. Depreciation and amortization expenses were $33.5
million during the third quarter of 2009 as compared to $29.3 million for the same period in 2008,
reflecting the increase in the size of and investment in our asset base, due to acquisitions as
well as the internal expansion of our business segments.
Interest Expense. Interest expense increased by 55% to $9.8 million during the third quarter
of 2009 compared to $6.3 million for the same period in 2008. The increase was primarily due to the
issuance of the $225.0 million of 11.625% Senior Secured Notes due 2014 in July 2009.
Income Tax Expense. There was an income tax benefit of $15.0 million during the third quarter
of 2009 as compared to an income tax expense of $15.9 million for the same period in 2008. Our
effective tax rate during the third quarter of 2009 and 2008 was approximately 37% and 38%,
respectively.
Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
Revenues. Revenues decreased by 47% to $398.4 million during the
first nine months of 2009
from $758.9 million during the same period in 2008. This decrease was primarily due to lower
expenditures by our customers for our services and increased price competition from our competitors
due to the decline in oil and natural gas prices.
Well servicing revenues decreased by 54% to $123.6 million during the first nine months of
2009 compared to $266.9 million during the same period in 2008. This decrease was due to the
decrease in rig utilization to 41% during the first nine months of 2009 from 76% during the first
nine months of 2008, along with a decrease in revenue per rig hour to $338 during the first nine
months of 2009 from $406 during the first nine months of 2008. These decreases were due to
decreased expenditures by our customers for our services along with increased price competition
from our competitors. Our average number of well servicing rigs increased to 414 during the first
nine months of 2009 compared to 402 in the same period in 2008, due to internal expansion from our
newbuild rig program and the Lackey Construction, LLC and the Triple N Services, Inc. acquisitions.
Fluid services revenues decreased by 28% to $163.8 million during the first nine months of
2009 compared to $226.6 million in the same period in 2008. This decrease was primarily due to
decreased rates that we charged to our customers for our services caused by increased price
competition from our competitors. These decreases were partially offset by the Azurite acquisition
in September 2008 which added 98 fluid service trucks and 632 frac tanks. Our weighted average
number of fluid service trucks increased to 809 during the first nine months of 2009 from 663 in
the same period in 2008, although our revenue per fluid service truck decreased to $203,000 in the
first nine months of 2009 compared to $342,000 in the same period in 2008.
Completion and remedial services revenues decreased by 58% to $99.2 million during the first
nine months of 2009 compared to $233.6 million in the same period in 2008. The decrease in revenue
between these periods was due to decreased utilization of equipment due to the decline in oil and
natural gas prices. Increased market competition also caused significant rate declines. Total
hydraulic horsepower increased to 139,000 at September 30, 2009 from 134,000 at September 30, 2008.
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Contract drilling revenues decreased by 63% to $11.8 million during the first nine months in
2009 compared to $31.8 million in the same period in 2008. The number of rig operating days
decreased to 953 in first nine months of 2009 compared to 2,111 in the first nine months of 2008.
This decrease was due to fewer new well starts in all of our geographic markets.
Direct Operating Expenses. Direct operating expenses, which primarily consist of labor,
including workers compensation and health insurance, fuel and maintenance and repair costs,
decreased by 36% to $292.6 million during the first nine months of 2009 from $460.4 million in the
same period in 2008. This decrease was due to the lower activity levels in all of our segments.
Direct operating expenses for the well servicing segment decreased by 43% to $93.8 million
during the first nine months of 2009 as compared to $164.8 million for the same period in 2008, due
primarily to the decrease in rig hours to 365,700 in the first nine months of 2009 from 657,800 for
the same period in 2008. Segment profits decreased to 24% of revenues during the first nine months
of 2009 compared to 38% for the same period in 2008, which reflects the faster decline in activity
levels and rates than in costs.
Direct operating expenses for the fluid services segment decreased by 20% to $118.4 million
during the first nine months of 2009 as compared to $148.0 million for the same period in 2008,
which is due to lower activity levels. Segment profits were 28% of revenues during the first nine
months of 2009 compared to 35% for the same period in 2008.
Direct operating expenses for the completion and remedial services segment decreased by 44% to
$70.5 million during the first nine months of 2009 as compared to $125.2 million for the same
period in 2008 due primarily to decreased activity levels. Segment profits decreased to 29% of
revenues during the first nine months of 2009 compared to 46% for the same period in 2008, due to
activity levels and rates declining faster than costs.
Direct operating expenses for the contract drilling segment decreased by 56% to $9.9 million
during the first nine months of 2009 as compared to $22.3 million for the same period in 2008 due
primarily to lower activity levels. Segment profits for this segment were 16% of revenues during
the first nine months of 2009 compared to 30% for the same period in 2008.
General and Administrative Expenses. General and administrative expenses decreased by 2% to
$81.6 million during the first nine months of 2009 from $83.2 million for the same period in 2008,
which included $3.9 million and $3.4 million in stock-based compensation expense during the first
nine months of 2009 and 2008, respectively. The decrease primarily reflects cost cutting measures
by management.
Depreciation and Amortization Expenses. Depreciation and amortization expenses were $98.6
million during the first nine months of 2009 as compared to $86.0 million for the same period in
2008, reflecting the increase in the size of and investment in our asset base, due to acquisitions
as well as the internal expansion of our business segments.
Goodwill Impairment. In the first nine months of 2009, we recorded a non-cash charge totaling
$204.0 million for impairment of all of the goodwill associated with our well servicing, fluid
services, and completion and remedial services segments.
