pten-10q_20190331.htm

38*523000" 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

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 number 0-22664

 

Patterson-UTI Energy, Inc.

(Exact name of registrant as specified in its charter)

 

 

DELAWARE

 

75-2504748

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

10713 W. SAM HOUSTON PKWY N, SUITE 800

HOUSTON, TEXAS

 

77064

(Address of principal executive offices)

 

(Zip Code)

(281) 765-7100

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

Non-accelerated filer

 

 

 

 

 

  

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 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

208,542,994 shares of common stock, $0.01 par value, as of April 25, 2019

 

 

 

 

 


PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

 

 

PART I — FINANCIAL INFORMATION

 

 

 

 

 

 

Page

ITEM 1.

 

Financial Statements

  

 

 

 

Unaudited condensed consolidated balance sheets

  

3

 

 

Unaudited condensed consolidated statements of operations

  

4

 

 

Unaudited condensed consolidated statements of comprehensive loss

  

5

 

 

Unaudited condensed consolidated statements of changes in stockholders’ equity

  

6

 

 

Unaudited condensed consolidated statements of cash flows

  

7

 

 

Notes to unaudited condensed consolidated financial statements

  

8

ITEM 2.

 

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

  

25

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

  

34

ITEM 4.

 

Controls and Procedures

  

35

 

 

 

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Legal Proceedings

  

36

ITEM 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

37

ITEM 6.

 

Exhibits

  

38

Signature  

 

 

  

39

 

 

 

 


PART I — FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

The following unaudited condensed consolidated financial statements include all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented.

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share data)

 

March 31,

 

 

December 31,

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

248,901

 

 

$

245,029

 

Accounts receivable, net of allowance for doubtful accounts of $2,307 and $2,312

   at March 31, 2019 and December 31, 2018, respectively

 

547,993

 

 

 

558,817

 

Federal and state income taxes receivable

 

4,083

 

 

 

4,110

 

Inventory

 

65,871

 

 

 

65,579

 

Other

 

60,883

 

 

 

76,662

 

Total current assets

 

927,731

 

 

 

950,197

 

Property and equipment, net

 

3,898,518

 

 

 

4,002,549

 

Right of use asset

 

28,405

 

 

 

 

Goodwill and intangible assets

 

476,078

 

 

 

477,640

 

Deposits on equipment purchases

 

10,505

 

 

 

12,040

 

Other

 

26,515

 

 

 

27,440

 

Total assets

$

5,367,752

 

 

$

5,469,866

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

260,378

 

 

$

288,962

 

Federal and state income taxes payable

 

1,367

 

 

 

1,408

 

Accrued expenses

 

240,196

 

 

 

235,946

 

Lease liability

 

9,217

 

 

 

-

 

Total current liabilities

 

511,158

 

 

 

526,316

 

Long-term lease liability

 

23,903

 

 

 

 

Long-term debt, net of debt discount and issuance costs of $5,574 and $5,795

   at March 31, 2019 and December 31, 2018, respectively

 

1,119,426

 

 

 

1,119,205

 

Deferred tax liabilities, net

 

299,557

 

 

 

306,161

 

Other

 

10,339

 

 

 

12,761

 

Total liabilities

 

1,964,383

 

 

 

1,964,443

 

Commitments and contingencies (see Note 10)

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Preferred stock, par value $.01; authorized 1,000,000 shares, no shares issued

 

 

 

 

 

Common stock, par value $.01; authorized 400,000,000 shares with 267,353,108 and

   267,315,526 issued and 208,243,640 and 213,614,430 outstanding at

   March 31, 2019 and December 31, 2018, respectively

 

2,673

 

 

 

2,673

 

Additional paid-in capital

 

2,836,492

 

 

 

2,827,154

 

Retained earnings

 

1,716,334

 

 

 

1,753,557

 

Accumulated other comprehensive income

 

3,431

 

 

 

2,487

 

Treasury stock, at cost, 59,109,468 and 53,701,096 shares at

   March 31, 2019 and December 31, 2018, respectively

 

(1,155,561

)

 

 

(1,080,448

)

Total stockholders' equity

 

3,403,369

 

 

 

3,505,423

 

