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 March 31, 2011
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.
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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
42,202,892 shares
of the registrants Common Stock were outstanding as of April 22, 2011.
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 in our most
recent annual report on Form 10-K and other factors, most of which are beyond our control.
The words believe, may, estimate, continue, anticipate, intend, plan, expect,
indicate 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 natural 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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March 31, |
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December 31, |
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2011 |
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2010 |
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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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$ |
13,765 |
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$ |
47,918 |
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Trade accounts receivable, net of allowance of $1,809 and $3,078, respectively |
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177,408 |
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150,364 |
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Accounts receivable related parties |
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48 |
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42 |
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Income tax receivable |
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79,134 |
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79,480 |
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Inventories |
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24,024 |
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21,556 |
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Prepaid expenses |
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7,308 |
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5,425 |
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Other current assets |
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5,891 |
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18,193 |
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Deferred tax assets |
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8,063 |
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8,290 |
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Total current assets |
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315,641 |
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331,268 |
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Property and equipment, net |
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675,707 |
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625,702 |
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Deferred debt costs, net of amortization |
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11,834 |
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6,835 |
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Goodwill |
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16,413 |
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16,150 |
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Other intangible assets, net of amortization |
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44,750 |
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45,833 |
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Other assets |
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6,243 |
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4,025 |
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Total assets |
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$ |
1,070,588 |
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$ |
1,029,813 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
40,715 |
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$ |
40,477 |
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Accrued expenses |
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60,961 |
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51,237 |
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Current portion of long-term debt |
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26,587 |
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24,231 |
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Other current liabilities |
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2,788 |
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3,309 |
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Total current liabilities |
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131,051 |
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119,254 |
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Long-term debt, less unamortized discount on senior secured notes of $0 and $9,425, respectively |
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536,104 |
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474,628 |
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Deferred tax liabilities |
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106,355 |
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123,393 |
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Other long-term liabilities |
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10,777 |
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10,615 |
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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 March 31, 2011 and December 31, 2010, respectively |
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Common stock; $.01 par value; 80,000,000 shares authorized; 42,394,809 shares
issued, and 42,187,282 shares outstanding at March 31, 2011; 42,394,809 shares
issued, and 41,310,447 shares outstanding at December 31, 2010. |
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424 |
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424 |
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Additional paid-in capital |
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339,908 |
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335,927 |
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Retained earnings (defecit) |
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(51,957 |
) |
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(27,544 |
) |
Treasury stock, at cost, 207,527 and 1,084,362 shares at March 31, 2011 and December 31, 2010,
respectively |
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(2,074 |
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(6,884 |
) |
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Total stockholders equity |
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286,301 |
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301,923 |
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Total liabilities and stockholders equity |
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$ |
1,070,588 |
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$ |
1,029,813 |
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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 March 31, |
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2011 |
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2010 |
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(Unaudited) |
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Revenues: |
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Completion and remedial services |
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$ |
97,507 |
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$ |
45,234 |
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Fluid services |
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72,345 |
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52,147 |
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Well servicing |
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69,147 |
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41,796 |
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Contract drilling |
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7,055 |
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3,789 |
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Total revenues |
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246,054 |
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142,966 |
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Expenses: |
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Completion and remedial services |
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54,933 |
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29,723 |
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Fluid services |
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48,228 |
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40,940 |
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Well servicing |
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48,440 |
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32,100 |
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Contract drilling |
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4,485 |
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3,270 |
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General and administrative, including stock-based compensation
of $1,680 and $1,150 in the three months ended March 31, 2011 and
2010, respectively |
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31,341 |
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25,077 |
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Depreciation and amortization |
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32,980 |
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33,098 |
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(Gain) Loss on disposal of assets |
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(1,705 |
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711 |
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Total expenses |
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218,702 |
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164,919 |
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Operating income (loss) |
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27,352 |
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(21,953 |
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Other income (expense): |
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Interest expense |
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(11,342 |
) |
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(11,664 |
) |
Interest income |
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5 |
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26 |
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Loss on early extinguishment of debt |
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(49,366 |
) |
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Other income |
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157 |
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81 |
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Loss from continuing operations before income taxes |
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(33,194 |
) |
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(33,510 |
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Income tax benefit |
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14,701 |
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11,919 |
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Net loss |
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$ |
(18,493 |
) |
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$ |
(21,591 |
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Earnings per share of common stock: |
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Basic |
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$ |
(0.46 |
) |
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$ |
(0.54 |
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Diluted |
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$ |
(0.46 |
) |
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$ |
(0.54 |
) |
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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, 2010 |
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42,394,809 |
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$ |
424 |
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$ |
335,927 |
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$ |
(6,884 |
) |
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$ |
(27,544 |
) |
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$ |
301,923 |
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Issuances of restricted stock |
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(2 |
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5,753 |
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(5,751 |
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Amortization of share-based
compensation |
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1,680 |
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1,680 |
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Purchase of treasury stock |
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(1,716 |
) |
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(1,716 |
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Exercise of stock options / vesting of restricted stock |
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2,303 |
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773 |
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(169 |
) |
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2,907 |
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Net loss |
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(18,493 |
) |
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(18,493 |
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Balance March 31, 2011 (unaudited) |
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42,394,809 |
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$ |
424 |
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$ |
339,908 |
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$ |
(2,074 |
) |
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$ |
(51,957 |
) |
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$ |
286,301 |
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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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Three Months Ended March 31, |
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2011 |
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2010 |
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(Unaudited) |
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Cash flows from operating activities: |
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Net loss |
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$ |
(18,493 |
) |
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$ |
(21,591 |
) |
Adjustments to reconcile net income to net cash
provided by operating activities: |
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Depreciation and amortization |
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32,980 |
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33,098 |
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Accretion on asset retirement obligation |
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32 |
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|
40 |
|
Change in allowance for doubtful accounts |
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(1,269 |
) |
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(495 |
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Amortization of deferred financing costs |
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432 |
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|
382 |
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Amortization and retirement of discount on senior secured notes |
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6,493 |
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|
460 |
|
Non-cash compensation |
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1,680 |
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|
1,150 |
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Loss on early extinguishment of debt (non-cash) |
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3,940 |
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Premium on retirement of 11.625% senior secured notes |
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36,179 |
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(Gain) loss
on disposal of assets |
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(1,705 |
) |
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|
711 |
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Deferred income taxes |
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(17,002 |
) |
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|
571 |
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Changes in operating assets and liabilities, net of acquisitions: |
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Accounts receivable |
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(25,936 |
) |
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(10,074 |
) |
Inventories |
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(2,468 |
) |
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|
(815 |
) |
Prepaid expenses and other current assets |
|
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(1,548 |
) |
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|
812 |
|
Other assets |
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(2,218 |
) |
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(144 |
) |
Accounts payable |
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|
238 |
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|
2,775 |
|
Excess tax expense (benefit) from exercise of employee stock
options / vesting of restricted stock |
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(1,955 |
) |
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|
351 |
|
Income tax receivable |
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2,301 |
|
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(12,447 |
) |
Other liabilities |
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(323 |
) |
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|
(68 |
) |
Accrued expenses |
|
|
9,644 |
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|
4,687 |
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Net cash provided by (used in) operating activities |
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21,002 |
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(597 |
) |
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Cash flows from investing activities: |
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Purchase of property and equipment |
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(72,442 |
) |
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(11,092 |
) |
Proceeds from sale of assets |
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16,687 |
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|
355 |
|
Change in restricted cash |
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(13 |
) |
Payments for other long-term assets |
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(140 |
) |
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|
(168 |
) |
Payments for businesses, net of cash acquired |
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(10 |
) |
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(687 |
) |
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Net cash used in investing activities |
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(55,905 |
) |
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|
(11,605 |
) |
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Cash flows from financing activities: |
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Proceeds from debt |
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275,000 |
|
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Payments of debt |
|
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(229,891 |
) |
|
|
(6,608 |
) |
Premium on retirement of 11.625% senior secured notes |
|
|
(36,179 |
) |
|
|
|
|
Purchase of treasury stock |
|
|
(1,715 |
) |
|
|
(297 |
) |
Excess tax (expense) benefit from exercise of employee stock
options / vesting of restricted stock |
|
|
1,955 |
|
|
|
(351 |
) |
Tax withholding from exercise of stock options |
|
|
(854 |
) |
|
|
(2 |
) |
Exercise of employee stock options |
|
|
1,805 |
|
|
|
18 |
|
Deferred loan costs and other financing activities |
|
|
(9,371 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash
provided by (used in) financing activities |
|
|
750 |
|
|
|
(7,240 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and equivalents |
|
|
(34,153 |
) |
|
|
(19,442 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents beginning of period |
|
|
47,918 |
|
|
|
125,357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period |
|
$ |
13,765 |
|
|
$ |
105,915 |
|
|
|
|
|
|
|
|
7
BASIC ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
March 31, 2011 (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 which are of a normal recurring nature considered necessary for a fair
presentation have been made in the accompanying unaudited financial statements.
Nature of Operations
Basic provides a range of well site services to oil and natural gas drilling and producing
companies, including completion and remedial services, fluid services and well site construction
services, well servicing, and contract drilling. 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, Louisiana, Wyoming,
North Dakota, Colorado, Utah, Montana, West Virginia, and Pennsylvania.
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 |
|
|
|
|
Future cash flows |
|
|
|
|
Stock-based compensation |
|
|
|
|
Income taxes |
|
|
|
|
Asset retirement obligations |
Revenue Recognition
Completion and Remedial Services Completion and remedial services consists primarily of
pumping services, focused on cementing, acidizing and fracturing, nitrogen units, coiled tubing
units, snubbing 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.
8
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.
Well Servicing Well servicing consists primarily of maintenance services, workover
services, completion services, plugging and abandonment services and rig manufacturing and
servicing. 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. Rig
manufacturing revenue is recognized when the rig is accepted by the customer, based on the
completed contract method by individual rig.
Contract Drilling Contract drilling consists primarily of drilling wells to a specified
depth using drilling 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 are
stated at the lower of cost or market, with cost being determined on the average cost method. Other
inventories, consisting mainly of manufacturing raw materials, 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 range 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.
Basics goodwill and trade name intangibles are considered to have an indefinite useful
economic life and are not amortized. Basic assesses impairment of its goodwill and trade name
intangibles annually as of December 31 or on an interim basis if events or circumstances indicate
that the fair value of the assets has decreased below the assets carrying value. A two-step
process is required for testing impairment of goodwill. 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.
9
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 $14.6 million net of accumulated amortization of $2.7
million and $10.7 million net of accumulated amortization of $3.9 million at March 31, 2011 and
December 31, 2010, respectively. Amortization of deferred debt costs totaled approximately $432,000
and $383,000 for the three months ended March 31, 2011 and 2010, respectively.
Basic recorded a charge of $3.9 million during the first quarter of 2011 related to the
write-off of debt costs associated with its 11.625% Senior Secured
Notes and $30.0 million revolving credit facility.
