Form 10-Q |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Independence Contract Drilling, Inc. |
(Exact name of registrant as specified in its charter) |
Delaware | 37-1653648 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
11601 North Galayda Street Houston, Texas | 77086 |
(Address of principal executive offices) | (Zip code) |
Large accelerated filer | ¨ | Accelerated filer | x |
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Part I. FINANCIAL INFORMATION | ||
Part II. OTHER INFORMATION | ||
• | a sustained decrease in domestic spending by the oil and natural gas exploration and production industry; |
• | a decline in or substantial volatility of crude oil and natural gas commodity prices; |
• | our inability to implement our business and growth strategy; |
• | fluctuation of our operating results and volatility of our industry; |
• | inability to maintain or increase pricing of our contract drilling services; |
• | our backlog of term contracts declining rapidly; |
• | the current severe market downturn impairing our ability to predict future rig utilization and spot dayrates due to customers delaying or changing their capital budget plans; |
• | the loss of any of our customers, financial distress or management changes of potential customers or failure to obtain contract renewals and additional customer contracts for our drilling services; |
• | overcapacity and competition in our industry; |
• | an increase in interest rates and deterioration in the credit markets; |
• | our inability to comply with the financial and other covenants in debt agreements that we may enter into as a result of reduced revenues and financial performance; |
• | a substantial reduction in borrowing base under our revolving credit facility as a result of a decline in the appraised value of our drilling rigs or reduction in the number of rigs operating; |
• | unanticipated costs, delays and other difficulties in executing our long-term growth strategy; |
• | the loss of key management personnel; |
• | new technology that may cause our drilling methods or equipment to become less competitive; |
• | labor costs or shortages of skilled workers; |
• | the loss of or interruption in operations of one or more key vendors; |
• | the effect of operating hazards and severe weather on our rigs, facilities, business, operations and financial results, and limitations on our insurance coverage; |
• | increased regulation of drilling in unconventional formations; |
• | the incurrence of significant costs and liabilities in the future resulting from our failure to comply with new or existing environmental regulations or an accidental release of hazardous substances into the environment; and |
• | the potential failure by us to establish and maintain effective internal control over financial reporting. |
June 30, 2016 | December 31, 2015 | ||||||
Assets | |||||||
Cash and cash equivalents | $ | 7,086 | $ | 5,344 | |||
Accounts receivable, net | 6,872 | 18,240 | |||||
Inventory | 2,491 | 2,317 | |||||
Prepaid expenses and other current assets | 3,075 | 3,436 | |||||
Total current assets | 19,524 | 29,337 | |||||
Property, plant and equipment, net | 280,121 | 283,378 | |||||
Other long-term assets, net | 1,339 | 2,074 | |||||
Total assets | $ | 300,984 | $ | 314,789 | |||
Liabilities and Stockholders’ Equity | |||||||
Liabilities | |||||||
Current portion of long-term debt | $ | 373 | $ | — | |||
Accounts payable | 3,886 | 8,584 | |||||
Accrued liabilities | 6,461 | 10,206 | |||||
Total current liabilities | 10,720 | 18,790 | |||||
Long-term debt | 16,661 | 62,708 | |||||
Deferred income taxes | 229 | 193 | |||||
Other long-term liabilities | 149 | 361 | |||||
Total liabilities | 27,759 | 82,052 | |||||
Commitments and contingencies (Note 10) | |||||||
Stockholders’ equity | |||||||
Common stock, $0.01 par value, 100,000,000 shares authorized; 37,816,424 and 24,539,937 shares issued, respectively; and 37,646,398 and 24,403,659 shares outstanding, respectively | 376 | 244 | |||||
Additional paid-in capital | 322,092 | 276,948 | |||||
Accumulated deficit | (47,774 | ) | (43,169 | ) | |||
Treasury stock, at cost, 170,026 and 136,278 shares, respectively | (1,469 | ) | (1,286 | ) | |||
Total stockholders’ equity | 273,225 | 232,737 | |||||
Total liabilities and stockholders’ equity | $ | 300,984 | $ | 314,789 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Revenues | $ | 15,155 | $ | 21,082 | $ | 37,610 | $ | 43,388 | |||||||
Costs and expenses | |||||||||||||||
Operating costs | 7,398 | 12,057 | 19,965 | 25,163 | |||||||||||
Selling, general and administrative | 5,005 | 3,755 | 8,626 | 7,582 | |||||||||||
Depreciation and amortization | 5,816 | 5,169 | 11,641 | 9,458 | |||||||||||
(Insurance recoveries) asset impairment, net | — | — | — | (841 | ) | ||||||||||
Loss (gain) on disposition of assets | 37 | (59 | ) | (88 | ) | 334 | |||||||||
Total costs and expenses | 18,256 | 20,922 | 40,144 | 41,696 | |||||||||||
Operating (loss) income | (3,101 | ) | 160 | (2,534 | ) | 1,692 | |||||||||
Interest expense | (1,059 | ) | (717 | ) | (2,036 | ) | (1,029 | ) | |||||||
(Loss) income before income taxes | (4,160 | ) | (557 | ) | (4,570 | ) | 663 | ||||||||
Income tax expense (benefit) | 31 | 95 | 35 | (60 | ) | ||||||||||
Net (loss) income | $ | (4,191 | ) | $ | (652 | ) | $ | (4,605 | ) | $ | 723 | ||||
Net (loss) income per share: | |||||||||||||||
Basic and diluted | $ | (0.12 | ) | $ | (0.03 | ) | $ | (0.16 | ) | $ | 0.03 | ||||
Weighted average number of common shares outstanding: | |||||||||||||||
Basic and diluted | 33,608 | 23,851 | 28,812 | 24,455 |
Common Stock | ||||||||||||||||||||||
Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Treasury Stock | Total Stockholders’ Equity | |||||||||||||||||
Balances at December 31, 2015 | 24,403,659 | $ | 244 | $ | 276,948 | $ | (43,169 | ) | $ | (1,286 | ) | $ | 232,737 | |||||||||
Restricted stock units vested | 51,487 | — | — | — | — | — | ||||||||||||||||
Purchase of treasury stock | (33,748 | ) | — | — | — | (183 | ) | (183 | ) | |||||||||||||
Public offering, net of offering costs of $3,305 | 13,225,000 | 132 | 42,851 | — | — | 42,983 | ||||||||||||||||
Stock-based compensation | — | — | 2,293 | — | — | 2,293 | ||||||||||||||||
Net loss | — | — | — | (4,605 | ) | — | (4,605 | ) | ||||||||||||||
Balances at June 30, 2016 | 37,646,398 | $ | 376 | $ | 322,092 | $ | (47,774 | ) | $ | (1,469 | ) | $ | 273,225 |
Six Months Ended June 30, | |||||||
(in thousands) | 2016 | 2015 | |||||
Cash flows from operating activities | |||||||
Net (loss) income | $ | (4,605 | ) | $ | 723 | ||
Adjustments to reconcile net (loss) income to net cash provided by operating activities | |||||||
Depreciation and amortization | 11,641 | 9,458 | |||||
(Insurance recoveries) asset impairment, net | — | (841 | ) | ||||
Stock-based compensation | 2,360 | 1,734 | |||||
Stock-based compensation - executive retirement | (67 | ) | — | ||||
(Gain) loss on disposition of assets | (88 | ) | 334 | ||||
Deferred income taxes | 36 | — | |||||
Amortization of deferred financing costs | 283 | 315 | |||||
Write-off of deferred financing costs | 504 | — | |||||
Bad debt expense | — | 80 | |||||
Changes in operating assets and liabilities | |||||||
Accounts receivable | 11,368 | 5,629 | |||||
Inventory | (146 | ) | (253 | ) | |||
Prepaid expenses and other current assets | 176 | (1,820 | ) | ||||
Accounts payable and accrued liabilities | (6,078 | ) | 2,620 | ||||
Income taxes payable | — | (195 | ) | ||||
Net cash provided by operating activities | 15,384 | 17,784 | |||||
Cash flows from investing activities | |||||||
Purchases of property, plant and equipment | (10,521 | ) | (58,215 | ) | |||
Proceeds from insurance claims | 188 | 2,899 | |||||
Proceeds from the sale of property, plant and equipment | 747 | 351 | |||||
Net cash used in investing activities | (9,586 | ) | (54,965 | ) | |||
Cash flows from financing activities | |||||||
Borrowings under credit facility | 34,775 | 89,566 | |||||
Repayments under credit facility | (81,129 | ) | (50,724 | ) | |||
Public offering proceeds, net of offering costs of $3,305 | 42,983 | — | |||||
Purchase of treasury stock | (183 | ) | — | ||||
Financing costs paid | (217 | ) | (164 | ) | |||
Payments for capital lease obligations | (285 | ) | — | ||||
Net cash (used in) provided by financing activities | (4,056 | ) | 38,678 | ||||
Net increase in cash and cash equivalents | 1,742 | 1,497 | |||||
Cash and cash equivalents | |||||||
Beginning of period | 5,344 | 10,757 | |||||
End of period | $ | 7,086 | $ | 12,254 | |||
Supplemental disclosure of cash flow information | |||||||
Cash paid during the period for interest | $ | 1,426 | $ | 1,379 | |||
Cash paid during the period for income taxes | $ | — | $ | 135 | |||
Supplemental disclosure of non-cash investing and financing activities | |||||||
Stock-based compensation capitalized as property, plant and equipment | $ | — | $ | 423 | |||