Total liabilities and stockholders' equity

$

5,367,752

 

 

$

5,469,866

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


3


PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share data)

 

 

Three Months Ended

 

 

March 31,

 

 

2019

 

 

2018

 

Operating revenues:

 

 

 

 

 

 

 

Contract drilling

$

372,392

 

 

$

327,803

 

Pressure pumping

 

247,601

 

 

 

406,784

 

Directional drilling

 

52,959

 

 

 

48,616

 

Other

 

31,219

 

 

 

25,961

 

Total operating revenues

 

704,171

 

 

 

809,164

 

Operating costs and expenses:

 

 

 

 

 

 

 

Contract drilling

 

219,202

 

 

 

212,583

 

Pressure pumping

 

202,748

 

 

 

320,970

 

Directional drilling

 

45,602

 

 

 

37,689

 

Other

 

21,773

 

 

 

17,745

 

Depreciation, depletion, amortization and impairment

 

214,410

 

 

 

209,892

 

Selling, general and administrative

 

32,555

 

 

 

32,817

 

Merger and integration expenses

 

 

 

 

1,991

 

Other operating income, net

 

(8,736

)

 

 

(2,421

)

Total operating costs and expenses

 

727,554

 

 

 

831,266

 

Operating loss

 

(23,383

)

 

 

(22,102

)

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

Interest income

 

1,032

 

 

 

1,423

 

Interest expense, net of amount capitalized

 

(12,984

)

 

 

(13,625

)

Other

 

117

 

 

 

169

 

Total other expense

 

(11,835

)

 

 

(12,033

)

 

 

 

 

 

 

 

 

Loss before income taxes

 

(35,218

)

 

 

(34,135

)

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

(6,604

)

 

 

282

 

 

 

 

 

 

 

 

 

Net loss

$

(28,614

)

 

$

(34,417

)

 

 

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

 

Basic

$

(0.14

)

 

$

(0.16

)

Diluted

$

(0.14

)

 

$

(0.16

)

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

Basic

 

211,868

 

 

 

220,783

 

Diluted

 

211,868

 

 

 

220,783

 

Cash dividends per common share

$

0.04

 

 

$

0.02

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

4


PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited, in thousands)

 

 

Three Months Ended

 

 

March 31,

 

 

2019

 

 

2018

 

Net loss

$

(28,614

)

 

$

(34,417

)

Other comprehensive income (loss), net of taxes of $0 for all periods:

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

944

 

 

 

(1,984

)

Total comprehensive loss

$

(27,670

)

 

$

(36,401

)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

5


PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited, in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Treasury

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Income (Loss)

 

 

Stock

 

 

Total

 

Balance, December 31, 2018

 

267,316

 

 

$

2,673

 

 

$

2,827,154

 

 

$

1,753,557

 

 

$

2,487

 

 

$

(1,080,448

)

 

$

3,505,423

 

Net loss

 

 

 

 

 

 

 

 

 

 

(28,614

)

 

 

 

 

 

 

 

 

(28,614

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

944

 

 

 

 

 

 

944

 

Vesting of restricted stock units

 

38

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeitures of restricted stock

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

9,338

 

 

 

 

 

 

 

 

 

 

 

 

9,338

 

Payment of cash dividends

 

 

 

 

 

 

 

 

 

 

(8,499

)

 

 

 

 

 

 

 

 

(8,499

)

Dividend equivalents

 

 

 

 

 

 

 

 

 

 

(110

)

 

 

 

 

 

 

 

 

(110

)

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(75,113

)

 

 

(75,113

)

Balance, March 31, 2019

 

267,353

 

 

$

2,673

 

 

$

2,836,492

 

 

$

1,716,334

 

 

$

3,431

 

 

$

(1,155,561

)

 

$

3,403,369

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Treasury

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Income (Loss)

 

 

Stock

 

 

Total

 

Balance, December 31, 2017

 

266,259

 

 

$

2,662

 

 

$

2,785,823

 

 

$

2,105,897

 

 

$

6,822

 

 

$

(918,711

)

 

$

3,982,493

 

Net loss

 

 

 

 

 

 

 

 

 

 

(34,417

)

 

 

 

 

 

 

 

 

(34,417

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,984

)

 