On February 15, 2011, Basic terminated the revolving credit facility
and completed the closing for an early tender for approximately
$224.7 million of the Senior Secured Notes and delivered to the
trustee amounts required to satisfy and discharge remaining
obligations for the outstanding notes, and as of March 31, 2011, no
Senior Secured Notes remain outstanding.
Additionally, Basic incurred $6.7 million of deferred debt costs associated with the issuance of
its 7.75% Senior Notes due 2019. Basic also incurred $2.7 million of deferred debt costs associated with the
$165.0 million revolving credit facility entered into on February 15, 2011.
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 and trade name intangible impairment December
31 of each year.
Basic had trade names of $1.8 million as of March 31, 2011 and December 31, 2010. Trade names
have an indefinite life and are tested for impairment annually.
The changes in the carrying amount of goodwill for the nine months ended March 31, 2011, are
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completion and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remedial |
|
|
Fluid |
|
|
Well |
|
|
Contract |
|
|
|
|
|
|
Services |
|
|
Services |
|
|
Servicing |
|
|
Drilling |
|
|
Total |
|
Balance as of December 31, 2010 |
|
$ |
10,771 |
|
|
$ |
488 |
|
|
$ |
4,891 |
|
|
$ |
|
|
|
$ |
16,150 |
|
Goodwill adjustments |
|
|
127 |
|
|
|
72 |
|
|
|
64 |
|
|
|
|
|
|
|
263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2011 |
|
$ |
10,898 |
|
|
$ |
560 |
|
|
$ |
4,955 |
|
|
$ |
|
|
|
$ |
16,413 |
|
Basics intangible assets subject to amortization consist of customer relationships,
non-compete agreements and rig engineering plans. The gross carrying amount of customer
relationships subject to amortization was $48.0 million as of March 31, 2011 and $48.0 million as
of December 31, 2010, respectively. The gross carrying amount of non-compete agreements subject to
amortization totaled approximately $4.5 million and $4.9 million at March 31, 2011 and December 31,
2010, respectively. The gross carrying amount of rig engineering plans subject to amortization was
$746,000 and $746,000 as of March 31, 2011 and December 31, 2010, respectively. Accumulated
amortization related to these intangible assets totaled approximately $10.3 million and $9.6
million at March 31, 2011 and December 31, 2010, respectively. Amortization expense for the three
months ended March 31, 2011 and 2010 was approximately $1.1 million and $851,000, respectively.
Other intangibles net of accumulated amortization allocated to reporting units as of March 31, 2011
were $30.8 million, $2.5 million, $4.7 million and $4.9 million for completion and remedial
services, fluid services, well servicing, and contract drilling, respectively. No adjustments were
made to prior periods to reflect subsequent adjustments to acquisitions due to immateriality.
Customer relationships are amortized over a 15-year life, non-compete agreements are amortized
over a five-year life, and rig engineering plans are amortized over a 15-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 the grant date. All
stock-based awards are adjusted for an expected forfeiture rate and amortized over the vesting
period.
10
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 basis. 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.
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 that represented 10% or more of consolidated revenue
during the three months ended March 31, 2011 or 2010.
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.
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, chemicals 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 on the
consolidated balance sheets to cover self-insurance retentions (See note 6).
Recent Accounting Pronouncements
In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value
Measurements (ASU No. 2010-06). ASU No. 2010-06 requires the disclosure of significant transfers
in and out of Level 1 and Level 2 fair value measurements. It also requires that Level 3 fair value
measurements present information about purchases, sales, issuances and settlements. Fair value
disclosures should also disclose valuation techniques and inputs used to measure both recurring and
nonrecurring fair value measurements. This update became effective for Basic on January 1, 2010
except for the disclosures about purchases, sales, issuances, and settlements in the roll forward
in activity in Level 3 fair value measurements, which became effective on January 1, 2011. This
update did not change the techniques Basic uses to measure fair value and has not had a material
impact on its consolidated financial statements.
In December 2010, the FASB issued ASU No. 2010-09, Business Combinations: Disclosure of
Supplementary Pro Forma Information for Business Combinations (ASU 2010-29). ASU 2010-29
addresses diversity in the interpretation of the pro forma revenue and earnings disclosure
requirements for business combinations. If a public entity presents comparative financial
statements, the entity should disclose revenue and earnings of the combined entity as though the
business combination that occurred during the current year had occurred as of the beginning of the
comparable prior annual reporting period only. The Company adopted ASU 2010-29 on January 1, 2011.
This update had no impact on the Companys financial position, results of operations or cash flows.
11
3. Acquisitions
In 2010, 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. The following table summarizes the provisional values at the date of
acquisition (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash Paid (net of cash |
|
|
|
Closing Date |
|
acquired) |
|
Rocky Mountain Cementers, Inc. |
|
March 1, 2010 |
|
$ |
687 |
|
New Tech Systems, Inc |
|
April 20, 2010 |
|
$ |
900 |
|
Taylor Rig, LLC |
|
May 3, 2010 |
|
$ |
8,734 |
|
Platinum Pressure Services, Inc. and Admiral Well Service, Inc. |
|
December 16, 2010 |
|
$ |
39,942 |
|
|
|
|
|
|
|
|
|
Total 2010 |
|
|
|
|
|
$ |
50,263 |
|
|
|
|
|
|
|
|
|
The operations of each of the acquisitions listed above are included in Basics statement
of operations as of each respective closing date. Basic does not believe the pro forma effect of
any of the acquisitions completed in 2010 is material, either individually or when aggregated, to
the reported results of operations.
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 acquisitions are
generally linked to certain financial measures and performance of the assets acquired in the
various acquisitions. For acquisitions that occurred prior to January 1, 2009, 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. For any acquisition that occurred after December 31, 2008,
the contingent earn-out is measured at fair value at the date of acquisition and any adjustments to
that fair value are recorded through the statement of operations.
12
4. Property and Equipment
Property and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Land |
|
$ |
5,307 |
|
|
$ |
5,361 |
|
Buildings and improvements |
|
|
34,583 |
|
|
|
32,047 |
|
Well service units and equipment |
|
|
422,745 |
|
|
|
416,015 |
|
Fluid services equipment |
|
|
152,713 |
|
|
|
148,989 |
|
Brine and fresh water stations |
|
|
11,178 |
|
|
|
10,969 |
|
Frac/test tanks |
|
|
175,558 |
|
|
|
151,379 |
|
Pressure pumping equipment |
|
|
177,844 |
|
|
|
171,892 |
|
Construction equipment |
|
|
28,101 |
|
|
|
27,799 |
|
Contract drilling equipment |
|
|
69,738 |
|
|
|
44,181 |
|
Disposal facilities |
|
|
68,563 |
|
|
|
66,388 |
|
Vehicles |
|
|
42,109 |
|
|
|
39,844 |
|
Rental equipment |
|
|
45,026 |
|
|
|
43,502 |
|
Aircraft |
|
|
4,251 |
|
|
|
4,251 |
|
Software |
|
|
22,248 |
|
|
|
22,296 |
|
Other |
|
|
7,656 |
|
|
|
7,345 |
|
|
|
|
|
|
|
|
|
|
|
1,267,620 |
|
|
|
1,192,258 |
|
Less accumulated depreciation and amortization |
|
|
591,913 |
|
|
|
566,556 |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
675,707 |
|
|
$ |
625,702 |
|
|
|
|
|
|
|
|
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):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Light vehicles |
|
$ |
26,401 |
|
|
$ |
25,800 |
|
Well service units and equipment |
|
|
1,732 |
|
|
|
1,791 |
|
Fluid services equipment |
|
|
73,281 |
|
|
|
65,874 |
|
Pressure pumping equipment |
|
|
20,604 |
|
|
|
18,293 |
|
Construction equipment |
|
|
1,269 |
|
|
|
1,269 |
|
Software |
|
|
15,548 |
|
|
|
15,548 |
|
Other |
|
|
244 |
|
|
|
244 |
|
|
|
|
|
|
|
|
|
|
|
139,079 |
|
|
|
128,819 |
|
Less accumulated amortization |
|
|
57,119 |
|
|
|
56,087 |
|
|
|
|
|
|
|
|
|
|
$ |
81,960 |
|
|
$ |
72,732 |
|
|
|
|
|
|
|
|
Amortization of assets held under capital leases of approximately $4.9 million for both
the three months ended March 31, 2011 and 2010, is included in depreciation and amortization
expense in the consolidated statements of operations.
13
5. Long-Term Debt
Long-term debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Credit Facilities: |
|
|
|
|
|
|
|
|
Revolver |
|
$ |
|
|
|
$ |
|
|
7.125% Senior Notes |
|
|
225,000 |
|
|
|
225,000 |
|
11.625% Senior Secured Notes |
|
|
|
|
|
|
225,000 |
|
7.75% Senior Notes |
|
|
275,000 |
|
|
|
|
|
Unamortized discount |
|
|
|
|
|
|
(9,425 |
) |
Capital leases and other notes |
|
|
62,691 |
|
|
|
58,284 |
|
|
|
|
|
|
|
|
|
|
|
562,691 |
|
|
|
498,859 |
|
Less current portion |
|
|
26,587 |
|
|
|
24,231 |
|
|
|
|
|
|
|
|
|
|
$ |
536,104 |
|
|
$ |
474,628 |
|
|
|
|
|
|
|
|
7.125%
Senior Notes due 2016
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 Basics $90.0 million Term B Loan and to pay down approximately
$96.0 million under Basics previous revolving credit facility. 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.
Basic issued the Senior Notes pursuant to an indenture, dated as of April 12, 2006, by and
among Basic, the guarantor parties thereto and The Bank of New York Trust Company, N.A., as trustee
(the Senior Notes Indenture). Interest on the Senior Notes accrues at a rate of 7.125% per year.
Interest payments on the Senior Notes are due semi-annually, on April 15 and October 15.
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 (the Senior
Notes Indenture). 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 Senior Notes Indenture.
Following a change of control, as defined in the Senior Notes 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 Senior Notes 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
Senior Notes Indenture. Basic was in compliance with the restrictive covenants at March 31, 2011.
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 each of its current
subsidiaries, other than three immaterial subsidiaries. As of March 31, 2011, these three
subsidiaries held no assets and performed no operations. Basic Energy Services, Inc., the ultimate
parent company, does not have any independent operating assets or operations.
7.75%
Senior Notes due 2019
On February 15, 2011, Basic successfully completed the issuance and sale of $275.0 million
aggregate principal amount of 7.75% Senior Notes due 2019 (the Notes). The Notes are jointly and
severally, and unconditionally, guaranteed (the Guarantees) on a senior unsecured basis initially
by all of Basics current subsidiaries other than three immaterial subsidiaries (such guarantors,
the Guarantors). The Notes and the Guarantees rank (i) equally in right of payment with any of
Basics and the subsidiary guarantors existing and future senior indebtedness, including Basics
existing 7.125% Senior Notes due 2016 and the related guarantees, and (ii) effectively junior to
all existing or future liabilities of Basics subsidiaries that do not guarantee the Notes and to
Basics and the subsidiary guarantors existing or future secured indebtedness to the extent of the
value of the collateral therefore.
