spn-20190331 10Q Q1_Taxonomy2018

 

Table Of Contents

 

    

 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





 

 



 

 



FORM 10-Q

 



 

 



(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended March 31, 2019



or



TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the Transition Period from          to



Commission File No. 001-34037



 

 



 

 



SUPERIOR ENERGY SERVICES, INC.



(Exact name of registrant as specified in its charter)



 

 



 

 







 

 

 

 



Delaware

 

75-2379388

 



(State or other jurisdiction of

 

(I.R.S. Employer

 



incorporation or organization)

 

Identification No.)

 



 

 

 

 



1001 Louisiana Street, Suite 2900

 

77002

 



Houston, TX

 

(Zip Code)

 



(Address of principal executive offices)

 

 

 



Registrant’s telephone number, including area code: (713) 654-2200



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   No



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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.





 

 

Large accelerated filer   

 

Accelerated filer                            

Non-accelerated filer     

 

Smaller reporting company           



 

Emerging growth company           



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No  



The number of shares of the registrant’s common stock outstanding on April 19, 2019 was 155,956,938.



 

 

 


 

 

Table Of Contents

 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Quarterly Report on Form 10-Q for

the Quarterly Period Ended March 31, 2019



TABLE OF CONTENTS





 

 



 

 



 

Page

PART I.

FINANCIAL INFORMATION

 



 

 

Item 1.

Condensed Consolidated Financial Statements and Notes

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations 

20 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

24 

Item 4.

Controls and Procedures

24 



 

 

PART II.

OTHER INFORMATION

 



 

 

Item 1

Legal Proceedings

25 

Item 1A.

Risk Factors

25 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25 

Item 6.

Exhibits

25 

 



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PART I.  FINANCIAL INFORMATION



Item 1. Condensed Consolidated Financial Statements and Notes





 

 

 

 

 



 

 

 

 

 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

March 31, 2019 and December 31, 2018

(in thousands, except share data)

(unaudited)





3/31/2019

 

12/31/2018

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

151,568 

 

$

158,050 

Accounts receivable, net of allowance for doubtful accounts of $13,512 and

 

 

 

 

 

$12,080 at March 31, 2019 and December 31, 2018, respectively

 

420,811 

 

 

447,353 

Prepaid expenses

 

52,241 

 

 

45,802 

Inventory and other current assets

 

127,646 

 

 

121,700 

Total current assets

 

752,266 

 

 

772,905 



 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation and depletion of
$2,697,409 and $2,640,344 at March 31, 2019 and December 31, 2018, respectively

 

1,061,357 

 

 

1,109,126 

Operating lease right-of-use assets

 

103,082 

 

 

 -

Goodwill

 

137,495 

 

 

136,788 

Notes receivable

 

64,993 

 

 

63,993 

Restricted cash

 

2,722 

 

 

5,698 

Intangible and other long-term assets, net of accumulated amortization of $78,723
and $76,358 at March 31, 2019 and December 31, 2018, respectively

 

125,420 

 

 

127,452 

Total assets

$

2,247,335 

 

$

2,215,962 



 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

120,549 

 

$

139,325 

Accrued expenses

 

229,225 

 

 

219,180 

Income taxes payable

 

1,043 

 

 

734 

Current portion of decommissioning liabilities

 

3,565 

 

 

3,538 

Total current liabilities

 

354,382 

 

 

362,777 



 

 

 

 

 

Long-term debt, net

 

1,283,862 

 

 

1,282,921 

Decommissioning liabilities

 

128,062 

 

 

126,558 

Operating lease liabilities

 

78,384 

 

 

 -

Other long-term liabilities

 

154,579 

 

 

152,967 



 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock of $0.01 par value.  Authorized - 5,000,000 shares; none issued

 

 -

 

 

 -

Common stock of $0.001 par value

 

 

 

 

 

Authorized - 250,000,000, Issued and Outstanding - 155,956,600 at March 31, 2019
Authorized - 250,000,000, Issued and Outstanding - 154,885,418 at December 31, 2018

 

156 

 

 

155 

Additional paid in capital

 

2,739,083 

 

 

2,735,125 

Accumulated other comprehensive loss, net

 

(72,104)

 

 

(73,177)

Retained deficit

 

(2,419,069)

 

 

(2,371,364)

Total stockholders’ equity

 

248,066 

 

 

290,739 

Total liabilities and stockholders’ equity

$

2,247,335 

 

$

2,215,962 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.



 

 

 

 

 















 

 

 

 

 

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SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

Three Months Ended March 31, 2019 and 2018

(in thousands, except per share data)

(unaudited)



 



2019

 

2018

Revenues:

 

 

 

 

 

Services

$

376,139 

 

$

399,768 

Rentals

 

91,037 

 

 

82,550 

Total revenues

 

467,176 

 

 

482,318 

Costs and expenses:

 

 

 

 

 

Cost of services (exclusive of depreciation, depletion, amortization and accretion)

 

288,476 

 

 

311,139 

Cost of rentals (exclusive of depreciation, depletion, amortization and accretion)

 

41,687 

 

 

32,321 

Depreciation, depletion, amortization and accretion - services

 

66,776 

 

 

87,747 

Depreciation, depletion, amortization and accretion - rentals

 

15,663 

 

 

17,972 

General and administrative expenses

 

73,845 

 

 

75,820 

Loss from operations

 

(19,271)

 

 

(42,681)



 

 

 

 

 

Other expense:

 

 

 

 

 

Interest expense, net

 

(25,121)

 

 

(24,887)

Other expense

 

(1,612)

 

 

(1,735)

Loss from continuing operations before income taxes

 

(46,004)

 

 

(69,303)

Income taxes

 

1,701 

 

 

(9,355)

Net loss from continuing operations

 

(47,705)

 

 

(59,948)

Loss from discontinued operations, net of income tax

 

 -

 

 

224 

Net loss

$

(47,705)

 

$

(59,724)



 

 

 

 

 

Basic and diluted loss per share

$

(0.31)

 

$

(0.39)



 

 

 

 

 



 

 

 

 

 

Weighted average shares outstanding

 

155,777 

 

 

154,121 

 









 

 

 

 

 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Loss

Three Months Ended March 31, 2019 and 2018

(in thousands)

(unaudited)





2019

 

2018

Net loss

$

(47,705)

 

$

(59,724)

Change in cumulative translation adjustment, net of tax

 

1,073 

 

 

4,388 

Comprehensive loss

$

(46,632)

 

$

(55,336)



 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 





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SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31, 2019 and 2018

(in thousands)

(unaudited)





 

2019

 

2018

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(47,705)

 

$

(59,724)

Adjustments to reconcile net loss to net cash provided by (used in) operating
  activities:

 

 

 

   

 

 

Depreciation, depletion, amortization and accretion

 

 

82,439 

 

 

105,719 

Deferred income taxes

 

 

 -

 

 

(12,285)

Stock based compensation expense

 

 

8,453 

 

 

8,197 

Other reconciling items, net

 

 

(3,986)

 

 

(987)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

26,590 

 

 

(44,692)

Inventory and other current assets

 

 

(5,941)

 

 

(15,620)

Accounts payable

 

 

(8,172)

 

 

16,810 

Accrued expenses

 

 

(17,709)

 

 

(14,501)

Other, net

 

 

(6,590)

 

 

(7,875)

Net cash provided by (used in) operating activities

 

 

27,379 

 

 

(24,958)



 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Payments for capital expenditures

 

 

(41,160)

 

 

(65,734)

Proceeds from sales of assets

 

 

5,066 

 

 

12,135 

Net cash used in investing activities

 

 

(36,094)

 

 

(53,599)



 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of short-term debt

 

 

 -

 

 

744 

Tax withholdings for vested restricted stock units

 

 

(1,667)

 

 

(5,155)

Other

 

 

 -

 

 

(304)

Net cash used in financing activities

 

 

(1,667)

 

 

(4,715)

Effect of exchange rate changes on cash

 

 

924 

 

 

1,812 

Net change in cash, cash equivalents, and restricted cash

 

 

(9,458)

 

 

(81,460)

Cash, cash equivalents, and restricted cash at beginning of period

 

 

163,748 

 

   

192,483 

Cash, cash equivalents, and restricted cash at end of period

 

$

154,290 

 

$

111,023 



 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.



