OKLAHOMA CITY–(BUSINESS WIRE)–Seventy Seven Energy Inc. (NYSE: SSE) today reported financial and operational results for the 2015 full year and fourth quarter. Key information related to the 2015 full year is as follows:
- Adjusted Revenues of $1.089 billion on Total Revenues of $1.131 billion
- Adjusted EBITDA was $235.0 million
- Net loss per fully diluted share was $4.42
SSE reported total revenues of $192.8 million for the fourth quarter of 2015, compared to total revenues of $213.5 million for the third quarter of 2015 and $494.9 million for the fourth quarter of 2014. Total revenues for the 2015 full year were $1.131 billion, compared to total revenues of $2.081 billion for the 2014 full year. Adjusted revenues for the 2015 full year were $1.089 billion compared to $1.812 billion for the 2014 full year.
Adjusted EBITDA for the fourth quarter of 2015 was $56.3 million, compared to $41.1 million for the third quarter of 2015 and $104.6 million for the fourth quarter of 2014. Adjusted EBITDA for the 2015 full year was $235.0 million, compared to $432.2 million for the 2014 full year.
Free cash flow for the fourth quarter of 2015 was ($33.5) million, compared to $42.9 million for the third quarter of 2015 and ($30.9) million for the fourth quarter of 2014. Free cash flow for the 2015 full year was $78.4 million, compared to ($192.3) million for the 2014 full year.
Adjusted net loss for the fourth quarter of 2015 was $32.2 million or $0.64 per fully diluted share, compared to $47.6 million or $0.93 per fully diluted share for the third quarter of 2015 and $7.4 million or $0.16 per fully diluted share for the fourth quarter of 2014. Adjusted net loss for the 2015 full year was $155.4 million, or $3.11 per fully diluted share. Adjusted net income for the 2014 full year was $16.2 million, or $0.34 per fully diluted share.
Net loss for the fourth quarter of 2015 was $60.6 million, or $1.18 per fully diluted share, compared to net loss of $48.5 million, or $0.95 per fully diluted share, for the third quarter of 2015 and net loss of $9.4 million, or $0.20 per fully diluted share, for the fourth quarter of 2014. Net loss for the 2015 full year was $221.4 million, or $4.42 per fully diluted share, compared to net loss of $8.0 million, or $0.17 per fully diluted share, for the 2014 full year.
Adjusted revenues, adjusted EBITDA, free cash flow, adjusted net loss and adjusted net income are non-GAAP financial measures. Reconciliations of these measures to comparable financial measures calculated in accordance with generally accepted accounting principles (GAAP) are provided on pages 8 – 14 of this release.
SSE’s drilling segment contributed revenues of $89.6 million and adjusted EBITDA of $48.3 million for the fourth quarter of 2015 compared to revenues of $80.3 million and adjusted EBITDA of $33.9 million for the third quarter of 2015 and revenues of $204.5 million and adjusted EBITDA of $87.7 million for the fourth quarter of 2014. The increase in revenues for the fourth quarter of 2015 compared to the third quarter of 2015 was primarily due to $11.8 million in lump sum drilling contract termination fees, partially offset by a 5% decrease in revenue days (which is the aggregate number of days each active rig generated revenue). Revenues and adjusted EBITDA were $436.4 million and $184.5 million, respectively, for the 2015 full year, compared to revenues and adjusted EBITDA of $774.5 million and $301.3 million, respectively, for the 2014 full year. The decrease in revenues for the 2015 full year compared to the 2014 full year was primarily due to a 51% decline in revenue days.
The percentage of revenues from non-CHK customers increased to 39% of total segment revenues for 2015 from 34% for 2014. As of December 31, 2015, approximately 42% of SSE’s marketed rigs were contracted by non-CHK customers. As of December 31, 2015, SSE had a total drilling revenue backlog of $355.8 million with an average duration of 16 months.
