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.) |
20475 State Highway 249, Suite 300 Houston, Texas | 77070 |
(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 | ¨ |
Emerging growth company | x | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x |
Part I. FINANCIAL INFORMATION | ||
Part II. OTHER INFORMATION | ||
• | a decline in or substantial volatility of crude oil and natural gas commodity prices; |
• | a sustained decrease in domestic spending by the oil and natural gas exploration and production industry; |
• | our inability to implement our business and growth strategy, including plans to upgrade and convert SCR rigs acquired in the Sidewinder Drilling LLC combination; |
• | fluctuation of our operating results and volatility of our industry; |
• | inability to maintain or increase pricing of our contract drilling services, or early termination of any term contract for which early termination compensation is not paid; |
• | our backlog of term contracts declining rapidly; |
• | 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 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. |
September 30, 2018 | December 31, 2017 | ||||||
Assets | |||||||
Cash and cash equivalents | $ | 2,965 | $ | 2,533 | |||
Accounts receivable, net | 23,728 | 18,056 | |||||
Inventories | 3,087 | 2,710 | |||||
Assets held for sale | 3,898 | 4,637 | |||||
Prepaid expenses and other current assets | 4,188 | 2,957 | |||||
Total current assets | 37,866 | 30,893 | |||||
Property, plant and equipment, net | 277,978 | 272,388 | |||||
Other long-term assets, net | 1,763 | 1,364 | |||||
Total assets | $ | 317,607 | $ | 304,645 | |||
Liabilities and Stockholders’ Equity | |||||||
Liabilities | |||||||
Current portion of long-term debt | $ | 575 | $ | 533 | |||
Accounts payable | 12,573 | 11,627 | |||||
Accrued liabilities | 8,912 | 6,969 | |||||
Total current liabilities | 22,060 | 19,129 | |||||
Long-term debt | 68,631 | 49,278 | |||||
Deferred income taxes, net | 563 | 683 | |||||
Other long-term liabilities | 632 | 73 | |||||
Total liabilities | 91,886 | 69,163 | |||||
Commitments and contingencies (Note 11) | |||||||
Stockholders’ equity | |||||||
Common stock, $0.01 par value, 100,000,000 shares authorized; 38,597,447 and 38,246,919 shares issued, respectively; and 38,252,765 and 37,985,225 shares outstanding, respectively | 383 | 380 | |||||
Additional paid-in capital | 328,598 | 326,616 | |||||
Accumulated deficit | (101,041 | ) | (89,645 | ) | |||
Treasury stock, at cost, 344,682 and 261,694 shares, respectively | (2,219 | ) | (1,869 | ) | |||
Total stockholders’ equity | 225,721 | 235,482 | |||||
Total liabilities and stockholders’ equity | $ | 317,607 | $ | 304,645 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Revenues | $ | 28,439 | $ | 23,445 | $ | 79,820 | $ | 64,966 | |||||||
Costs and expenses | |||||||||||||||
Operating costs | 18,420 | 18,247 | 55,312 | 48,953 | |||||||||||
Selling, general and administrative | 3,903 | 2,948 | 10,877 | 10,101 | |||||||||||
Merger expenses | 1,933 | — | 2,376 | — | |||||||||||
Depreciation and amortization | 6,831 | 6,529 | 20,001 | 19,120 | |||||||||||
Asset impairment, net | 431 | 899 | 396 | 1,574 | |||||||||||
(Gain) loss on disposition of assets, net | (260 | ) | — | (675 | ) | 1,573 | |||||||||
Total costs and expenses | 31,258 | 28,623 | 88,287 | 81,321 | |||||||||||
Operating loss | (2,819 | ) | (5,178 | ) | (8,467 | ) | (16,355 | ) | |||||||
Interest expense | (1,168 | ) | (772 | ) | (3,049 | ) | (2,088 | ) | |||||||
Loss before income taxes | (3,987 | ) | (5,950 | ) | (11,516 | ) | (18,443 | ) | |||||||
Income tax (benefit) expense | (50 | ) | 30 | (120 | ) | 110 | |||||||||
Net loss | $ | (3,937 | ) | $ | (5,980 | ) | $ | (11,396 | ) | $ | (18,553 | ) | |||
Loss per share: | |||||||||||||||
Basic and diluted | $ | (0.10 | ) | $ | (0.16 | ) | $ | (0.30 | ) | $ | (0.49 | ) | |||
Weighted average number of common shares outstanding: | |||||||||||||||
Basic and diluted | 38,253 | 37,839 | 38,210 | 37,688 |
Common Stock | ||||||||||||||||||||||
Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Treasury Stock | Total Stockholders’ Equity | |||||||||||||||||
Balances at December 31, 2017 | 37,985,225 | $ | 380 | $ | 326,616 | $ | (89,645 | ) | $ | (1,869 | ) | $ | 235,482 | |||||||||
RSUs vested, net of shares withheld for taxes | 350,528 | 3 | (98 | ) | — | — | (95 | ) | ||||||||||||||
Purchase of treasury stock | (82,988 | ) | — | — | — | (350 | ) | (350 | ) | |||||||||||||