 

 

 

 

(1,984

)

Exercise of stock options

 

40

 

 

 

1

 

 

 

484

 

 

 

 

 

 

 

 

 

 

 

 

485

 

Stock-based compensation

 

 

 

 

 

 

 

9,365

 

 

 

 

 

 

 

 

 

 

 

 

9,365

 

Payment of cash dividends

 

 

 

 

 

 

 

 

 

 

(4,443

)

 

 

 

 

 

 

 

 

(4,443

)

Dividend equivalents

 

 

 

 

 

 

 

 

 

 

(30

)

 

 

 

 

 

 

 

 

(30

)

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,928

)

 

 

(16,928

)

Balance, March 31, 2018

 

266,299

 

 

$

2,663

 

 

$

2,795,672

 

 

$

2,067,007

 

 

$

4,838

 

 

$

(935,639

)

 

$

3,934,541

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

 

6


PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

 

Three Months Ended

 

 

March 31,

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

$

(28,614

)

 

$

(34,417

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation, depletion, amortization and impairment

 

214,410

 

 

 

209,892

 

Dry holes and abandonments

 

21

 

 

 

96

 

Deferred income tax expense (benefit)

 

(6,604

)

 

 

282

 

Stock-based compensation expense

 

9,338

 

 

 

9,365

 

Net gain on asset disposals

 

(6,545

)

 

 

(10,410

)

Amortization of debt discount and issuance costs

 

221

 

 

 

170

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

10,929

 

 

 

(16,468

)

Income taxes receivable/payable

 

(14

)

 

 

19

 

Inventory and other assets

 

6,592

 

 

 

2,709

 

Accounts payable

 

(17,858

)

 

 

(22,514

)

Accrued expenses

 

2,871

 

 

 

11,174

 

Other liabilities

 

(915

)

 

 

67

 

Net cash provided by operating activities

 

183,832

 

 

 

149,965

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Acquisitions, net of cash acquired

 

(13

)

 

 

(3,800

)

Purchases of property and equipment

 

(118,341

)

 

 

(122,921

)

Proceeds from disposal of assets and insurance claims

 

22,054

 

 

 

10,294

 

Net cash used in investing activities

 

(96,300

)

 

 

(116,427

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Purchases of treasury stock

 

(75,113

)

 

 

(16,928

)

Proceeds from exercise of options

 

 

 

 

485

 

Dividends paid

 

(8,499

)

 

 

(4,443

)

Debt issuance costs

 

 

 

 

(4,198

)

Proceeds from long-term debt

 

 

 

 

521,194

 

Proceeds from borrowings under revolving credit facility

 

 

 

 

79,000

 

Repayment of borrowings under revolving credit facility

 

 

 

 

(347,000

)

Net cash provided by financing activities

 

(83,612

)

 

 

228,110

 

Effect of foreign exchange rate changes on cash

 

(48

)

 

 

(225

)

Net increase in cash and cash equivalents

 

3,872

 

 

 

261,423

 

Cash and cash equivalents at beginning of period

 

245,029

 

 

 

42,828

 

Cash and cash equivalents at end of period

$

248,901

 

 

$

304,251

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Net cash (paid) received during the period for:

 

 

 

 

 

 

 

Interest, net of capitalized interest of $257 in 2019 and $340 in 2018

$

(10,689

)

 

$

(2,206

)

Income taxes

 

(15

)

 

 

21

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

Receivable from property and equipment insurance

$

 

 

$

15,000

 

Net increase (decrease) in payables for purchases of property and equipment

 

(10,764

)

 

 

62,488

 

Net (increase) decrease in deposits on equipment purchases

 

1,535

 

 

 

(2,294

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

7


PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Basis of Presentation

Basis of presentation - The unaudited interim condensed consolidated financial statements include the accounts of Patterson-UTI Energy, Inc. and its wholly-owned subsidiaries (collectively referred to herein as the “Company”). All significant intercompany accounts and transactions have been eliminated. Except for wholly-owned subsidiaries, the Company has no controlling financial interests in any other entity which would require consolidation. As used in these notes, “the Company” refers collectively to Patterson-UTI Energy, Inc. and its consolidated subsidiaries.  Patterson-UTI Energy, Inc. conducts its business operations through its wholly-owned subsidiaries and has no employees or independent operations.