Interest Expense. Interest expense increased by 7% to $21.5 million during the first nine
months of 2009 compared to $20.1 million for the same period in 2008. The increase was primarily
due to the issuance of the $225.0 million of 11.625% Senior Secured Notes in July 2009.
Income Tax Expense. There was an income tax benefit of $74.2 million during the first nine
months of 2009 as compared to an income tax expense of $39.3 million for the same period in 2008.
Our effective tax rate during the first nine months of 2009 and 2008 was approximately 24% and 38%,
respectively.
Liquidity and Capital Resources
As of September 30, 2009, our primary capital resources were net cash flows from our
operations and utilization of capital leases. As of September 30, 2009, we had unrestricted
cash and cash
equivalents of $137.0 million compared to $111.1 million as of December 31, 2008. When appropriate,
we will consider public or private debt and equity offerings and non-recourse transactions to meet
our liquidity needs.
On July 31, 2009, we completed the sale of $225 million principal amount of our 11.625% Senior
Secured Notes due 2014 (the Senior Secured Notes). The net proceeds of $207.9 million and other
funds were used to repay the $225.0 million of borrowings outstanding under our Credit Facility as
of July 31, 2009. The Credit Facility was then terminated.
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We expect to rely on cash on hand in the near term and to evaluate
alternatives with respect to a new revolving credit facility or letter of credit facility in the
future to address our long term liquidity requirements. The indenture governing the Senior Secured
Notes limits the amount that we could borrow under a future secured credit facility to the
difference between (i) $240 million and (ii) the sum of (a) $212.9 million (the principal amount of
the Senior Secured Notes, net of offering discount) and (b) our outstanding collateralized letters
of credit, subject to possible upward adjustment of the amount in clause (i) based on our
consolidated tangible assets. We currently believe that our operating cash flows and cash on hand
will be sufficient to fund our near term liquidity requirements.
Net Cash Provided by Operating Activities
Cash flow from operating activities was $78.0 million for the nine months ended September 30,
2009 as compared to $143.5 million during the same period in 2008. Operating cash flow was lower
due to the decrease in revenues partially offset by a decrease in our accounts receivable.
Capital Expenditures
Capital expenditures are the main component of our investing activities. Cash capital
expenditures (including acquisitions) during the first nine months of 2009 were $36.0 million as
compared to $179.7 million in the same period of 2008. We added $16.2 million of additional assets
through our capital lease program during the first nine months of 2009 compared to $35.7 million in
the same period in 2008.
For 2009, we currently have planned approximately $40 million in cash capital expenditures and
$17.5 million in capital leases, none of which is planned for acquisitions. We do not budget
acquisitions in the normal course of business. The $57.5 million of capital expenditures planned
for property and equipment is primarily for (1) purchase of additional equipment to expand our
services, (2) continued refurbishment of our well servicing rigs and (3) replacement of existing
equipment. We regularly engage in discussions related to potential acquisitions related to the well
services industry.
Capital Resources and Financing
We currently believe that our operating cash flows and cash on hand will be sufficient to fund
our near term liquidity requirements.
Our ability to access additional sources of financing will be dependent on our operating cash
flows and demand for our services, which could be negatively impacted due to the extreme volatility
of commodity prices and declines in capital and debt markets.
Senior Notes
In April 2006, we completed a private offering of $225.0 million aggregate principal amount of
7.125% Senior Notes due April 15, 2016 (the Senior Notes). The Senior Notes are jointly and
severally guaranteed by each of our subsidiaries. The net proceeds from the offering were used to
retire our outstanding Term B Loan balance and to pay down the outstanding balance under our
previous credit facility. Remaining proceeds were used for general corporate purposes, including
acquisitions.
We issued the Senior Notes pursuant to an indenture, dated as of April 12, 2006, by and among
us, the guarantor parties thereto and The Bank of New York Trust Company, N.A., as trustee.
Interest on the Senior Notes accrues at a rate of 7.125% per year. Interest on the Senior
Notes is payable in cash semi-annually in arrears on April 15 and October 15 of each year. The
Senior Notes mature on April 15, 2016. The Senior Notes and the guarantees are unsecured and rank
equally with all of our and the guarantors existing and future unsecured and unsubordinated
obligations. The Senior Notes and the guarantees rank senior in right of payment to any of our and
the guarantors existing and future obligations that are, by their terms, expressly subordinated in
right of payment to the Senior Notes and the guarantees. The Senior Notes and the guarantees are
effectively subordinated to our and the guarantors secured obligations to the extent of the value
of the assets securing such obligations.
The indenture contains covenants that limit the ability of us and certain of our subsidiaries
to:
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incur additional indebtedness; |
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pay dividends or repurchase or redeem capital stock; |
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make certain investments; |
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incur liens; |
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enter into certain types of transactions with affiliates; |
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limit dividends or other payments by restricted subsidiaries; and |
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sell assets or consolidate or merge with or into other companies. |
These limitations are subject to a number of important qualifications and exceptions.
Upon an Event of Default (as defined in the indenture), the trustee or the holders of at least
25% in aggregate principal amount of the Senior Notes then outstanding may declare all of the
amounts outstanding under the Senior Notes to be due and payable immediately.
We may, at our option, redeem all or part of the Senior Notes, at any time on or after April
15, 2011 at a redemption price equal to 100% of the principal amount thereof, plus a premium
declining ratably to par and accrued and unpaid interest, if any, to the date of redemption. Prior
to April 15, 2011, we may redeem the Senior Notes, in whole or in part, at a redemption price equal
to 100% of the principal amount of the Senior Notes redeemed, plus the Applicable Premium as
defined in the indenture.