 

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SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity

Three Months Ended March 31, 2019 and 2018

(in thousands, except share data)

(unaudited)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 



 

Common

 

 

 

 

Additional

 

other

 

 

 

 

 



 

stock

 

Common

 

paid-in

 

comprehensive

 

Retained

 

 

 



 

shares

 

stock

 

capital

 

loss, net

 

deficit

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, December 31, 2018

 

154,885,418 

 

$

155 

 

$

2,735,125 

 

$

(73,177)

 

$

(2,371,364)

 

$

290,739 

Net loss

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(47,705)

 

 

(47,705)

Foreign currency translation adjustment

 

 -

 

 

 -

 

 

 -

 

 

1,073 

 

 

 -

 

 

1,073 

Stock-based compensation expense,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 net of forfeitures

 

 -

 

 

 -

 

 

5,625 

 

 

 -

 

 

 -

 

 

5,625 

Restricted stock units vested

 

1,503,046 

 

 

 

 

(1)

 

 

 -

 

 

 -

 

 

 -

Shares withheld and retired

 

(431,864)

 

 

 -

 

 

(1,666)

 

 

 -

 

 

 -

 

 

(1,666)

Balances, March 31, 2019

 

155,956,600 

 

$

156 

 

$

2,739,083 

 

$

(72,104)

 

$

(2,419,069)

 

$

248,066 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, December 31, 2017

 

153,263,097 

 

$

153 

 

$

2,713,161 

 

$

(67,427)

 

$

(1,513,458)

 

$

1,132,429 

Net loss

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(59,724)

 

 

(59,724)

Foreign currency translation adjustment

 

 -

 

 

 -

 

 

 -

 

 

4,388 

 

 

 -

 

 

4,388 

Stock-based compensation expense,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 net of forfeitures

 

 -

 

 

 -

 

 

6,229 

 

 

 -

 

 

 -

 

 

6,229 

Restricted stock units vested

 

1,431,646 

 

 

 

 

(1)

 

 

 -

 

 

 -

 

 

 -

Shares withheld and retired

 

(457,481)

 

 

 -

 

 

(5,153)

 

 

 -

 

 

 -

 

 

(5,153)

Balances, March 31, 2018

 

154,237,262 

 

$

154 

 

$

2,714,236 

 

$

(63,039)

 

$

(1,573,182)

 

$

1,078,169 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

















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SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

Three Months Ended March 31, 2019



(1)Basis of Presentation



Certain information and footnote disclosures normally in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC); however, management believes the disclosures that are made are adequate to make the information presented not misleading.  These financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in Superior Energy Services, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2018, and Management’s Discussion and Analysis of Financial Condition and Results of Operations herein.



The financial information of Superior Energy Services, Inc. and its subsidiaries (the Company) for the three months ended March 31, 2019 and 2018 has not been audited.  However, in the opinion of management, all adjustments necessary to present fairly the results of operations for the periods presented have been included therein.  The results of operations for the first three months of the year are not necessarily indicative of the results of operations that might be expected for the entire year. 



Due to the nature of the Company’s business, the Company is involved, from time to time, in routine litigation or subject to disputes or claims regarding its business activities. Legal costs related to these matters are expensed as incurred.  In management’s opinion, none of the pending litigation, disputes or claims is expected to have a material adverse effect on the Company’s financial condition, results of operations or liquidity.



The Company evaluates events that occur after the balance sheet date but before the financial statements are issued for potential recognition or disclosure.  Based on the evaluation, the Company determined that there were no material subsequent events for recognition or disclosure.

 



(2)Revenue



Revenue Recognition



Revenues are recognized when performance obligations are satisfied in accordance with contractual terms, in an amount that reflects the consideration the Company expects to be entitled to in exchange for services rendered or rentals provided.  Taxes collected from customers and remitted to governmental authorities and revenues are reported on a net basis in the Company’s financial statements.



Performance Obligations



A performance obligation arises under contracts with customers to render services or provide rentals, and is the unit of account under Topic 606.  The Company accounts for services rendered and rentals provided separately if they are distinct and the service or rental is separately identifiable from other items provided to a customer and if a customer can benefit from the services rendered or rentals provided on its own or with other resources that are readily available to the customer.  A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.  A contract’s standalone selling prices are determined based on the prices that the Company charges for its services rendered and rentals provided.  The majority of the Company’s performance obligations are satisfied over time, which is generally represented by a period of 30 days or less.  The Company’s payment terms vary by the type of products or services offered.  The term between invoicing and when the payment is due is typically 30 days.



Services revenue primarily represents amounts charged to customers for the completion of services rendered, including labor, products and supplies necessary to perform the service.  Rates for these services vary depending on the type of services provided and can be based on a per job, per hour or per day basis.



Rentals revenue is, primarily priced on a per day, per man hour or similar basis and consists of fees charged to customers for use of the Company’s rental equipment over the term of the rental period, which is generally less than twelve months.



The Company expenses sales commissions when incurred because the amortization period would have been one year or less.



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Disaggregation of revenue



The following table presents the Company’s revenues by segment disaggregated by geography (in thousands):







 

 

 

 

 



 

 

 

 

 



Three Months Ended March 31,



 

2019

 

 

2018

U.S. land

 

 

 

 

 

    Drilling Products and Services

$

48,217 

 

$

40,717 

    Onshore Completion and Workover Services

 

205,038 

 

 

231,489 

    Production Services

 

40,666 

 

 

52,457 

    Technical Solutions

 

11,920 

 

 

6,833 

Total U.S. land

$

305,841 

 

$

331,496 



 

 

 

 

 

U.S. offshore

 

 

 

 

 

    Drilling Products and Services

$

29,067 

 

$

20,989 

    Onshore Completion and Workover Services

 

 -

 

 

 -

    Production Services

 

19,272 

 

 

17,500 

    Technical Solutions

 

20,933 

 

 

37,562 

Total U.S. offshore

$

69,272 

 

$

76,051 



 

 

 

 

 

International

 

 

 

 

 

    Drilling Products and Services

$

23,795 

 

$

23,496 

    Onshore Completion and Workover Services

 

 -

 

 

 -

    Production Services

 

43,512 

 

 

30,760 

    Technical Solutions

 

24,756 

 

 

20,515 

Total International

$

92,063 

 

$

74,771 

Total Revenues

$

467,176 

 

$

482,318 



 

 

 

 

 





The following table presents the Company’s revenues by segment disaggregated by type (in thousands):







 

 

 

 

 



 

 

 

 

 



Three Months Ended March 31,



 

2019

 

 

2018

Services

 

 

 

 

 

    Drilling Products and Services

$

31,121 

 

$

24,005 

    Onshore Completion and Workover Services

 

194,417 

 

 

221,347 

    Production Services

 

94,848 

 

 

94,614 

    Technical Solutions

 

55,753 

 

 

59,802 

Total services

$

376,139 

 

$

399,768 



 

 

 

 

 

Rentals

 

 

 

 

 

    Drilling Products and Services

$

69,958 

 

$

61,197 

    Onshore Completion and Workover Services

 

10,621 

 

 

10,142 

    Production Services

 

8,602 

 

 

6,103 

    Technical Solutions

 

1,856 

 

 

5,108 

Total rentals

$

91,037 

 

$

82,550 

Total Revenues

$

467,176 

 

$

482,318 



 

 

 

 

 



Impact of adoption of Accounting Standards Update (ASU) 2016-02, Leases (Topic 842)



Services revenue:



In connection with adoption of Topic 842, the Company determined that certain of its services revenue contracts contain a lease component.  The Company elected to adopt a practical expedient available to lessors, which allows the Company to combine the lease and non-lease components and account for the combined component in accordance with the accounting treatment for the predominant

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component.  Therefore, the Company combined the lease and service components for certain of the Company’s service contracts and continues to account for the combined component under Topic 606, Revenue from Contracts with Customers.



Rentals revenue:



The Company determined that its rentals revenue contracts represent short-term operating leases.  Therefore, the adoption of the ASU 2016-02 did not result in any changes in the timing or method of revenue recognition for the Company’s rental revenues.

   



(3)Inventory



Inventories are stated at the lower of cost or net realizable value.  The Company applies net realizable value and obsolescence to the gross value of the inventory.  Cost is determined using the first-in, first-out or weighted-average cost methods for finished goods and work-in-process.  Supplies and consumables primarily consist of products used in our services provided to customers.  The components of the inventory balances are as follows (in thousands):





 

 

 

 

 

 



 

 

 

 

 

 



 

March 31, 2019

 

December 31, 2018

Finished goods

 

$

54,931 

 

$

54,144 

Raw materials

 

 

17,358 

 

 

16,795 

Work-in-process

 

 

7,992 

 

 

5,544 

Supplies and consumables

 

 

34,064 

 

 

30,822 

Total

 

$

114,345 

 

$

107,305 



 

 

 

 

 

 

 



(4)Notes Receivable



Notes receivable consist of a commitment from the seller of an oil and gas property acquired by the Company related to costs associated with the abandonment of the acquired property.  Pursuant to an agreement with the seller, the Company will invoice the seller an agreed upon amount at the completion of certain decommissioning activities.  The gross amount of this obligation totals $115.0 million and is recorded at present value using an effective interest rate of 6.58%.  The related discount is amortized to interest income based on the expected timing of completion of the decommissioning activities.  The Company recorded interest income related to notes receivable of $1.0 million for each of the three months ended March 31, 2019 and 2018.