The unaudited interim condensed consolidated financial statements have been prepared by management of the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted pursuant to such rules and regulations, although the Company believes the disclosures included either on the face of the financial statements or herein are sufficient to make the information presented not misleading. In the opinion of management, all recurring adjustments considered necessary for a fair statement of the information in conformity with U.S. GAAP have been included. The unaudited condensed consolidated balance sheet as of December 31, 2018, as presented herein, was derived from the audited consolidated balance sheet of the Company, but does not include all disclosures required by U.S. GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the full year.

The U.S. dollar is the functional currency for all of the Company’s operations except for its Canadian operations, which use the Canadian dollar as its functional currency. The effects of exchange rate changes are reflected in accumulated other comprehensive income, which is a separate component of stockholders’ equity.

Recently Issued Accounting Standards – In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update to provide guidance on the recognition of revenue from customers.  Under this guidance, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services.  This guidance also requires more detailed disclosures to enable users of the financial statements to understand the nature, amount, timing and uncertainty, if any, of revenue and cash flows arising from contracts with customers.  The requirements in this update are effective during interim and annual periods beginning after December 15, 2017.  The Company adopted this new revenue guidance effective January 1, 2018, utilizing the modified retrospective method, and expanded its consolidated financial statement disclosures in order to comply with the update (See Note 3).  The adoption of this update did not have a material impact on the Company’s consolidated financial statements.  

In February 2016, the FASB issued an accounting standards update to provide guidance for the accounting for leasing transactions.  The standard requires the lessee to recognize a lease liability along with a right-of-use asset for all leases with a term longer than one year.  A lessee is permitted to make an accounting policy election by class of underlying asset to not recognize the lease liability and related right-of-use asset for leases with a term of one year or less.  The provisions of this standard also apply to situations where the Company is the lessor. The requirements in this update are effective during interim and annual periods beginning after December 15, 2018.  The Company adopted this new leasing guidance effective January 1, 2019 and expanded its consolidated financial statement disclosures in order to comply with the update (See Note 4).  

In August 2016, the FASB issued an accounting standards update to clarify the presentation of cash receipts and payments in specific situations on the statement of cash flows.  The requirements in this update are effective during interim and annual periods in fiscal years beginning after December 15, 2017.  The adoption of this update on January 1, 2018 did not have a material impact on the Company’s consolidated financial statements.

In May 2017, the FASB issued an accounting standards update that provided clarity on which changes to the terms or conditions of share-based payment awards require an entity to apply modification accounting provisions.  The requirements in this update are effective during interim and annual periods in fiscal years beginning after December 15, 2017.  The adoption of this update on January 1, 2018 did not have a material impact on the Company’s consolidated financial statements.

8


In March 2018, the FASB issued an accounting standards update to update the income tax accounting in U.S. GAAP to reflect the SEC interpretive guidance released on December 22, 2017, when significant U.S. tax law changes were enacted with the enactment of “H.R.1,” also known as the “Tax Cuts and Jobs Act” (“U.S. Tax Reform”).  The adoption of this update in March 2018 did not have a material impact on the Company’s consolidated financial statements, as the Company was already following the SEC guidance.  See Note 13 for additional information.

In August 2018, the FASB issued an accounting standards update to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments in the update are effective for public business entities for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact this new guidance will have on its consolidated financial statements.

 

2. Acquisitions

Superior QC, LLC (“Superior QC”)

On February 20, 2018, the Company acquired the business of Superior QC, including its assets and intellectual property.  Superior QC is a provider of software and services used to improve the statistical accuracy of horizontal wellbore placement.  Superior QC’s measurement while drilling (MWD) survey fault detection, isolation and recovery (FDIR) service is a data analytics technology to analyze MWD survey data in real-time and more accurately identify the position of a well.  This acquisition was not material to the Company’s consolidated financial statements.

Current Power Solutions, Inc. (“Current Power”)

On October 25, 2018, the Company acquired Current Power. Current Power is a provider of electrical controls and automation to the energy, marine and mining industries.  This acquisition was not material to the Company’s consolidated financial statements.