If we experience certain kinds of changes of control, holders of the Senior Notes will be
entitled to require us to purchase all or a portion of the Senior Notes at 101% of their principal
amount, plus accrued and unpaid interest.
Senior Secured Notes
On July 31, 2009, we completed the issuance and sale of $225.0 million aggregate principal
amount of the Senior Secured Notes. The Senior Secured Notes are jointly and severally, and
unconditionally, guaranteed on a senior secured basis initially by all of our current subsidiaries
other than two immaterial subsidiaries. As of September 30, 2009, these two
subsidiaries held no assets and performed no operations.
The Senior Secured Notes and the related guarantees were
offered and sold in private transactions in accordance with Rule 144A and Regulation S under the
Securities Act of 1933, as amended.
The net proceeds from the issuance of the Senior Secured Notes were $207.9 million after
discounts and offering expenses. We used the net proceeds from the offering, along with other
funds, to repay all outstanding indebtedness under our revolving credit facility, which we
terminated in connection with the offering.
The Senior Secured Notes and the related guarantees were issued pursuant to an indenture dated
as of July 31, 2009 (the Indenture), by and among us, the guarantors party thereto and The Bank
of New York Mellon Trust Company, N.A., a national banking association, as trustee. The obligations
under the Indenture are secured as set forth in the Indenture and in the Security Agreement (as
defined below), in favor of the trustee, by a first-priority lien (other than Permitted Collateral
Liens, as defined in the Indenture) in favor of the trustee, on the Collateral (as defined below)
described in the Security Agreement.
Interest on the Senior Secured Notes accrues at a rate of 11.625% per year. Interest on the
Senior Secured Notes is payable semi-annually in arrears on February 1 and August 1 of each year,
commencing on February 1, 2010. The Senior Secured Notes mature on August 1, 2014.
The Indenture contains covenants that, among other things, limit our ability and the ability
of certain of our subsidiaries to:
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incur additional indebtedness; |
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pay dividends or repurchase or redeem capital stock; |
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make certain investments; |
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incur liens; |
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enter into certain types of transactions with our affiliates; |
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limit dividends or other payments by our restricted subsidiaries to us; and |
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sell assets (including Collateral under the Security Agreement), or consolidate or merge with or into other companies. |
These limitations are subject to a number of important exceptions and qualifications.
If we or our restricted subsidiaries sell, transfer or otherwise dispose of assets or
other rights or property that constitute Collateral (including the same or the issuance of equity
interests in a restricted subsidiary that owns Collateral such that it thereafter is no longer a
restricted subsidiary, a Collateral Disposition), we are required to deposit any cash or cash
equivalent proceeds constituting net available proceeds into a segregated account under the sole
control of the trustee that includes only proceeds from the Collateral Disposition and interest
earned thereon (an Asset Sale Proceeds Account). The Asset Sale Proceeds Account will be subject
to a first-priority lien in favor of the trustee, and the proceeds are subject to release from the
account for specified uses. These permitted uses include:
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acquiring additional assets of a type constituting
Collateral (Additional Assets), provided the trustee has
or is immediately granted a perfected first-priority
security interest (subject only to Permitted Collateral
Liens) in such Additional Assets; and |
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repurchasing or redeeming the Senior Secured Notes. |
Upon an Event of Default (as defined in the Indenture), the trustee or the holders of at least
25% in aggregate principal amount of the Senior Secured Notes then outstanding may declare the
entire principal of all the Senior Secured Notes to be due and payable immediately.
We may, at our option, redeem all or part of the Senior Secured Notes, at any time on or after
February 1, 2012, at a redemption price equal to 100% of the principal amount thereof, plus a
premium declining ratably to par and accrued and unpaid interest to the date of redemption. We may
redeem some or all of the Senior Secured Notes before February 1, 2012, at a redemption price equal
to 100% of the principal amount of the Senior Secured Notes to be redeemed, plus the Applicable
Premium (as defined in the Indenture) and accrued and unpaid interest to the date of redemption.
In addition, at any time before February 1, 2012, we, at our option, may redeem up to 35% of
the aggregate principal amount of the Senior Secured Notes issued under the Indenture with the net
cash proceeds of one or more qualified equity offerings at a redemption price of 111.625% of the
principal amount of the Senior Secured Notes to be redeemed, plus accrued and unpaid interest to
the date of redemption, as long as:
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at least 65% of the aggregate principal amount of the Senior Secured Notes issued under the Indenture
remains outstanding immediately after the occurrence of such redemption; and |
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such redemption occurs within 90 days of the date of the closing of any such qualified equity offering. |
If we experience certain kinds of changes of control, holders of the Senior Secured Notes will
be entitled to require us to purchase all or a portion of the Senior Secured Notes at 101% of their
principal amount, plus accrued and unpaid interest to the date of repurchase.