14
The Notes and the 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 Securities Act).
The purchase price for the Notes and Guarantees was 100.000% of their principal amount. Basic
received net proceeds from the issuance of the Notes of approximately $269.6 million after
discounts and offering expenses. Basic used a portion of the net proceeds from the offering to
fund its tender offer and consent solicitation for its Senior Secured Notes and to
redeem any of the Senior Secured Notes not purchased in the tender
offer, and the remainder is being
used for general corporate purposes.
The Notes and the Guarantees were issued pursuant to an indenture dated as of February 15,
2011 (the Indenture), by and among Basic, the Guarantors party thereto and Wells Fargo Bank,
N.A., as trustee (the Trustee). Interest on the Notes accrues from and including February 15,
2011 at a rate of 7.75% per year. Interest on the Notes is payable semi-annually in arrears on
February 15 and August 15 of each year, commencing on August 15, 2011. The Notes mature on February
15, 2019.
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 Basics restricted subsidiaries to Basic; and |
|
|
|
|
sell assets or consolidate or merge with or into other companies. |
These and other covenants that are contained in the Indenture are subject to important exceptions
and qualifications. Additionally, during any period of time that the Notes have a Moodys rating of
Baa3 or higher or an Standard & Poors rating of BBB- or higher and no default has occurred and is
then continuing, certain of the restrictive covenants contained in the Indenture will cease to
apply.
Basic may, at its option, redeem all or part of the Notes, at any time on or after February
15, 2015, 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.
At any time before February 15, 2014, Basic, at its option, may redeem up to 35% of the
aggregate principal amount of the Notes issued under the Indenture with the net cash proceeds of
one or more qualified equity offerings at a redemption price of 107.750% of the principal amount of
the 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 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. |
In addition, at any time before February 15, 2015, Basic may redeem some or all of the Notes
at a redemption price equal to 100% of the principal amount of the Notes, plus an applicable
premium and accrued and unpaid interest to the date of redemption.
If Basic experiences certain kinds of changes of control, holders of the Notes will be
entitled to require Basic to purchase all or a portion of the Notes at 101% of their principal
amount, plus accrued and unpaid interest to the date of repurchase.
Revolving Credit Facility
On February 15, 2011, in connection with the Notes offering, Basic entered into a new
$165.0 million revolving credit facility (the Credit Agreement) with Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Capital One, National Association, as joint lead arrangers and
joint book managers, the lenders party thereto and Bank of America, N.A., as administrative agent.
The Credit Agreement includes an accordion feature whereby the total credit available to Basic can
be increased by up to $100.0 million under certain circumstances, subject to additional lender
commitments. The obligations under the Credit Facility are guaranteed on a joint and several basis
by each of Basics current subsidiaries, other than three immaterial subsidiaries, and are secured
by substantially all assets of Basic and the guarantors as collateral under a related Security
Agreement (the Security Agreement). As of March 31, 2011, the non-guarantor subsidiaries held no
assets and performed no operations.
15
Borrowings under the Credit Agreement mature on January 15, 2016, and Basic has the
ability at any time to prepay the Credit Agreement without premium or penalty. At Basics option,
advances under the Credit Agreement may be comprised of (i) alternate base rate loans, at a
variable base interest rate plus a margin ranging from 1.50% to 2.25% based on Basics leverage
ratio or (ii) Eurodollar loans, at a variable base interest rate plus a margin ranging from 2.50%
to 3.25% based on Basics leverage ratio. Basic will pay a commitment fee equal to 0.50% on the
daily unused amount of the commitments under the Credit Agreement.
The Credit Agreement contains various covenants that, subject to agreed upon exceptions, limit
Basics ability and the ability of certain of Basics subsidiaries to:
|
|
|
incur indebtedness; |
|
|
|
|
grant liens; |
|
|
|
|
enter into sale and leaseback transactions; |
|
|
|
|
make loans, capital expenditures, acquisitions and investments; |
|
|
|
|
change the nature of business; |
|
|
|
|
acquire or sell assets or consolidate or merge with or into other
companies; |
|
|
|
|
declare or pay dividends; |
|
|
|
|
enter into transactions with affiliates; |
|
|
|
|
enter into burdensome agreements; |
|
|
|
|
prepay, redeem or modify or terminate other indebtedness; |
|
|
|
|
change accounting policies and reporting practices; and |
|
|
|
|
amend organizational documents. |
The Credit Agreement also contains covenants that, among other things, limit the amount of
capital contributions Basic may make and require Basic to maintain specified ratios or conditions
as follows:
|
|
|
a minimum consolidated interest coverage ratio of not less than
2.50:1.00; |
|
|
|
|
a maximum consolidated leverage ratio not to exceed: |
|
|
|
4.25:1.00 for the quarter ending March 31, 2011; and |
|
|
|
|
4.00:1.00 after March 31, 2011; and |
|
|
|
a maximum consolidated senior secured leverage ratio of 2.00:1.00. |
If an event of default occurs under the Credit Agreement, then the lenders may (i) terminate
their commitments under the Credit Agreement, (ii) declare any outstanding loans under the Credit
Agreement to be immediately due and payable after applicable grace periods and (iii) foreclose on
the collateral secured by the Security Agreement.
Basic
had no amounts outstanding under the Credit Agreement as of March 31, 2011.
At March 31, 2011, Basic was in compliance with its covenants.
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 leases
with Banc of America Leasing & Capital, LLC require us to maintain a minimum debt service coverage
ratio of 1.05 to 1.00.
16
Basics interest expense consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Cash payments for interest |
|
$ |
14,732 |
|
|
$ |
13,419 |
|
Commitment and other fees paid |
|
|
220 |
|
|
|
8 |
|
Amortization of debt issuance costs and discount on senior secured notes |
|
|
687 |
|
|
|
844 |
|
Change in accrued interest |
|
|
(4,310 |
) |
|
|
(2,608 |
) |
Other |
|
|
13 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
$ |
11,342 |
|
|
$ |
11,664 |
|
|
|
|
|
|
|
|
Losses on Extinguishment of Debt
In February 2011, upon the retirement of the 11.625% Senior Secured Notes and the termination
of Basics $30.0 million revolving credit facility, Basic wrote off unamortized debt issuance costs
of approximately $3.9 million and unamortized discount of $9.2 million. Basic also paid a premium
of $36.2 million to the holders of the 11.625% Senior Secured Notes for the early termination of
the notes.
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.
Self-Insured Risk Accruals
Basic is self-insured up to retention limits as it relates to workers compensation, general
liability claims, 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, general liability claims, and medical and dental coverage of $500,000,
$500,000, and $250,000, respectively. Basic has lower deductibles per occurrence for automobile
liability. Basic maintains accruals in the accompanying consolidated balance sheets related to
self-insurance retentions by using third-party data and claims history.
At March 31, 2011 and December 31, 2010, self-insured risk accruals totaled approximately
$15.5 million net of a $12,000 receivable for medical and dental coverage and $16.6 million net of
a $164,000 receivable for medical and dental coverage, respectively.
17
7. Stockholders Equity
Common Stock
At March 31, 2011 and December 31, 2010, Basic had 80,000,000 shares of common stock, par
value $.01 per share, authorized.
During the year ended 2010, Basic issued 53,975 shares of common stock from treasury stock for
the exercise of stock options.
In March 2010, Basic granted various employees 588,600 unvested shares of common stock which
vest over a five-year period.
In March 2010, the Compensation Committee of Basics Board of Directors approved grants of
performance-based stock awards to certain members of management. In February 2011, it was
determined that 285,281 shares, or 150% of the target number of shares, were earned based on
Basics achievement of total stockholder return over the performance period from January 1, 2010
through December 31, 2010, 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,
2012.
In March 2011, Basic granted various employees 510,399 unvested shares of common stock which
vest over a three-year period.
During the three months ended March 31, 2011, Basic issued 169,250 shares of common stock from
treasury stock for the exercise of stock options.
Treasury Stock
Basic acquired treasury shares through net share settlements for payment of payroll taxes upon
the vesting of restricted stock. Basic acquired a total of 40,381 shares through net share
settlements during 2010 and 74,358 shares through net share settlements during the first three
months of 2011.
Preferred Stock
At March 31, 2011 and December 31, 2010, 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 predecessors 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.
During the three months ended March 31, 2011 and 2010, compensation expense related to
share-based arrangements was approximately $1.7 million and $1.2 million, respectively. For
compensation expense recognized during the three months ended March 31, 2011 and 2010, Basic
recognized a tax benefit of approximately $744,000 and $409,000, respectively.
As of March 31, 2011, there was approximately $22.1 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 3.09 years. The total fair value of
share-based awards vested during the three months ended March 31, 2011 and 2010 was approximately
$8.2 million and $3.6 million, respectively. The actual tax benefit realized for the tax deduction
from vested share-based awards was $2.9 million and $501,000 for the three months ended March
31, 2011 and 2010, respectively.
Stock Option Awards
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. 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.
18
The following table reflects the summary of stock options outstanding at March 31, 2011 and
the changes during the three 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 |
|
|
1,414,450 |
|
|
$ |
11.44 |
|
|
|
|
|
|
|
|
|
Options granted |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Options forfeited |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
(169,250 |
) |
|
$ |
5.61 |
|
|
|
|
|
|
|
|
|
Options expired |
|
|
(3,000 |
) |
|
$ |
26.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period |
|
|
1,242,200 |
|
|
$ |
12.20 |
|
|
|
3.65 |
|
|
$ |
16,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of period |
|
|
1,219,200 |
|
|
$ |
12.00 |
|
|
|
3.60 |
|
|
$ |
16,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest, end of period |
|
|
1,237,600 |
|
|
$ |
12.16 |
|
|
|
3.64 |
|
|
$ |
16,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of share options exercised during the three months ended March
31, 2011 and 2010 was approximately $2.7 million and $6,000, respectively.
Cash received from share option exercises under the Plan was approximately $950,000 and
$17,000 for the three months ended March 31, 2011 and 2010, respectively. The actual tax benefit
realized for the tax deductions from options exercised was $1.2 million and $2,000 for the three
months ended March 31, 2011 and 2010, respectively.
Basic has a history of issuing treasury and newly-issued shares to satisfy share option
exercises.
Restricted Stock Awards
On March 10, 2011, 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 Basics achievement of total stockholder return over the performance period from January 1,
2011 through December 31, 2011, 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 148,363 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, 2013.
As of March 31, 2011, it was estimated that 129.2% of the target number performance-based awards
will be earned.