Operating costs for the fourth quarter of 2015 were $34.9 million, compared to $41.4 million for the third quarter of 2015 and $123.2 million for the fourth quarter of 2014. The decrease in operating costs for the fourth quarter of 2015 compared to the third quarter of 2015 was primarily due to a decrease in labor-related costs. Operating costs were $231.5 million for the 2015 full year, compared to $499.1 million for the 2014 full year. As a percentage of drilling revenues, drilling operating costs were 53% for the 2015 full year and 64% for the 2014 full year. The decrease in operating costs for the 2015 full year compared to the 2014 full year was primarily due to declines in labor-related costs, lower repairs and maintenance expense and the elimination of rig rent expense.
As of December 31, 2015, SSE’s marketed fleet of 91 rigs consisted of 33 Tier 1 rigs, including 22 PeakeRigs™, 57 Tier 2 rigs and one Tier 3 rig. Additionally, SSE had four additional contracted PeakeRigs™ under construction, one of which has been delivered and three of which are scheduled to be delivered during the remainder of 2016.
SSE’s hydraulic fracturing segment contributed revenues of $91.9 million and adjusted EBITDA of $8.1 million during the fourth quarter of 2015, compared to revenues of $118.1 million and adjusted EBITDA of $8.2 million for the third quarter of 2015 and revenues of $213.0 million and adjusted EBITDA of $26.4 million for the fourth quarter of 2014. The decrease in revenues from the third quarter of 2015 to the fourth quarter of 2015 was primarily due to a 12% decrease in revenue per stage. Revenues and adjusted EBITDA were $575.5 million and $60.8 million, respectively, for the 2015 full year, compared to revenues and adjusted EBITDA of $885.9 million and $144.7 million for the 2014 full year. The decrease in revenues for the 2015 full year compared to the 2014 full year was due to lower revenue per stage pricing, partially offset by an increase in completed stages.
The percentage of revenues from non-CHK customers increased to 17% of total segment revenues for 2015 full year from 3% for the 2014 full year. As of December 31, 2015, SSE’s hydraulic fracturing revenue backlog was $282.7 million with an average duration of 13 months.
Average operating costs per stage in the fourth quarter of 2015 decreased 15% from the third quarter of 2015. The decrease in average operating costs per stage for the fourth quarter of 2015 compared to the third quarter of 2015 was primarily due to a 12% decline in product costs per stage, which is the result of reducing proppant and fracturing fluid costs. Average operating costs per stage in the 2015 full year decreased 38% from the 2014 full year. The decrease in average operating costs per stage was primarily due to lower product costs. As a percentage of hydraulic fracturing revenues, hydraulic fracturing operating costs were 86% for the 2015 full year compared to 83% for the 2014 full year. The percentage increase was due to increases in transportation costs and increased pricing pressure.
SSE owns 11 hydraulic fracturing fleets with an aggregate of 440,000 horsepower, and six of these fleets are contracted in the Anadarko Basin and the Eagle Ford and Utica Shales.
SSE’s oilfield rentals segment contributed revenues of $11.3 million and adjusted EBITDA of ($1.7) million during the fourth quarter of 2015, compared to $15.0 million and ($0.9) million for the third quarter of 2015 and $39.3 million and $15.5 million for the fourth quarter of 2014. The decrease in revenues for the fourth quarter of 2015 compared to the third quarter of 2015 was primarily due to a decrease in utilization. Revenues and adjusted EBITDA were $76.6 million and $1.1 million, respectively, for the 2015 full year, compared to $153.1 million and $53.0 million of revenues and adjusted EBITDA, respectively, for the 2014 full year. The decrease in revenues for the 2015 full year compared to the 2014 full year was primarily due to market pricing pressure for certain of SSE’s equipment and a decline in utilization. Revenues from non-CHK customers as a percentage of total segment revenues increased from 19% in the 2014 full year to 59% in the 2015 full year.
Operating costs for the fourth quarter of 2015 were $10.4 million, compared to $14.0 million for the third quarter of 2015 and $24.6 million for the fourth quarter of 2014. The decrease in operating costs for the fourth quarter of 2015 compared to the third quarter of 2015 was due to lower labor-related costs and decreased utilization. Operating costs were $68.3 million for the 2015 full year, compared to $102.0 million for the 2014 full year. The decrease was primarily due to declines in labor-related costs and repairs and maintenance expense due to decreased utilization.