Change in property, plant and equipment purchases in accounts payable | $ | (2,577 | ) | $ | (15,776 | ) | |
Additions to property, plant and equipment through capital leases | $ | 965 | $ | — |
1. | Nature of Operations |
2. | Interim Financial Information |
3. | Financial Instruments and Fair Value |
Level 1 | Unadjusted quoted market prices for identical assets or liabilities in an active market; |
Level 2 | Quoted market prices for identical assets or liabilities in an active market that have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but are observable through corroboration with observable market data, including quoted market prices for similar assets; and |
Level 3 | Unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. |
4. | Inventory |
5. | Accrued Liabilities |
(in thousands) | June 30, 2016 | December 31, 2015 | |||||
Accrued salaries and other compensation | $ | 2,421 | $ | 2,050 | |||
Insurance | 779 | 600 | |||||
Deferred revenues | 1,398 | 4,591 | |||||
Property, sales and other taxes | 1,705 | 2,585 | |||||
Other | 158 | 380 | |||||
$ | 6,461 | $ | 10,206 |
6. | Long-term Debt |
June 30, 2016 | December 31, 2015 | |||||||
Credit facility due November 5, 2018 | $ | 16,354 | $ | 62,708 | ||||
Capital lease obligations | 680 | — | ||||||
17,034 | 62,708 | |||||||
Less: current portion | (373 | ) | — | |||||
Long-term debt | $ | 16,661 | $ | 62,708 |
7. | Stock-Based Compensation |
(in thousands) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Compensation cost recognized: | |||||||||||||||
Stock options | $ | 3 | $ | 74 | $ | 72 | $ | 288 | |||||||
Restricted stock and restricted stock units | 1,135 | 929 | 2,221 | 1,869 | |||||||||||
Total stock-based compensation | $ | 1,138 | $ | 1,003 | $ | 2,293 | $ | 2,157 |
Six Months Ended June 30, 2016 | ||||||
Options | Weighted Average Exercise Price | |||||
Outstanding at January 1, 2016 | 956,653 | $ | 12.74 | |||
Granted | — | — | ||||
Exercised | — | — | ||||
Forfeited/expired | (7,850 | ) | — | |||
Outstanding at June 30, 2016 | 948,803 | $ | 12.74 | |||
Exercisable at June 30, 2016 | 912,170 | $ | 12.74 |
Six Months Ended June 30, 2016 | ||||||
Outstanding | Weighted Average Grant-Date Fair Value | |||||
Unvested as of January 1, 2016 | 104,143 | $ | 3.88 | |||
Granted | — | — | ||||
Vested | (59,660 | ) | 4.27 | |||
Forfeited/expired | (7,850 | ) | 3.36 | |||
Unvested as of June 30, 2016 | 36,633 | $ | 3.36 |
Six Months Ended June 30, 2016 | ||||||
Shares | Weighted Average Grant-Date Fair Value Per Share | |||||
Outstanding at January 1, 2016 | 388,265 | $ | 10.80 | |||
Granted | — | — | ||||
Vested | (71,905 | ) | 11.26 | |||
Forfeited | — | — | ||||
Outstanding at June 30, 2016 | 316,360 | $ | 10.70 |
Six Months Ended June 30, 2016 | ||||||
RSUs | Weighted Average Grant-Date Fair Value Per Share | |||||
Outstanding at January 1, 2016 | 463,413 | $ | 12.97 | |||
Granted | 814,170 | 4.01 | ||||
Vested and converted | (51,487 | ) | 10.94 | |||
Forfeited | (148,433 | ) | 5.85 | |||
Outstanding at June 30, 2016 | 1,077,663 | $ | 7.28 |
8. | Stockholders’ Equity and Earnings (Loss) per Share |
(in thousands, except per share data) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Net (loss) income (numerator): | $ | (4,191 | ) | $ | (652 | ) | $ | (4,605 | ) | $ | 723 | ||||
Net (loss) earnings per share: | |||||||||||||||
Basic and diluted | $ | (0.12 | ) | $ | (0.03 | ) | $ | (0.16 | ) | $ | 0.03 | ||||
Shares (denominator): | |||||||||||||||
Weighted-average number of shares outstanding - basic | 33,608 | 23,851 | 28,812 | 24,455 | |||||||||||
Net effect of dilutive stock options, warrants and restricted stock units | — | — | — | — | |||||||||||
Weighted-average number of shares outstanding - diluted | 33,608 | 23,851 | 28,812 | 24,455 |
9. | Income Taxes |
10. | Commitments and Contingencies |
(in thousands) | |||
2016 | $ | 227 | |
2017 | 302 | ||
2018 | 127 | ||
2019 | 58 | ||
$ | 714 |
11. | Related Parties |
• | not being required to comply with the auditor attestation requirements related to our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; |
• | reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and |
• | exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. |
• | Safety Performance. Maintaining a strong safety record is a critical component of our business strategy. We believe we are one of the few land drillers that utilizes a safety management system that complies with the Bureau of Safety and Environmental Enforcement’s SEMS II workplace safety rules. We measure safety by tracking the total recordable incident rate for our operations. In addition, we closely monitor and measure compliance with our safety policies and procedures, including “near miss” reports and job safety analysis compliance. |
• | Utilization. Rig utilization measures the total amount of time that our rigs are earning revenue under a contract during a particular period. We measure utilization by dividing the total number of Operating Days for a rig by the total number of days the rig is available for operation in the applicable calendar period. A rig is available for operation commencing on the earlier of the date it spuds its initial well following construction or when it has been completed and is actively marketed. “Operating Days” represent the total number of days a rig is earning revenue under a |
• | Revenue Per Day. Revenue per day measures the amount of revenue that an operating rig earns on a daily basis during a particular period. We calculate revenue per day by dividing total contract drilling revenue earned during the applicable period by the number of Operating Days in the period. Revenues attributable to costs reimbursed by customers are excluded from this measure. |
• | Operating Cost Per Day. Operating cost per day measures the operating costs incurred on a daily basis during a particular period. We calculate operating cost per day by dividing total operating costs during the applicable period by the number of Operating Days in the period. Operating costs attributable to costs reimbursed by customers are excluded from this measure. |
• | Operating Efficiency and Uptime. Maintaining our rigs’ operational efficiency is a critical component of our business strategy. We measure our operating efficiency by tracking each drilling rig’s unscheduled downtime on a daily, monthly, quarterly and annual basis. |
Three Months Ended | Six Months Ended | ||||||||||||||
(In thousands, except per share data) | June 30, 2016 | June 30, 2015 | June 30, 2016 | June 30, 2015 | |||||||||||
Revenues | $ | 15,155 | $ | 21,082 | $ | 37,610 | $ | 43,388 | |||||||
Costs and expenses | |||||||||||||||
Operating costs | 7,398 | 12,057 | 19,965 | 25,163 | |||||||||||
Selling, general and administrative | 5,005 | 3,755 | 8,626 | 7,582 | |||||||||||
Depreciation and amortization | 5,816 | 5,169 | 11,641 | 9,458 | |||||||||||
(Insurance recoveries) asset impairment, net | — | — | — | (841 | ) | ||||||||||
Loss (gain) on disposition of assets | 37 | (59 | ) | (88 | ) | 334 | |||||||||
Total cost and expenses | 18,256 | 20,922 | 40,144 | 41,696 | |||||||||||
Operating (loss) income | (3,101 | ) | 160 | (2,534 | ) | 1,692 | |||||||||
Interest expense | (1,059 | ) | (717 | ) | (2,036 | ) | (1,029 | ) | |||||||
(Loss) income before income taxes | (4,160 | ) | (557 | ) | (4,570 | ) | 663 | ||||||||
Income tax expense (benefit) | 31 | 95 | 35 | (60 | ) | ||||||||||
Net (loss) income | $ | (4,191 | ) | $ | (652 | ) | $ | (4,605 | ) | $ | 723 | ||||
Other financial and operating data | |||||||||||||||
Number of completed rigs (end of period) (1) | 14 | 13 | 14 | 13 | |||||||||||
Rig operating days (2) | 732.2 | 938.9 | 1,675.3 | 1,890.2 | |||||||||||
Average number of operating rigs (3) | 8.0 | 10.3 | 9.2 | 10.4 | |||||||||||
Rig utilization (4) | 65.6 | % | 79.4 | % | 75.9 | % | 85.3 | % | |||||||
Average revenue per operating day (5) | $ | 20,116 | $ | 21,632 | $ | 21,498 | $ | 22,209 | |||||||
Average cost per operating day (6) | $ | 8,757 | $ | 11,855 | $ | 10,351 | $ | 12,448 | |||||||
Average rig margin per operating day | $ | 11,359 | $ | 9,777 | $ | 11,147 | $ | 9,761 |
(1) | Number of completed rigs as of June 30, 2016 increased by one compared to the number of completed rigs as of June 30, 2015, reflecting the addition of one newly constructed rig. |
(2) | Rig operating days represent the number of days our rigs are earning revenue under a contract during the period, including days that standby revenues are earned. During the three and six months ended June 30, 2016, there were 368.4 and 554.1 operating days in which the Company earned revenue on a standby basis, respectively, including 362.9 and 525.0 standby-without-crew days, respectively. During the three and six months ended June 30, 2015, there were 240.1 and 423.8 operating days in which the Company earned revenue on a standby basis, respectively, including 85.0 and 85.0 standby-without-crew days, respectively. |