Stock-based compensation | — | — | 2,080 | — | — | 2,080 | ||||||||||||||||
Net loss | — | — | — | (11,396 | ) | — | (11,396 | ) | ||||||||||||||
Balances at September 30, 2018 | 38,252,765 | $ | 383 | $ | 328,598 | $ | (101,041 | ) | $ | (2,219 | ) | $ | 225,721 |
Nine Months Ended September 30, | |||||||
2018 | 2017 | ||||||
Cash flows from operating activities | |||||||
Net loss | $ | (11,396 | ) | $ | (18,553 | ) | |
Adjustments to reconcile net loss to net cash provided by operating activities | |||||||
Depreciation and amortization | 20,001 | 19,120 | |||||
Asset impairment, net | 396 | 1,574 | |||||
Stock-based compensation | 2,080 | 3,036 | |||||
(Gain) loss on disposition of assets, net | (675 | ) | 1,573 | ||||
Amortization of deferred rent | 60 | — | |||||
Deferred income taxes | (120 | ) | 110 | ||||
Amortization of deferred financing costs | 290 | 344 | |||||
Bad debt expense | 22 | — | |||||
Changes in operating assets and liabilities | |||||||
Accounts receivable | (5,694 | ) | (4,343 | ) | |||
Inventories | (116 | ) | (257 | ) | |||
Prepaid expenses and other assets | (1,212 | ) | (1,037 | ) | |||
Accounts payable and accrued liabilities | 2,535 | 655 | |||||
Net cash provided by operating activities | 6,171 | 2,222 | |||||
Cash flows from investing activities | |||||||
Purchases of property, plant and equipment | (24,804 | ) | (26,975 | ) | |||
Proceeds from insurance claims | 257 | — | |||||
Proceeds from the sale of assets | 487 | 1,088 | |||||
Net cash used in investing activities | (24,060 | ) | (25,887 | ) | |||
Cash flows from financing activities | |||||||
Borrowings under Credit Facility | 50,526 | 38,410 | |||||
Repayments under Credit Facility | (31,150 | ) | (17,162 | ) | |||
Purchase of treasury stock | (350 | ) | (162 | ) | |||
RSUs withheld for taxes | (95 | ) | (853 | ) | |||
Financing costs paid | (114 | ) | (538 | ) | |||
Payments for capital lease obligations | (496 | ) | (449 | ) | |||
Net cash provided by financing activities | 18,321 | 19,246 | |||||
Net increase (decrease) in cash and cash equivalents | 432 | (4,419 | ) | ||||
Cash and cash equivalents | |||||||
Beginning of period | 2,533 | 7,071 | |||||
End of period | $ | 2,965 | $ | 2,652 | |||
Supplemental disclosure of cash flow information | |||||||
Cash paid during the period for interest | $ | 2,971 | $ | 1,865 | |||
Supplemental disclosure of non-cash investing and financing activities | |||||||
Change in property, plant and equipment purchases in accounts payable | $ | (264 | ) | $ | (3,648 | ) | |
Additions to property, plant and equipment through capital leases | $ | 515 | $ | 822 | |||
Additions to property, plant and equipment through tenant allowance on leasehold improvement | $ | 694 | $ | — | |||
Additions to deferred financing costs in accounts payable | $ | 423 | $ | — |
1. | Nature of Operations and Recent Events |
• | In connection with our initial decision to sell the Galayda Facility, at June 30, 2017, we reclassified an aggregate $4.0 million of land, buildings and equipment from property, plant and equipment to assets held for sale on our balance sheet and recognized a $0.5 million asset impairment charge representing the difference between the carrying value and the fair value, less the costs to sell the related property. |
• | As a result of water-related damage caused by Hurricane Harvey, in the third quarter of 2017, we recorded an additional impairment on this group of assets totaling $0.6 million. |
• | Following an evaluation of the Galayda Facility and our operating plans following Hurricane Harvey, during the first quarter of 2018, management changed its plan to sell all of the Galayda Facility assets and decided to improve and utilize a portion of the land and buildings on the property. Based on this decision, which was previously considered unlikely, certain land and buildings at the Galayda Facility were reclassified to assets held and used as of March 31, 2018. Accordingly, we reduced assets held for sale by $2.7 million and increased property, plant and equipment by $2.9 million on our March 31, 2018 balance sheet and recognized a recovery of asset impairment expense of approximately $208 thousand in our statement of operations for the three months ended March 31, 2018. |