General and Administrative Expenses
General and administrative expenses were $16.7 million in the fourth quarter of 2015, compared to $26.7 million in the third quarter of 2015 and $35.2 million in the fourth quarter of 2014. General and administrative expenses include non-cash compensation of $3.8 million and $8.3 million, and severance-related costs of $0.4 million and $1.5 million for the fourth quarter of 2015 and the third quarter of 2015, respectively. General and administrative expenses for the 2015 and 2014 full years were $112.1 million and $108.1 million, respectively. The increase was primarily due to an increase in non-cash compensation expenses, which was partially offset by a decrease in CHK transition services costs. SSE incurred non-cash compensation expenses of $30.2 million and $19.4 million in addition to severance-related costs of $6.4 million and $2.0 million for the 2015 and 2014 full years, respectively. Included in the non-cash compensation expenses and severance-related costs for 2015 are $2.1 million and $0.6 million, respectively, related to the sale of Hodges Trucking Company, L.L.C.
Liquidity and Capital Structure
As of December 31, 2015, SSE had cash of $130.6 million and working capital of $175.5 million. SSE also had $125.5 million in availability under its revolving bank credit facility, which included no borrowings and $10.2 million in outstanding letters of credit.
Capital expenditures totaled $53.9 million during the fourth quarter of 2015, which primarily consisted of investment in new PeakeRigs™, bringing the total capital expenditures for 2015 full year to $205.7 million. SSE currently expects its total capital expenditures to be approximately $100.0 million for 2016 which relate to completion of the remaining PeakeRigsTM as well as maintenance capital expenditures.
As previously announced, the Company has retained restructuring advisors and is actively exploring and evaluating various strategic alternatives to reduce the level of its long-term debt and lower its future cash interest obligations, including debt repurchases, exchanges of existing debt securities for new debt securities and exchanges or conversions of existing debt securities into new equity securities, among other options. The timing and outcome of these efforts is highly uncertain and one or more of these strategic alternatives could potentially be consummated, without the consent of any one or more of our current security holders, through voluntary bankruptcy proceedings. Based on current market conditions, the Company believes that a restructuring of its long-term debt is needed to improve its financial position and flexibility and to better position it to take advantage of the growth opportunities that are likely to result from the current industry downturn.
Conference Call Information
SSE will host a conference call on Wednesday, February 17th at 3:00 p.m. CST to discuss its 2015 full year and fourth quarter financial and operating results. The telephone number to access the conference call is U.S. toll-free 844-867-9749 and international 901-300-3300. The conference ID for the call is 21395970. The Company encourages those who would like to participate in the call to place calls between 2:50 p.m. and 3:00 p.m. CST. For those unable to participate in the conference call, a digital recording of the conference will be available for replay two hours after the call’s completion. To access the recording, please use dial-in number 800-585-8367 or 404-537-3406 and the conference ID 21395970.
The conference call will also be webcast live on www.77nrg.com in the “investors” section. The webcast of the conference call will be available on the website for one year.
About Seventy Seven Energy Inc.
Headquartered in Oklahoma City, SSE provides a wide range of wellsite services and equipment to U.S. land-based exploration and production customers. SSE’s services include drilling, hydraulic fracturing and oilfield rentals and its operations are geographically diversified across many of the most active oil and natural gas plays in the onshore U.S., including the Anadarko and Permian Basins and the Eagle Ford, Haynesville, Marcellus, Niobrara and Utica Shales. For additional information about SSE, please visit its website at www.77nrg.com, where it routinely posts announcements, updates, events, investor information and presentations and recent news releases.
Forward-Looking Statements and Cautionary Statements
This news release (and any oral statements made regarding the subjects of this release, including on the conference call announced herein) contains certain statements and information that may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. The words “anticipate,” “believe,” “ensure,” “expect,” “if,” “intend,” “plan,” “estimate,” “project,” “forecasts,” “predict,” “outlook,” “aim,” “will,” “could,” “should,” “potential,” “would,” “may,” “probable,” “likely,” and similar expressions, and the negative thereof, are intended to identify forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in this press release specifically include statements, estimates and projections regarding the Company’s business outlook and plans, future financial position and flexibility, capital structure, liquidity and capital resources, acquisitions, returns, capital expenditure budgets and other guidance regarding future developments. Forward-looking statements are not assurances of future performance. These forward-looking statements are based on management’s current expectations and beliefs, forecasts for its existing operations, experience, and perception of historical trends, current conditions, anticipated future developments and its effect on the Company, and other factors believed to be appropriate. Although management believes that the expectations and assumptions reflected in these forward-looking statements are reasonable as and when made, no assurance can be given that these assumptions are accurate or that any of these expectations will be achieved (in full or at all). Moreover, the Company’s forward-looking statements are subject to significant risks and uncertainties, many of which are beyond its control, which may cause actual results to differ materially from its historical experience and its present expectations or projections which are implied or expressed by the forward-looking statements.