(3) | Average number of operating rigs is calculated by dividing the total number of rig operating days in the period by the total number of calendar days in the period. |
(4) | Rig utilization is calculated as rig operating days divided by the total number of days our drilling rigs are available during the applicable period. During the third quarter of 2015, the Company elected to remove its two 100 series non-walking rigs from its marketed fleet pending completion of their planned rig conversions to 200 series, pad-optimal status. Rig utilization during the first six months of 2016 excludes one of these 100 series rigs. The conversion of the other 100 series rig was completed during the second quarter of 2016 and the rig re-entered the marketed fleet in June 2016. Rig utilization excludes this rig during the first five months of 2016. |
(5) | Average revenue per operating day represents total contract drilling revenues earned during the period divided by rig operating days in the period. Excluded in calculating average revenue per operating day are revenues associated with the reimbursement of out-of-pocket costs paid by customers of $0.4 million and $0.8 million during the three months ended June 30, 2016 and 2015, respectively, and $1.6 million and $1.4 million during the six months ended June 30, 2016 and 2015, respectively. |
(6) | Average cost per operating day represents operating costs incurred during the period divided by rig operating days in the period. The following costs are excluded in calculating average cost per operating day: (i) costs relating to out-of-pocket costs reimbursed by customers of $0.4 million and $0.8 million during the three months ended June 30, 2016 and 2015, respectively, and $1.6 million and $1.4 million during the six months ended June 30, 2016 and 2015, respectively, and (ii) new crew training costs of $0.1 million and $0.2 million during the three months ended June 30, 2016 and 2015, respectively, and $0.1 million and $0.2 million during the six months ended June 30, 2016 and 2015, respectively, and (iii) construction overhead costs expensed due to reduced rig construction activity of $0.5 million and $1.0 million during the three and six months of 2016. |
Issuer Purchases of Equity Securities | |||||||||||||
Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Approximate Dollar Value of Shares That May Yet be Purchased Under the Program (1) | |||||||||
April 1 — April 30 | — | $ | — | — | $ | — | |||||||
May 1 — May 31 | — | $ | — | — | $ | — | |||||||
June 1 — June 30 | 33,748 | $ | 5.43 | — | $ | — |
Exhibit Number | Description | |
3.1 | Amended and Restated Certificate of Incorporation of Independence Contract Drilling, Inc. (Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 001-36590) filed August 13, 2014, Exhibit 3.1) | |
3.2 | Amended and Restated Bylaws of Independence Contract Drilling, Inc. (Incorporated by reference to the Company’s Registration Statement on Form S-1 (File No. 333-196914) filed July 18, 2014, Exhibit 3.3) | |
10.1 | Fourth Amendment to Amended and Restated Credit Agreement, dated as of April 14, 2016, by and among Independence Contract Drilling, Inc., the Lenders party thereto and CIT Finance LLC as Administrative Agent and Collateral Agent, as Issuing Bank and as Swingline Lender (Incorporated by reference to the Company's Current Report on Form 8-K (File No. 001-36590) filed April 14, 2016, Exhibit 10.1) | |
10.2 | Amendment No. 1 to the Second Amended and Restated Independence Contract Drilling, Inc. 2012 Omnibus Incentive Plan (Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 001-36590) filed June 24, 2016.) | |
10.3 | Retirement Agreement dated June 9, 2015, by and between Independence Contract Drilling, Inc. and Edward S. Jacob, III (Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 001-36590) filed June 10, 2016.) | |
31.1* | Certification by Chief Executive Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act | |
31.2* | Certification by Chief Financial Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act | |
32.1* | Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2* | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.CAL* | XBRL Calculation Linkbase Document | |
101.DEF* | XBRL Definition Linkbase Document | |
101.INS* | XBRL Instance Document | |
101.LAB* | XBRL Labels Linkbase Document | |
101.PRE* | XBRL Presentation Linkbase Document | |
101.SCH* | XBRL Schema Document |
* | Filed with this report |
INDEPENDENCE CONTRACT DRILLING, INC. | |||
By: | /s/ Byron A. Dunn | ||
Name: | Byron A. Dunn | ||
Title: | President and Chief Executive Officer (Principal Executive Officer) |
By: | /s/ Philip A. Choyce | ||
Name: | Philip A. Choyce | ||
Title: | Senior Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer) |
By: | /s/ Michael J. Harwell | ||
Name: | Michael J. Harwell | ||
Title: | Vice President - Finance and Chief Accounting Officer (Principal Accounting Officer) |
/s/ Byron A. Dunn |
Byron A. Dunn |
Chief Executive Officer |
/s/ Philip A. Choyce |
Philip A. Choyce |
Chief Financial Officer |
(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Byron A. Dunn |
Byron A. Dunn |
Chief Executive Officer |
(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Philip A. Choyce |
Philip A. Choyce |
Chief Financial Officer |
Document and Entity Information - shares |
6 Months Ended | |
---|---|---|
Jun. 30, 2016 |
Jul. 27, 2016 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | Independence Contract Drilling, Inc. | |
Entity Central Index Key | 0001537028 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Accelerated Filer | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2016 | |
Document Fiscal Year Focus | 2016 | |
Document Fiscal Period Focus | Q2 | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 37,646,398 |
Balance Sheets (Parenthetical) - $ / shares |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Shares authorized (in shares) | 100,000,000 | 100,000,000 |
Shares issued (in shares) | 37,816,424 | 24,539,937 |
Shares outstanding (in shares) | 37,646,398 | 24,403,659 |
Treasury stock (in shares) | 170,026 | 136,278 |
Statements of Operations - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Income Statement [Abstract] | ||||
Revenues | $ 15,155 | $ 21,082 | $ 37,610 | $ 43,388 |
Costs and expenses | ||||
Operating costs | 7,398 | 12,057 | 19,965 | 25,163 |
Selling, general and administrative | 5,005 | 3,755 | 8,626 | 7,582 |
Depreciation and amortization | 5,816 | 5,169 | 11,641 | 9,458 |
(Insurance recoveries) asset impairment, net | 0 | 0 | 0 | (841) |
Loss (gain) on disposition of assets | 37 | (59) | (88) | 334 |
Total costs and expenses | 18,256 | 20,922 | 40,144 | 41,696 |
Operating (loss) income | (3,101) | 160 | (2,534) | 1,692 |
Interest expense | (1,059) | (717) | (2,036) | (1,029) |
(Loss) income before income taxes | (4,160) | (557) | (4,570) | 663 |
Income tax expense (benefit) | 31 | 95 | 35 | (60) |
Net (loss) income | $ (4,191) | $ (652) | $ (4,605) | $ 723 |
Net (loss) income per share: | ||||
Basic and diluted (usd per share) | $ (0.12) | $ (0.03) | $ (0.16) | $ 0.03 |
Weighted average number of common shares outstanding: | ||||
Basic and diluted (shares) | 33,608 | 23,851 | 28,812 | 24,455 |
Statements of Stockholders’ Equity - 6 months ended Jun. 30, 2016 - USD ($) $ in Thousands |
Total |
Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Treasury Stock |
---|---|---|---|---|---|
Beginning balance (shares) at Dec. 31, 2015 | 24,403,659 | ||||
Beginning balance at Dec. 31, 2015 | $ 232,737 | $ 244 | $ 276,948 | $ (43,169) | $ (1,286) |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||
Restricted stock units vested (shares) | 51,487 | ||||
Purchase of treasury stock (shares) | (33,748) | ||||
Purchase of treasury stock | (183) | (183) | |||
Public offering, net of offering costs of $3,305 (shares) | 13,225,000 | ||||
Public offering, net of offering costs of $3,305 | 42,983 | $ 132 | 42,851 | ||
Stock-based compensation | 2,293 | 2,293 | |||
Net loss | (4,605) | (4,605) | |||
Ending balance (shares) at Jun. 30, 2016 | 37,646,398 | ||||
Ending balance at Jun. 30, 2016 | $ 273,225 | $ 376 | $ 322,092 | $ (47,774) | $ (1,469) |
Statements of Stockholders’ Equity (Parenthetical) $ in Thousands |
6 Months Ended |
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Jun. 30, 2016
USD ($)
| |
Statement of Stockholders' Equity [Abstract] | |
Public offering, offering costs | $ 3,305 |
Statements of Cash Flows (Parenthetical) $ in Thousands |
6 Months Ended |
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Jun. 30, 2016
USD ($)
| |
Statement of Cash Flows [Abstract] | |
Public offering, offering costs | $ 3,305 |
Nature of Operations |
6 Months Ended |