A summary of the status of Basics non-vested share grants at March 31, 2011 and changes
during the three months ended March 31, 2011 is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Number of |
|
Grant Date Fair |
Nonvested Shares |
|
Shares |
|
Value Per Share |
Nonvested at beginning
of period |
|
|
1,802,573 |
|
|
$ |
11.06 |
|
Granted during period |
|
|
701,631 |
|
|
|
19.49 |
|
Vested during period |
|
|
(311,184 |
) |
|
|
13.67 |
|
Forfeited during period |
|
|
(16,700 |
) |
|
|
10.79 |
|
|
|
|
|
|
|
|
|
|
Nonvested at end of period |
|
|
2,176,320 |
|
|
$ |
13.38 |
|
|
|
|
|
|
|
|
|
|
9. Related Party Transactions
Basic had receivables from employees of approximately $48,000 and $42,000 as of March 31, 2011
and December 31, 2010, 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. In December 2010, Basic entered into a lease agreement with Darle Vuelta Cattle
Co., LLC, for the right to operate a salt water disposal well, brine well and fresh water well. The
term of the lease is two years and will continue until the salt water disposal
19
well and brine well are plugged and no fresh water is being sold. The lease payments are the
greater of the sum of $0.10 per barrel of disposed oil and gas waste and $0.05 per barrel of brine
or fresh water sold or $5,000 per month.
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 March 31, |
|
|
|
2011 |
|
|
2010 |
|
Numerator (both basic and diluted): |
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(18,493 |
) |
|
$ |
(21,591 |
) |
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share |
|
|
39,884,070 |
|
|
|
39,621,183 |
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
|
|
|
|
|
|
Unvested restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share |
|
|
39,884,070 |
|
|
|
39,621,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share: |
|
$ |
(0.46 |
) |
|
$ |
(0.54 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share: |
|
$ |
(0.46 |
) |
|
$ |
(0.54 |
) |
|
|
|
|
|
|
|
Stock options and unvested restricted stock shares of approximately 1,202,000 and 686,000
were excluded in the computation of diluted earnings per share for the three months ended March 31,
2011 and 2010, respectively, as the effect would have been anti-dilutive due to the net loss in
each of these periods.
11. Business Segment Information
Basics reportable business segments are Completion and Remedial Services, Fluid Services,
Well Servicing, and Contract Drilling. The following is a description of the segments:
Completion and Remedial Services: This segment utilizes a fleet of pressure pumping units, air
compressor packages specially configured for underbalanced drilling operations, cased-hole wireline
units, an array of specialized rental equipment and fishing tools, and snubbing units. The largest
portion of this business consists of pumping services focused on cementing, acidizing and
fracturing services in niche markets.
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.
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 natural gas. These
services are performed to establish, maintain and improve production throughout the productive life
of an oil and natural 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. This segment also includes the manufacturing, refurbishment and
servicing of mobile well servicing rigs and associated equipment.
Contract Drilling: This segment utilizes drilling rigs and associated equipment for drilling
wells to a specified depth for customers on a contract basis.
20
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.
The following table sets forth certain financial information with respect to Basics
reportable segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Remedial |
|
|
Fluid |
|
|
Well |
|
|
Contract |
|
|
Corporate |
|
|
|
|
|
|
Services |
|
|
Services |
|
|
Servicing |
|
|
Drilling |
|
|
and Other |
|
|
Total |
|
Three Months Ended March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
97,507 |
|
|
$ |
72,345 |
|
|
$ |
69,147 |
|
|
$ |
7,055 |
|
|
$ |
|
|
|
$ |
246,054 |
|
Direct operating costs |
|
|
(54,933 |
) |
|
|
(48,228 |
) |
|
|
(48,440 |
) |
|
|
(4,485 |
) |
|
|
|
|
|
$ |
(156,086 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profits |
|
$ |
42,574 |
|
|
$ |
24,117 |
|
|
$ |
20,707 |
|
|
$ |
2,570 |
|
|
$ |
|
|
|
$ |
89,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
8,068 |
|
|
$ |
9,404 |
|
|
$ |
11,953 |
|
|
$ |
1,907 |
|
|
$ |
1,648 |
|
|
$ |
32,980 |
|
Capital expenditures, (excluding acquisitions) |
|
$ |
17,721 |
|
|
$ |
20,656 |
|
|
$ |
26,256 |
|
|
$ |
4,189 |
|
|
$ |
3,620 |
|
|
$ |
72,442 |
|
Identifiable assets |
|
$ |
213,810 |
|
|
$ |
216,485 |
|
|
$ |
254,407 |
|
|
$ |
44,246 |
|
|
$ |
341,640 |
|
|
$ |
1,070,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
45,234 |
|
|
$ |
52,147 |
|
|
$ |
41,796 |
|
|
$ |
3,789 |
|
|
$ |
|
|
|
$ |
142,966 |
|
Direct operating costs |
|
|
(29,723 |
) |
|
|
(40,940 |
) |
|
|
(32,100 |
) |
|
|
(3,270 |
) |
|
|
|
|
|
|
(106,033 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profits |
|
$ |
15,511 |
|
|
$ |
11,207 |
|
|
$ |
9,696 |
|
|
$ |
519 |
|
|
$ |
|
|
|
$ |
36,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
7,831 |
|
|
$ |
9,418 |
|
|
$ |
12,140 |
|
|
$ |
1,834 |
|
|
$ |
1,875 |
|
|
$ |
33,098 |
|
Capital expenditures, (excluding acquisitions) |
|
$ |
2,624 |
|
|
$ |
3,156 |
|
|
$ |
4,069 |
|
|
$ |
615 |
|
|
$ |
628 |
|
|
$ |
11,092 |
|
Identifiable assets |
|
$ |
189,603 |
|
|
$ |
190,684 |
|
|
$ |
238,956 |
|
|
$ |
40,511 |
|
|
$ |
362,718 |
|
|
$ |
1,022,472 |
|
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 March 31, |
|
|
|
2011 |
|
|
2010 |
|
Segment profits |
|
$ |
89,968 |
|
|
$ |
36,933 |
|
|
|
|
|
|
|
|
|
|
General and administrative expenses |
|
|
(31,341 |
) |
|
|
(25,077 |
) |
Depreciation and amortization |
|
|
(32,980 |
) |
|
|
(33,098 |
) |
Gain (loss) on disposal of assets |
|
|
1,705 |
|
|
|
(711 |
) |
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
27,352 |
|
|
$ |
(21,953 |
) |
|
|
|
|
|
|
|
12. Supplemental Schedule of Cash Flow Information
The following table reflects non-cash financing and investing activity during the following
periods:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2011 |
|
2010 |
|
|
(In thousands) |
Capital leases issued for equipment |
|
$ |
12,230 |
|
|
$ |
3,348 |
|
Asset retirement obligation additions |
|
$ |
|
|
|
$ |
6 |
|
Basic paid no income taxes during the three months ended March 31, 2011 or for the same
period in 2010. Basic paid interest of approximately $14.7 million and $13.4 million during the
three months ended March 31, 2011 and 2010, respectively.
21
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. Basic 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. Basic 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). Basic 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 Basic 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. Basics 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.
Basics 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 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 three months ended March 31, 2011 (in thousands):
|
|
|
|
|
|
|
Asset Retirement Obligation |
|
Balance, December 31, 2010 |
|
$ |
1,983 |
|
|
|
|
|
|
Additional asset retirement obligation |
|
|
|
|
Accretion expense |
|
|
32 |
|
Settlements |
|
|
(36 |
) |
|
|
|
|
Balance, March 31, 2011 |
|
$ |
1,979 |
|
|
|
|
|
14. Subsequent Events
On April 1, 2011, Basic borrowed
$21.9 million against its $165.0 million revolving credit facility for the purchase of
capital equipment.
|
|
|
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 natural gas drilling and producing
companies, including completion and remedial services, fluid services, well servicing and contract
drilling. Our results of operations reflect the impact of our acquisition strategy as a leading
consolidator in the domestic land-based well services industry. Our acquisitions have increased our
breadth of service offerings at the well site and expanded our market presence. In implementing our
acquisition strategy, we purchased
22
businesses and assets in four separate acquisitions from January 1, 2010 to March 31, 2011. Our
weighted average number of fluid service trucks increased from 791 in the first quarter of 2010 to
820 in the first quarter of 2011. Our weighted average number of well servicing rigs increased from
405 in the first quarter of 2010 to 412 in the first quarter of 2011. 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):
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2011 |
|
2010 |
|
|
|
Completion and remedial services |
|
$ |
97.5 |
|
|
|
40 |
% |
|
$ |
45.2 |
|
|
|
32 |
% |
Fluid services |
|
|
72.3 |
|
|
|
29 |
% |
|
|
52.1 |
|
|
|
36 |
% |
Well servicing |
|
|
69.1 |
|
|
|
28 |
% |
|
|
41.8 |
|
|
|
29 |
% |
Contract drilling |
|
|
7.1 |
|
|
|
3 |
% |
|
|
3.8 |
|
|
|
3 |
% |
|
|
|
|
|
Total revenues |
|
$ |
246.0 |
|
|
|
100 |
% |
|
$ |
142.9 |
|
|
|
100 |
% |
|
|
|
|
|
Our core businesses depend on our customers willingness to make expenditures to produce,
develop and explore for oil and natural gas in the United States. Industry conditions are
influenced by numerous factors, such as the supply of and demand for oil and natural gas, domestic
and worldwide economic conditions, political instability in oil producing countries and merger and
divestiture activity among oil and natural gas producers. The volatility of the oil and natural gas
industry, and the consequent impact on exploration and production activity, has adversely impacted,
and could continue to adversely impact, the level of drilling and workover activity by some of our
customers. This volatility affects the demand for our services and the price of our services.
In the first half of 2009, utilization and pricing for our services declined due to low oil
and natural gas prices. In the third quarter of 2009, oil prices began to increase and remained
relatively stable through 2010. In the first quarter of 2011, oil prices have increased, primarily
due to political instability in several oil producing countries. This trend in oil prices has
caused utilization and pricing for our services to increase in our oil-based operating areas.
Utilization and pricing for our services in our natural gas-based operating areas throughout 2010
and in the first quarter of 2011 have remained depressed due to low natural gas prices.
We expect that our utilization levels across all of our business segments should show further
improvements through the remainder of 2011 as demand continues to rise based on strong pricing,
particularly in our established oil-oriented market areas. Despite current lower natural gas
prices, discussions with customers indicate that demand in our natural gas-oriented market areas
should remain flat with current levels.
We derive the majority of our revenues from services supporting production from existing oil
and natural gas operations. Demand for these production-related services, including well servicing
and fluid services, tends to remain relatively stable, even in moderate oil and natural gas price
environments, as ongoing maintenance spending is required to sustain production. As oil and natural
gas prices 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 natural gas prices increase or decrease.
We believe that the most important performance measures for our lines of business are as
follows:
|
|
|
Completion and Remedial Services segment profits as a
percent of revenues; |
|
|
|
|
Fluid Services trucking hours, revenue per truck, segment profits per truck and
segment profits as a percent of revenues; |
|
|
|
|
Well Servicing rig hours, rig utilization rate, revenue per rig hour, profits per rig
hour and segment profits as a percent of revenues; and |
|
|
|
|
Contract Drilling rig operating days, revenue per drilling day, profits per drilling
day and segment profits as a percent of revenues. |
Segment profits are computed as segment operating revenues less direct operating costs. These
measurements provide important information to us about the activity and profitability of our lines
of business. For a detailed analysis of these indicators for our company, see below in Segment
Overview.