On July 31, 2009, Basic and each of the guarantors party to the Indenture (the Grantors)
entered into a Security Agreement (the Security Agreement) in favor of The Bank of New York
Mellon Trust Company, N.A., a national banking association, as trustee under the Indenture, to
secure payment of the Senior Secured Notes and related guarantees. The Liens (as defined in the
Security Agreement) granted by each of the Grantors under the Security Agreement consist of a
security interest in all of the following personal property now owned or at any time thereafter
acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire
any right, title or interest and whether existing as of the date of the Security Agreement or
thereafter coming into existence (together with the Aircraft Collateral (as defined in the Security
Agreement), the Collateral), as collateral security for the prompt and complete payment and
performance when due (whether at the stated maturity, by acceleration or otherwise) of the
obligations of the Grantors under the Indenture, the related Senior Secured Notes and the security
documents:
38
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all Commercial Tort Claims; |
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all Contracts (as defined in the Security Agreement); |
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all Documents; |
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all Equipment (other than the Aircraft Collateral); |
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all General Intangibles (excluding Payment Intangibles except to the extent
included pursuant to clause (xv) below); |
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all Goods (as defined in the Security Agreement); |
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all Intellectual Property (as defined in the Security Agreement); |
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all Investment Property; |
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all Letter-of-Credit Rights (whether or not the letter of credit is evidenced by
a writing); |
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all Supporting Obligations; |
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each Asset Sale Proceeds Account (as defined in the Security Agreement) and all
deposits, Securities and Financial Assets (as defined in the Security Agreement) therein
and interest or other income thereon and investments thereof, and all property of every
type and description in which any proceeds of any Collateral Disposition (as defined) or
other disposition of Collateral are invested or upon which the trustee is at any time
granted, or required to be granted, a Lien to secure the Obligations (as defined in the
Security Agreement) as set forth in Section 4.12 of the Indenture and all proceeds and
products of the Collateral described in this clause (xi); |
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all other personal property (other than Excluded Property), whether tangible or
intangible, not otherwise described above; |
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whatever is received (whether voluntary or involuntary, whether cash or non cash,
including proceeds of insurance and condemnation awards, rental or lease payments,
accounts, chattel paper, instruments, documents, contract rights, general intangibles,
equipment and/or inventory) upon the lease, sale, charter, exchange, transfer, or other
disposition of any of the Collateral described in clauses (i) through (xii) above; |
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all books and records pertaining to the Collateral; and |
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to the extent not otherwise included, all Proceeds, Supporting Obligations and
products (including, without limitation, any Accounts, Chattel Paper, Instruments or
Payment Intangibles constituting Proceeds, Supporting Obligations or products) of any and
all of the foregoing and all collateral security and guarantees given by any Person with
respect to any of the foregoing; provided, that notwithstanding the foregoing provisions,
Collateral shall not include Excluded Property. |
Excluded Property means the following, whether now owned or at any time hereafter acquired
by any Grantor or in which such Grantor now has or at any time in the future may acquire any right,
title or interest and whether now existing or hereafter coming into existence:
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Maritime Assets (as defined in the Security Agreement); |
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cash and cash equivalents (as such terms are defined by GAAP) other than those maintained in an Asset Sales
Proceeds Account; |
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Securities Accounts containing only cash and cash equivalents other than any Asset Sale Proceeds Account
and Security Entitlements relating to any such Securities Account; |
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equity interests in any subsidiary of any Grantor; |
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Inventory; |
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trucks, trailers and other motor vehicles covered by a certificate of title law of any state; |
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property and/or transactions to which Article 9 of the UCC does not apply pursuant to Section 9-109 thereof; |
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certain computer software and Equipment acquired prior to the date thereof and subject to a lien securing
purchase money indebtedness as of the date thereof if (but only to the extent that) the applicable
documentation relating to such lien prohibits the granting of a lien on such Equipment; |
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Equipment leased by any Grantor, other than pursuant to a capitalized lease, if (but only to the extent
that) the lien securing |
39
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the Equipment prohibits the granting of a lien on such Equipment; |
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certain General Intangibles, governmental approvals or other rights arising under any contracts,
instruments, permits, licenses or other documents if the granting of a security interest therein would
cause a breach of a restriction on the granting of a security interest therein or the assignment thereof in
favor of a third party, subject to exceptions as set forth in the Security Agreement; and |
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Accounts, Chattel Paper, Instruments and Payment Intangibles to the extent they are not Proceeds,
Supporting Obligations or products of the Collateral. |
The following capitalized terms are used above are as defined in the Uniform Commercial Code
(UCC) of the State of New York, or such other jurisdiction as may be applicable under the terms
of the Security Agreement) on the date of the Security Agreement: Accounts, Chattel Paper,
Commercial Tort Claims, Deposit Account, Documents, Electronic Chattel Paper, Equipment, Financial
Assets, General Intangibles, Instruments, Inventory, Investment Property, Letter-of-Credit Rights,
Payment Intangibles, Proceeds, Securities, Securities Accounts, Security Entitlements, Supporting
Obligations, and Tangible Chattel Paper.
Under the Security Agreement, each Grantor must maintain a perfected security interest in
favor of the trustee and take all steps necessary from time to time in order to maintain the
trustees first-priority security interest (other than Permitted Collateral Liens). If an event of
default were to occur under the Indenture, the Senior Secured Notes, the guarantees relating to the
Senior Secured Notes, the Security Agreement or any other agreement, instrument or certificate that
is entered into to secure payment or performance of the Senior Secured Notes, the trustee would be
empowered to exercise all rights and remedies of a secured party under the UCC, in addition to all
other rights and remedies under the applicable agreements.
Credit Facility
On May 4, 2009 we entered into Amendment and Consent No. 1 (the Amendment) to our Fourth
Amended and Restated Credit Agreement, dated as of February 6, 2007 (the Existing Credit
Agreement). Among other things, the Amendment:
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created Tranche A Revolving Loans, which had the same maturity date as the revolving loans
under the Existing Credit Agreement (December 15, 2010), and Tranche B Revolving Loans,
which had an extended maturity date of January 31, 2012; |
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changed the applicable margins for Alternative Base Rate or Eurodollar revolving loans; and |
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increased the maximum leverage ratio to 3.75 to 1.00 from 3.25 to 1.00. |
Under the Credit Facility, Basic Energy Services, Inc. was the sole borrower and each of our
subsidiaries was a subsidiary guarantor. The Credit Facility provided for a $225 million revolving
line of credit (the Revolver). The Credit Facility included provisions allowing us to request an
increase in commitments of up to $100.0 million aggregate principal amount subject to meeting
certain tangible value requirements and subject to lender participation at the time of the request.