 



(5)Debt



The Company’s outstanding debt is as follows (in thousands):





 

 

 

 

 

 



 

 

 

 

 

 



 

March 31, 2019

 

December 31, 2018



 

Long-term

 

Long-term

Senior unsecured notes due September 2024

 

$

500,000 

 

$

500,000 

Senior unsecured notes due December 2021

 

 

800,000 

 

 

800,000 

Total debt, gross

 

 

1,300,000 

 

 

1,300,000 

Unamortized debt issuance costs

 

 

(16,138)

 

 

(17,079)

Total debt, net

 

$

1,283,862 

 

$

1,282,921 



Credit Facility



The Company has an asset-based revolving credit facility which matures in October 2022.  The borrowing base under the credit facility is calculated based on a formula referencing the borrower’s and the subsidiary guarantors’ eligible accounts receivable, eligible inventory and eligible premium rental drill pipe less reserves.  Availability under the credit facility is the lesser of (i) the commitments, (ii) the borrowing base and (iii) the highest principal amount permitted to be secured under the indenture governing the 7 1/8% senior unsecured notes due 2021.  At March 31, 2019, the borrowing base was $240.8 million and the Company had $73.2 million of letters of credit outstanding that reduced its borrowing availability under the revolving credit facility.  The credit agreement contains various covenants, including, but not limited to, limitations on the incurrence of indebtedness, permitted investments, liens on assets, making distributions, transactions with affiliates, merger, consolidations, dispositions of assets and other provisions customary in similar types of agreements.

   

9

 


 

 

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Senior Unsecured Notes



The Company has outstanding $500 million of 7 3/4% senior unsecured notes due September 2024.  The indenture governing the 7 3/4% senior unsecured notes due 2024 requires semi-annual interest payments on March 15 and September 15 of each year through the maturity date of September 15, 2024.



The Company also has outstanding $800 million of 7 1/8% senior unsecured notes due December 2021.  The indenture governing the 7 1/8% senior unsecured notes due 2021 requires semi-annual interest payments on June 15 and December 15 of each year through the maturity date of December 15, 2021. 

 









(6)Decommissioning Liabilities



The Company’s decommissioning liabilities associated with an oil and gas property and its related assets include liabilities related to the plugging of wells, removal of the related platform and equipment, and site restoration.  The Company reviews the adequacy of its decommissioning liabilities whenever indicators suggest that the estimated cash flows and/or relating timing needed to satisfy the liability have changed materially.  The Company had decommissioning liabilities of $131.6 million and $130.1 million at March 31, 2019 and December 31, 2018, respectively.





(7)  Leases



Adoption of ASU 2016-02, Leases



The Company adopted the new standard on January 1, 2019 and used the effective date as the date of initial application.  Therefore, prior period financial information has not been adjusted and continues to be reflected in accordance with the Company’s historical accounting policy.  The standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.



The standard provides a number of optional practical expedients in transition.  The Company elected the “package of practical expedients,” which, among other things, allows the Company to carry forward its historical lease classification.



The adoption of this standard resulted in the recording of operating lease assets and operating lease liabilities of approximately $100.0 million as of January 1, 2019, with no related impact on the Company’s condensed consolidated statement of equity or condensed consolidated statement of operations.  Short-term leases have not been recorded on the balance sheet.



Accounting Policy for Leases



The Company determines if an arrangement is a lease at inception.  All of the Company’s leases are operating leases and are included in ROU assets, accounts payable and operating lease liabilities in the condensed consolidated balance sheet.



ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligations to make lease payments arising from the lease.  Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.  The Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.  The Company’s lease terms may include options to extend or terminate the lease.



Overview



The Company’s operating leases are primarily for real estate, machinery and equipment, and vehicles.  The terms and conditions for these leases vary by the type of underlying asset.  Total operating lease expense was $15.7 million and $13.5 million for the three months ended March 31, 2019 and 2018, respectively.  For the three months ended March 31, 2019, a portion of the total operating lease expense relating to short-term leases was $5.4 million.























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Supplemental Balance Sheet Information

 

Operating leases at March 31, 2019 were as follows (in thousands):









 

 



 

 



March 31, 2019

Operating lease ROU assets

$

103,082 



 

 

Accrued expenses

$

27,589 

Operating lease liabilities

 

78,384 

Total operating lease liabilities

$

105,973 



 

 

Cash paid for operating leases

$

8,742 

ROU assets obtained in exchange for lease obligations

$

6,877 



 

 

Weighted average remaining lease term

 

8 years

Weighted average discount rate

 

6.75%



 

 



Maturities of operating lease liabilities at March 31, 2019 are as follows (in thousands):







 



 

Remainder of 2019

$       24,890

2020

27,169 

2021

20,317 

2022

11,847 

2023

7,341 

Thereafter

48,535 

Total lease payments

140,099 

Less imputed interest

(34,126)

Total

$     105,973



 



At December 31, 2018, future minimum lease payments under long-term leases for the five years ending December 31, 2019 through 2023 and thereafter are as follows:  $30.8 million, $24.3 million, $16.6 million, $9.8 million and $6.9 million and $37.8 million, respectively.





(8)  Fair Value Measurements



Fair value is defined as the price that would be received to sell an asset or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Inputs used in determining fair value are characterized according to a hierarchy that prioritizes those inputs based on the degree to which they are observable.  The three input levels of the fair value hierarchy are as follows.  



Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.



Level 2: Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical assets or liabilities in inactive markets; or model-derived valuations or other inputs that can be corroborated by observable market data.



Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.



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The following tables provide a summary of the financial assets and liabilities measured at fair value on a recurring basis (in thousands):



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 



 

Fair Value at March 31, 2019



 

Level 1

 

Level 2

 

Level 3

 

Total

Intangible and other long-term assets, net:

 

 

 

 

 

 

 

 

 

 

 

 

Non-qualified deferred compensation assets

 

$

 -

 

$

14,183 

 

$

 -

 

$

14,183 

Accounts payable:

 

 

 

 

 

 

 

 

 

 

 

 

Non-qualified deferred compensation liabilities

 

$

 -

 

$

1,329 

 

$

 -

 

$

1,329 

Other long-term liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Non-qualified deferred compensation liabilities

 

$

 -

 

$

20,961 

 

$

 -

 

$

20,961 

Total debt

 

$

1,141,127 

 

$

 -

 

$

 -

 

$

1,141,127 



 

 

 

 

 

 

 

 

 

 

 

 



 

Fair Value at December 31, 2018



 

Level 1

 

Level 2

 

Level 3

 

Total

Intangible and other long-term assets, net:

 

 

 

 

 

 

 

 

 

 

 

 

Non-qualified deferred compensation assets

 

$

376 

 

$

12,930 

 

$

 -

 

$

13,306 

Accounts payable:

 

 

 

 

 

 

 

 

 

 

 

 

Non-qualified deferred compensation liabilities

 

$

 -

 

$

1,138 

 

$

 -

 

$

1,138 

Other long-term liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Non-qualified deferred compensation liabilities

 

$

 -

 

$

19,766 

 

$

 -

 

$

19,766 

Total debt

 

$

1,084,711 

 

$

 -

 

$

 -

 

$

1,084,711 



The Company’s non-qualified deferred compensation plans allow officers, certain highly compensated employees and non-employee directors to defer receipt of a portion of their compensation and contribute such amounts to one or more hypothetical investment funds.  These investments are reported at fair value based on unadjusted quoted prices in active markets for identifiable assets and observable inputs for similar assets and liabilities, which represent Levels 1 and 2, respectively, in the fair value hierarchy. 



The carrying amount of cash equivalents, accounts receivable, accounts payable and accrued expenses, as reflected in the condensed consolidated balance sheets, approximates fair value due to the short maturities.  The fair value of the debt instruments is determined by reference to the market value of the instrument as quoted in an over-the-counter market.



(9)  Segment Information



Business Segments



The Drilling Products and Services segment rents and sells premium drill pipe, bottom hole assemblies, tubulars and specialized equipment for use with onshore and offshore oil and gas well drilling, completion, production and workover activities.  It also provides on-site accommodations and machining services.  The Onshore Completion and Workover Services segment provides pressure pumping services used to complete and stimulate production in new oil and gas wells, fluid handling services and well servicing rigs that provide a variety of well completion, workover and maintenance services.  The Production Services segment provides intervention services such as coiled tubing, cased hole and mechanical wireline, hydraulic workover and snubbing, production testing and optimization, and remedial pumping services.  The Technical Solutions segment provides services typically requiring specialized engineering, manufacturing or project planning, including well containment systems, stimulation and sand control services, well plug and abandonment services and the production and sale of oil and gas. 