• | During the third quarter of 2018, as a result of the pending merger with Sidewinder Drilling LLC, management decided to again enter into a plan to sell the entire Galayda Facility and entered into an agreement with a third-party buyer to sell the Galayda Facility in “as-is” condition for $3.1 million. As a result, the $2.6 million of property, plant and equipment, representing the portion of the Galayda Facility that was classified as held and used, was reclassified as held for sale on our September 30, 2018 balance sheet and we recognized an impairment charge of $650 thousand representing the difference between the carrying value of the property and the fair value of the property, less costs to sell. |
2. | Interim Financial Information |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(in thousands) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Dayrate drilling | $ | 27,552 | $ | 22,125 | $ | 75,776 | $ | 61,369 | |||||||
Mobilization | 331 | 619 | 1,061 | 1,586 | |||||||||||
Reimbursables | 555 | 700 | 2,788 | 2,001 | |||||||||||
Capital modification | 1 | — | 195 | — | |||||||||||
Other | — | 1 | — | 10 | |||||||||||
Total revenue | $ | 28,439 | $ | 23,445 | $ | 79,820 | $ | 64,966 |
(in thousands) | September 30, 2018 | December 31, 2017 | |||||
Receivables, which are included in "Accounts receivable, net" | $ | 23,879 | $ | 18,028 | |||
Contract assets | $ | — | $ | — | |||
Contract liabilities | $ | (1,267 | ) | $ | (836 | ) |
Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2018 | ||||||||||||||
(in thousands) | Contract Assets | Contract Liabilities | Contract Assets | Contract Liabilities | |||||||||||
Revenue recognized that was included in contract liabilities at beginning of period | $ | — | $ | 34 | $ | — | $ | 730 | |||||||
Increase in contract liabilities due to cash received, excluding amounts recognized as revenue | $ | — | $ | (868 | ) | $ | — | $ | (1,163 | ) | |||||
Transferred to receivables from contract assets at beginning of period | $ | — | $ | — | $ | — | $ | — |
Year Ending December 31, | |||||||||||||||
(in thousands) | 2018 | 2019 | 2020 | Total | |||||||||||
Revenue | $ | 428 | $ | 839 | $ | — | $ | 1,267 |
4. | 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 or liabilities; 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. |
5. | Inventories |
6. | Accrued Liabilities |
(in thousands) | September 30, 2018 | December 31, 2017 | |||||
Accrued salaries and other compensation | $ | 3,686 | $ | 2,646 | |||
Insurance | 1,511 | 507 | |||||
Deferred revenues (contract liabilities) | 1,267 | 762 | |||||
Property, sales and other taxes | 2,018 | 2,693 | |||||
Other | 430 | 361 | |||||
$ | 8,912 | $ | 6,969 |
7. | Long-term Debt |
(in thousands) | September 30, 2018 | December 31, 2017 | ||||||
Credit Facility due November 5, 2020 | $ | 67,917 | 48,541 | |||||
Capital lease obligations | 1,289 | 1,270 | ||||||
69,206 | 49,811 | |||||||
Less: current portion | (575 | ) | (533 | ) | ||||
Long-term debt | $ | 68,631 | $ | 49,278 |
8. | Stock-Based Compensation |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(in thousands) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Compensation cost recognized: | |||||||||||||||
Stock options | $ | — | $ | — | $ | — | $ | — | |||||||
Restricted stock and restricted stock units | 718 | 867 | 2,080 | 3,036 | |||||||||||
Total stock-based compensation | $ | 718 | $ | 867 | $ | 2,080 | $ | 3,036 |
Nine Months Ended September 30, 2018 | ||||||
Options | Weighted Average Exercise Price | |||||
Outstanding at January 1, 2018 | 682,950 | $ | 12.74 | |||
Granted | — | — | ||||
Exercised | — | — | ||||
Forfeited/expired | — | — | ||||
Outstanding at September 30, 2018 | 682,950 | $ | 12.74 | |||
Exercisable at September 30, 2018 | 682,950 | $ | 12.74 |
Nine Months Ended September 30, 2018 | ||||||
RSUs | Weighted Average Grant-Date Fair Value Per Share | |||||
Outstanding at January 1, 2018 | 993,320 | $ | 5.11 | |||
Granted | 641,041 | 4.55 | ||||
Vested and converted | (350,528 | ) | 5.03 | |||
Forfeited | (57,660 | ) | 5.36 | |||
Outstanding at September 30, 2018 | 1,226,173 | $ | 4.83 |
9. | Stockholders’ Equity and Earnings (Loss) per Share |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(in thousands, except per share data) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Net loss (numerator): | $ | (3,937 | ) | $ | (5,980 | ) | $ | (11,396 | ) | $ | (18,553 | ) | |||
Loss per share: | |||||||||||||||
Basic and diluted | $ | (0.10 | ) | $ | (0.16 | ) | $ | (0.30 | ) | $ | (0.49 | ) | |||
Shares (denominator): | |||||||||||||||
Weighted average common shares outstanding - basic | 38,253 | 37,839 | 38,210 | 37,688 | |||||||||||