 

3. Revenues

ASC Topic 606 Revenue from Contracts with Customers

The Company’s contracts with customers include both long-term and short-term contracts.  Services that primarily generate revenue earned for the Company include the operating business segments of contract drilling, pressure pumping and directional drilling that comprise the Company’s reportable segments.  The Company also derives revenues from its other operations which include the Company’s operating business segments of oilfield rentals, oilfield technology, electrical controls and automation, and oil and natural gas working interests.  For more information on the Company’s business segments, including disaggregated revenue recognized from contracts with customers, see Note 15.

Charges for services are considered a series of distinct services.  Since each distinct service in a series would be satisfied over time if it were accounted for separately, and the entity would measure its progress towards satisfaction using the same measure of progress for each distinct service in the series, the Company is able to account for these integrated services as a single performance obligation that is satisfied over time.

The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer, based on terms of the Company’s contracts with its customers. The consideration promised in a contract with a customer may include fixed amounts and/or variable amounts. Payments received for services are considered variable consideration as the time in service will fluctuate as the services are provided.  Topic 606 provides an allocation exception, which allows the Company to allocate variable consideration to one or more distinct services promised in a series of distinct services that form part of a single performance obligation as long as certain criteria are met.  These criteria state that the variable payment must relate specifically to the entity’s efforts to satisfy the performance obligation or transfer the distinct good or service, and allocation of the variable consideration is consistent with the standards’ allocation objective.  Since payments received for services meet both of these criteria requirements, the Company recognizes revenue when the service is performed.  

An estimate of variable consideration should be constrained to the extent that it is not probable that a significant revenue reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Payments received for other types of consideration are fully constrained as they are highly susceptible to factors outside the entity’s influence and therefore could be subject to a significant revenue reversal once resolved.  As such, revenue received for these types of consideration is recognized when the service is performed.  

Estimates of variable consideration are subject to change as facts and circumstances evolve.  As such, the Company will evaluate its estimates of variable consideration that are subject to constraints throughout the contract period and revise estimates, if necessary, at the end of each reporting period.

9


The Company is a working interest owner of oil and natural gas properties located in Texas and New Mexico.  The ownership terms are outlined in joint operating agreements for each well between the operator of the wells and the various interest owners, including the Company, who are considered non-operators of the well. The Company receives revenue each period for its working interest in the well during the period.  The revenue received for the working interests from these oil and gas properties does not fall under the scope of the new revenue standard, and therefore, will continue to be reported under current guidance ASC 932-323 Extractive Activities – Oil and Gas, Investments – Equity Method and Joint Ventures.

Reimbursement Revenue – Reimbursements for the purchase of supplies, equipment, personnel services, shipping and other services that are provided at the request of the Company’s customers are recorded as revenue when incurred.  The related costs are recorded as operating expenses when incurred.

Accounts Receivable and Contract Liabilities

Accounts receivable is the Company’s right to consideration once it becomes unconditional.  Payment terms range from 30 to 60 days.

Accounts receivable balances were $544 million and $554 million as of March 31, 2019 and December 31, 2018, respectively. These balances do not include amounts related to the Company’s oil and gas working interests as those contracts are excluded from Topic 606.  Accounts receivable balances are included in “Accounts Receivable” in the Condensed Consolidated Balance Sheets.

The Company does not have any significant contract asset balances, and as such, contract balances are not presented at the net amount at a contract level.  Contract liabilities include prepayments received from customers prior to the requested services being completed.  Once the services are complete and have been invoiced, the prepayment is applied against the customer’s account to offset the accounts receivable balance.  Also included in contract liabilities are payments received from customers for the initial mobilization of newly constructed or upgraded rigs that were moved on location to the initial well site.  These mobilization payments are allocated to the overall performance obligation and amortized over the initial term of the contract. During the three months ended March 31, 2019 and 2018, approximately $402,000 and $405,000, respectively, was amortized and recorded in drilling revenue.

Contract liability balances for customer prepayments were $6.8 million and $3.0 million as of March 31, 2019 and December 31, 2018, respectively.  Contract liability balances for deferred mobilization payments relating to newly constructed or upgraded rigs were $4.2 million and $4.6 million as of March 31, 2019 and December 31, 2018, respectively. Contract liability balances for customer prepayments are included in “Accounts Payable” and contract liability balances for deferred mobilization payments are included in “Accrued Liabilities” in the Condensed Consolidated Balance Sheets.