The Company evaluates the performance of its reportable segments based on income or loss from operations excluding corporate expenses.  The segment measure is calculated as follows: segment revenues less segment operating expenses, depreciation, depletion, amortization and accretion expense and reduction in value of assets.  The Company uses this segment measure to evaluate its reportable segments because it is the measure that is most consistent with how the Company organizes and manages its business operations.  Corporate and other costs primarily include expenses related to support functions, salaries and benefits for corporate employees and stock-based compensation expense.















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Summarized financial information for the Company’s segments is as follows (in thousands): 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Onshore

 

 

 

 

 

 

 

 

 

 

 

 



 

Drilling

 

Completion

 

 

 

 

 

 

 

 

 

 

 



 

Products and

 

and Workover

 

Production

 

Technical

 

Corporate and

 

Consolidated



 

Services

 

Services

 

Services

 

Solutions

 

Other

 

Total

Revenues

 

$

101,079 

 

$

205,038 

 

$

103,450 

 

$

57,609 

 

$

 -

 

$

467,176 

Cost of services and rentals (exclusive of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

depreciation, depletion, amortization and accretion)

 

 

42,205 

 

 

171,799 

 

 

79,881 

 

 

36,278 

 

 

 -

 

 

330,163 

Depreciation, depletion, amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  and accretion

 

 

23,026 

 

 

37,743 

 

 

14,140 

 

 

6,310 

 

 

1,220 

 

 

82,439 

General and administrative expenses

 

 

14,569 

 

 

10,575 

 

 

7,812 

 

 

15,937 

 

 

24,952 

 

 

73,845 

Income (loss) from operations

 

 

21,279 

 

 

(15,079)

 

 

1,617 

 

 

(916)

 

 

(26,172)

 

 

(19,271)

Interest income (expense), net

 

 

 -

 

 

 -

 

 

 -

 

 

1,018 

 

 

(26,139)

 

 

(25,121)

Other expense

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(1,612)

 

 

(1,612)

Income (loss) from continuing operations 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  before income taxes

 

$

21,279 

 

$

(15,079)

 

$

1,617 

 

$

102 

 

$

(53,923)

 

$

(46,004)









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Onshore

 

 

 

 

 

 

 

 

 

 

 

 



 

Drilling

 

Completion

 

 

 

 

 

 

 

 

 

 

 

 



 

Products and

 

and Workover

 

Production

 

Technical

 

Corporate and

 

Consolidated



 

Services

 

Services

 

Services

 

Solutions

 

Other

 

Total

Revenues

 

$

85,202 

 

$

231,489 

 

$

100,717 

 

$

64,910 

 

$

 -

 

$

482,318 

Cost of services and rentals (exclusive of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

depreciation, depletion, amortization and accretion)

 

 

35,070 

 

 

180,651 

 

 

85,936 

 

 

41,803 

 

 

 -

 

 

343,460 

Depreciation, depletion, amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  and accretion

 

 

29,641 

 

 

47,655 

 

 

19,280 

 

 

7,730 

 

 

1,413 

 

 

105,719 

General and administrative expenses

 

 

12,524 

 

 

13,226 

 

 

9,593 

 

 

14,060 

 

 

26,417 

 

 

75,820 

Income (loss) from operations

 

 

7,967 

 

 

(10,043)

 

 

(14,092)

 

 

1,317 

 

 

(27,830)

 

 

(42,681)

Interest income (expense), net

 

 

 -

 

 

 -

 

 

 -

 

 

956 

 

 

(25,843)

 

 

(24,887)

Other expense

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(1,735)

 

 

(1,735)

Income (loss) from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  before income taxes

 

$

7,967 

 

$

(10,043)

 

$

(14,092)

 

$

2,273 

 

$

(55,408)

 

$

(69,303)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Identifiable Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Onshore

 

 

 

 

 

 

 

 

 

 

 

 



 

Drilling

 

Completion

 

 

 

 

 

 

 

 

 

 

 



 

Products and

 

and Workover

 

Production

 

Technical

 

Corporate and

 

Consolidated



 

Services

 

Services

 

Services

 

Solutions

 

Other

 

Total

March 31, 2019

 

$

607,991 

 

$

743,319 

 

$

497,110 

 

$

331,877 

 

$

67,038 

 

$

2,247,335 

December 31, 2018

 

$

587,264 

 

$

808,037 

 

$

434,430 

 

$

340,161 

 

$

46,070 

 

$

2,215,962 

























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Geographic Segments



The Company attributes revenue to various countries based on the location of where services are performed or the destination of the drilling products or equipment sold or rented.  Long-lived assets consist primarily of property, plant and equipment and are attributed to various countries based on the physical location of the asset at the end of a period.  The Company’s revenue attributed to the U.S. and to other countries and the value of its long-lived assets by those locations are as follows (in thousands):







 

 

 

 

 

 



 

 

 

 

 

 

Revenues

 

 

 

 

 

 



 

Three Months Ended March 31,



 

2019

 

2018

United States

 

$

375,113 

 

$

407,547 

Other countries

 

 

92,063 

 

 

74,771 

Total

 

$

467,176 

 

$

482,318 



 

 

 

 

 

 

Long-Lived Assets

 

 

 

 

 

 



 

 

 

 

 

 



 

March 31, 2019

 

December 31, 2018

United States

 

$

867,831 

 

$

903,520 

Other countries

 

 

193,526 

 

 

205,606 

Total

 

$

1,061,357 

 

$

1,109,126 





 



(10)Stock-Based Compensation Plans



The Company maintains various stock incentive plans that provide long-term incentives to the Company’s key employees, including officers, directors, consultants and advisors (Eligible Participants).  Under the stock incentive plans, the Company may grant incentive stock options, restricted stock, restricted stock units, stock appreciation rights, other stock-based awards or any combination thereof to Eligible Participants.  The Company’s total compensation expense related to these plans was approximately $8.0  million and $7.9 million for the three months ended March 31, 2019 and March 31, 2018, respectively, which is reflected in general and administrative expenses.





(11)  Income Taxes



The Company had $30.6 million of unrecorded tax benefits as of March 31, 2019 and December 31, 2018, all of which would impact the Company’s effective tax rate if recognized.  It is the Company’s policy to recognize interest and applicable penalties, if any, related to uncertain tax positions in income tax expense. 





(12) Earnings per Share



Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is computed in the same manner as basic earnings per share except that the denominator is increased to include the number of additional common shares that could have been outstanding assuming the exercise of stock options and the conversion of restricted stock units.



The Company incurred a loss from continuing operations for the three months ended March 31, 2019 and 2018; therefore the impact of any incremental shares would be anti-dilutive.

 



(13)  Supplemental Guarantor Information



SESI, L.L.C. (the Issuer), a 100% owned subsidiary of Superior Energy Services, Inc. (Parent), has $500 million of 7 3/4% senior unsecured notes due 2024. The Parent, along with certain of its 100% owned domestic subsidiaries, fully and unconditionally guaranteed such senior unsecured notes, and such guarantees are joint and several.



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SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidating Balance Sheets

March 31, 2019

(in thousands)

(unaudited)



 

Parent

 

Issuer

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 -

 

$

93,466 

 

$

1,054 

 

$

57,048 

 

$

 -

 

$

151,568 

Accounts receivable, net

 

 

 -

 

 

33 

 

 

333,795 

 

 

86,983 

 

 

 -

 

 

420,811 

Intercompany accounts receivable

 

 

 -

 

 

15,096 

 

 

71,698 

 

 

3,752 

 

 

(90,546)

 

 

 -

Other current assets

 

 

 -

 

 

11,087 

 

 

118,721 

 

 

50,079 

 

 

 -

 

 

179,887 

Total current assets

 

 

 -

 

 

119,682 

 

 

525,268 

 

 

197,862 

 

 

(90,546)

 

 

752,266 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

 -

 

 

9,981 

 

 

881,610 

 

 

169,766 

 

 

 -

 

 

1,061,357 

Operating lease right-of-use assets

 

 

 -

 

 

20,785 

 

 

68,086 

 

 

14,211 

 

 

 -

 

 

103,082 

Goodwill

 

 

 -

 

 

 -

 

 

80,544 

 

 

56,951 

 

 

 -

 

 

137,495 

Notes receivable

 

 

 -

 

 

 -

 

 

64,993 

 

 

 -

 

 

 -

 

 

64,993 

Long-term intercompany accounts receivable

 

 

2,247,345 

 

 

 -

 

 

2,032,421 

 

 

182,186 

 

 

(4,461,952)

 

 

 -

Equity investments of consolidated subsidiaries

 

 

(1,999,279)

 

 

3,748,111 

 

 

6,721 

 

 

 -

 

 

(1,755,553)

 

 

 -

Restricted cash

 

 

 -

 

 

 -

 

 

2,677 

 

 

45 

 

 

 -

 

 

2,722 

Intangible and other long-term assets, net

 

 

 -

 