We will continue to evaluate opportunities to expand our business through selective
acquisitions and internal growth initiatives. Our capital investment decisions are determined by an
analysis of the projected return on capital employed 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
23
equipment and the point in the oil and natural gas commodity price cycle. Based on these
factors, we make capital investment decisions that we believe will support our long-term growth
strategy. While we believe our costs of integration for prior acquisitions have been reflected in
our historical results of operations, integration of acquisitions may result in unforeseen
operational difficulties or require a disproportionate amount of our managements attention.
Selected Acquisitions
During 2010, we made four acquisitions that complemented our existing business segments. These
included, among others:
Taylor Rig, LLC
On May 3, 2010, we acquired all the assets of Taylor Rig, LLC for total consideration of $8.7
million in cash. This acquisition has been included in our well servicing segment.
Platinum Pressure Services, Inc. and Admiral Well Service, Inc.
On December 16, 2010, we acquired all of the outstanding stock of Platinum Pressure Services,
Inc. (Platinum) and Admiral Well Service, Inc., a wholly owned subsidiary of Platinum, for total
cash consideration of $39.9 million plus working capital. This acquisition operates in our
completion and remedial services and well servicing segments.
During the first quarter of 2011, we did not complete any material acquisitions.
Segment Overview
Completion and Remedial Services
During the first three months of 2011, our completion and remedial services segment
represented 40% of our revenues. Revenues from our completion and remedial services segment are
generally derived from a variety of services designed to complete and stimulate new oil and natural
gas production or place cement slurry within the wellbores. Our completion and remedial services
segment includes pumping services, rental and fishing tool operations, cased-hole wireline
services, snubbing and underbalanced drilling.
Our pumping services concentrate on providing single truck, lower-horsepower cementing,
acidizing and fracturing services in selected markets. Our total hydraulic horsepower capacity for
our pressure pumping operations was 174,000 and 140,000 at March 31, 2011 and March 31, 2010,
respectively.
In this segment, we generally derive our revenues on a project-by-project basis in a
competitive bidding process. Our bids are generally based on the amount and type of equipment and
personnel required, with the materials consumed billed separately. During periods of decreased
spending by oil and gas companies, we may be required to discount our rates to remain competitive,
which would cause lower segment profits.
The following is an analysis of our completion and remedial services segment for each of the
quarters in 2010, the full year ended December 31, 2010 and the quarter ended March 31, 2011
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment |
|
|
Revenues |
|
Profits% |
2010: |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
45,234 |
|
|
|
34 |
% |
Second Quarter |
|
$ |
61,533 |
|
|
|
39 |
% |
Third Quarter |
|
$ |
73,725 |
|
|
|
41 |
% |
Fourth Quarter |
|
$ |
80,944 |
|
|
|
43 |
% |
Full Year |
|
$ |
261,436 |
|
|
|
40 |
% |
2011: |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
97,507 |
|
|
|
44 |
% |
We gauge the performance of our completion and remedial services segment based on the
segments operating revenues and segment profits as a percent of revenues.
24
The increase in completion and remedial services revenue to $97.5 million in the first quarter
of 2011 from $80.9 million in the fourth quarter of 2010 was caused by higher drilling and
completion activity. There was also an increase in segment profit percentage to 44% in the first
quarter of 2011 from 43% in the fourth quarter of 2010 due to the increased activity and improved
pricing for our pumping services, especially fracturing and cementing services on new producing
wells.
Fluid Services
During the first three months of 2011, our fluid services segment represented 29% of our
revenues. Revenues in our fluid services segment are earned from the sale, transportation, storage
and disposal of fluids used in the drilling, production and maintenance of oil and natural gas
wells. Revenues also include well site construction and maintenance services. The fluid services
segment has a base level of business consisting of transporting and disposing of salt water
produced as a by-product of the production of oil and natural gas. These services are necessary for
our customers and generally have a stable demand but typically produce lower relative segment
profits than other parts of our fluid services segment. Fluid services for completion and workover
projects typically require fresh or brine water for making drilling mud, circulating fluids or frac
fluids used during a job, and all of these fluids require storage tanks and hauling and disposal.
Because we can provide a full complement of fluid sales, trucking, storage and disposal required on
most drilling and workover projects, the add-on services associated with drilling and workover
activity enable us to generate higher segment profits. The higher segment profits are due to the
relatively small incremental labor costs associated with providing these services in addition to
our base fluid services segment. Revenues from our well site construction services are derived
primarily from preparing and maintaining access roads and well locations, installing small diameter
gathering lines and pipelines, constructing foundations to support drilling rigs and providing
maintenance services for oil and natural gas facilities. We typically price fluid services by the
job, by the hour or by the quantities sold, disposed of or hauled.
The following is an analysis of our fluid services operations for each of the quarters in
2010, the full year ended December 31, 2010 and the quarter ended March 31, 2011 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
Segment Profits |
|
|
|
|
Average Number of |
|
|
|
|
|
Revenue Per |
|
Per Fluid |
|
|
|
|
Fluid Service |
|
Trucking |
|
Fluid Service |
|
Service |
|
Segment |
|
|
Trucks |
|
Hours |
|
Truck |
|
Truck |
|
Profits% |
2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
791 |
|
|
|
431,700 |
|
|
$ |
66 |
|
|
$ |
14 |
|
|
|
22 |
% |
Second Quarter |
|
|
797 |
|
|
|
468,600 |
|
|
$ |
74 |
|
|
$ |
19 |
|
|
|
26 |
% |
Third Quarter |
|
|
789 |
|
|
|
475,200 |
|
|
$ |
80 |
|
|
$ |
20 |
|
|
|
25 |
% |
Fourth Quarter |
|
|
782 |
|
|
|
476,100 |
|
|
$ |
85 |
|
|
$ |
27 |
|
|
|
31 |
% |
Full Year |
|
|
790 |
|
|
|
1,851,600 |
|
|
$ |
305 |
|
|
$ |
80 |
|
|
|
26 |
% |
2011: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
820 |
|
|
|
494,700 |
|
|
$ |
88 |
|
|
$ |
29 |
|
|
|
33 |
% |
We gauge activity levels in our fluid services segment based on trucking hours, revenue and
segment profits per fluid service truck, and segment profits as a percent of revenues.
Revenue per fluid service truck increased by 4% to $88,000 in the first quarter of 2011
compared to $85,000 in the fourth quarter of 2010, primarily due to the increasing rates being
charged to customers. Segment profit percentage increased to 33% in the first quarter of 2011 from
31% in the fourth quarter of 2010.
Well Servicing
During the first three months of 2011, our well servicing segment represented 28% of our
revenues. Revenue in our well servicing segment is derived from maintenance, workover, completion,
manufacturing and plugging and abandonment services. We provide maintenance-related services as
part of the normal, periodic upkeep of producing oil and natural gas wells. Maintenance-related
services represent a relatively consistent component of our business. Workover and completion
services generate more revenue per hour than maintenance work, due to the use of auxiliary
equipment, but demand for workover and completion services fluctuates more with the overall
activity level in the industry. We also have a rig manufacturing and servicing facility, that
builds new workover rigs, performs large-scale refurbishments of used workover rigs and provides
maintenance services on previously manufactured rigs.
We typically charge our 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 405 rigs in the
first quarter of 2010 to 412 in the first quarter of 2011.
25
The following is an analysis of our well servicing operations for each of the quarters in
2010, the full year ended December 31, 2010 and the quarter ended March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
Rig |
|
|
|
|
|
Profits |
|
|
|
|
Number of |
|
Rig |
|
Utilization |
|
Revenue Per |
|
Per Rig |
|
Segment |
|
|
Rigs |
|
Hours |
|
Rate |
|
Rig Hour |
|
Hour |
|
Profits% |
2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
405 |
|
|
|
135,700 |
|
|
|
46.9 |
% |
|
$ |
308 |
|
|
$ |
71 |
|
|
|
23 |
% |
Second Quarter |
|
|
404 |
|
|
|
153,900 |
|
|
|
53.3 |
% |
|
$ |
316 |
|
|
$ |
83 |
|
|
|
26 |
% |
Third Quarter |
|
|
404 |
|
|
|
159,400 |
|
|
|
55.2 |
% |
|
$ |
319 |
|
|
$ |
74 |
|
|
|
21 |
% |
Fourth Quarter |
|
|
407 |
|
|
|
164,400 |
|
|
|
56.5 |
% |
|
$ |
331 |
|
|
$ |
90 |
|
|
|
24 |
% |
Full Year |
|
|
405 |
|
|
|
613,400 |
|
|
|
53.0 |
% |
|
$ |
319 |
|
|
$ |
81 |
|
|
|
23 |
% |
2011: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
412 |
|
|
|
184,700 |
|
|
|
62.7 |
% |
|
$ |
356 |
|
|
$ |
105 |
|
|
|
30 |
% |
We gauge activity levels in our well servicing segment based on rig hours, rig utilization
rate, revenue per rig hour, segment profits per rig hour and segment profits as a percent of
revenues. Revenue per rig hour and profits per rig hour in the table above do not include revenues
and profits from the rig manufacturing and maintenance division (Taylor Rig) of this business
segment.
Rig utilization increased to 62.7% in the first quarter of 2011, compared to 56.5% in the
fourth quarter of 2010. The increase was caused by improving economic conditions and increased oil
prices that allowed our customers to increase spending. Our segment profit percentage increased to
30% during the first quarter of 2011 from 24% during the fourth quarter of 2010. This increase was
primarily due to improvements in rates charged to customers, particularly in oil-dominated areas.
Contract Drilling
During the first three months of 2011, 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 based on a seven-day work
week per rig. Our contract drilling rig fleet had a weighted average of six rigs during the first
quarter of 2011 compared to a weighted average of six rigs in the fourth quarter of 2010, due to
the conversion of three of our drilling rigs to well service rigs in the fourth quarter of 2010.
The following is an analysis of our contract drilling segment for each of the quarters in
2010, the full year ended December 31, 2010 and the quarter ended March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
Rig |
|
|
|
|
|
|
|
|
Number of |
|
Operating |
|
Revenue |
|
Profits |
|
Segment |
|
|
Rigs |
|
Days |
|
Per Day |
|
Per Day |
|
Profits% |
2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
9 |
|
|
|
420 |
|
|
$ |
9,000 |
|
|
$ |
1,200 |
|
|
|
14 |
% |
Second Quarter |
|
|
9 |
|
|
|
527 |
|
|
$ |
10,000 |
|
|
$ |
2,900 |
|
|
|
29 |
% |
Third Quarter |
|
|
9 |
|
|
|
523 |
|
|
$ |
10,600 |
|
|
$ |
2,700 |
|
|
|
26 |
% |
Fourth Quarter |
|
|
6 |
|
|
|
536 |
|
|
$ |
11,500 |
|
|
$ |
3,800 |
|
|
|
33 |
% |
Full Year |
|
|
8 |
|
|
|
2,006 |
|
|
$ |
10,400 |
|
|
$ |
2,800 |
|
|
|
27 |
% |
2011: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
6 |
|
|
|
522 |
|
|
$ |
13,500 |
|
|
$ |
4,900 |
|
|
|
36 |
% |
We gauge activity levels in our drilling operations based on rig operating days, revenue per
drilling day, profits per drilling day and segment profits as a percent of revenues.