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Jun. 30, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Nature of Operations | Nature of Operations Independence Contract Drilling, Inc. (“we,” “us,” “our,” the “Company” or “ICD”) was incorporated in Delaware on November 4, 2011. We provide land-based contract drilling services for oil and natural gas producers targeting unconventional resource plays in the United States. We construct, own and operate a premium fleet comprised entirely of technologically advanced, custom designed ShaleDriller® rigs that are specifically engineered and designed to optimize the development of our customers’ most technically demanding oil and gas properties. We are focused on creating stockholder and customer value through our commitment to operational excellence and our focus on safety. Our standardized fleet consists of fourteen premium ShaleDriller® rigs. Of these fourteen rigs, thirteen are 200 Series rigs equipped with our integrated omni-directional walking system that is specifically designed to optimize pad drilling for our customers. We have the ability to upgrade our remaining non-walking rig to 200 Series status when market conditions improve, but until such time this rig has been decommissioned, and we do not intend to market it. Every ShaleDriller® rig in our fleet is a 1500-hp, AC programmable rig (“AC rig”) designed to be fast-moving between drilling sites and is equipped with top drives, automated tubular handling systems and blowout preventer (“BOP”) handling systems. Twelve of our fourteen rigs are equipped with bi-fuel capabilities that enable the rig to operate on either diesel or a natural gas-diesel blend. Our first rig began drilling in May 2012. We currently focus our operations on unconventional resource plays located in geographic regions that we can efficiently support from our Houston, Texas facilities in order to maximize economies of scale. Currently, our rigs are predominantly operating in the Permian Basin, however, our rigs have previously operated in the Mid-Continent and Eaglebine regions and the Eagle Ford Shale, as well. Two of our rigs are scheduled to mobilize for operations in Louisiana later in 2016. Our business depends on the level of exploration and production activity by oil and gas companies operating in the U.S., and in particular, the regions where we actively market our contract drilling services. The oil and gas exploration and production industry is a historically cyclical industry characterized by significant changes in the levels of exploration and development activities. Oil and gas prices and market expectations of potential changes in those prices significantly affect the levels of those activities. Worldwide political, regulatory, economic, and military events, as well as natural disasters have contributed to oil and gas price volatility historically, and are likely to continue to do so in the future. Any prolonged reduction in the overall level of exploration and development activities in the U.S. and the regions where we market our contract drilling services, whether resulting from changes in oil and gas prices or otherwise, could materially and adversely affect our business. Current Oil and Gas Prices and Drilling Activity Oil prices began to decline in the second half of 2014 and declined further during 2015 and 2016. The closing price of oil was as high as $106.06 per barrel during the third quarter of 2014, was $37.13 per barrel on December 31, 2015, but improved to a high of $51.23 during the second quarter of 2016 (WTI spot price as reported by the United States Energy Information Administration). Despite the recent moderate upturn in oil prices, our industry is still experiencing an exceptional overall downturn, market conditions remain very dynamic and are changing quickly. Although the magnitude, as well as the duration, of this downturn are not yet known, we believe that the remainder of 2016 will continue to be an exceptionally challenging year for ICD and our industry. We believe the vast majority of exploration and production ("E&P") companies, including our customers, have significantly reduced their 2016 capital spending plans compared to 2015 levels. The initial impact of these spending reductions is evidenced by the published rig counts which have declined more than 70% since their peak in October 2014, and we believe the rig count in the United States could decline further in 2016 if oil and gas prices fall below current levels. As a result of this deterioration in market conditions, our customers are principally focused on their most economic wells, drilling to maintain leasehold positions and on maintaining their most cost efficient operations that deliver the overall lowest cost of producing their wells and minimize their capital expenditures. As a result, operators are focusing more of their capital spending on horizontal drilling programs compared to vertical drilling. They also are more focused on utilizing drilling equipment and techniques that optimize costs and efficiency. Thus, we believe this rapid market deterioration has significantly accelerated the pace of the ongoing land rig replacement cycle and continued shift to horizontal drilling from multi-well pads utilizing “pad optimal” rig technology. Although we believe that the current market downturn is rapidly increasing the focus of our customers towards the use of premium drilling rigs such as our ShaleDriller®, and that premium operations such as ours have been less affected by the downturn relative to operations conducted by legacy fleets, the rapid pace and level of the market decline has negatively impacted pricing, utilization and contract tenors for premium rigs, including our ShaleDriller® rig. During the second quarter of 2016, our premium drilling fleet operated at 66% utilization, but we may not be able to maintain this level of utilization if commodity prices fall below current levels. Retirement and Resignation of Edward S. Jacob, III On June 10, 2016, ICD and Edward S. Jacob, III, our President and Chief Operating Officer, announced Mr. Jacob’s retirement as an officer of ICD effective June 30, 2016. ICD and Mr. Jacob also announced his resignation as director of ICD effective on June 30, 2016. In connection with Mr. Jacob’s retirement, ICD and Mr. Jacob entered into a Retirement Agreement on June 9, 2016 (the “Retirement Agreement”), setting out certain terms and conditions governing Mr. Jacob’s retirement. Under the terms of the Retirement Agreement, we agreed to make certain retirement benefits available to Mr. Jacob, including a cash retirement payment of approximately $1.5 million to be paid in one lump sum on January 2, 2017 and accelerated vesting of certain outstanding equity awards. The retirement payment and the impact from the accelerated vesting of equity awards are recorded as selling, general and administrative expense in our Statements of Operations for the quarter ended June 30, 2016. Amendment to Revolving Credit Facility On April 14, 2016, we entered into a Fourth Amendment (the “Fourth Amendment”) to the Amended and Restated Credit Agreement (the “Credit Agreement”) dated November 5, 2014. Among other things, the Fourth Amendment (a) decreased the aggregate commitments under the Credit Agreement from $125.0 million to $85.0 million, but maintained the $25.0 million uncommitted accordion feature pursuant to which commitments may be increased in the future; (b) amended the Leverage Ratio, and Rig Utilization and Fixed Charge covenants; (c) amended the advance rate on Eligible Equipment for purposes of calculating the borrowing base; and (d) added a springing covenant associated with capital expenditures consistent with our previously announced capital plans. In addition, in connection with the execution of the Fourth Amendment, the Administrative Agent agreed to include certain capital spare equipment in the calculation of our borrowing base through December 31, 2016. Public Offering of Common Stock On April 26, 2016, we completed an underwritten public offering of 13,225,000 shares of common stock at a price to the public of $3.50 per share. We received net proceeds of approximately $43.0 million, after deducting underwriting discounts and commissions and offering expenses. We used the net proceeds from this offering to repay a portion of the outstanding borrowings under our revolving credit facility and for general corporate purposes. |
Interim Financial Information |
6 Months Ended |
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Jun. 30, 2016 | |
Accounting Policies [Abstract] | |