 

19,636 

 

 

98,608 

 

 

7,176 

 

 

 -

 

 

125,420 

Total assets

 

$

248,066 

 

$

3,918,195 

 

$

3,760,928 

 

$

628,197 

 

$

(6,308,051)

 

$

2,247,335 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 -

 

$

13,988 

 

$

83,417 

 

$

23,144 

 

$

 -

 

$

120,549 

Accrued expenses

 

 

 -

 

 

86,259 

 

 

108,566 

 

 

34,400 

 

 

 -

 

 

229,225 

Income taxes payable

 

 

 -

 

 

(1,881)

 

 

 -

 

 

2,924 

 

 

 -

 

 

1,043 

Intercompany accounts payable

 

 

 -

 

 

724 

 

 

7,501 

 

 

82,321 

 

 

(90,546)

 

 

 -

Current portion of decommissioning liabilities

 

 

 -

 

 

 -

 

 

 -

 

 

3,565 

 

 

 -

 

 

3,565 

       Total current liabilities

 

 

 -

 

 

99,090 

 

 

199,484 

 

 

146,354 

 

 

(90,546)

 

 

354,382 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, net

 

 

 -

 

 

1,283,862 

 

 

 -

 

 

 -

 

 

 -

 

 

1,283,862 

Decommissioning liabilities

 

 

 -

 

 

 -

 

 

128,062 

 

 

 -

 

 

 -

 

 

128,062 

Operating lease liabilities

 

 

 -

 

 

21,252 

 

 

47,502 

 

 

9,630 

 

 

 -

 

 

78,384 

Long-term intercompany accounts payable

 

 

 -

 

 

4,461,952 

 

 

 -

 

 

 -

 

 

(4,461,952)

 

 

 -

Other long-term liabilities

 

 

 -

 

 

51,318 

 

 

77,062 

 

 

26,199 

 

 

 -

 

 

154,579 

Total stockholders' equity (deficit)

 

 

248,066 

 

 

(1,999,279)

 

 

3,308,818 

 

 

446,014 

 

 

(1,755,553)

 

 

248,066 

Total liabilities and stockholders' equity

 

$

248,066 

 

$

3,918,195 

 

$

3,760,928 

 

$

628,197 

 

$

(6,308,051)

 

$

2,247,335 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



15

 


 

 

Table Of Contents

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidating Balance Sheets

December 31, 2018

(in thousands)

(unaudited)



 

Parent

 

Issuer

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 -

 

$

102,224 

 

$

707 

 

$

55,119 

 

$

 -

 

$

158,050 

Accounts receivable, net

 

 

 -

 

 

160 

 

 

367,497 

 

 

79,696 

 

 

 -

 

 

447,353 

Intercompany accounts receivable

 

 

 -

 

 

12,279 

 

 

74,906 

 

 

3,489 

 

 

(90,674)

 

 

 -

Other current assets

 

 

 -

 

 

12,805 

 

 

111,560 

 

 

43,137 

 

 

 -

 

 

167,502 

Total current assets

 

 

 -

 

 

127,468 

 

 

554,670 

 

 

181,441 

 

 

(90,674)

 

 

772,905 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

 -

 

 

10,129 

 

 

920,978 

 

 

178,019 

 

 

 -

 

 

1,109,126 

Goodwill

 

 

 -

 

 

 -

 

 

80,544 

 

 

56,244 

 

 

 -

 

 

136,788 

Notes receivable

 

 

 -

 

 

 -

 

 

63,993 

 

 

 -

 

 

 -

 

 

63,993 

Long-term intercompany accounts receivable

 

 

2,243,431 

 

 

 -

 

 

1,991,912 

 

 

182,284 

 

 

(4,417,627)

 

 

 -

Equity investments of consolidated subsidiaries

 

 

(1,952,647)

 

 

3,754,887 

 

 

5,992 

 

 

 -

 

 

(1,808,232)

 

 

 -

Restricted cash

 

 

 -

 

 

 -

 

 

5,653 

 

 

45 

 

 

 -

 

 

5,698 

Intangible and other long-term assets, net

 

 

 -

 

 

19,255 

 

 

100,847 

 

 

7,350 

 

 

 -

 

 

127,452 

Total assets

 

$

290,784 

 

$

3,911,739 

 

$

3,724,589 

 

$

605,383 

 

$

(6,316,533)

 

$

2,215,962 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 -

 

$

8,807 

 

$

109,903 

 

$

20,615 

 

$

 -

 

$

139,325 

Accrued expenses

 

 

45 

 

 

102,845 

 

 

86,926 

 

 

29,364 

 

 

 -

 

 

219,180 

Income taxes payable

 

 

 -

 

 

1,237 

 

 

 -

 

 

(503)

 

 

 -

 

 

734 

Intercompany accounts payable

 

 

 -

 

 

724 

 

 

6,869 

 

 

83,081 

 

 

(90,674)

 

 

 -

Current portion of decommissioning liabilities

 

 

 -

 

 

 -

 

 

 -

 

 

3,538 

 

 

 -

 

 

3,538 

       Total current liabilities

 

 

45 

 

 

113,613 

 

 

203,698 

 

 

136,095 

 

 

(90,674)

 

 

362,777 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, net

 

 

 -

 

 

1,282,921 

 

 

 -

 

 

 -

 

 

 -

 

 

1,282,921 

Decommissioning liabilities

 

 

 -

 

 

 -

 

 

126,558 

 

 

 -

 

 

 -

 

 

126,558 

Long-term intercompany accounts payable

 

 

 -

 

 

4,417,627 

 

 

 -

 

 

 -

 

 

(4,417,627)

 

 

 -

Other long-term liabilities

 

 

 -

 

 

50,225 

 

 

76,543 

 

 

26,199 

 

 

 -

 

 

152,967 

Total stockholders' equity (deficit)

 

 

290,739 

 

 

(1,952,647)

 

 

3,317,790 

 

 

443,089 

 

 

(1,808,232)

 

 

290,739 

Total liabilities and stockholders' equity

 

$

290,784 

 

$

3,911,739 

 

$

3,724,589 

 

$

605,383 

 

$

(6,316,533)

 

$

2,215,962 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



16

 


 

 

Table Of Contents

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidating Statements of Operations

Three Months Ended March 31, 2019

(in thousands)

(unaudited)



 

Parent

 

Issuer

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

Revenues

 

$

 -

 

$

 -

 

$

391,392 

 

 

81,899 

 

 

(6,115)

 

$

467,176 

Cost of services and rentals (exclusive of depreciation,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

depletion, amortization and accretion)

 

 

 -

 

 

(819)

 

 

280,978 

 

 

56,119 

 

 

(6,115)

 

 

330,163 

Depreciation, depletion, amortization and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

accretion

 

 

 -

 

 

950 

 

 

71,563 

 

 

9,926 

 

 

 -

 

 

82,439 

General and administrative expenses

 

 

 -

 

 

24,322 

 

 

39,416 

 

 

10,107 

 

 

 -

 

 

73,845 

Income (loss) from operations

 

 

 -

 

 

(24,453)

 

 

(565)

 

 

5,747 

 

 

 -

 

 

(19,271)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 -

 

 

(26,382)

 

 

1,227 

 

 

34 

 

 

 -

 

 

(25,121)

Other income (expense)

 

 

 -

 

 

(791)

 

 

98 

 

 

(919)

 

 

 -

 

 

(1,612)

Equity in earnings (losses) of consolidated subsidiaries

 

 

(47,705)

 

 

(7,848)

 

 

729 

 

 

 -

 

 

54,824 

 

 

 -

Income (loss) from operations before income taxes

 

 

(47,705)

 

 

(59,474)

 

 

1,489 

 

 

4,862 

 

 

54,824 

 

 

(46,004)

Income taxes

 

 

 -

 

 

(11,769)

 

 

10,459 

 

 

3,011 

 

 

 -

 

 

1,701 

Net income (loss)

 

 

(47,705)

 

 

(47,705)

 

 

(8,970)

 

 

1,851 

 

 

54,824 

 

 

(47,705)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Consolidating Statements of Comprehensive Loss

Three Months Ended March 31, 2019

(in thousands)

(unaudited)



 

Parent

 

Issuer

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

Net income (loss)

 

$

(47,705)

 

$

(47,705)

 

$

(8,970)

 

$

1,851 

 

$

54,824 

 

$

(47,705)

Change in cumulative translation adjustment, net of tax

 

 

1,073 

 

 

1,073 

 

 

 -

 

 

1,073 

 

 

(2,146)

 

 

1,073 

Comprehensive income (loss)

 

$

(46,632)

 

$

(46,632)

 

$

(8,970)

 

$

2,924 

 

$

52,678 

 

$

(46,632)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



17

 


 

 

Table Of Contents

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidating Statements of Operations

Three Months Ended March 31, 2018

(in thousands)

