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
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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