26
The increase in revenue per day to $13,500 in the first quarter of 2011 from $11,500 in the
fourth quarter of 2010 was due primarily to improved pricing for our services. The increase in
segment profit percentage to 36% in the first quarter of 2011 from 33% in the fourth quarter of
2010 is due to pricing increasing faster than operating costs.
Operating Cost Overview
Our operating costs are comprised primarily of labor, including workers compensation and
health insurance, repair and maintenance, fuel and insurance. The majority of our employees are
paid on an hourly basis. We also incur costs to employ personnel to sell and supervise our services
and perform maintenance on our fleet. These costs are not directly tied to our level of business
activity. Compensation for our administrative personnel in local operating yards and in our
corporate office is accounted for as general and administrative expenses. Repair and maintenance is
performed by our crews, company maintenance personnel and outside service providers. Insurance is
generally a fixed cost regardless of utilization and relates to the number of rigs, trucks and
other equipment in our fleet, employee payroll and safety record.
Critical Accounting Policies and Estimates
Our unaudited consolidated financial statements are impacted by the accounting policies used
and the estimates and assumptions made by management during their preparation. A complete summary
of our critical accounting policies is included in note 2 of the notes to our historical audited
consolidated financial statements in our most recent annual report on Form 10-K. The following is a
discussion of our critical accounting policies and estimates.
Critical Accounting Policies
We have identified below certain accounting policies that are of particular importance in the
presentation of our financial position, results of operations and cash flows and that require the
application of significant judgment by management.
Property and Equipment. Property and equipment are stated at cost or at estimated fair value
at acquisition date if acquired in a business combination. Expenditures for repairs and maintenance
are charged to expenses as incurred. We also review the capitalization of refurbishment of workover
rigs as described in note 2 of the notes to our unaudited consolidated financial statements.
Impairments. We review our assets for impairment at least annually, or whenever, in
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.
27
Self-Insured Risk Accruals. We are self-insured up to retention limits with regard to workers
compensation, general liability claims, and medical and dental coverage of our employees. We
generally maintain no physical property damage coverage on our workover rig fleet, with the
exception of certain of our 24-hour workover rigs and newly manufactured rigs. We have deductibles
per occurrence for workers compensation, general liability claims, and medical and dental coverage
of $500,000, $500,000 and $250,000 respectively. We have lower deductibles per occurrence for
automobile liability. We maintain accruals in our consolidated balance sheets related to
self-insurance retentions by using third-party actuarial data and claims history.
Revenue Recognition. We recognize revenues when the services are performed, collection of the
relevant receivables is probable, persuasive evidence of the arrangement exists and the price is
fixed and determinable.
Income Taxes. We recognize deferred tax assets and liabilities for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using
statutory tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rate is recognized in the period that includes the statutory
enactment date. A valuation allowance for deferred tax assets is recognized when it is more likely
than not that the benefit of deferred tax assets will not be realized.
Critical Accounting Estimates
The preparation of our consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America (GAAP) requires management to make
certain estimates and assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at the balance sheet
date and the amounts of revenues and expenses recognized during the reporting period. We analyze
our estimates based on historical experience and various other assumptions that we believe to be
reasonable under the circumstances. However, actual results could differ from such estimates. The
following is a discussion of our critical accounting estimates.
Depreciation and Amortization. In order to depreciate and amortize our property and equipment
and our intangible assets with finite lives, we estimate the useful lives and salvage values of
these items. Our estimates may be affected by such factors as changing market conditions,
technological advances in the industry or changes in regulations governing the industry.
Impairment of Property and Equipment. Our impairment of property and equipment requires us to
estimate undiscounted future cash flows. Actual impairment charges are recorded using an estimate
of discounted future cash flows. The determination of future cash flows requires us to estimate
rates and utilization in future periods and such estimates can change based on market conditions,
technological advances in the industry or changes in regulations governing the industry.
Impairment of Goodwill. Our goodwill is considered to have an indefinite useful economic life
and is not amortized. We assess impairment of our goodwill annually as of December 31 or on an
interim basis if events or circumstances indicate that the fair value of the asset has decreased
below its carrying value. A 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.
Allowance for Doubtful Accounts. We estimate our allowance for doubtful accounts based on an
analysis of historical collection activity and specific identification of overdue accounts. Factors
that may affect this estimate include (1) changes in the financial positions of our significant
customers and (2) a decline in commodity prices that could affect our entire customer base.
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 the 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
28
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 the grant date. All stock-based awards are adjusted for an expected forfeiture rate and
amortized over the vesting period.
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 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 following is a comparison of our results of operations for the three months ended March
31, 2011 compared to the three months ended March 31, 2010. For additional segment-related
information and trends, please read Segment Overview above.
Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010
Revenues. Revenues increased by 72% to $246.1 million during the first quarter of 2011 from
$143.0 million during the same period in 2010. This increase was primarily due to increased demand
by our customers for our services, which resulted from higher commodity prices and drilling and
well maintenance activity among our customers.
Completion and remedial services revenues increased by 116% to $97.5 million during the first
quarter of 2011 compared to $45.2 million in the same period in 2010. The increase in revenue
between these periods was due to improved utilization of equipment, resulting from higher drilling
and completion activity, as well as improved pricing for our services. Total hydraulic horsepower
increased to 174,000 at March 31, 2011 from 140,000 at March 31, 2010.
Fluid services revenues increased by 39% to $72.3 million during the first quarter of 2011
compared to $52.1 million in the same period in 2010. Our revenue per fluid service truck increased
33% to $88,000 in the first quarter of 2011 compared to $66,000 in the same period in 2010, which
reflects increases in both utilization and pricing for these services. Our weighted average number
of fluid service trucks increased to 820 during the first quarter of 2011 from 791 in the same
period in 2010.
Well servicing revenues increased by 65% to $69.1 million during the first quarter of 2011
compared to $41.8 million during the same period in 2010. The higher revenues were due to the 36%
increase in rig hours to 184,700 during the first quarter of 2011 from 135,700 during the first
quarter of 2010. There was also an increase in revenue per rig hour to $356 during the first
quarter of 2011 from $308 during the first quarter of 2010. Our average number of well servicing
rigs increased to 412 during the first quarter of 2011 compared to 405 in the same period in 2010,
primarily due to the acquisition of Platinum Pressure Services, Inc. (Platinum)
in the fourth quarter of 2010.
Contract drilling revenues increased by 86% to $7.1 million during the first quarter of 2011
compared to $3.8 million in the same period in 2010. The number of rig operating days increased 24%
to 522 in the first quarter of 2011 compared to 420 in the first quarter of 2010. This increase was
due to an increase in new well starts in the Permian Basin, a region in which all of our drilling
rigs operate, along with higher dayrates.
Direct Operating Expenses. Direct operating expenses, which primarily consist of labor costs,
including workers compensation and health insurance, fuel and maintenance and repair costs,
increased by 47% to $156.1 million during the first quarter of 2011 from $106.0 million in the same
period in 2010. This increase was primarily due to increased activity in each of our four business
segments.
29
Direct operating expenses for the completion and remedial services segment increased by 85% to
$54.9 million during the first quarter of 2011 as compared to $29.7 million for the same period in
2010 due in part to increased activity levels overall and in our pumping services line. Segment
profits increased to 44% of revenues during the first quarter of 2011 compared to 34% for the same
period in 2010, due to higher utilization and improved pricing for our services.
Direct operating expenses for the fluid services segment increased by 18% to $48.2 million
during the first quarter of 2011 as compared to $40.9 million for the same period in 2010, mainly
due to personnel and other costs associated with increased activity levels. Segment profits were
33% of revenues during the first quarter of 2011 compared to 22% for the same period in 2010 due to
improved pricing for our services.
Direct operating expenses for the well servicing segment increased by 51% to $48.4 million
during the first quarter of 2011 as compared to $32.1 million for the same period in 2010. The
increase in direct operating expenses was due to increased activity along with increased payroll,
insurance and incentive compensation costs. Segment profits were 30% of revenues during the first
quarter of 2011 compared to 23% for the same period in 2010 due to improved pricing for our
services.
Direct operating expenses for the contract drilling segment were $4.5 million during the first
quarter of 2011 and $3.3 million for the same period in 2010. Segment profits for this segment were
36% of revenues during the first quarter of 2011 compared to 14% for the same period in 2010,
primarily due to improved pricing for our services.
General and Administrative Expenses. General and administrative expenses increased by 25% to
$31.3 million during the first quarter of 2011 from $25.1 million for
the same period in 2010, due
mainly to increased personnel costs, including payroll taxes, and the full quarter effect
of the general and administrative expense from the Platinum acquisition that was
completed on December 16, 2010. General and
administrative expenses included $1.7 million and $1.2 million of stock-based compensation expense
during the first quarter of 2011 and 2010, respectively.
Depreciation and Amortization Expenses. Depreciation and amortization expenses were $33.0
million during the first quarter of 2011 as compared to $33.1 million for the same period in 2010.
Interest Expense. Interest expense decreased by 3% to $11.3 million during the first quarter
of 2011 compared to $11.7 million for the same period in 2010. The decrease was due to the issuance
of $275.0 million of 7.75% Senior Notes due 2019 and the retirement of the Senior Secured Notes in
February 2011.
Loss on Early Extinguishment of debt. Loss on early extinguishment of debt was $49.4 million
in the first quarter of 2011 due to the retirement of the Senior Secured Notes in February 2011.
Income Tax Expense. There was an income tax benefit of $14.7 million during the first quarter
of 2011 as compared to an income tax benefit of $11.9 million for the same period in 2010. Our
effective tax rate during the first quarter of 2011 and 2010 was approximately 44% and 36%,
respectively.
Liquidity and Capital Resources
As
of March 31, 2011, our primary capital resources were net cash flows from our operations,
utilization of capital leases and our $165.0 million revolving credit
facility. As of March 31, 2011, we had unrestricted cash and cash
equivalents of $13.8 million compared to $47.9 million as of December 31, 2010. When appropriate,
we will consider public or private debt and equity offerings and non-recourse transactions to meet
our liquidity needs.
Net Cash Provided by Operating Activities
Cash provided by operating activities was
$21.0 million for the three months ended March 31,
2011 as compared to cash used in operating activities of $597,000 during the same period in 2010.
Operating cash flow in the first three months of 2011 was higher mainly due to the increase in
profitability due to higher revenues offset by the increase in accounts receivable.