The commitment under the Revolver provided for (1) the borrowing of funds, (2) the issuance of up
to $30 million of letters of credit and (3) $2.5 million of swing-line loans. The Credit Facility
was secured by substantially all of our tangible and intangible assets. The amount of commitments
under the Tranche A Revolving Loans was $80 million and the amount under the Tranche B Revolving
Loans was $145 million.
For Tranche A Revolving Loans and Tranche B Revolving Loans, ABR Loans bore interest at the
highest of (i) the banks prime rate, (ii) the federal funds rate plus 0.50% per year, and (iii)
the adjusted LIBOR rate for an interest period of one-month beginning on the day of the ABR Loan plus 100 basis points, plus an applicable margin. The applicable margin for
ABR Loans ranged from 0.25% to 0.50% for Tranche A Revolving Loans and ranged from 2.50% to 3.50%
for Tranche B Revolving Loans. The applicable margin for Eurodollar revolving loans with respect to
any Tranche B Revolving Loan ranged from 3.50% to 4.50%. Furthermore, the applicable commitment fee
for the unused portion of any Tranche B revolving commitments, based on average daily unused
amounts, was 1.0% per annum, as compared to 0.375% per annum for Tranche A revolving commitments.
Pursuant to the Credit Facility, we were required to apply proceeds from certain specified
events to reduce principal outstanding borrowings under the Revolver, including:
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assets sales greater than $2.0 million individually or $7.5 million in the aggregate on an annual basis; |
40
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100% of the net cash proceeds from any debt issuance, including certain permitted unsecured senior or senior
subordinated debt, but excluding certain other permitted debt issuances; and |
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50% of the net cash proceeds from any equity issuance (including equity issued upon the exercise of any
warrant or option). |
The Credit Facility contained various restrictive covenants and compliance requirements, including the following:
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limitations on the incurrence of additional indebtedness; |
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restrictions on mergers, sales or transfer of assets without the lenders consent; |
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limitations on dividends and distributions; and |
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various financial covenants, including: |
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a maximum leverage ratio of 3.75 to 1.00, and |
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a minimum interest coverage ratio of 3.00 to 1.00. |
On July 31, 2009, in connection with our sale of the Senior Secured Notes, we repaid all of
the borrowings outstanding under the Credit Facility, and the Credit Facility was terminated.
Other Debt
We have a variety of other capital leases and notes payable outstanding that is generally
customary in our business. None of these debt instruments is material individually. As of September
30, 2009, we had total capital leases of approximately $69.9 million.
Credit Rating Agencies
In July 2009 our Senior Notes rating was changed from BB- to B- by Standard and Poors and B1
to Caa1 by Moodys. Our Senior Secured Notes were rated at BB- by Standard and Poors and Ba3 by
Moodys.
Preferred Stock
At September 30, 2009 and December 31, 2008, we had 5,000,000 shares of $.01 par value
preferred stock authorized, of which none was designated, issued or outstanding.
Other Matters
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current
or future effect on our financial condition or results of operations.
Net Operating Losses
As of September 30, 2009, we had approximately $2.3 million of net operating loss
carryforwards related to the pre-acquisition period of a 2003 acquisition, which are subject to an
annual limitation of approximately $900,000. The carryforwards begin to expire in 2017.
Recent Accounting Pronouncements
In June 2009, the FASB issued ASU No. 2009-01, The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles (ASU No. 2009-01), which became
effective for the Company on July 1, 2009. ASU No. 2009-01
41
establishes the FASB Accounting Standards Codification as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental entities in the
preparation of financial statements in conformity with GAAP. ASU No. 2009-01 is not expected to
change GAAP and did not have a material impact on the Companys consolidated financial statements.
In August 2009, the FASB issued ASU No. 2009-05, Measuring Liabilities at Fair Value (ASU
No. 2009-05), which became effective for the Company on August 27, 2009. ASU No. 2009-05 issues
guidance related to measuring the fair value of a liability where there is no market for the
transfer of the liability. One or more of the following techniques should be used in valuing the
liability:
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the quoted price of an investment in the identical liability traded as an asset, |
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the quoted prices for similar liabilities, or |
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other fair value technique per principles in accountings standards, such as
discounted cash flow. |
This update has not changed the techniques the Company uses to measure the fair value of
liabilities and did not have a material impact on the Companys consolidated financial statements.
Impact of Inflation on Operations
Management is of the opinion that inflation has not had a significant impact on our business,
other than increases in fuel costs and personnel expenses during 2008.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of July 31, 2009, we terminated the revolving portion of our credit facility subject to
variable interest rate risk.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Based on their evaluation as of the end of the period covered by this report, our principal
executive officer and principal financial officer have concluded that our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective to
ensure that information required to be disclosed in reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in
the SECs rules and forms and effective to ensure that information required to be disclosed in such
reports is accumulated and communicated to our management, including our principal executive
officer and principal financial officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
During the most recent fiscal quarter, there have been no changes in our internal control over
financial reporting that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, Basic is a party to litigation or other legal proceedings that Basic
considers to be a part of the ordinary course of business. Basic is not currently involved in any
legal proceedings that it considers probable or reasonably possible, individually or in the
aggregate, to result in a material adverse effect on its financial condition, results of operations
or liquidity.