Interim Financial Information | Interim Financial Information These unaudited financial statements include the accounts of ICD, and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These financial statements should be read along with our audited financial statements for the year ended December 31, 2015, included in our Annual Report on Form 10-K for the year ended December 31, 2015. In management’s opinion, these financial statements contain all adjustments necessary to fairly present our financial position, results of operations, cash flows and changes in stockholders' equity for all periods presented. As we had no items of other comprehensive income in any period presented, no other components of comprehensive income or comprehensive income is presented. Interim results for the three and six months ended June 30, 2016 may not be indicative of results that will be realized for the full year ending December 31, 2016. Segment and Geographical Information Our operations consist of one reportable segment because all of our drilling operations are located in the United States and have similar economic characteristics. Corporate management administers all properties as a whole rather than as discrete operating segments. Operational data is tracked by rig; however, financial performance is measured as a single enterprise and not on a rig-by-rig basis. Further, the allocation of capital resources is employed on a project-by-project basis across our entire asset base to maximize profitability without regard to individual geographic areas. Other Matters We have not elected to avail ourselves of the extended transition period available to emerging growth companies("EGCs") as provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards, therefore, we will be subject to new or revised accounting standards at the same time as other public companies that are not EGCs. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (the "FASB") issued an accounting standards update to provide guidance on the recognition of revenue from customers. Under this guidance, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. This guidance also requires more detailed disclosures to enable users of the financial statements to understand the nature, amount, timing and uncertainty, if any, of revenue and cash flows arising from contracts with customers. This guidance, as updated, is effective for interim and annual periods beginning after December 15, 2017. We are currently evaluating the impact this guidance will have on our financial statements. In August 2014, the FASB issued guidance requiring management to perform interim and annual assessments of an entity’s ability to continue as a going-concern within one year of the date the financial statements are issued. The standard also provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. An entity must provide certain disclosures if there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going-concern. Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. The new guidance applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. We will begin performing the assessments and making the required disclosures, if applicable, beginning at the end of fiscal year 2016. In July 2015, the FASB issued an accounting standards update requiring an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The amendments do not apply to inventory that is measured using last-in, first-out ("LIFO") or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out ("FIFO") or average cost. Management should measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. This guidance is effective for public companies for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. Adoption of this pronouncement is not expected to have a material impact on our financial statements. In February 2016, the FASB issued an accounting standards update to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. Under the new guidance, lessees will be required to recognize (with the exception of short-term leases) at the commencement date, a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. This guidance is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted for all public business entities upon issuance. We are currently evaluating the impact this guidance will have on our financial statements. In March 2016, the FASB issued an accounting standards update intended to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. For public companies, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any organization in any interim or annual period. We are currently evaluating the impact this guidance will have on our financial statements. In May 2016, the FASB issued an accounting standards update to clarify certain narrow aspects of Topic 606 such as assessing the collectability criterion, presentation of sales taxes and other similar taxes collected from customers, non-cash consideration, contract modifications at transition, completed contracts at transition, and technical correction. The guidance is effective for public companies for annual reporting periods beginning after December 15, 2017. We are currently evaluating the impact this guidance will have on our financial statements. |
Financial Instruments and Fair Value |
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Fair Value Disclosures [Abstract] | |||||||||||||
Financial Instruments and Fair Value | Financial Instruments and Fair Value Fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, there exists a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
This hierarchy requires us to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. The carrying value of certain of our assets and liabilities, consisting primarily of cash and cash equivalents, accounts receivable and accounts payable, approximates their fair value due to the short-term nature of such instruments. The fair value of our revolving debt is determined by Level 3 measurements based on the amount of future cash flows associated with the debt, discounted using our current borrowing rate for comparable debt instruments (the Income Method). Based on our evaluation of the risk free rate, the market yield and credit spreads on comparable company publicly traded debt issues, we used an annualized discount rate, including a credit valuation allowance, of 6.5%. The fair value of our lease obligations is determined using level 3 measurements using our current incremental borrowing rate. The estimated fair value of our long-term debt totaled $16.4 million and $59.7 million as of June 30, 2016 and December 31, 2015, respectively, compared to a carrying amount of $16.7 million and $62.7 million as of June 30, 2016 and December 31, 2015, respectively. Fair value measurements are applied with respect to our non-financial assets and liabilities measured on a non-recurring basis, which would consist of measurements primarily of long-lived assets. |
Inventory |
6 Months Ended |
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Jun. 30, 2016 | |
Inventory Disclosure [Abstract] | |
Inventory | Inventory All of our inventory as of June 30, 2016 and December 31, 2015 consisted of rig components and supplies. |
Accrued Liabilities |
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Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued Liabilities | Accrued Liabilities Accrued liabilities consisted of the following:
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Long-term Debt |
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Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-term Debt | Long-term Debt Our Long-term Debt consisted of the following:
Credit Facility In November 2014, we entered into an amended and restated credit agreement (the “Credit Facility”) with a syndicate of financial institutions led by CIT Finance, LLC, that provided for a committed $155.0 million revolving credit facility and an additional uncommitted $25.0 million accordion feature that allowed for future increases in the facility. On April 23, 2015, we amended the Credit Facility to provide for a springing lock-box arrangement. On October 20, 2015, in light of market conditions and our reduced capital plans, we entered into an amendment to the Credit Facility to reduce aggregate commitments to $125.0 million and modified certain maintenance covenants. On April 14, 2016, we again amended the Credit Facility to reduce aggregate commitments to $85.0 million and further modify certain maintenance covenants. In connection with this amendment, we expensed certain previously deferred debt issuance costs totaling $0.5 million reflecting the reduction in borrowing capacity. The obligations under the Credit Facility are secured by all of our assets and are unconditionally guaranteed by all of our current and future direct and indirect subsidiaries. Borrowings under the Credit Facility are subject to a borrowing base formula that allows for borrowings of up to 85% of eligible trade accounts receivable not more than 90 days outstanding, plus up to 72.5% of the appraised forced liquidation value of our eligible, completed and owned drilling rigs. This advance rate declines 1.25% per quarter beginning in 2017. Rigs that remain idle for 90 consecutive days or longer are removed from the borrowing base until they are contracted. In addition, rigs are appraised three times a year and are subject to upward or downward revisions as a result of market conditions as well as the age of the rig. The Credit Facility matures on November 5, 2018. At our election, interest under the Credit