Contract Costs

Costs incurred for newly constructed or rig upgrades based on a contract with a customer are considered capital improvements and are capitalized to drilling equipment and depreciated over the estimated useful life of the asset.  

 

4. Leases

 

     ASC Topic 842 Leases

 

     On January 1, 2019, the Company adopted the new lease guidance under Topic 842, Leases, using the modified retrospective approach to each lease that existed at the date of initial application as well as leases entered into after that date.  The Company has elected to report all leases at the beginning of the period of adoption and not restate its comparative periods.  This standard does not apply to leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources, including the intangible right to

explore for those natural resources and rights to use the land in which those natural resources are contained.

 

     The Company has entered into operating leases for operating locations, corporate offices and certain operating equipment.  These leases have remaining lease terms of 1 month to 9 years as of March 31, 2019.  Currently, the Company does not have any finance leases.  The Company has elected the short-term lease recognition practical expedient whereby right of use assets and lease liabilities are not recognized for leasing arrangements with an initial term of less than one year.

 

     Topic 842 requires that lessees and lessors discount lease payments at the lease commencement date using the rate implicit in the lease, if available, or the lessee’s incremental borrowing rate.  The Company uses the implicit rate when readily determinable.  If the implicit rate is not readily determinable, the Company uses its incremental borrowing rate based on the information available at the commencement date in the determination of the present value of future lease payments.  

 


10


     Practical Expedients Adopted with Topic 842

 

     The Company has elected to adopt the following practical expedients upon the transition date to Topic 842 on January 1, 2019:

 

           

Transitional practical expedients package: An entity may elect to apply the listed practical expedients as a package to all the leases that commenced before the effective date.  The practical expedients are:

 

 

a)

The entity need not reassess whether any expired or existing contracts are or contains leases;

 

b)

The entity need not reassess the lease classification for expired or existing contracts;

 

c)

The entity need not reassess initial direct costs for any existing leases.

 

 

Use of portfolio approach: An entity can apply this guidance to a portfolio of leases with similar characteristics if the entity reasonably expects that the application of the leases model to the portfolio would not differ materially from the application of the leases model to the individual leases in that portfolio.  This approach can also be applied to other aspects of the leases guidance for which lessees/lessors need to make judgments and estimates, such as determining the discount rate and determining and reassessing the lease term.

 

 

 

Lease and non-lease components: As a practical expedient, lease and non-lease components may be combined where the revenue recognition pattern is the same and where the lease component, when accounted for separately, would be considered an operating lease.  The Company’s contract drilling, pressure pumping and directional drilling contracts contain a lease component related to the underlying equipment utilized, in addition to the service component provided by the Company’s crews and expertise to operate the related equipment. The Company has concluded that the non-lease service of operating its equipment and providing expertise in the services provided to our customers is predominant in the Company’s drilling, pressure pumping and directional drilling contracts. With the election of this practical expedient, the Company will continue to present a single performance obligation for these contracts under the revenue guidance in ASC 606.

 

          Lease expense consisted of the following for the three months ended March 31, 2019 (in thousands):

 

Three Months Ended

 

 

March 31,

 

 

2019

 

Operating lease cost

$

3,039

 

Short-term lease expense (1)

 

276

 

Total lease expense

$

3,315

 

(1)

   Short-term lease expense represents expense related to leases with a contract term of one year or less.

 

          Supplemental cash flow information related to leases for the three months ended March 31, 2019 is as follows (in thousands):  

 

Three Months Ended

 

 

March 31,

 

 

2019

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

Operating cash flows from operating leases

$

2,728

 

 

 

 

 

Right of use assets obtained in exchange for lease obligations:

 

 

 

Operating leases

$

-

 

 

 

 

 

 

          Supplemental balance sheet information related to leases as of March 31, 2019 is as follows:

 

March 31,

 

 

2019

 

Weighted Average Remaining Lease Term:

 

 

 

Operating leases

5.0 years

 

 

 

 

 

Weighted Average Discount Rate:

 

 

 

Operating leases

 

4.4

%

 

 


11


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

 

Year ending December 31,

 

 

 

2019 (excluding the three months ended March 31, 2019)

$

8,062

 

2020

 

9,188

 

2021

 

6,661

 

2022

 

4,622

 

2023

 

2,663

 

Thereafter

 

6,552

 

Total lease payments

 

37,748

 

Less imputed interest

 

(4,628

)

Total

$

33,120

 

 

          Maturities of operating lease liabilities as of December 31, 2018, as previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, are as follows (in thousands):

 

Year ending December 31,

 

 

 

2019

$

11,408

 

2020

 

9,069

 

2021

 

6,543

 

2022

 

4,625

 

2023

 

2,663

 

Thereafter

 

6,552

 

Total

$

40,860

 

 

5. Inventory

Inventory consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):

 

March 31,

 

 

December 31,

 

  

2019

 

 

2018

 

Finished goods

$

602

 

 

$

347

 

Work-in-process

 

6,088

 

 

 

6,375

 

Raw materials and supplies

 

59,181

 

 

 

58,857

 

Inventory

$

65,871

 

 

$

65,579

 

 

6. Property and Equipment

Property and equipment consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):

 

March 31,

 

 

December 31,

 

 

2019

 

 

2018

 

Equipment

$

8,392,658

 

 

$

8,370,933

 

Oil and natural gas properties

 

221,782

 

 

 

219,855

 

Buildings

 

186,989

 

 

 

186,736

 

Land

 

26,898

 

 

 

26,144

 

Total property and equipment

 

8,828,327

 

 

 

8,803,668

 

Less accumulated depreciation, depletion and impairment

 

(4,929,809

)

 

 

(4,801,119

)

Property and equipment, net

$

3,898,518

 

 

$

4,002,549

 

 

The Company reviews its long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amounts of certain assets may not be recovered over their estimated remaining useful lives (“triggering events”).  In connection with this review, assets are grouped at the lowest level at which identifiable cash flows are largely independent of other asset groupings.  The Company estimates future cash flows over the life of the respective assets or asset groupings in its assessment of impairment.  These estimates of cash flows are based on historical cyclical trends in the industry as well as the Company’s expectations regarding the continuation of these trends in the future.  Provisions for asset impairment are charged against income when estimated future cash flows, on an undiscounted basis, are less than the asset’s net book value.  Any provision for impairment is measured at fair value.

12


The Company concluded that no triggering events occurred during the three months ended March 31, 2019 with respect to its asset groups based on the Company’s results of operations for the three months ended March 31, 2019, management’s expectations of operating results in future periods and the prevailing commodity prices at the time. 

 

7. Goodwill and Intangible Assets

Goodwill — Goodwill by operating segment as of March 31, 2019 and changes for the three months then ended are as follows (in thousands):

 

Contract

 

 

Other

 

 

 

 

 

 

Drilling

 

 

Operations

 

 

Total

 

Balance at beginning of period

$

395,060

 

 

 

15,696

 

 

$

410,756

 

Changes to goodwill

 

 

 

 

2,104

 

 

 

2,104

 

Balance at end of period

$

395,060

 

 

$

17,800

 

 

$

412,860

 

 

The goodwill reflected above has increased $2.1 million from the original Current Power purchase price allocation primarily as a result of a measurement period adjustment related to accrued liabilities.  There were no accumulated impairment losses related to goodwill in the contract drilling segment or other operations as of March 31, 2019 or December 31, 2018.

 

Goodwill is evaluated at least annually as of December 31, or when circumstances require, to determine if the fair value of recorded goodwill has decreased below its carrying value.  For impairment testing purposes, goodwill is evaluated at the reporting unit level.  The Company’s reporting units for impairment testing are its operating segments.  The Company determines whether it is more likely than not that the fair value of a reporting unit is less than its carrying value after considering qualitative, market and other factors, and if this is the case, any necessary goodwill impairment is determined using a quantitative impairment test.  From time to time, the Company may perform quantitative testing for goodwill impairment in lieu of performing the qualitative assessment.  If the resulting fair value of goodwill is less than the carrying value of goodwill, an impairment loss would be recognized for the amount of the shortfall.