42
ITEM 1A. RISK FACTORS
Except as set forth below, there have been no material changes in our risk factors disclosed
in our Annual Report on Form 10-K for the year ended December 31, 2008, and our Quarterly Reports
on Form 10-Q for the quarters ended March 31, 2009 and June 30, 2009. For a discussion of these
risk factors, see Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended
December 31, 2008 and in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2009
and June 30, 2009.
Our indebtedness could restrict our operations and make us more vulnerable to adverse economic conditions.
We now have, and will continue to have, a significant amount of indebtedness. As of September
30, 2009, our total debt was $508.1 million, including the aggregate principal amount due under our
Senior Notes of $225.0 million, the aggregate principal amount due under our Senior Secured Notes
of $225.0 million and capital lease obligations in the aggregate amount of $69.9 million. For the
year ended December 31, 2008, we made cash interest payments totaling $24.5 million. For the nine
months ended September 30, 2009, we made cash interest payments totaling $13.2 million.
Our current and future indebtedness could have important consequences. For example, it could:
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impair our ability to make investments and obtain
additional financing for working capital, capital
expenditures, acquisitions or other general corporate
purposes; |
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limit our ability to use operating cash flow in other areas
of our business because we must dedicate a substantial
portion of these funds to make principal and interest
payments on our indebtedness; |
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make us more vulnerable to a downturn in our business, our
industry or the economy in general as a substantial portion
of our operating cash flow will be required to make
principal and interest payments on our indebtedness, making
it more difficult to react to changes in our business and
in industry and market conditions; |
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limit our ability to obtain additional financing that may be necessary to operate or expand our business; |
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put us at a competitive disadvantage to competitors that have less debt; and |
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increase our vulnerability to interest rate increases to the extent that we incur variable rate indebtedness. |
If we are unable to generate sufficient cash flow or are otherwise unable to obtain the
funds required to make principal and interest payments on our indebtedness, or if we otherwise fail
to comply with the various covenants in instruments governing any existing or future indebtedness,
we could be in default under the terms of such instruments. In the event of a default, the holders
of our indebtedness could elect to declare all the funds borrowed under those instruments to be due
and payable together with accrued and unpaid interest and we or one or more of our subsidiaries
could be forced into bankruptcy or liquidation. If our indebtedness is accelerated, or we enter
into bankruptcy, we may be unable to pay all of our indebtedness in full. Any of the foregoing
consequences could restrict our ability to grow our business and cause the value of our common
stock to decline.
The indentures governing our 7.125% Senior Notes due 2016 and our 11.625% Senior Secured Notes due
2014 impose, and future credit facilities may impose, restrictions on us that may affect our
ability to successfully operate our business.
The indentures governing our 7.125% Senior Notes due 2016 and our 11.625% Senior Secured Notes
due 2014 include, and we expect future credit facilities may include, limitations on our ability to
take various actions, such as:
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limitations on the incurrence of additional indebtedness; |
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restrictions on mergers, sales or transfer of assets without the lenders consent; and |
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limitation on dividends and distributions. |
In addition, a future credit facility could require us to maintain certain financial
ratios and to satisfy certain financial conditions, several of which could become more restrictive
over time and may require us to reduce our debt or take some other action in order to comply with
them. The failure to comply with any of these financial conditions, including the financial ratios
or covenants, would cause a default under any such credit facility. A default, if not waived, could
result in acceleration of the outstanding indebtedness under any such credit facility, in which
case the debt would become immediately due and payable. In addition, a default or acceleration of
indebtedness under any such credit facility could result in a default or acceleration of our
existing senior notes and senior secured notes or other indebtedness with cross-default or
cross-acceleration provisions. If this occurs, we may not be able to pay our debt or borrow
sufficient funds to refinance it. Even if new financing is available, it may not be available on
terms that are acceptable to us. These restrictions could also limit our ability to obtain future
financings, make needed capital expenditures, withstand a downturn in our business or the economy
in general, or otherwise conduct necessary corporate activities. We also may be prevented from
taking advantage of business opportunities that arise because of the limitations imposed on us by
the restrictive covenants under a future credit facility.
43
At the closing of our offering of the Senior Secured Notes, we pledged cash collateral
with respect to the approximately $16.2 million of letters of credit that were outstanding under
our revolving credit facility. We terminated the revolving credit facility on July 31, 2009, and
we are unable to borrow any amounts under it. We expect to rely on cash on hand in the near term
and to evaluate alternatives with respect to a new revolving credit facility or letter of credit
facility in the future to address our long-term liquidity requirements. The indenture governing
the Senior Secured Notes limits the amount that we could borrow under a future secured credit
facility to the difference between (i) $240 million and (ii) the sum of (a) $212.9 million (the
principal amount of the notes, net of offering discount) and (b) our outstanding collateralized
letters of credit, subject to possible upward adjustment of the amount in clause (i) based on our
consolidated tangible assets. While we had significant available cash after closing our offering
of the Senior Secured Notes, our future cash balances could decrease and affect our financial
condition. Please read Managements Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources.