Facility is determined by reference at our option to either (i) the London Interbank Offered Rate (“LIBOR”), plus 4.5% or (ii) a “base rate” equal to the higher of the prime rate published by JP Morgan Chase Bank or three-month LIBOR plus 1%, plus in each case, 3.5%, the federal funds effective rate plus 0.05%. We also pay, on a quarterly basis, a commitment fee of 0.50% per annum on the unused portion of the Credit Facility commitment. As of June 30, 2016, the weighted average interest rate on our borrowings was 5.18%. The amended Credit Facility contains various financial covenants including a leverage covenant, springing fixed charge coverage ratio and rig utilization ratio. Additionally, there are restrictive covenants that limit our ability to, among other things: incur or guarantee additional indebtedness or issue disqualified capital stock; transfer or sell assets; pay dividends or distributions; redeem subordinated indebtedness; make certain types of investments or make other restricted payments; create or incur liens; consummate a merger; consolidation or sale of all or substantially all assets; and engage in business other than a business that is the same or similar to the current business and reasonably related businesses. The Credit Facility does, however, permit us to incur up to $20.0 million of additional indebtedness for the purchase of additional rigs or rig equipment. Under the Credit Agreement, as amended, for purposes of calculating EBITDA, non-cash stock-based compensation is added back to EBITDA as well as up to $2.0 million per year of previously capitalized construction costs that may be incurred in 2016 and 2017. At June 30, 2016, our calculated leverage ratio under this covenant was approximately 0.4x. The Credit Facility provides that an event of default may occur if a material adverse change to the Company occurs, which is considered a subjective acceleration clause under applicable accounting rules. Under ASC 470-10-45, because of the existence of this clause, borrowings under the Credit Facility will be required to be classified as current in the event the springing lock-box event occurs, regardless of the actual maturity of the borrowings. The Fourth Amendment reduces the requirement for a mandatory lock-box trigger from $15 million of availability under the credit facility to $10 million of availability under the Credit Facility. In addition, in connection with the execution of the Fourth Amendment, the Administrative Agent under our revolving credit facility has agreed to include certain capital spare equipment in the calculation of our borrowing base through December 31, 2016. We had approximately $16.4 million in outstanding borrowings under the Credit Facility at June 30, 2016. Remaining availability under the Credit Facility was $64.3 million at June 30, 2016, based on the amended borrowing base formula, and we are currently in compliance with all covenants under the Credit Facility. Capital Lease Obligations During the first quarter of 2016, our vehicle lease agreements were amended, which resulted in a change in the classification of certain leases from operating leases to capital leases. On the amendment date we recorded $0.8 million in capital lease obligations, representing the lesser of fair market value or the present value of future minimum lease payments on the conversion date. These leases generally have initial terms of 36 months and are paid monthly. |
Stock-Based Compensation |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation | Stock-Based Compensation In March 2012, we adopted the 2012 Omnibus Long-Term Incentive Plan (the “2012 Plan”) providing for common stock-based awards to employees and to non-employee directors. The 2012 plan was subsequently amended in August 2014 and June 2016. The 2012 Plan, as amended, permits the granting of various types of awards, including stock options, restricted stock and restricted stock unit awards, and up to 4,754,000 shares were authorized for issuance. Restricted stock and restricted stock units may be granted for no consideration other than prior and future services. The purchase price per share for stock options may not be less than the market price of the underlying stock on the date of grant. Stock options expire ten years after the grant date. We have the right to satisfy option exercises from treasury shares and from authorized but unissued shares. As of June 30, 2016, approximately 1,585,784 shares were available for future awards. A summary of compensation cost recognized for stock-based payment arrangements is as follows:
No stock-based compensation was capitalized in connection with rig construction activity during the three and six months ended June 30, 2016. Approximately $0.2 million and $0.4 million in stock-based compensation was capitalized in connection with rig construction activity during the three and six months ended June 30, 2015, respectively. Stock Options We use the Black-Scholes option pricing model to estimate the fair value of stock options granted to employees and non-employee directors. The fair value of the options is amortized to compensation expense on a straight-line basis over the requisite service periods of the stock awards, which are generally the vesting periods. There were no stock options granted during the six months ended June 30, 2016 or the six months ended June 30, 2015. A summary of stock option activity and related information for the six months ended June 30, 2016 is as follows:
A summary of our unvested stock options as of June 30, 2016, and the changes during the six months then ended is presented below:
The number of options vested at June 30, 2016 was 912,170 with a weighted average remaining contractual life of 5.9 years and a weighted-average exercise price of $12.74 per share. As of June 30, 2016, the unrecognized compensation cost related to outstanding stock options was $9.0 thousand. This cost is expected to be recognized over a weighted-average period of 0.1 years. Restricted Stock Restricted stock awards consist of grants of our common stock that vest ratably over three to four years. We recognize compensation expense on a straight-line basis over the requisite service period, which is generally the vesting period. The fair value of restricted stock awards is determined based on the fair market value of our shares on the grant date. As of June 30, 2016, there was $1.9 million of total unrecognized compensation cost related to unvested restricted stock awards. This cost is expected to be recognized over a weighted-average period of 0.6 years. A summary of the status of our restricted stock awards as of June 30, 2016, and of changes in restricted stock outstanding during the six months ended June 30, 2016, is as follows:
Restricted Stock Units We have granted restricted stock units ("RSUs") to key employees and directors under the 2012 Plan. We have granted three year vesting RSUs, as well as performance-based and market-based RSUs, where each unit represents the right to receive, at the end of a vesting period, up to one and a half to two shares of ICD common stock at no cost. Vesting of the market-based RSUs is based on our three year total shareholder return ("TSR") as measured against a three year TSR of a defined peer group and vesting of the performance-based RSUs is based on our cumulative EBITDA ("CEBITDA"), as defined in the restricted stock unit agreement, over a three year period. We used a Monte Carlo simulation model to value the TSR market-based RSUs at the date of grant. The fair value of the CEBITDA performance-based RSUs was based on the market price of our common stock on the date of grant. During the restriction period, the RSUs may not be transferred or encumbered, and the recipient does not receive dividend equivalents or have voting rights until the units vest. As of June 30, 2016, there was $3.7 million of unrecognized compensation cost related to unvested RSUs that is expected to be recognized over a weighted-average period of 1.0 year. A summary of the status of our RSUs as of June 30, 2016, and of changes in RSUs outstanding during the six months ended June 30, 2016, is as follows:
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Stockholders’ Equity and Earnings (Loss) per Share |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' Equity and Earnings (Loss) per Share | Stockholders’ Equity and Earnings (Loss) per Share As of June 30, 2016, we had a total of 37,646,398 shares of common stock, $0.01 par value, outstanding, including 316,360 shares of restricted stock. We also had 170,026 shares held as treasury stock. Total authorized common stock is 100,000,000 shares. Basic earnings (loss) per common share (“EPS”) is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock. A reconciliation of the numerators and denominators of the basic and diluted (loss) earnings per share computations is as follows:
For all periods presented, the computation of diluted loss per share excludes the effect of certain outstanding stock options because their inclusion would be anti-dilutive. The number of options that were excluded from diluted loss per share were 948,803 during the three and six months ended June 30, 2016 and 963,169 during the three and six months ended June 30, 2015. Restricted stock units, which are not participating securities and are excluded from our basic and diluted earnings (loss) per share because they are anti-dilutive, were 1,077,663 for the three and six months ended June 30, 2016 and 495,227 for the three and six months ended June 30, 2015. |
Income Taxes |
6 Months Ended |
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Jun. 30, 2016 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Income Taxes Our effective tax rate was (0.7)% and (0.8)% for the three and six months ended June 30, 2016, respectively and (17.1)% and (9.0)% for the three and six months ended June 30, 2015, respectively. The rate in all periods is primarily comprised of the effect of the Texas margin tax. For federal income tax purposes, we have applied a valuation allowance against any potential deferred tax asset which would have ordinarily resulted. |
Commitments and Contingencies |
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||
Commitments and Contingencies | Commitments and Contingencies Purchase Commitments As of June 30, 2016, we had outstanding purchase commitments to a number of suppliers totaling $26.0 million, net of deposits previously made, related primarily to the construction of drilling rigs. Of these commitments, $5.6 million relates to equipment currently scheduled for delivery in 2016, $13.1 million relates to equipment scheduled for delivery in 2017 and $7.2 million relates to equipment scheduled for delivery in 2018. Lease Commitments We lease certain equipment and vehicles under non-cancelable operating and capital leases. Future minimum lease payments under operating and capital lease commitments, with lease terms in excess of one year subsequent to June 30, 2016, were as follows:
As of June 30, 2016, property, plant and equipment in our balance sheets included $0.8 million of equipment under capital lease, net of $0.2 million of accumulated amortization. There were no capital leases as of December 31, 2015. Contingencies Our operations inherently expose us to various liabilities and exposures that could result in third-party lawsuits, claims and other causes of action. While we insure against the risk of these proceedings to the extent deemed prudent by our management, we can offer no assurance that the type or value of this insurance will meet the liabilities that may arise from any pending or future legal proceedings related to our business activities. |
Related Parties |
6 Months Ended |
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Jun. 30, 2016 | |
Related Party Transactions [Abstract] | |
Related Parties | Related Parties During 2011, we entered into an asset contribution and share subscription agreement that involved our acquiring certain assets and liabilities from GES and Independence Contract Drilling LLC. One of our directors, was a director of the ultimate parent company of GES as of June 30, 2016, and one of our directors was a director of the ultimate parent company of GES through May 31, 2015. The director who continues to serve as a director of the ultimate parent company of GES is also the director of a fund that owned approximately 36% of the ultimate parent company of GES as of June 30, 2016. We purchased certain items used in the construction of our drilling rigs from a former affiliate of GES. This vendor was sold by GES to a third party during the second quarter of 2015. As a related party, total purchases from the vendor amounted to $1.2 million during the six months ended June 30, 2015. We did not have any related party outstanding payables with this vendor as December 31, 2015. One of our directors is also a director of one of our vendors from which we purchase oilfield and related supplies. Total purchases from this vendor were $7 thousand and $1.3 million during the three and six months ended June 30, 2016, respectively, and $3.1 million and $3.6 million during the three and six months ended June 30, 2015, respectively. We had no outstanding payables with this vendor as of June 30, 2016 and outstanding payables with this vendor of $0.1 million as of December 31, 2015. During 2015, the son of a former executive officer and director of the Company began working in a sales capacity at, and became a minority owner of, a vendor from which we purchase oilfield equipment and related supplies. Total purchases from this vendor were $0.1 million during the three and six months ended June 30, 2016. We had outstanding payables of $12.0 thousand and $0.1 million as of June 30, 2016 and December 31, 2015, respectively. We did not do any business with this company during the first six months of 2015. |
Interim Financial Information (Policies) |
6 Months Ended |
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Jun. 30, 2016 | |
Accounting Policies [Abstract] | |
Segment and Geographical Information | Segment and Geographical Information Our operations consist of one reportable segment because all of our drilling operations are located in the United States and have similar economic characteristics. Corporate management administers all properties as a whole rather than as discrete operating segments. Operational data is tracked by rig; however, financial performance is measured as a single enterprise and not on a rig-by-rig basis. Further, the allocation of capital resources is employed on a project-by-project basis across our entire asset base to maximize profitability without regard to individual geographic areas. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (the "FASB") issued an accounting standards update to provide guidance on the recognition of revenue from customers. Under this guidance, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. This guidance also requires more detailed disclosures to enable users of the financial statements to understand the nature, amount, timing and uncertainty, if any, of revenue and cash flows arising from contracts with customers. This guidance, as updated, is effective for interim and annual periods beginning after December 15, 2017. We are currently evaluating the impact this guidance will have on our financial statements. In August 2014, the FASB issued guidance requiring management to perform interim and annual assessments of an entity’s ability to continue as a going-concern within one year of the date the financial statements are issued. The standard also provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. An entity must provide certain disclosures if there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going-concern. Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. The new guidance applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. We will begin performing the assessments and making the required disclosures, if applicable, beginning at the end of fiscal year 2016. In July 2015, the FASB issued an accounting standards update requiring an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The amendments do not apply to inventory that is measured using last-in, first-out ("LIFO") or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out ("FIFO") or average cost. Management should measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. This guidance is effective for public companies for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. Adoption of this pronouncement is not expected to have a material impact on our financial statements. In February 2016, the FASB issued an accounting standards update to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. Under the new guidance, lessees will be required to recognize (with the exception of short-term leases) at the commencement date, a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. This guidance is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted for all public business entities upon issuance. We are currently evaluating the impact this guidance will have on our financial statements. In March 2016, the FASB issued an accounting standards update intended to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. For public companies, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any organization in any interim or annual period. We are currently evaluating the impact this guidance will have on our financial statements. In May 2016, the FASB issued an accounting standards update to clarify certain narrow aspects of Topic 606 such as assessing the collectability criterion, presentation of sales taxes and other similar taxes collected from customers, non-cash consideration, contract modifications at transition, completed contracts at transition, and technical correction. The guidance is effective for public companies for annual reporting periods beginning after December 15, 2017. We are currently evaluating the impact this guidance will have on our financial statements. |