(unaudited)



 

Parent

 

Issuer

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

Revenues

 

$

 -

 

$

 -

 

$

435,134 

 

$

53,259 

 

$

(6,075)

 

$

482,318 

Cost of services and rentals (exclusive of depreciation,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

depletion, amortization and accretion)

 

 

 -

 

 

(2,626)

 

 

311,064 

 

 

41,097 

 

 

(6,075)

 

 

343,460 

Depreciation, depletion, amortization and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

accretion

 

 

 -

 

 

1,019 

 

 

92,714 

 

 

11,986 

 

 

 -

 

 

105,719 

General and administrative expenses

 

 

 -

 

 

25,664 

 

 

38,689 

 

 

11,467 

 

 

 -

 

 

75,820 

Loss from operations

 

 

 -

 

 

(24,057)

 

 

(7,333)

 

 

(11,291)

 

 

 -

 

 

(42,681)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 -

 

 

(25,870)

 

 

967 

 

 

16 

 

 

 -

 

 

(24,887)

Other income (expense)

 

 

 -

 

 

(66)

 

 

274 

 

 

(1,943)

 

 

 -

 

 

(1,735)

Equity in losses of consolidated subsidiaries

 

 

(59,724)

 

 

(17,470)

 

 

(168)

 

 

 -

 

 

77,362 

 

 

 -

Loss from continuing operations before income taxes

 

 

(59,724)

 

 

(67,463)

 

 

(6,260)

 

 

(13,218)

 

 

77,362 

 

 

(69,303)

Income taxes

 

 

 -

 

 

(7,739)

 

 

(1,076)

 

 

(540)

 

 

 -

 

 

(9,355)

Net loss from continuing operations

 

 

(59,724)

 

 

(59,724)

 

 

(5,184)

 

 

(12,678)

 

 

77,362 

 

 

(59,948)

Loss from discontinued operations, net of income tax

 

 

 -

 

 

 -

 

 

 -

 

 

224 

 

 

 -

 

 

224 

Net loss

 

$

(59,724)

 

$

(59,724)

 

$

(5,184)

 

$

(12,454)

 

$

77,362 

 

$

(59,724)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Consolidating Statements of Comprehensive Loss

Three Months Ended March 31, 2018

(in thousands)

(unaudited)



 

Parent

 

Issuer

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

Net loss

 

$

(59,724)

 

$

(59,724)

 

$

(5,184)

 

$

(12,454)

 

$

77,362 

 

$

(59,724)

Change in cumulative translation adjustment, net of tax

 

 

4,388 

 

 

4,388 

 

 

 -

 

 

4,388 

 

 

(8,776)

 

 

4,388 

Comprehensive loss

 

$

(55,336)

 

$

(55,336)

 

$

(5,184)

 

$

(8,066)

 

$

68,586 

 

$

(55,336)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18

 


 

 

Table Of Contents

 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidating Statements of Cash Flows

Three Months Ended March 31, 2019

(in thousands)

(unaudited)



Parent

 

Issuer

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

 

Consolidated

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

$

5,581 

 

$

(49,421)

 

$

67,883 

 

$

3,336 

 

 

$

27,379 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments for capital expenditures

 

 -

 

 

(845)

 

 

(38,909)

 

 

(1,406)

 

 

 

(41,160)

Proceeds from sales of assets

 

 -

 

 

 -

 

 

5,066 

 

 

 -

 

 

 

5,066 

Net cash used in investing activities

 

 -

 

 

(845)

 

 

(33,843)

 

 

(1,406)

 

 

 

(36,094)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in notes with affiliated companies, net

 

(3,914)

 

 

41,508 

 

 

(36,669)

 

 

(925)

 

 

 

 -

Other

 

(1,667)

 

 

 -

 

 

 -

 

 

 -

 

 

 

(1,667)

Net cash provided by (used in) financing activities

 

(5,581)

 

 

41,508 

 

 

(36,669)

 

 

(925)

 

 

 

(1,667)

Effect of exchange rate changes on cash

 

 -

 

 

 -

 

 

 -

 

 

924 

 

 

 

924 

Net change in cash, cash equivalents, and restricted cash

 

 -

 

 

(8,758)

 

 

(2,629)

 

 

1,929 

 

 

 

(9,458)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents, and restricted cash at beginning of period

 

 -

 

 

102,224 

 

 

6,360 

 

 

55,164 

 

 

 

163,748 

Cash, cash equivalents, and restricted cash at end of period

$

 -

 

$

93,466 

 

$

3,731 

 

$

57,093 

 

 

$

154,290 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 





























 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidating Statements of Cash Flows

Three Months Ended March 31, 2018

(in thousands)

(unaudited)



Parent

 

Issuer

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

$

6,229 

 

$

(42,958)

 

$

17,549 

 

$

(15,047)

 

$

9,269 

 

$

(24,958)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments for capital expenditures

 

 -

 

 

 -

 

 

(63,489)

 

 

(2,245)

 

 

 -

 

 

(65,734)

Other

 

 -

 

 

 -

 

 

2,003 

 

 

10,132 

 

 

 -

 

 

12,135 

Net cash used in investing activities

 

 -

 

 

 -

 

 

(61,486)

 

 

7,887 

 

 

 -

 

 

(53,599)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of short-term debt

 

 -

 

 

 -

 

 

 -

 

 

744 

 

 

 -

 

 

744 

Intercompany dividends

 

 -

 

 

 -

 

 

 -

 

 

9,269 

 

 

(9,269)

 

 

 -

Changes in notes with affiliated companies, net

 

(845)

 

 

(41,727)

 

 

44,181 

 

 

(1,609)

 

 

 -

 

 

 -

Other

 

(5,384)

 

 

(75)

 

 

 -

 

 

 -

 

 

 -

 

 

(5,459)

Net cash provided by (used in) financing activities

 

(6,229)

 

 

(41,802)

 

 

44,181 

 

 

8,404 

 

 

(9,269)

 

 

(4,715)

Effect of exchange rate changes on cash

 

 -

 

 

 -

 

 

 -

 

 

1,812 

 

 

 -

 

 

1,812 

Net change in cash, cash equivalents, and restricted cash

 

 -

 

 

(84,760)

 

 

244 

 

 

3,056 

 

 

 -

 

 

(81,460)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents, and restricted cash at beginning of period

 

 -

 

 

126,533 

 

 

20,923 

 

 

45,027 

 

 

 -

 

 

192,483 

Cash, cash equivalents, and restricted cash at end of period

$

 -

 

$

41,773 

 

$

21,167 

 

$

48,083 

 

$

 -

 

$

111,023 













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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations



Forward-Looking Statements



This Quarterly Report on Form 10-Q and other documents filed by us with the SEC contain, and future oral or written statements or press releases by us and our management may contain, forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Generally, the words “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks” and “estimates,” variations of such words and similar expressions identify forward-looking statements, although not all forward-looking statements contain these identifying words.  All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q or such other materials regarding our financial position, financial performance, liquidity, strategic alternatives, market outlook, future capital needs, capital allocation plans, business strategies and other plans and objectives of our management for future operations and activities are forward-looking statements. These statements are based on certain assumptions and analyses made by our management in light of its experience and prevailing circumstances on the date such statements are made. Such forward-looking statements, and the assumptions on which they are based, are inherently speculative and are subject to a number of risks and uncertainties that could cause our actual results to differ materially from such statements. Such risks and uncertainties include, but are not limited to: the conditions in the oil and gas industry, especially oil and natural gas prices and capital expenditures by oil and gas companies; our outstanding debt obligations and the potential effect of limiting our ability to fund future growth and operations and increasing our exposure to risk during adverse economic conditions; necessary capital financing may not be available at economic rates or at all; volatility of our common stock; operating hazards, including the significant possibility of accidents resulting in personal injury or death, property damage or environmental damage for which we may have limited or no insurance coverage or indemnification rights; we may not be fully indemnified against losses incurred due to catastrophic events; claims, litigation or other proceedings that require cash payments or could impair financial condition; credit risk associated with our customer base; the effect of regulatory programs (including regarding worker health and safety laws) and environmental matters on our operations or prospects, including the risk that future changes in the regulation of hydraulic fracturing could reduce demand for our pressure pumping and fluid management services, or that future changes in climate change legislation could result in increased operating costs or reduced commodity demand globally; the impact that unfavorable or unusual weather conditions could have on our operations; the potential inability to retain key employees and skilled workers; political, legal, economic and other risks and uncertainties associated with our international operations; laws, regulations or practices in foreign countries could materially restrict our operations or expose us to additional risks; potential changes in tax laws, adverse positions taken by tax authorities or tax audits impacting our operating results; changes in competitive and technological factors affecting our operations; risks associated with the uncertainty of macroeconomic and business conditions worldwide; not realizing the benefits of acquisitions or divestitures; our operations may be subject to cyber-attacks that could have an adverse effect on our business operations; counterparty risks associated with reliance on key suppliers; challenges with estimating our potential liabilities related to our oil and natural gas property; and risks associated with potential changes of Bureau of Ocean Energy Management security and bonding requirements for offshore platforms.  These risks and other uncertainties related to our business are described in detail in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Investors are cautioned that many of the assumptions on which our forward-looking statements are based are likely to change after such statements are made, including for example the market prices of oil and gas and regulations affecting oil and gas operations, which we cannot control or anticipate. Further, we may make changes to our business strategies and plans (including our capital spending and capital allocation plans) at any time and without notice, based on any changes in the above-listed factors, our assumptions or otherwise, any of which could or will affect our results. For all these reasons, actual events and results may differ materially from those anticipated, estimated, projected or implied by us in our forward-looking statements. We undertake no obligation to update any of our forward-looking statements for any reason and, notwithstanding any changes in our assumptions, changes in our business plans, our actual experience, or other changes. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.