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ITEM 2. |
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
The following table summarizes stock repurchase activity for the three months ended September
30, 2009 (dollars in thousands, except average price paid per share):
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Issuer Purchases of Equity Securities |
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Total Number of |
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Approximate Dollar Value |
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Shares Purchased as |
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of Shares that May Yet |
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Total Number of |
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Average Price Paid |
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Part of Publicly |
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be Purchased Under |
Period |
|
Shares Purchased (1) |
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per share |
|
Announced Program |
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the Program (2) |
July 1 July 31 |
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2,348 |
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$ |
6.42 |
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$ |
35,188 |
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August 1 August 31 |
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2,423 |
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$ |
7.29 |
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$ |
35,188 |
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September 1 September 30 |
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320 |
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$ |
6.73 |
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$ |
35,188 |
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Total |
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5,091 |
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$ |
6.85 |
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$ |
35,188 |
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(1) |
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These shares were repurchased from various employees to provide such employees the cash
amounts necessary to pay certain tax liabilities associated with the vesting of restricted
shares owned by them. The shares were repurchased on various dates based on the closing price
per share on the date of repurchase. |
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(2) |
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On October 13, 2008, we announced that our Board of Directors had authorized the repurchase
of up to $50.0 million of shares of our common stock from time to time in open market or
private transactions, at our discretion. The stock repurchase program was suspended by the
Board of Directors during the first quarter of 2009. |
44
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Exhibit |
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No. |
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Description |
3.1*
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Amended and Restated Certificate of Incorporation of the Company, dated September 22, 2005.
(Incorporated by reference to Exhibit 3.1 of the Companys Registration Statement on Form S-1 (SEC File
No. 333-127517), filed on September 28, 2005) |
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3.2*
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Amended and Restated Bylaws of the Company, effective as of December 17, 2007. (Incorporated by
reference to Exhibit 3.1 of the Companys Current Report on Form 8-K (SEC File No. 001-32693), filed on
December 18, 2007) |
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4.1*
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Specimen Stock Certificate representing common stock of the Company. (Incorporated by reference to
Exhibit 3.1 of the Companys Registration Statement on Form S-1 (SEC File No. 333-127517), filed on
November 4, 2005) |
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4.2*
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Indenture dated April 12, 2006, among the Company, the guarantors party thereto, and The Bank of New
York Trust Company, N.A., as trustee. (Incorporated by reference to Exhibit 4.1 of the Companys
Current Report on Form 8-K (SEC File No. 001-32693), filed on April 13, 2006) |
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4.3*
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Form of 7.125% Senior Note due 2016. (Included in the Indenture filed as Exhibit 4.1 of the Companys
Current Report on Form 8-K (SEC File No. 001-32693), filed on April 13, 2006) |
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4.4*
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First Supplemental Indenture dated as of July 14, 2006 to Indenture dated as of April 12, 2006 among
the Company, as Issuer, the Subsidiary Guarantors named therein and The Bank of New York Trust Company,
N.A., as trustee. (Incorporated by reference to Exhibit 4.1 of the Companys Current Report on Form 8-K
(SEC File No. 001-32693), filed on July 20, 2006) |
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4.5*
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|
Second Supplemental Indenture dated as of April 26, 2007 and effective as of March 7, 2007 to Indenture
dated as of April 12, 2006 among the Company as Issuer, the Subsidiary Guarantors named therein and the
Bank of New York Trust Company, N.A., as trustee. (Incorporated by reference to Exhibit 4.1 of the
Companys Current Report on form 8-K (SEC File No 001-32693), filed on May 1, 2007) |
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4.6*
|
|
Third Supplemental Indenture dated as of April 26, 2007 to Indenture dated as of April 12, 2006 among
the Company as Issuer, the Subsidiary Guarantors named therein and the Bank of New York Trust Company,
N.A., as trustee. (Incorporated by reference to Exhibit 4.2 of the Companys Current Report on Form 8-K
(SEC File No 001-32693), filed on May 1, 2007) |
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4.7*
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|
Fourth Supplemental Indenture dated as of February 9, 2009 to Indenture dated as of April 12, 2006
among the Company as Issuer, the Subsidiary Guarantors named therein and the Bank of New York Mellon
Trust Company, N.A., as Trustee. (Incorporated by reference to Exhibit 4.7 of the Companys Annual
Report on Form 10-K (SEC File No. 001-32693), filed March 19, 2009) |
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4.8*
|
|
Indenture dated as of July 31, 2009, by and among Basic, the Guarantors named therein and The Bank of
New York Mellon Trust Company, N.A., as Trustee. (Incorporated by reference to Exhibit 4.1 of the
Companys Current Report on Form 8-K (SEC File No. 001-32693), filed on August 4, 2009) |
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4.9*
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|
Form of 11.625% Senior Secured Note due 2014. (Included as Exhibit A to the Indenture filed as Exhibit
4.1 of the Companys Current Report on Form 8-K (SEC File No. 001-32693), filed on August 4, 2009) |
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4.10*
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|
Security Agreement dated as of July 31, 2009, by and between Basic and each of the other Grantors party
thereto in favor of The Bank of New York Mellon Trust Company, N.A., as Trustee. (Incorporated by
reference to Exhibit 4.3 of the Companys Current Report on Form 8-K (SEC File No. 001-32693), filed on
August 4, 2009) |
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4.11*
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|
Registration Rights Agreement dated as of July 31, 2009, by and among Basic, the Guarantors named
therein and the initial purchasers party thereto. (Incorporated by reference to Exhibit 4.4 of the
Companys Current Report on Form 8-K (SEC File No. 001-32693), filed on August 4, 2009) |
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10.1*
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|
Purchase Agreement dated July 23, 2009, by and among Basic Energy Services, Inc., the guarantors party
thereto and the initial purchasers party thereto. (Incorporated by reference to Exhibit 10.1 of the
Companys Current Report on Form 8-K (SEC File No. 001-32693), filed on July 29, 2009) |
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31.1
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Certification by Chief Executive Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act |
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31.2
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Certification by Chief Financial Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act |
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32.1
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Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
45
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Exhibit |
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No. |
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Description |
32.2
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Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
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* |
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Incorporated by reference |
46
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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BASIC ENERGY SERVICES, INC. |
By: |
/s/ Kenneth V. Huseman
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Name: |
Kenneth V. Huseman |
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Title: |
President, Chief Executive Officer and
Director (Principal Executive Officer) |
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By: |
/s/ Alan Krenek
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Name: |
Alan Krenek |
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Title: |
Senior Vice President, Chief Financial
Officer, Treasurer and Secretary (Principal
Financial Officer and Principal Accounting Officer) |
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Date: October 30, 2009
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Exhibit Index
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Exhibit |
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No. |
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Description |
3.1*
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Amended and Restated Certificate of Incorporation of the Company, dated September 22, 2005.