In addition, SSE calculates its contract drilling backlog by multiplying the day rate under its contracts by the number of days remaining under the contract. The Company calculates its hydraulic fracturing backlog by multiplying the (i) rate per stage, which varies by operating region and is, therefore, estimated based on current customer activity levels by region and current contract pricing, by (ii) the number of stages remaining under the contract, which it estimates based on current and anticipated utilization of its crews. With respect to its hydraulic fracturing backlog, the Company’s contracts provide for periodic adjustments of the rates it may charge for its services, which will be negotiated based on then-prevailing market pricing and in the future may be higher or lower than the current rates it charges and utilizes in calculating its backlog. The drilling backlog calculation does not include any reduction in revenues related to mobilization or demobilization, nor does it include potential reductions in rates for unscheduled standby or during periods in which the rig is moving, on standby or incurring maintenance and repair time in excess of what is permitted under the drilling contract. The Company computes average duration for its contract drilling backlog and hydraulic fracturing backlog as the average number of months remaining for its drilling rigs under contract and its remaining hydraulic fracturing fleets under contract, respectively.
For additional information regarding known material factors that could cause the Company’s actual results to differ from its present expectations and projected results, please see its filings with the U.S. Securities and Exchange Commission (“SEC”), including its Current Reports on Form 8-K that it files from time to time, Quarterly Reports on Form 10-Q, and Annual Report on Form 10-K.
Readers are cautioned not to place undue reliance on any forward-looking statement which speaks only as of the date on which such statement is made. The Company undertakes no obligation to correct, revise or update any forward-looking statement after the date such statement is made, whether as a result of new information, future events or otherwise, except as required by applicable law.
All references in this release to “Chesapeake” or “CHK” are to Chesapeake Energy Corporation (NYSE: CHK), SSE’s former parent company.
|SEVENTY SEVEN ENERGY INC.|
|Consolidated Statements of Operations|
|Three Months Ended||Years Ended|
|December 31,||September 30,||December 31,|
|Depreciation and amortization||68,642||74,763||68,854||295,421||292,912|
|General and administrative||16,705||35,162||26,709||112,141||108,139|
|Loss on sale of a business||38||—||—||35,027||—|
(Gains) losses on sales of property and equipment, net
|Impairment of goodwill||27,434||—||—||27,434||—|
|Impairments and other||1,912||32||1,566||18,632||30,764|
|Total Operating Expenses||238,606||483,258||259,822||1,359,181||2,005,896|
|Operating (Loss) Income||(45,818||)||11,685||(46,281||)||(227,937||)||74,996|
|Other (Expense) Income:|
|Gains on early extinguishment of debt||—||—||4,975||18,061||—|
|Loss and impairment from equity investees||(8,806||)||(330||)||(230||)||(7,928||)||(6,094||)|
|Total Other Expense||(32,945||)||(24,109||)||(19,793||)||(86,082||)||(85,164||)|
|Loss Before Income Taxes||(78,763||)||(12,424||)||(66,074||)||(314,019||)||(10,168||)|
|Income Tax Benefit||(18,173||)||(3,062||)||(17,544||)||(92,628||)||(2,189||)|
|Loss Per Common Share|
|Weighted Average Common Shares Outstanding|
|SEVENTY SEVEN ENERGY INC.|
|Consolidated Balance Sheets|
|Accounts receivable, net of allowance of $3,680 and $3,311 at December 31, 2015 and December 31, 2014, respectively||164,721||421,555|