Executive Summary



General



We provide a wide variety of services and products to the energy industry.  We serve major, national and independent oil and natural gas exploration and production companies around the world and offer products and services with respect to the various phases of a well’s economic life cycle.  We report our operating results in four business segments: Drilling Products and Services; Onshore Completion and Workover Services; Production Services; and Technical Solutions. 



Industry Trends



The oil and gas industry is both cyclical and seasonal.  The level of spending by oil and gas companies is highly influenced by current and expected demand and future prices of oil and natural gas. Changes in spending result in an increased or decreased demand for our

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services and products. Rig count is an indicator of the level of spending by oil and gas companies. Our financial performance is significantly affected by the rig count in the U.S. land and offshore market areas as well as oil and natural gas prices and worldwide rig activity, which are summarized in the tables below.







 

 

 

 

 

 

 

 



 

 



 

Three Months Ended March 31,



 

2019

 

2018

 

% Change

Worldwide Rig Count (1)

 

 

 

 

 

 

 

 

U.S.:

 

 

 

 

 

 

 

 

Land

 

 

1,023 

 

 

951 

 

8%

Offshore

 

 

21 

 

 

16 

 

31%

Total

 

 

1,044 

 

 

967 

 

8%

International (2)

 

 

1,030 

 

 

970 

 

6%

Worldwide Total

 

 

2,074 

 

 

1,937 

 

7%



 

 

 

 

 

 

 

 

Commodity Prices (average)

 

 

 

 

 

 

 

 

Crude Oil (West Texas Intermediate)

 

$

54.82 

 

$

62.91 

 

-13%

Natural Gas (Henry Hub)

 

$

2.92 

 

$

3.07 

 

-5%



 

 

 

 

 

 

 

 





(1) Estimate of drilling activity as measured by the average active drilling rigs based on Baker Hughes, a GE company, rig   count information.

(2) Excludes Canadian Rig Count.



Comparison of the Results of Operations for the Three Months Ended March 31, 2019 and December 31, 2018



For the first quarter of 2019, our revenue was $467.2 million and the net loss was $47.7 million, or a $0.31 loss per share.  This compares to net loss of $750.2 million, or a $4.85 loss per share, for the fourth quarter of 2018, on revenue of $539.3 million.  Net loss for the fourth quarter of 2018 included a pre-tax charge of $743.7 million, primarily related to reduction in value of goodwill and long-lived assets.



First quarter 2019 revenue in our Drilling Products and Services segment decreased 4% sequentially to $101.1 million, as compared to $105.3 million in the fourth quarter of 2018.  U.S. land revenue increased 3% sequentially to $48.2 million due to the increase in rentals of premium drill pipe during the quarter.  International revenue decreased 15% to $23.8 million and U.S. offshore revenue decreased 5% sequentially to $29.1 million primarily due to decrease in rentals of premium drill pipe.



First quarter 2019 revenue in our Onshore Completion and Workover Services segment decreased 20% to $205.0 million, as compared to $255.1 million for the fourth quarter of 2018.  The decrease in revenue is primarily attributable to decreased activity in our pressure pumping business. 



First quarter 2019 revenue in our Production Services segment decreased 6% sequentially to $103.5 million, as compared to $109.9 million in the fourth quarter of 2018.  Revenue from U.S. offshore and international market areas remained flat at $19.3 million and $43.5 million, respectively.  U.S. land revenue decreased 14% to $40.7 million, primarily due to a decrease in coiled tubing activities.

First quarter 2019 revenue in our Technical Solutions segment decreased 17% sequentially to $57.6 million, as compared to $69.0 million in the fourth quarter of 2018.  U.S. land revenue increased 49% sequentially to $11.9 million, primarily due to an increase in demand for well control services.  International revenue increased 20% sequentially to $24.8 million primarily due to an increase in subsea intervention services.  U.S. offshore revenue decreased 48% sequentially to $20.9 million due to a decrease in demand for completion tools and products.



Comparison of the Results of Operations for the Three Months Ended March 31, 2019 and March 31, 2018 



For the three months ended March 31, 2019, our revenue was $467.2 million, a decrease of $15.2 million or 3%, as compared to the same period in 2018.  Net loss was $47.7 million, or a $0.31 loss per share.  This compares to a net loss for the three months ended March 31, 2018 of $59.7 million, or a $0.39 loss per share.



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The following table compares our operating results for the three months ended March 31, 2019 and March 31, 2018 (in thousands, except percentages).  Cost of services and rentals excludes depreciation, depletion, amortization and accretion for each of our business segments. 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Revenue

 

 

 

Cost of Services and Rentals



2019

 

2018

 

Change

 

%

 

2019

 

%

 

2018

 

%

 

Change

Drilling Products and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Services

$

101,079 

 

$

85,202 

 

$

15,877 

 

19%

 

$

42,205 

 

42%

 

$

35,070 

 

41%

 

$

7,135 

Onshore Completion and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Workover Services

 

205,038 

 

 

231,489 

 

 

(26,451)

 

-11%

 

 

171,799 

 

84%

 

 

180,651 

 

78%

 

 

(8,852)

Production Services

 

103,450 

 

 

100,717 

 

 

2,733 

 

3%

 

 

79,881 

 

77%

 

 

85,936 

 

85%

 

 

(6,055)

Technical Solutions

 

57,609 

 

 

64,910 

 

 

(7,301)

 

-11%

 

 

36,278 

 

63%

 

 

41,803 

 

64%

 

 

(5,525)

Total

$

467,176 

 

$

482,318 

 

$

(15,142)

 

-3%

 

$

330,163 

 

71%

 

$

343,460 

 

71%

 

$

(13,297)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 





Operating Segments:



Drilling Products and Services Segment



Revenue from our Drilling Products and Services segment increased 19% to $101.1 million for the three months ended March 31, 2019, as compared to $85.2 million for the same period in 2018.  Cost of services and rentals as a percentage of revenue increased to 42% of segment revenue for the three months ended March 31, 2019, as compared to 41% for the same period in 2018.  Revenue from the U.S. land market areas increased 18% as a result of increases in revenue from rentals of premium drill pipe and bottom hole assemblies, as demand for these rental products increased along with the increase in U.S. land rig count.  Revenue from the U.S. offshore market area increased 38% primarily due to an increase in revenue from rentals of premium drill pipe and bottom hole assemblies.  The revenue from the international market areas remained flat.     



Onshore Completion and Workover Services Segment



Revenue from our Onshore Completion and Workover Services segment decreased 11% to $205.0 million for the three months ended March 31, 2019, as compared to $231.5 million for the same period in 2018.  All of this segment’s revenue is derived from the U.S. land market area.  Cost of services and rentals as a percentage of revenue increased to 84% of segment revenue for the three months ended March 31, 2019, as compared to 78% for the same period in 2018.  The decrease in revenue is primarily attributable to decreased activity in our pressure pumping and well services businesses. 



Production Services Segment



Revenue from our Production Services segment for the three months ended March 31, 2019 increased by 3% to $103.5 million, as compared to $100.8 million for the same period in 2018.  Cost of services and rentals as a percentage of revenue decreased to 77% of segment revenue for the three months ended March 31, 2019, as compared to 85% for the same period in 2018.  Revenue from the U.S. land market area decreased 22%, primarily due to a decrease in coiled tubing activities.  The revenue from the international market areas increased 41%, primarily due to an increase in hydraulic workover and snubbing activities.  Revenue from the U.S. offshore market area increased 10%, primarily due to an increase in pressure control activities.   



Technical Solutions Segment



Revenue from our Technical Solutions segment decreased 11% to $57.6 million for the three months ended March 31, 2019, as compared to $64.8 million for the same period in 2018.  Cost of services and rentals as a percentage of revenue decreased to 63% of segment revenue for the three months ended March 31, 2019, as compared to 64% for the same period in 2018.  Revenue from the U.S. land market area increased 74%, primarily due to an increase in well control services.  Revenue from the international market areas increased 21%, primarily due to an increase in demand for completion tools and products.  Revenue derived from the U.S. offshore market area decreased 44%, primarily due to a decrease in demand for completion tools and products.  







