2013 Pioneer ES annual report

Page 1

Pioneer Energy Services 2013 ANNUAL REPORT

EVERY PROJECT IS PERSONAL


Pioneer Energy Services

2013 ANNUAL REPORT

To Our Shareholders and Employees After three years of steady growth, we took a pause in 2013 to allow cash flow to catch up with prior years’ spending. We added 56 new wireline units, 35 well servicing rigs, purchased a coiled tubing business and built 10 Tier 1 AC powered walking drilling rigs during the last three years. After delivering three AC rigs in the first quarter of 2013, we began retiring debt. Since May 2013, we reduced debt by $60 million and are well positioned to continue

Wm. Stacy Locke President and Chief Executive Officer

retiring debt in 2014.

e did not pause in 2013 when it came to safety and

half of 2012 and in early 2013. Pricing was off for all

the wellbeing of our employees and their families.

businesses except for well servicing, which negatively

Our LiveSafe initiative continued to thrive during

impacted Adjusted EBITDA(1) and net earnings. Pricing

the year and we remained one of the safest oil service firms in

stabilized by the fourth quarter and activity levels were

the United States. Of particular note was securing the top

stronger as we finished up the year. We took a $45 million

award by the Association of Energy Service Companies (AESC)

impairment charge during the year related to our coiled

for safety in well servicing among the largest well servicing

tubing business. This business was also performing better by

providers in the country. Through LiveSafe, we have developed

year-end.

W

a strong culture and sense of pride throughout the Company. With our focus on the vast unconventional resource plays around the country, we were successful in cross-selling our multiple services to many of our clients. In the Eagle Ford Shale, we provide all four of our core services and in the Bakken Shale, we provide everything except coiled tubing services. A number of our clients use two or three of our services and have come to recognize the Pioneer brand for its quality, performance and safety.

DRILLING SERVICES SEGMENT During 2013, we continued the transformation of our drilling fleet to higher margin AC powered walking rigs. After completing seven AC powered rigs in 2012, we delivered our final three newly-built 1500 horsepower AC rigs in the first quarter of 2013. Later in the year, we sold 10 mechanical rigs for a total of 19 mechanical rigs sold or retired since September

2011.

We

plan

to

continue

evaluating

opportunities to dispose of less strategic drilling assets in favor of newly-built AC rigs. We expect to begin building

FINANCIAL RECAP

additional AC rigs under long-term contracts after further Revenues increased 4% to $960 million primarily due to

reducing our indebtedness.

improved utilization and equipment added during the second

2013 CONTRIBUTIONS BY SEGMENT Revenue Drilling Services

2013 REVENUE OIL VS. NATURAL GAS*

Margin

Gas

Drilling Services

55%

9%

53%

45%

47%

Oil/Liquids 91%

Production Services

Production Services

*Based on Pioneer estimate.


Pioneer Energy Services S

2013 ANNUAL REPORT

Our fleet today has 46 rigs capable of drilling horizontally and

offshore areas of Louisiana. With this increased depth in our

16 rigs dedicated to vertical markets for a total of 62 rigs. For

core markets and the addition of our 2 3/8” coiled tubing units,

2013, our utilization rate was 84%, with an average drilling

we have begun to build on our client base. Our coiled tubing

margin of $8,423 per day as compared to 87% in 2012 with

unit count was flat at 13 units in 2013; however, we converted

an average drilling margin of $7,941 per day.

two of our 2” units to larger diameter 2 3/8” units in the fourth quarter. For 2014, we have another offshore unit and an

Our Colombian operations performed well in 2013. In

additional 2 3/8” unit on order.

December 2013, we extended our existing contract for six drilling rigs working in the Castilla Field through the end of 2014 and obtained an increase in the dayrate. In addition, our

OUTLOOK

other two drilling rigs in Colombia were added to the

Looking ahead, we believe capital spending by operators will

contract. The outlook for Colombia remains very positive.

increase above 2013 levels, which in turn should drive an increase in the drilling rig count. Improved market conditions

PRODUCTION SERVICES SEGMENT

could lead to pricing improvement for some or all of our businesses.

Wireline Services One of our primary goals for 2014 is to reduce our

Our wireline services operations continued to have strong

indebtedness. We reduced our capital spending to $165

positions in numerous markets such as the Bakken Shale,

million in 2013, down from $364 million in 2012. We plan to

Montana, Kansas, the Niobrara Shale and the Eagle Ford

further reduce capital spending in 2014 and continue retiring

Shale. We expanded wireline services in the Permian and

debt. In March 2014, we successfully completed a $300

Delaware basins of West Texas during 2013. Since the fall of

million offering of new senior notes. We are using the

2012, pricing has been under pressure and gross margins

proceeds from the offering to repurchase a corresponding

have contracted by over 10 percentage points. Pricing

amount of our existing senior notes, which will reduce the

stabilized by the fourth quarter and we expect to see

associated interest rate from approximately 10% to 6.125%.

improved pricing in 2014. Three new units have been ordered

Once we pay down additional debt, we will again accelerate

for 2014, which will expand our wireline fleet to 122 units.

our organic growth in our core businesses.

Well Servicing

We are excited about the Company’s progress and we thank our employees and shareholders for their continued support.

We continue to lead the industry in terms of the highest quality well servicing rig fleet, the best utilization rate and the

Sincerely,

highest average hourly rate. Our fleet of tall-masted 550 horsepower and 600 horsepower rigs are capable of working in any shale or unconventional play in the U.S. Our areas of concentration are Texas, Louisiana, Arkansas, Mississippi and the Bakken Shale. We have three additional 550

Wm. Stacy Locke

horsepower rigs ordered for 2014, which will bring our fleet to

PRESIDENT AND CHIEF EXECUTIVE OFFICER

112 well servicing rigs.

