Basic Energy Services says Q1 was worse than industry expected

At end of Q1 2016 Basic Energy had stacked 134,000 hydraulic hp, 127 well servicing rigs

Revenue is down and losses are up at Basic Energy Services, as the Fort Worth-based service company struggles with low prices along with the rest of oil patch.

Basic Energy reported that Q1 2016 revenue declined 19 per cent to $130.4 million from $161.0 million in Q4 2015, as low levels of activity driven by weak and volatile energy prices and significant weather impact during the first two months of the quarter. By comparison, Basic generated $261.7 million in revenue during Q1 2015.

Excluding the impact of special items, Basic Energy reported a net loss of $54.8 million, compared to $55.2 million in Q4 2015 and $32.6 million in Q1 2015.

“While our production-related activities appeared to have begun stabilizing at the end of the first quarter, our completion-related services continue to be impacted as the volatility and uncertainty in oil prices caused our customers to further curtail their exploration and drilling projects as the quarter unfolded,” said CEO Roe Patterson.

Roe Patterson, President and CEO, Basic Energy Services.

“In addition, weather interruptions represented approximately three percentage points of the total sequential revenue drop during the quarter.

Patterson says that early in Q1, management anticipated that the growing inventory of maintenance and workover projects that were deferred at the end of 2015 would be completed in the first quarter.

“This did not happen as oil prices dipped below $30 per barrel twice during the quarter. These oil price declines forced many customers to delay projects until more stable oil prices returned,” he said in a press release.

Basic Energy’s fluid services business, anchored by an extensive network of salt-water disposal wells, continues to operate at relatively stable levels and a lower cost structure. Margins in this business were impacted by weather and a decrease in skim oil sales, which track WTI pricing.

The well servicing business margin increased sequentially driven mainly by the impact of cost savings initiatives.

“Pricing in all our markets and lines of business remains very competitive, and we continue to scale back operations and capital expenditures to fit cash flow and preserve our liquidity,” said Patterson.

“As a result, we continue to stack equipment and exit markets where cash margins do not support maintenance capital expenditures. As of the end of the first quarter, we had stacked 134,000 hydraulic horsepower. We also stacked additional well servicing rigs to bring our total stacked rig inventory to 127 at quarter-end.”

Patterson says that production related services should improve in the near term if oil prices remain in the $40/b range, but the improvements may not be enough to offset declining completion activities.

“Looking ahead, the fluctuations in oil prices create market uncertainties preventing us from knowing exactly what our near term results will look like,” he said.

“But based on current activity levels, we anticipate that our second quarter revenue could be down approximately three to four per cent sequentially driven by a declining drilling rig count and fewer completions. ”