Intangible Assets — The following table presents the gross carrying amount and accumulated amortization of the intangible assets as of March 31, 2019 and December 31, 2018 (in thousands):

 

March 31, 2019

 

 

December 31, 2018

 

 

Gross

 

 

 

 

 

 

Net

 

 

Gross

 

 

 

 

 

 

Net

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Amount

 

 

Amortization

 

 

Amount

 

 

Amount

 

 

Amortization

 

 

Amount

 

Customer relationships

$

28,000

 

 

$

(12,967

)

 

 

15,033

 

 

$

28,000

 

 

$

(10,719

)

 

$

17,281

 

Developed technology

 

55,772

 

 

 

(7,927

)

 

 

47,845

 

 

 

55,772

 

 

 

(6,533

)

 

 

49,239

 

Favorable drilling contracts

 

-

 

 

 

-

 

 

 

-

 

 

 

22,500

 

 

 

(22,500

)

 

 

-

 

Internal use software

 

482

 

 

 

(142

)

 

 

340

 

 

 

482

 

 

 

(118

)

 

 

364

 

 

$

84,254

 

 

$

(21,036

)

 

$

63,218

 

 

$

106,754

 

 

$

(39,870

)

 

$

66,884

 

 

Amortization expense on intangible assets of approximately $3.7 million and $5.4 million was recorded in the three months ended March 31, 2019 and 2018, respectively.

 

8. Accrued Expenses

Accrued expenses consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):

 

March 31,

 

 

December 31,

 

 

2019

 

 

2018

 

Salaries, wages, payroll taxes and benefits

$

58,717

 

 

$

58,160

 

Workers' compensation liability

 

82,537

 

 

 

83,772

 

Property, sales, use and other taxes

 

21,156

 

 

 

25,318

 

Insurance, other than workers' compensation

 

9,611

 

 

 

9,531

 

Accrued interest payable

 

17,806

 

 

 

15,774

 

Accrued merger and integration

 

1,890

 

 

 

2,403

 

Other

 

48,479

 

 

 

40,988

 

Total

$

240,196

 

 

$

235,946

 

13


 

9. Long Term Debt

2018 Credit AgreementOn March 27, 2018, the Company entered into an amended and restated credit agreement (the “Credit Agreement”) among the Company, as borrower, Wells Fargo Bank, National Association, as administrative agent, letter of credit issuer, swing line lender and lender, each of the other lenders and letter of credit issuers party thereto, The Bank of Nova Scotia and U.S. Bank National Association, as Co-Syndication Agents, Royal Bank of Canada, as Documentation Agent and Wells Fargo Securities, LLC, The Bank of Nova Scotia and U.S. Bank National Association, as Co-Lead Arrangers and Joint Book Runners.

The Credit Agreement is a committed senior unsecured revolving credit facility that permits aggregate borrowings of up to $600 million, including a letter of credit facility that, at any time outstanding, is limited to $150 million and a swing line facility that, at any time outstanding, is limited to $20 million.  Subject to customary conditions, the Company may request that the lenders’ aggregate commitments be increased by up to $300 million, not to exceed total commitments of $900 million.  The original maturity date under the Credit Agreement was March 27, 2023.  On March 26, 2019, the Company entered into Amendment No. 1 to Amended and Restated Credit Agreement (the “Amendment”), which amended the Credit Agreement to, among other things, extend the maturity date under the Credit Agreement from March 27, 2023 to March 27, 2024.  The Company has the option, subject to certain conditions, to exercise two one-year extensions of the maturity date.

Loans under the Credit Agreement bear interest by reference, at the Company’s election, to the LIBOR rate or base rate.  The applicable margin on LIBOR rate loans varies from 1.00% to 2.00% and the applicable margin on base rate loans varies from 0.00% to 1.00%, in each case determined based upon the Company’s credit rating.  A letter of credit fee is payable by the Company equal to the applicable margin for LIBOR rate loans times the daily amount available to be drawn under outstanding letters of credit.  The commitment fee rate payable to the lenders varies from 0.10% to 0.30% based on the Company’s credit rating.

No subsidiaries of the Company are currently required to be a guarantor under the Credit Agreement.  How