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Depreciation, Depletion, Amortization and Accretion



Depreciation, depletion, amortization and accretion decreased to $82.4 million during the three months ended March 31, 2019 from $105.7 million during the same period in 2018.  Depreciation and amortization expense decreased for our Drilling Products and Services segment by $6.6 million, or 22%; for our Onshore Completion and Workover Services segment by $9.9 million, or 21%; for our Production Services segment by $5.1 million, or 27%; and for our Technical Solutions segment by $1.4 million, or 18%.  Depreciation expense for Corporate and Other remained flat.  The decrease in depreciation, depletion, amortization and accretion is primarily due to assets becoming fully depreciated.



Income Taxes



Our effective income tax rate for the three months ended March 31, 2019 was a 4% expense compared to a 14% benefit for the same period in 2018.  The change in the effective income tax rate was primarily impacted by discrete items recorded during the three months ended March 31, 2019.  

   

Liquidity and Capital Resources



For the three months ended March 31, 2019, we generated net cash from operating activities of $27.4 million, as compared to cash used in operating activities of $25.0 million for the same period in 2018.  Our primary liquidity needs during the next twelve months are for working capital and capital expenditures.  Our primary sources of liquidity are cash flows from operations and available borrowings under our credit facility.  We had cash and cash equivalents of $151.6 million at March 31, 2019, compared to $158.1 million at December 31, 2018    



We spent $41.2 million of cash on capital expenditures during the three months ended March 31, 2019.  Approximately $20.2 million was used to expand and maintain our Drilling Products and Services segment’s equipment inventory.  Approximately $18.0 million, $1.3 million and $1.3 million was spent in our Onshore Completion and Workover Services, Production Services and Technical Solutions segments, respectively.  During 2019, we intend to limit capital spending within our operational cash flow levels to generate free cash flow and allocate capital to businesses with higher returns on invested capital.



We have an asset-based revolving credit facility which matures in October 2022.  The borrowing base under the credit facility is calculated based on a formula referencing the borrower’s and the subsidiary guarantors’ eligible accounts receivable, eligible inventory and eligible premium rental drill pipe less reserves.  Availability under the credit facility is the lesser of (i) the commitments, (ii) the borrowing base and (iii) the highest principal amount permitted to be secured under the indenture governing the 7 1/8% senior unsecured notes due 2021.  At March 31, 2019, the borrowing base was $240.8 million and we had $73.2 million of letters of credit outstanding that reduced our borrowing availability under the revolving credit facility.   The credit agreement contains various covenants, including, but not limited to, limitations on the incurrence of indebtedness, permitted investments, liens on assets, making distributions, transactions with affiliates, merger, consolidations, dispositions of assets and other provisions customary in similar types of agreements.  At March 31, 2019, we were in compliance with all such covenants. 



We have outstanding $500 million of 7 3/4% senior unsecured notes due September 2024.  The indenture governing the 7 3/4% senior unsecured notes due 2024 requires semi-annual interest payments on March 15 and September 15 of each year through the maturity date of September 15, 2024.  The indenture contains customary events of default and requires that we satisfy various covenants.  At March 31, 2019, we were in compliance with all such covenants.



We also have outstanding $800 million of 7 1/8% unsecured senior notes due December 2021.  The indenture governing the 7 1/8% senior notes due 2021 requires semi-annual interest payments on June 15 and December 15 of each year through the maturity date of December 15, 2021.  The indenture contains customary events of default and requires that we satisfy various covenants.  At March 31, 2019, we were in compliance with all such covenants.



Other Matters



Off-Balance Sheet Arrangements and Hedging Activities



At March 31, 2019, we had no off-balance sheet arrangements and no hedging contracts.



Recently Adopted Accounting Guidance



See Part I, Item 1, “Financial Statements – Note 7 – Leases.”









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Item 3.  Quantitative and Qualitative Disclosures about Market Risk



We are exposed to market risks associated with foreign currency fluctuations and changes in interest rates.  A discussion of our market risk exposure in financial instruments follows.



Foreign Currency Exchange Rates Risk



Because we operate in a number of countries throughout the world, we conduct a portion of our business in currencies other than the U.S. dollar.  The functional currency for our international operations, other than certain operations in the United Kingdom and Europe, is the U.S. dollar, but a portion of the revenues from our international operations is paid in foreign currencies.  The effects of foreign currency fluctuations are partly mitigated because local expenses of such international operations are also generally denominated in the same currency.  We continually monitor the currency exchange risks associated with all contracts not denominated in the U.S. dollar. 



Assets and liabilities of certain subsidiaries in the United Kingdom and Europe are translated at end of period exchange rates, while income and expenses are translated at average rates for the period.  Translation gains and losses are reported as the foreign currency translation component of accumulated other comprehensive loss in stockholders’ equity. 



We do not hold derivatives for trading purposes or use derivatives with complex features. When we believe prudent, we enter into forward foreign exchange contracts to hedge the impact of foreign currency fluctuations. We do not enter into forward foreign exchange contracts for trading or speculative purposes.  At March 31, 2019, we had no outstanding foreign currency forward contracts.



Interest Rate Risk



At March 31, 2019, we had no variable rate debt outstanding.



Commodity Price Risk



Our revenues and profitability significantly depend upon the market prices of oil and natural gas.



For additional discussion, see Part 1, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

 





Item 4.  Controls and Procedures



(a)

Evaluation of disclosure controls and procedures.    As of the end of the period covered by this quarterly report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation, that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) are effective for ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures and is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.



 

(b)

Changes in internal control.  Effective January 1, 2019, we adopted Topic 842, Leases.  The adoption of this standard resulted in recording of operating lease assets and operating lease liabilities, with no related impact on our condensed consolidated statement of equity or condensed consolidated statement of operations for the three months ended March 31, 2019.  In connection with the adoption of the new standard, we implemented internal controls to ensure we adequately evaluated our contracts and properly assessed the impact of the new accounting standard.  There were no other changes in our internal control over financial reporting that occurred during the three months ended March 31, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 

 

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PART II.  OTHER INFORMATION



Item 1.  Legal Proceedings



From time to time, we are involved in various legal actions incidental to our business.   The outcome of these proceedings is not predictable.  However, based on current circumstances, we do not believe that the ultimate resolution of these proceedings, after considering available defenses and any insurance coverage or indemnification rights, will have a material adverse effect on our financial position, results of operations or cash flows.



Item 1A.  Risk Factors



For information regarding certain risks relating to our operations, any of which could negatively affect our business, financial condition, operating results or prospects, see Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2018.



Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds



Issuer Purchases of Equity Securities



 

 

 

 

 



 

 

 

 

 

Period

 


Total Number
of Shares
Purchased (1)

 


Average Price Paid per Share

January 1 - 31, 2019

 

423,574 

 

$

3.84 

February 1 - 28, 2019

 

8,290 

 

$

4.67 

March 1 - 31, 2019

 

 -

 

$

 -

Total

 

431,864 

 

$

3.86 



 

 

 

 

 

 (1)   Through our stock incentive plans, 431,864 shares were delivered to us by our employees to satisfy their tax withholding requirements upon vesting of restricted stock units.



Item 6.   Exhibits



(a)    The following exhibits are filed with this Form 10-Q:





 

Exhibit No.

Description

3.1

Restated Certificate of Incorporation of Superior Energy Services, Inc. (incorporated herein by reference to Exhibit 3.1 to Superior Energy Services, Inc.’s Quarterly Report on Form 10-Q filed August 7, 2013 (File No. 001-34037)). 

3.2

Amended and Restated Bylaws of Superior Energy Services, Inc. (as amended through March 7, 2012) (incorporated herein by reference to Exhibit 3.1 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed March 12, 2012 (File No. 001-34037))

31.1*

Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 

31.2*

Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

Officer’s certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 

32.2*

Officer’s certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 







 

101.INS*

XBRL Instance Document

101.SCH*

XBRL Taxonomy Extension Schema Document

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB*

XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF*

XBRL Taxonomy Extension Definition Linkbase Document



    *Filed herein

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SIGNATURE



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.



SUPERIOR ENERGY SERVICES, INC.





 

 

 



 

 

 



 

By:

/s/ Westervelt T. Ballard, Jr.



 

 

Westervelt T. Ballard, Jr.

Executive Vice President, Chief Financial Officer and Treasurer



 

 

 



 

 

 



 

By:

/s/ James W. Spexarth



 

 

James W. Spexarth



 

 

Chief Accounting Officer



 

 

 

Date:

April 24, 2019

 

 











26