Capital Expenditures
Capital expenditures are the main component of our investing activities. Cash capital
expenditures (including acquisitions) during the first three months of 2011 were $72.4 million as
compared to $11.8 million in the same period of 2010. We added $12.2 million of additional assets
through our capital lease program during the first three months of 2011 compared to $3.3 million of
additional assets in the same period in 2010.
30
For 2011, we now plan to spend at least
$148 million for capital expenditures, including amounts spent
to purchase three drilling rigs, of which $112 million
will be paid for through operating cash flow and existing cash balances and the remainder
through capital leases. Based on our view of short-term operating conditions, our capital
expenditure program may be increased or decreased accordingly. We do not budget acquisitions in the
normal course of business, and 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, available funds from our revolving credit
facility, 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.
7.125% Senior Notes due 2016
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 were jointly and
severally guaranteed by each of our restricted subsidiaries (currently all of our subsidiaries
other than three immaterial subsidiaries). As of March 31, 2011,
these three subsidiaries held no
assets and performed no operations. 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 (the
Senior Notes Indenture).
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 Senior Notes Indenture contains covenants that limit our ability and the ability of
certain of our 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 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.
Upon an Event of Default (as defined in the Senior Notes 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 Senior Notes Indenture.
31
Following a change of control, as defined in the Senior Notes Indenture, we will be required
to make an offer to repurchase all or any portion of the Senior Notes at a purchase price of 101%
of their principal amount, plus accrued and unpaid interest to the date of repurchase.
11.625% Senior
Secured Notes due 2014
On July 31, 2009, we issued $225.0 million aggregate principal amount of 11.625% Senior
Secured Notes due 2014 (the Senior Secured Notes) in a private placement. The Senior Secured
Notes were jointly and severally, and unconditionally, guaranteed on a senior secured basis
initially by all of our current subsidiaries other than two immaterial subsidiaries.
The net proceeds from the issuance of the Senior Secured Notes were $207.7 million after
discounts of $12.1 million and offering expenses of $5.2 million. We used the net proceeds from the
offering, along with other funds, to repay all outstanding indebtedness under our $225.0 million
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 Senior Secured Notes 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 Senior Secured Notes Indenture were secured as set forth in the
Senior Secured Notes Indenture and in a Secured Notes Security Agreement, in
favor of the trustee, by a first-priority lien (other than Permitted Collateral Liens, as defined
in the Senior Secured Notes Indenture) in favor of the trustee, on the Collateral
described in the Secured Notes Security Agreement.
Interest
on the Senior Secured Notes accrued at a rate of 11.625% per year. Interest on the
Senior Secured Notes was payable semi-annually in arrears on February 1 and August 1 of each year,
commencing on February 1, 2010. The Senior Secured Notes
provided for a maturity on August 1, 2014.
The
Senior Secured Notes Indenture contained covenants that, among other things, limit our
ability and the ability of certain of our 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 our affiliates; |
|
|
|
|
limit dividends or other payments by our restricted subsidiaries to us; and |
|
|
|
|
sell assets (including Collateral under the Secured Notes Security Agreement), or
consolidate or merge with or into other companies. |
These
limitations were subject to a number of important exceptions and qualifications.
32
On February 1, 2011, Basic announced a cash tender offer and consent solicitation with respect
to any and all of the $225.0 million aggregate outstanding principal amount of the Senior Secured
Notes. On February 15, 2011, Basic completed the closing for an early tender for approximately
$224.7 million of the Senior Secured Notes and delivered to the trustee amounts required to satisfy
and discharge remaining obligations for the outstanding notes. The tender offer expired on March 2,
2011, and as of March 31, 2011, all obligations of Basic under the
Senior Secured Notes Indenture have been satisfied and no Senior
Secured Notes remain outstanding.
7.75% Senior Notes due 2019
On February 15, 2011, we successfully completed the issuance and sale of $275.0 million
aggregate principal amount of 7.75% Senior Notes due 2019 (the New Notes). The New Notes are
jointly and severally, and unconditionally, guaranteed on a senior unsecured basis initially by all
of our current subsidiaries other than three immaterial subsidiaries. The New Notes and the
guarantees rank (i) equally in right of payment with any of our and the subsidiary guarantors
existing and future senior indebtedness, including our existing 7.125% Senior Notes due 2016 and
the related guarantees, and (ii) effectively junior to all existing or future liabilities of our
subsidiaries that do not guarantee the New Notes and to our and the subsidiary guarantors existing
or future secured indebtedness to the extent of the value of the collateral therefor.
The New Notes and the 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 purchase price
for the New Notes and guarantees was 100.000% of their principal amount. We received net proceeds
from the issuance of the New Notes of approximately $269.6 million after discounts and offering
expenses. We used a portion of the net proceeds from the offering to fund our tender offer and
consent solicitation for our Senior Secured Notes and to redeem the Senior Secured Notes
not purchased in the tender offer, and we are using the remainder for general corporate purposes.
The New Notes and the guarantees were issued pursuant to an indenture dated as of February 15,
2011 (the New Notes Indenture), by and among us, the guarantors party thereto and Wells Fargo
Bank, N.A., as trustee. Interest on the New Notes accrues from and including February 15, 2011 at a
rate of 7.75% per year. Interest on the New Notes is payable semi-annually in arrears on February
15 and August 15 of each year, commencing on August 15, 2011. The New Notes mature on February 15,
2019.
The New Notes 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 affiliates; |
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|
limit dividends or other payments by our restricted subsidiaries to us; and |
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|
sell assets or consolidate or merge with or into other companies. |
These and other covenants that are contained in the New Notes Indenture are subject to
important exceptions and qualifications.
33
Additionally, during any period of time that the New Notes have a Moodys rating of Baa3 or
higher or an Standard & Poors rating of BBB- or higher and no default has occurred and is then
continuing, certain of the restrictive covenants contained in the New Notes Indenture will cease to
apply.
We may, at our option, redeem all or part of the New Notes, at any time on or after February
15, 2015, 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.
At any time before February 15, 2014, we, at our option, may redeem up to 35% of the aggregate
principal amount of the New Notes issued under the New Notes Indenture with the net cash proceeds
of one or more qualified equity offerings at a redemption price of 107.750% of the principal amount
of the New 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 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. |
In addition, at any time before February 15, 2015, we may redeem some or all of the New Notes
at a redemption price equal to 100% of the principal amount of the New Notes, plus an applicable
premium and accrued and unpaid interest to the date of redemption.
If we experience certain kinds of changes of control, holders of the New Notes will be
entitled to require us to purchase all or a portion of the New Notes at 101% of their principal
amount, plus accrued and unpaid interest to the date of repurchase.
New Revolving Credit Facility
On February 15, 2011, in connection with the New Notes offering, Basic terminated its previous
$30.0 million secured revolving credit facility with Capital One, National Association, and entered
into a new $165.0 million revolving credit facility (the Credit Agreement) with Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Capital One, National Association, as joint lead arrangers
and joint book managers, the lenders party thereto and Bank of America, N.A., as administrative
agent. The Credit Agreement includes an accordion feature whereby the total credit available to
Basic can be increased by up to $100.0 million under certain circumstances, subject to additional
lender commitments. The obligations under the Credit Agreement are guaranteed on a joint and
several basis by each of Basics current subsidiaries, other than three immaterial subsidiaries,
and are secured by substantially all assets of Basic and the guarantors as collateral under a
related Security Agreement (the Security Agreement). As
of March 31, 2011, the non-guarantor
subsidiaries held no assets and performed no operations.
Borrowings under the Credit Agreement mature on January 15, 2016, and Basic has the ability at
any time to prepay the Credit Agreement without premium or penalty. At Basics option, advances
under the Credit Agreement may be comprised of (i) alternate base rate loans, at a variable base
interest rate plus a margin ranging from 1.50% to 2.25% based on Basics leverage ratio or (ii)
Eurodollar loans, at a variable base interest rate plus a margin ranging from 2.50% to 3.25% based
on Basics leverage ratio. Basic will pay a commitment fee equal to 0.50% on the daily unused
amount of the commitments under the Credit Agreement.
The Credit Agreement contains various covenants that, subject to agreed upon exceptions, limit
Basics ability and the ability of certain of Basics subsidiaries to:
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incur indebtedness; |
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grant liens; |
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|
enter into sale and leaseback transactions; |
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|
make loans, capital expenditures, acquisitions and investments; |
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|
change the nature of business; |
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|
acquire or sell assets or consolidate or merge with or into other
companies; |
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|
declare or pay dividends; |
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|
enter into transactions with affiliates; |
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|
enter into burdensome agreements; |
34
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prepay, redeem or modify or terminate other indebtedness; |
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|
change accounting policies and reporting practices; and |
|
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amend organizational documents. |
The Credit Agreement also contains covenants that, among other things, limit the amount of
capital contributions Basic may make and require Basic to maintain specified ratios or conditions
as follows:
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a minimum consolidated interest coverage ratio of not less than
2.50:1.00; |
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a maximum consolidated leverage ratio not to exceed: |
|
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4.25:1.00 for the quarter ending March 31, 2011; and |
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4.00:1.00 after March 31, 2011; and |
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a maximum consolidated senior secured leverage ratio of 2.00:1.00. |
If an event of default occurs under the Credit Agreement, then the lenders may (i) terminate
their commitments under the Credit Agreement, (ii) declare any outstanding loans under the Credit
Agreement to be immediately due and payable after applicable grace periods and (iii) foreclose on
the collateral secured by the Security Agreement.
Basic had no amounts outstanding under the Credit Agreement as of March 31, 2011. At March 31,
2011, Basic was in compliance with its covenants.
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. Our leases with
Banc of America Leasing & Capital, LLC require us to maintain a minimum debt service coverage ratio
of 1.05 to 1.00. As of March 31, 2011, we had total capital leases of approximately $62.7 million.
Preferred Stock
At March 31, 2011 and December 31, 2010, 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, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that is material to
investors.
Net Operating Losses
As of March 31, 2011, we had approximately $49.7 million of net operating loss carryforwards.
Recent Accounting Pronouncements
In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value
Measurements (ASU No. 2010-06). ASU No. 2010-06 requires the disclosure of significant transfers
in and out of Level 1 and Level 2 fair value measurements. It also requires that Level 3 fair value
measurements present information about purchases, sales, issuances and settlements. Fair value
disclosures should also disclose valuation techniques and inputs used to measure both recurring and
nonrecurring fair value measurements. This update became effective for Basic on January 1, 2010
except for the disclosures about purchases, sales, issuances, and settlements in the roll forward
in activity in Level 3 fair value measurements, which became effective on January 1, 2011. This
update did not change the techniques Basic uses to measure fair value and has not had a material
impact on Basics consolidated financial statements.
In December 2010, the FASB issued ASU No. 2010-09, Business Combinations: Disclosure of
Supplementary Pro Forma Information for Business Combinations (ASU 2010-29). ASU 2010-29
addresses diversity in the interpretation of the pro forma revenue and earnings disclosure
requirements for business combinations. If a public entity presents comparative financial
statements, the entity should disclose revenue and earnings of the combined entity as though the
business combination that occurred during the current year had occurred as of the beginning of the
comparable prior annual reporting period only. Basic
adopted ASU 2010-29 on January 1, 2011.