|Deferred income tax asset||1,499||7,463|
|Prepaid expenses and other||17,141||19,072|
|Total Current Assets||332,562||474,054|
|Property and Equipment:|
|Property and equipment, at cost||2,646,446||2,749,886|
|Less: accumulated depreciation||(1,116,026||)||(982,833||)|
|Total Property and Equipment, Net||1,530,420||1,767,053|
|Equity method investment||—||7,816|
|Intangible assets, net||—||5,420|
|Deferred financing costs||1,238||1,592|
|Other long-term assets||38,398||6,924|
|Total Other Assets||39,636||49,186|
|Liabilities and Equity:|
|Current portion of long-term debt||5,000||4,000|
|Other current liabilities||98,318||215,752|
|Total Current Liabilities||157,085||265,409|
|Deferred income tax liabilities||60,623||159,273|
|Long-term debt, excluding current maturities||1,564,592||1,572,241|
|Other long-term liabilities||1,478||2,347|
|Total Long-Term Liabilities||1,626,693||1,733,861|
|Commitments and Contingencies|
|Common stock. $0.01 par value: authorized 250,000,000 shares; issued and outstanding 59,397,831 and 51,158,968 shares at December 31, 2015 and 2014, respectively||594||512|
|Total Liabilities and Equity||$||1,902,618||$||2,290,293|
|SEVENTY SEVEN ENERGY INC.|
|Consolidated Statements of Cash Flows|
|Years Ended December 31,|
|CASH FLOWS FROM OPERATING ACTIVITIES:|
|ADJUSTMENTS TO RECONCILE NET INCOME TO CASH PROVIDED BY OPERATING ACTIVITIES:|
|Depreciation and amortization||295,421||292,912|
|Amortization of sale/leaseback gains||—||(5,414||)|
|Amortization of deferred financing costs||4,623||6,122|
|Gains on early extinguishment of debt||(18,061||)||—|
|Loss on sale of a business||35,027||—|
|Losses (gains) on sales of property and equipment, net||14,656||(6,272||)|
|Impairment of goodwill||27,434||—|
|Impairments of other long-term assets||18,632||21,063|
|Loss and impairment from equity investees||7,928||6,094|
|Provision for doubtful accounts||1,375||2,887|
|Deferred income tax benefit||(92,686||)||(2,863||)|
|Changes in operating assets and liabilities||163,356||(88,588||)|
|Net cash provided by operating activities||284,106||265,296|
|CASH FLOWS FROM INVESTING ACTIVITIES:|
|Additions to property and equipment||(205,706||)||(457,618||)|
|Proceeds from sales of assets||27,695||88,556|
|Proceeds from sale of business||15,000||—|
|Additions to investments||(113||)||(675||)|
|Net cash used in investing activities||(159,667||)||(367,646||)|
|CASH FLOWS FROM FINANCING ACTIVITIES:|
|Borrowings from revolving credit facility||160,100||1,201,400|
|Payments on revolving credit facility||(210,600||)||(1,555,900||)|
|Proceeds from issuance of term loan, net of issuance costs||94,481||393,879|
|Payments to extinguish senior notes||(31,305||)||—|
|Proceeds from issuance of senior notes, net of offering costs||—||493,825|
|Payments on term loans||(4,750||)||(2,000||)|
|Deferred financing costs||(784||)||(3,597||)|
|Distributions to CHK||—||(422,839||)|
|Net cash provided by financing activities||5,318||101,563|
|Net increase (decrease) in cash||129,757||(787||)|
|Cash, beginning of period||891||1,678|
|Cash, end of period||$||130,648||$||891|
|SUPPLEMENTAL DISCLOSURE OF SIGNIFICANT NON-CASH INVESTING AND FINANCING ACTIVITIES:|
|(Decrease) increase in other current liabilities related to purchases of property and equipment||$||(20,016||)||$||18,999|
|Note receivable received as consideration for sale of a business||$||27,000||$||—|
|Property and equipment distributed to Chesapeake at spin-off||$||—||$||(792||)|
|Property and equipment contributed from Chesapeake at spin-off||$||—||$||190,297|
|SUPPLEMENTAL DISCLOSURE OF CASH PAYMENTS:|
|Interest paid, net of amount capitalized||$||96,730||$||54,439|
Seventy Seven Energy Inc.
Bob Jarvis, 405-608-7730