Basic Energy Services revenue drops 35% in 2015 Q1

Basic Energy Services CEO says it’s too early to tell if American oil and gas industry has reached the floor of downturn

Basic Energy Services, Inc. (NYSE: BAS) says revenue declined by more than a third for the quarter ended March 31 across all operating divisions.

Basic Energy services
Roe Patterson, Basic Energy President and CEO.

Basic Energy Services provides well site services and employs more than 4,700 employees in more than 100 service points throughout the major oil and gas producing regions in Texas, Louisiana, Oklahoma, New Mexico, Arkansas, Kansas, California, and the Rocky Mountainand Appalachian regions.

Basic Energy Service Q1 highlights

First quarter 2015 revenue declined 35% to $261.7 million from $400.9 million in the fourth quarter of 2014 as all lines of services experienced reduced activity levels and pricing pressures.  First quarter 2015 revenue decreased 21% from $331.3 million generated in the first quarter of 2014.  All metrics for the first quarter of 2014 were adjusted for the divestiture of Basic’s barge rig operations in March 2014 for comparability purposes.

For the first quarter of 2015,Basic Energy Services reported a net loss of $32.6 million, or a loss of $0.81 per basic and diluted share. This compares to a net loss of $18.8 million, or a loss of $0.45 per basic and diluted share, reported in the fourth quarter of 2014.  The fourth quarter of 2014 included a tax-effected, non-cash charge of $23.5 million ($34.7 million before tax), or $0.56 per basic and diluted share, for impairment of all the goodwill associated with the well servicing and fluid services segments. Excluding this special item, Basic Energy Services reported net income of $4.7 million, or $0.11 per basic and diluted share. In the first quarter of 2014, Basic reported a net loss of $3.3 million, or a loss of $0.08 per basic and diluted share.

“Our first quarter results reflect the overall impact of the rapid decline in oil prices that began during the fourth quarter of 2014. This challenging environment has triggered drastic capital spending reductions by our customers, resulting in the scaling back of our operations to fit operating cash flow in order to preserve liquidity and match customer activity,” said Roe Patterson, Basic Energy Services President and CEO.

“As customers reduce their service needs, pricing concessions have been required to maximize our utilization levels across all of our lines of business. In addition, our first quarter performance was impacted by severe weather disruptions that further reduced our revenue.”

Roe says first quarter margins were most impacted in Basic Energy completion and remedial services driven by a rapid decline in the U.S. land drilling rig count.

“We continue to face fierce rate competition in the completion lines of business across all of our operating areas, with pricing discounts reaching as high as 40% from their peak levels in 2014,” he said.

Basic Energy Services is maintaining its strategy of protecting market share, maximizing utilization, and reducing rates as necessary in all segments. We continue our efforts to lower input costs and right-size our workforce.

“Our overall headcount is now 20% lower than its peak of mid fourth quarter 2014. As we allocate assets into markets where activity is strongest, we continue to high-grade our marketed fleet and to stack excess equipment,” Roe said.

“We have increased our stacked well servicing rig count by 40 during the first quarter and added to it during April.”

Basic Energy Services has used these “defensive strategies” in previous down cycles, according to Roe, and combined with the strength of the company’s current financial position, management expect these strategies should allow Basic to withstand the effects of a prolonged downturn in activity.

“In light of these challenging operating conditions, we have scaled back our 2015 capital expenditure plan down below our original estimate of $100 million, having already shifted primarily to a maintain-and-sustain revenue mode. At current activity levels, this number could be as low as $75 million for 2015,” Roe said.

During the month of March, Basic Energy Services saw less of a sequential reduction in activity levels compared to the previous month-over-month period, and the company is starting to see some signs of flattening utilization levels. However, it is still too early to predict whether the second quarter will reflect a potential floor for activity.

“Looking ahead, we currently anticipate our second quarter revenue to be down 10% to 15% sequentially, as declines in activity and continued pricing pressures will likely combine to reduce utilization. Generating free cash flow and preserving liquidity remains our main financial focus,” said Roe.

“This week, we amended our existing revolver from a cash flow-based facility to an asset-based facility.  This amendment allows us to maintain ample liquidity, while eliminating potential covenant compliance issues we may have faced later in the year due to market conditions. We will share more details on this amendment on the quarterly earnings call.”

Adjusted EBITDA decreased to $27.3 million, or 10% of revenues for the first quarter of 2015, from $85.6 million, or 21% of revenue in the fourth quarter of 2014.  In the first quarter of 2014, Basic Energy Services generated Adjusted EBITDA of $65.4 million, or 19% of revenue, including the impact of the barge rig operations.