This update had no impact on Basics
financial position, results of operations or cash flows.
35
Impact of Inflation on Operations
Management is of the opinion that inflation has not had a significant impact on our business.
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ITEM 3. |
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
As of March 31, 2011, we had no material changes to the disclosure on this matter made in our
Annual Report on Form 10-K for the year ended December 31, 2010.
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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
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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.
For information regarding risks that may affect our business, see the risk factors included in
our most recent annual report on Form 10-K under the heading Risk Factors.
36
|
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|
ITEM 2. |
|
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 March 31,
2011:
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|
|
|
Issuer Purchases of Equity Securities |
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|
Total Number of |
|
Approximate Dollar Value |
|
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|
|
|
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|
|
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Shares Purchased as |
|
of Shares that May Yet |
|
|
Total Number of |
|
Average Price Paid |
|
Part of Publicly |
|
be Purchased Under |
Period |
|
Shares Purchased (1) |
|
per Share |
|
Announced Program |
|
the Program |
January 1 January 31 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
February 1 February 28 |
|
|
1,167 |
|
|
$ |
19.31 |
|
|
|
|
|
|
$ |
|
|
March 1 March 31 |
|
|
73,191 |
|
|
$ |
23.13 |
|
|
|
|
|
|
$ |
|
|
Total |
|
|
74,358 |
|
|
$ |
23.07 |
|
|
|
|
|
|
$ |
|
|
|
|
|
(1) |
|
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. |
|
|
|
Exhibit |
|
|
No. |
|
Description |
3.1*
|
|
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) |
|
|
|
3.2*
|
|
Amended and Restated Bylaws of the Company, effective as of March 9, 2010. (Incorporated by reference
to Exhibit 3.1 of the Companys Current Report on Form 8-K (SEC File No. 001-32693), filed on March 15,
2010) |
|
|
|
4.1*
|
|
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) |
|
|
|
4.2*
|
|
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) |
|
|
|
4.3*
|
|
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) |
|
|
|
4.4*
|
|
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) |
|
|
|
4.5*
|
|
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) |
|
|
|
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) |
|
|
|
4.7*
|
|
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 on March 9, 2009) |
37
|
|
|
Exhibit |
|
|
No. |
|
Description |
4.8*
|
|
Fifth Supplemental Indenture dated as of July 23, 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 4.8 of the Companys Annual Report on
Form 10-K (SEC File No. 001-32693), filed on March 1, 2010) |
|
|
|
4.9*
|
|
Sixth Supplemental Indenture dated as of December 22, 2010 to Indenture dated as of April 12, 2006, by
and among Basic Energy Services, Inc. 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 10.4 of the
Companys Current Report on Form 8-K (SEC File No. 001-32693), filed on December 22, 2010) |
|
|
|
4.10*
|
|
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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|
4.11*
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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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4.12*
|
|
First Supplemental Indenture dated as of December 22, 2010 to Indenture dated as of July 31, 2009 among
Basic Energy Services, Inc., 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 10.2 of the
Companys Current Report on Form 8-K (SEC File No. 001-32693), filed on December 22, 2010) |
|
|
|
4.13*
|
|
Second Supplemental Indenture dated as of February 15, 2011 to Indenture dated as of July 31, 2009
among Basic Energy Services, Inc., 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 4.1 of the
Companys Current Report on Form 8-K (SEC File No. 001-32693), filed on February 18, 2011) |
|
|
|
4.14*
|
|
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) |
|
|
|
4.15*
|
|
Supplement No. 1 dated as of December 22, 2010 to Security Agreement dated as of July 31, 2009, by and
between Basic Energy Services, Inc. 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 10.3 of the
Companys Current Report on Form 8-K (SEC File No. 001-32693), filed on December 22, 2010) |
|
|
|
4.16*
|
|
Indenture dated as of February 15, 2011, among Basic Energy Services, Inc. as Issuer, the Guarantors
named therein and Wells Fargo Bank, 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 February 18, 2011) |
|
|
|
4.17*
|
|
Form of 7.75% Senior Note due 2019. (Included as Exhibit A to Exhibit 4.2 of the Companys Current
Report on Form 8-K (SEC File No. 001-32693), filed on February 18, 2011) |
|
|
|
4.18*
|
|
Registration Rights Agreement dated as of February 15, 2011, 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 February
18, 2011) |
|
|
|
10.1*
|
|
Form of Indemnification Agreement. (Incorporated by reference to Exhibit 10.1 of the Companys Current
Report on Form 8-K (SEC File No. 001-32693), filed on March 15, 2010) |
|
|
|
10.2*
|
|
Credit Agreement dated as of February 15, 2011, among Basic Energy Services, Inc. as Borrower, each
lender from time to time party thereto and Bank of America, N.A., as administrative agent, a swing line
lender and l/c issuer. (Incorporated by reference to Exhibit 10.1 of the Companys Current Report on
Form 8-K (SEC File No. 001-32693), filed on February 18, 2011) |
|
|
|
10.3*
|
|
Security Agreement dated as of February 15, 2011, by and among Basic Energy Services, Inc. as Borrower
and the Debtors party thereto in favor of Bank of America, N.A., as administrative agent. (Incorporated
by reference to Exhibit 10.2 of the Companys Current Report on Form 8-K (SEC File No. 001-32693),
filed on February 18, 2011) |
|
|
|
10.4*
|
|
Form of Performance-Based Award Agreement for Performance Year 2011 (Officers and Employees) (effective
March 2011). (Incorporated by reference to Exhibit 10.1 of the Companys Current Report on Form 8-K
(SEC File No. 001-32693), filed on March 16, 2011) |
|
|
|
31.1
|
|
Certification by Chief Executive Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act |
|
|
|
31.2
|
|
Certification by Chief Financial Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act |
|
|
|
32.1
|
|
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 |
|
|
|
32.2
|
|
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 |
|
|
|
* |
|
Incorporated by reference |
|
|
|
Management contract or compensatory plan or arrangement |
38
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
|
|
|
|
Name: |
Kenneth V. Huseman |
|
|
|
Title: |
President, Chief Executive Officer and
Director (Principal Executive Officer) |
|
|
|
|
|
By: |
/s/ Alan Krenek
|
|
|
|
Name: |
Alan Krenek |
|
|
|
Title: |
Senior Vice President, Chief Financial Officer,
Treasurer and Secretary (Principal
Financial Officer and Principal
Accounting Officer) |
|
|
Date:
April 27, 2011
39
Exhibit Index
|
|
|
Exhibit |
|
|
No. |
|
Description |
3.1*
|
|
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) |
|
|
|
3.2*
|
|
Amended and Restated Bylaws of the Company, effective as of March 9, 2010. (Incorporated by reference
to Exhibit 3.1 of the Companys Current Report on Form 8-K (SEC File No. 001-32693), filed on March 15,
2010) |
|
|
|
4.1*
|
|
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) |
|
|
|
4.2*
|
|
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) |
|
|
|
4.3*
|
|
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) |
|
|
|
4.4*
|
|
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) |
|
|
|
4.5*
|
|
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) |
|
|
|
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) |
|
|
|
4.7*
|
|
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 on March 9, 2009) |
|
|
|
4.8*
|
|
Fifth Supplemental Indenture dated as of July 23, 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 4.8 of the Companys Annual Report on
Form 10-K (SEC File No. 001-32693), filed on March 1, 2010) |
|
|
|
4.9*
|
|
Sixth Supplemental Indenture dated as of December 22, 2010 to Indenture dated as of April 12, 2006, by
and among Basic Energy Services, Inc. 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 10.4 of the
Companys Current Report on Form 8-K (SEC File No. 001-32693), filed on December 22, 2010) |
|
|
|
4.10*
|
|
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) |
|
|
|
4.11*
|
|
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) |
|
|
|
4.12*
|
|
First Supplemental Indenture dated as of December 22, 2010 to Indenture dated as of July 31, 2009 among
Basic Energy Services, Inc., 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 10.2 of the
Companys Current Report on Form 8-K (SEC File No. 001-32693), filed on December 22, 2010) |
|
|
|
4.13*
|
|
Second Supplemental Indenture dated as of February 15, 2011 to Indenture dated as of July 31, 2009
among Basic Energy Services, Inc., 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 4.1 of the
Companys Current Report on Form 8-K (SEC File No. 001-32693), filed on February 18, 2011) |
|
|
|
4.14*
|
|
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) |
40
|
|
|
Exhibit |
|
|
No. |
|
Description |
4.15*
|
|
Supplement No. 1 dated as of December 22, 2010 to Security Agreement dated as of July 31, 2009, by and
between Basic Energy Services, Inc. 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 10.3 of the
Companys Current Report on Form 8-K (SEC File No. 001-32693), filed on December 22, 2010) |
|
|
|
4.16*
|
|
Indenture dated as of February 15, 2011, among Basic Energy Services, Inc. as Issuer, the Guarantors
named therein and Wells Fargo Bank, 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 February 18, 2011) |
|
|
|
4.17*
|
|
Form of 7.75% Senior Note due 2019. (Included as Exhibit A to Exhibit 4.2 of the Companys Current
Report on Form 8-K (SEC File No. 001-32693), filed on February 18, 2011) |
|
|
|
4.18*
|
|
Registration Rights Agreement dated as of February 15, 2011, 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 February
18, 2011) |
|
|
|
10.1*
|
|
Form of Indemnification Agreement. (Incorporated by reference to Exhibit 10.1 of the Companys Current
Report on Form 8-K (SEC File No. 001-32693), filed on March 15, 2010) |
|
|
|
10.2*
|
|
Credit Agreement dated as of February 15, 2011, among Basic Energy Services, Inc. as Borrower, each
lender from time to time party thereto and Bank of America, N.A., as administrative agent, a swing line
lender and l/c issuer. (Incorporated by reference to Exhibit 10.1 of the Companys Current Report on
Form 8-K (SEC File No. 001-32693), filed on February 18, 2011) |
|
|
|
10.3*
|
|
Security Agreement dated as of February 15, 2011, by and among Basic Energy Services, Inc. as Borrower
and the Debtors party thereto in favor of Bank of America, N.A., as administrative agent. (Incorporated
by reference to Exhibit 10.2 of the Companys Current Report on Form 8-K (SEC File No. 001-32693),
filed on February 18, 2011) |
|
|
|
10.4*
|
|
Form of Performance-Based Award Agreement for Performance Year 2011 (Officers and Employees) (effective
March 2011). (Incorporated by reference to Exhibit 10.1 of the Companys Current Report on Form 8-K
(SEC File No. 001-32693), filed on March 16, 2011) |
|
|
|
31.1
|
|
Certification by Chief Executive Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act |
|
|
|
31.2
|
|
Certification by Chief Financial Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act |
|
|
|
32.1
|
|
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 |
|
|
|
32.2
|
|
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 |
|
|
|
* |
|
Incorporated by reference |
|
|
|
Management contract or compensatory plan or arrangement |
41