Coiled Tubing After a challenging year, we reorganized our coiled tubing business to focus on the Eagle Ford Shale and onshore and

(1) Adjusted EBITDA – Adjusted EBITDA is a financial measure that is not in accordance with Generally Accepted Accounting Principles (GAAP), and should not be considered (i) in isolation of, or as a substitute for, net income (loss), (ii) as an indication of cash flows from operating activities or (iii) as a measure ofliquidity. In addition, Adjusted EBITDA does not represent funds available for discretionary use. We define Adjusted EBITDA as income (loss) before interest income (expense), taxes, depreciation, amortization and any impairments. We use this measure, together with our GAAP financial metrics, to assess our financial performance and evaluate our overall progress towards meeting our long-term financial objectives. We believe that this non-GAAP financial measure is useful to investors and analysts in allowing for greater transparency of our operating performance and makes it easier to compare our results with those of other companies within our industry. Adjusted EBITDA, as we calculate it, may not be comparable to Adjusted EBITDA measures reported by other companies. For a reconciliation of the difference between this financial measure which is not in accordance with GAAP and the most directly comparable financial measure calculated in accordance with GAAP, see the last page of this Annual Report following the Form 10K.


S SELECTED FINANCIAL DATA 2013 (2)

2012

2011

2010

2009

$960,186

$919,443

$715,941

$487,210

$325,537

Net income (loss)

(35,932)

30,032

11,177

(33,261)

(23,215)

Adjusted EBITDA(1)

234,742

249,283

183,870

103,151

74,942

(0.58)

0.48

0.19

(0.62)

(0.46)

1,229,623

1,339,776

1,172,754

841,343

824,955

Long-term debt and capital lease obligations, excluding current installments

499,666

518,725

418,728

279,530

258,073

Shareholders’ equity

518,433

547,680

510,445

396,333

421,448

Net cash provided by operating activities

174,580

199,366

144,879

98,351

123,313

(In thousands, except per share data) Revenues

Income (loss) per common share - diluted Total assets

(1) For a reconciliation of the difference between this financial measure, which is not in accordance with Generally Accepted Accounting Principles (GAAP), and the most directly comparable financial measure, which calculated in accordance with GAAP, see the last page of this Annual Report following the Form 10K. (2) Includes goodwill and intangible asset impairment charges of $44.8 million ($27.1 million net of tax).

AREAS OF OPERATIONS

PIONEER’S SERVICE LINES Corporate Headquarters Wireline Services

Well Servicing Coiled Tubing Services

Drilling Services

Fishing & Rental Services


Pioneer Energy Services

2013 ANNUAL REPORT

DIRECTORS DEAN A. BURKHARDT

SCOTT D. URBAN

Сonsultant to energy industry

Partner in Edgewater Energy Parterns

JOHN MICHAEL RAUH

C. JOHN THOMPSON

Retired Kerr-McGee Corporation

Chairman and Chief Executive Officer Ventana Capital Advisors, Inc.

WM. STACY LOCKE President and Chief Executive Officer Pioneer Energy Services Corp.

OFFICERS WM. STACY LOCKE

LORNE E. PHILLIPS

F.C. “RED” WEST

President and Chief Executive Officer

Executive Vice President and Chief Financial Officer

Executive Vice President and President of Drilling Services

CARLOS R. PEÑA

JOSEPH B. EUSTACE

Senior Vice President, General Counsel, Secretary and Compliance Officer

Executive Vice President and President of Production Services

CORPORATE INFORMATION CORPORATE HEADQUARTERS

SHAREHOLDER CONTACT

INVESTOR RELATIONS

Pioneer Energy Services 1250 N.E. Loop 410 Suite 1000 San Antonio, Texas 78209 855.884.0575 Fax 210.828.8228

Lorne E. Phillips Executive Vice President and Chief Financial Officer 855.884.0575 Fax 210.828.8228 investorrelations@pioneeres.com

Lisa Elliott Dennard ▪ Lascar Associates 713.529.6600 lelliott@DennardLascar.com

STOCK LISTING

AUDITORS

The New York Stock Exchange: PES

KPMG LLP 17802 IH-10, Suite 101 Promenade Two San Antonio, Texas 78257

Anne Pearson Dennard ▪ Lascar Associates 210.408.6321 apearson@DennardLascar.com

Certain information in this Annual Report, including information related to the retirement of our indebtedness, our future revenue stream, our future investment focus, future market conditions, fleet size, rig utilization, drilling contracts, and hourly rates, as well as other statements that express a belief, expectation or intention, and those that are not statements of historical fact, are forward-looking statements. Forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “plan, “intend,” “seek,” “will,” “should,” “goal” or other words and phrases of similar import that convey the uncertainty of future events or outcomes. These forward-looking statements speak only as of the date of the preparation of this Annual Report. We disclaim any obligation to update any of these forward-looking statements, and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties include, among other matters, the risks set forth in Item 1A—“Risk Factors” of our Form 10-K for the fiscal year ended December 31, 2013. These risks, contingencies and uncertainties could cause our actual results to differ materially from those expressed in a forward-looking statement contained in this Annual Report. Unpredictable or unknown factors we have not discussed in this Annual Report or elsewhere could also have material adverse effects on actual results of matters that are the subject of our forward-looking statements. We advise our shareholders to (1) be aware that important factors not referred to above could affect the accuracy of our forward-looking statements and (2) use caution and common sense when considering our forward-looking statements.


Pioneer Energy Services 1250 N.E. Loop 410, Suite 1000 San Antonio, Texas 78209 www.pioneeres.com


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