(Incorporated by reference to Exhibit 3.1 of the Companys Registration Statement on Form S-1 (SEC File
No. 333-127517), filed on September 28, 2005) |
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3.2*
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Amended and Restated Bylaws of the Company, effective as of December 17, 2007. (Incorporated by
reference to Exhibit 3.1 of the Companys Current Report on Form 8-K (SEC File No. 001-32693), filed on
December 18, 2007) |
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4.1*
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Specimen Stock Certificate representing common stock of the Company. (Incorporated by reference to
Exhibit 3.1 of the Companys Registration Statement on Form S-1 (SEC File No. 333-127517), filed on
November 4, 2005) |
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4.2*
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Indenture dated April 12, 2006, among the Company, the guarantors party thereto, and The Bank of New
York Trust Company, N.A., as trustee. (Incorporated by reference to Exhibit 4.1 of the Companys
Current Report on Form 8-K (SEC File No. 001-32693), filed on April 13, 2006) |
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4.3*
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Form of 7.125% Senior Note due 2016. (Included in the Indenture filed as Exhibit 4.1 of the Companys
Current Report on Form 8-K (SEC File No. 001-32693), filed on April 13, 2006) |
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4.4*
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First Supplemental Indenture dated as of July 14, 2006 to Indenture dated as of April 12, 2006 among
the Company, as Issuer, the Subsidiary Guarantors named therein and The Bank of New York Trust Company,
N.A., as trustee. (Incorporated by reference to Exhibit 4.1 of the Companys Current Report on Form 8-K
(SEC File No. 001-32693), filed on July 20, 2006) |
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4.5*
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Second Supplemental Indenture dated as of April 26, 2007 and effective as of March 7, 2007 to Indenture
dated as of April 12, 2006 among the Company as Issuer, the Subsidiary Guarantors named therein and the
Bank of New York Trust Company, N.A., as trustee. (Incorporated by reference to Exhibit 4.1 of the
Companys Current Report on form 8-K (SEC File No 001-32693), filed on May 1, 2007) |
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4.6*
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Third Supplemental Indenture dated as of April 26, 2007 to Indenture dated as of April 12, 2006 among
the Company as Issuer, the Subsidiary Guarantors named therein and the Bank of New York Trust Company,
N.A., as trustee. (Incorporated by reference to Exhibit 4.2 of the Companys Current Report on Form 8-K
(SEC File No 001-32693), filed on May 1, 2007) |
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4.7*
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Fourth Supplemental Indenture dated as of February 9, 2009 to Indenture dated as of April 12, 2006
among the Company as Issuer, the Subsidiary Guarantors named therein and the Bank of New York Mellon
Trust Company, N.A., as Trustee. (Incorporated by reference to Exhibit 4.7 of the Companys Annual
Report on Form 10-K (SEC File No. 001-32693), filed March 19, 2009) |
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4.8*
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Indenture dated as of July 31, 2009, by and among Basic, the Guarantors named therein and The Bank of
New York Mellon Trust Company, N.A., as Trustee. (Incorporated by reference to Exhibit 4.1 of the
Companys Current Report on Form 8-K (SEC File No. 001-32693), filed on August 4, 2009) |
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4.9*
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Form of 11.625% Senior Secured Note due 2014. (Included as Exhibit A to the Indenture filed as Exhibit
4.1 of the Companys Current Report on Form 8-K (SEC File No. 001-32693), filed on August 4, 2009) |
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4.10*
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Security Agreement dated as of July 31, 2009, by and between Basic and each of the other Grantors party
thereto in favor of The Bank of New York Mellon Trust Company, N.A., as Trustee. (Incorporated by
reference to Exhibit 4.3 of the Companys Current Report on Form 8-K (SEC File No. 001-32693), filed on
August 4, 2009) |
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4.11*
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Registration Rights Agreement dated as of July 31, 2009, by and among Basic, the Guarantors named
therein and the initial purchasers party thereto. (Incorporated by reference to Exhibit 4.4 of the
Companys Current Report on Form 8-K (SEC File No. 001-32693), filed on August 4, 2009) |
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10.1*
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Purchase Agreement dated July 23, 2009, by and among Basic Energy Services, Inc., the guarantors party
thereto and the initial purchasers party thereto. (Incorporated by reference to Exhibit 10.1 of the
Companys Current Report on Form 8-K (SEC File No. 001-32693), filed on July 29, 2009) |
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31.1
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Certification by Chief Executive Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act |
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31.2
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Certification by Chief Financial Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act |
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32.1
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Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
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Exhibit |
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No. |
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Description |
32.2
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Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
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* |
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Incorporated by reference |
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