Accrued Liabilities (Tables) |
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Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accrued Liabilities | Accrued liabilities consisted of the following:
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Long-term Debt (Tables) |
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Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Long-term Debt | Our Long-term Debt consisted of the following:
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Stock-Based Compensation (Tables) |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Compensation Cost | A summary of compensation cost recognized for stock-based payment arrangements is as follows:
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Summary of Stock Option Activity and Related Information | A summary of stock option activity and related information for the six months ended June 30, 2016 is as follows:
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Unvested Stock Option Activity | A summary of our unvested stock options as of June 30, 2016, and the changes during the six months then ended is presented below:
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Schedule of Restricted Stock Activity | A summary of the status of our RSUs as of June 30, 2016, and of changes in RSUs outstanding during the six months ended June 30, 2016, is as follows:
A summary of the status of our restricted stock awards as of June 30, 2016, and of changes in restricted stock outstanding during the six months ended June 30, 2016, is as follows:
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Stockholders’ Equity and Earnings (Loss) per Share (Tables) |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of Numerators and Denominators of Basic and Diluted (Loss) Earnings Per Share | A reconciliation of the numerators and denominators of the basic and diluted (loss) earnings per share computations is as follows:
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Commitments and Contingencies (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||
Future Minimum Lease Payments Under Operating and Capital Lease Commitments | Future minimum lease payments under operating and capital lease commitments, with lease terms in excess of one year subsequent to June 30, 2016, were as follows:
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Interim Financial Information (Details) |
6 Months Ended |
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Jun. 30, 2016
segment
| |
Accounting Policies [Abstract] | |
Reportable segments | 1 |
Financial Instruments and Fair Value (Details) - USD ($) $ in Thousands |
6 Months Ended | |
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Jun. 30, 2016 |
Dec. 31, 2015 |
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Fair Value Disclosures [Abstract] | ||
Annualized discount rate (as a percent) | 6.50% | |
Long-term debt, fair value | $ 16,400 | $ 59,700 |
Long-term debt, carrying value | $ 16,661 | $ 62,708 |
Accrued Liabilities (Details) - USD ($) $ in Thousands |
Jun. 30, 2016 |
Dec. 31, 2015 |
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Payables and Accruals [Abstract] | ||
Accrued salaries and other compensation | $ 2,421 | $ 2,050 |
Insurance | 779 | 600 |
Deferred revenues | 1,398 | 4,591 |
Property, sales and other taxes | 1,705 | 2,585 |
Other | 158 | 380 |
Accrued liabilities | $ 6,461 | $ 10,206 |
Long-term Debt (Schedule of Long-Term Debt) (Details) - USD ($) $ in Thousands |
Jun. 30, 2016 |
Dec. 31, 2015 |
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Debt Instrument [Line Items] | ||
Long-term debt, including current portion | $ 17,034 | $ 62,708 |
Less: current portion | (373) | 0 |
Long-term debt | 16,661 | 62,708 |
Capital lease obligations | ||
Debt Instrument [Line Items] | ||
Long-term debt, including current portion | 680 | 0 |
Revolving credit facility | Line of credit | ||
Debt Instrument [Line Items] | ||
Long-term debt, including current portion | $ 16,354 | $ 62,708 |
Stock-Based Compensation (Compensation Cost) (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
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Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||||
Total stock-based compensation | $ 1,138 | $ 1,003 | $ 2,293 | $ 2,157 |
Stock options | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||||
Total stock-based compensation | 3 | 74 | 72 | 288 |
Restricted stock and restricted stock units | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||||
Total stock-based compensation | $ 1,135 | $ 929 | $ 2,221 | $ 1,869 |
Stock-Based Compensation (Unvested Stock Option Activity) (Details) |
6 Months Ended |
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Jun. 30, 2016
$ / shares
shares
| |
Outstanding | |
Options, beginning balance (in shares) | shares | 104,143 |
Options, granted (in shares) | shares | 0 |
Options, vested (in shares) | shares | (59,660) |
Options, forfeited/expired (in shares) | shares | (7,850) |
Options, ending balance (in shares) | shares | 36,633 |
Weighted Average Grant-Date Fair Value | |
Weighted average grant date fair value, beginning balance (in dollars per share) | $ / shares | $ 3.88 |
Weighted average grant date fair value, granted (in dollars per share) | $ / shares | 0.00 |
Weighted average grant date fair value, vested (in dollars per share) | $ / shares | 4.27 |
Weighted average grant date fair value, forfeited/expired (in dollars per share) | $ / shares | 3.36 |
Weighted average grant date fair value, ending balance (in dollars per share) | $ / shares | $ 3.36 |
Stockholders’ Equity and Earnings (Loss) per Share (Basic and Diluted Computation) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
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Net (loss) income (numerator): | ||||
Net (loss) income | $ (4,191) | $ (652) | $ (4,605) | $ 723 |
Net (loss) earnings per share: | ||||
Basic and diluted (usd per share) | $ (0.12) | $ (0.03) | $ (0.16) | $ 0.03 |
Shares (denominator): | ||||
Weighted-average number of shares outstanding - basic | 33,608 | 23,851 | 28,812 | 24,455 |
Net effect of dilutive stock options, warrants and restricted stock units | 0 | 0 | 0 | 0 |
Weighted-average number of shares outstanding - diluted | 33,608 | 23,851 | 28,812 | 24,455 |
Income Taxes (Details) |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
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Income Tax Disclosure [Abstract] | ||||
Effective income tax rate (as a percent) | (0.70%) | (17.10%) | (0.80%) | (9.00%) |
Commitments and Contingencies (Details) - USD ($) |
6 Months Ended | |
---|---|---|
Jun. 30, 2016 |
Dec. 31, 2015 |
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Commitments and Contingencies Disclosure [Abstract] | ||
Outstanding purchase commitments | $ 26,000,000 | |
Outstanding purchase commitments, equipment to be delivered in 2016 | 5,600,000 | |
Outstanding purchase commitments, equipment to be delivered in 2017 | 13,100,000 | |
Outstanding purchase commitments, equipment to be delivered in 2018 | 7,200,000 | |
2016 | 227,000 | |
2017 | 302,000 | |
2018 | 127,000 | |
2019 | 58,000 | |
Total future lease payments | 714,000 | |
Long-term Purchase Commitment [Line Items] | ||
Property, plant and equipment, net | 280,121,000 | $ 283,378,000 |
Assets Held under Capital Leases | ||
Long-term Purchase Commitment [Line Items] | ||
Property, plant and equipment, net | 800,000 | $ 0 |
Accumulated depreciation | $ 200,000 |
Related Parties (Narrative) (Details) |
3 Months Ended | 6 Months Ended | ||||
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Jun. 30, 2016
USD ($)
Director
|
Jun. 30, 2015
USD ($)
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Jun. 30, 2016
USD ($)
Director
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Jun. 30, 2015
USD ($)
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Dec. 31, 2015
USD ($)
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May 31, 2015
Director
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Global Energy Services Operating, LLC | Affiliated entity | ||||||
Related Party Transaction [Line Items] | ||||||
Number of directors | Director | 1 | 1 | 1 | |||
Ownership percentage | 36.00% | |||||
Purchases | $ 1,200,000 | |||||
Vendor One | Purchases of Oilfield Equipment and Related Supplies | Director | ||||||
Related Party Transaction [Line Items] | ||||||
Number of directors | Director | 1 | 1 | ||||
Purchases | $ 7,000 | $ 3,100,000 | $ 1,300,000 | 3,600,000 | ||
Outstanding payables | 0 | 0 | $ 100,000 | |||
Vendor Two | Purchases of Oilfield Equipment and Related Supplies | Affiliated entity | ||||||
Related Party Transaction [Line Items] | ||||||
Purchases | 100,000 | 100,000 | $ 0 | |||
Outstanding payables | $ 12,000 | $ 12,000 | $ 100,000 |