Weighted average common shares outstanding - diluted | 38,253 | 37,839 | 38,210 | 37,688 |
10. | Income Taxes |
11. | Commitments and Contingencies |
(in thousands) | |||
2018 | $ | 209 | |
2019 | 1,085 | ||
2020 | 834 | ||
2021 | 478 | ||
2022 | 360 | ||
Thereafter | 401 | ||
$ | 3,367 |
• | 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. |
• | In connection with our initial decision to sell Galayda Facility, at June 30, 2017, we reclassified an aggregate $4.0 million of land, buildings and equipment from property, plant and equipment to assets held for sale on our balance sheet and recognized a $0.5 million asset impairment charge representing the difference between the carrying value and the fair value, less the costs to sell the related property. |
• | As a result of water-related damage caused by Hurricane Harvey, in the third quarter of 2017, we recorded an additional impairment on this group of assets totaling $0.6 million. |
• | Following an evaluation of the Galayda Facility and our operating plans following Hurricane Harvey, during the first quarter of 2018, management changed its plan to sell all of the Galayda Facility assets and decided to improve and utilize a portion of the land and buildings on the property. Based on this decision, which was previously considered unlikely, certain land and buildings at the Galayda Facility were reclassified to assets held and used as of March 31, 2018. Accordingly, we reduced assets held for sale by $2.7 million and increased property, plant and equipment by $2.9 million on our March 31, 2018 balance sheet and recognized a recovery of asset impairment expense of approximately $208 thousand in our statement of operations for the three months ended March 31, 2018. |
• | During the third quarter of 2018, as a result of the pending merger with Sidewinder Drilling LLC, management decided to again enter into a plan to sell the entire Galayda Facility and entered into an agreement with a third-party buyer to sell the Galayda Facility in “as-is” condition for $3.1 million. As a result, the $2.6 million of property, plant and equipment, representing the portion of the Galayda Facility that was classified as held and used, was reclassified as held for sale on our September 30, 2018 balance sheet and we recognized an impairment charge of $650 thousand representing the difference between the carrying value of the property and the fair value of the property, less costs to sell. |
• | Safety Performance. Maintaining a strong safety record is a critical component of our business strategy. 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 percentage 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 (defined below) 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 contract, beginning when the rig spuds its initial well under the contract and ending with the completion of the rig’s demobilization. |
• | 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 and rig construction costs 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 | Nine Months Ended | ||||||||||||||
(In thousands, except per share data) | September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | |||||||||||
Revenues | $ | 28,439 | $ | 23,445 | $ | 79,820 | $ | 64,966 | |||||||
Costs and expenses | |||||||||||||||
Operating costs | 18,420 | 18,247 | 55,312 | 48,953 | |||||||||||
Selling, general and administrative | 3,903 | 2,948 | 10,877 | 10,101 | |||||||||||
Merger expenses | 1,933 | — | 2,376 | — | |||||||||||
Depreciation and amortization | 6,831 | 6,529 | 20,001 | 19,120 | |||||||||||
Asset impairment, net | 431 | 899 | 396 | 1,574 | |||||||||||
(Gain) loss on disposition of assets, net | (260 | ) | — | (675 | ) | 1,573 | |||||||||
Total cost and expenses | 31,258 | 28,623 | 88,287 | 81,321 | |||||||||||
Operating loss | (2,819 | ) | (5,178 | ) | (8,467 | ) | (16,355 | ) | |||||||
Interest expense | (1,168 | ) | (772 | ) | (3,049 | ) | (2,088 | ) | |||||||
Loss before income taxes | (3,987 | ) | (5,950 | ) | (11,516 | ) | (18,443 | ) | |||||||
Income tax (benefit) expense | (50 | ) | 30 | (120 | ) | 110 | |||||||||
Net loss | $ | (3,937 | ) | $ | (5,980 | ) | $ | (11,396 | ) | $ | (18,553 | ) | |||
Other financial and operating data | |||||||||||||||
Number of completed rigs (end of period) (1) | 15 | 14 | 15 | 14 | |||||||||||
Rig operating days (2) | 1,345.1 | 1,234.7 | 3,869.2 | 3,418.9 | |||||||||||
Average number of operating rigs (3) | 14.6 | 13.4 | 14.2 | 12.5 | |||||||||||
Rig utilization (4) | 99.0 | % | 98.0 | % | 99.4 | % | 94.6 | % | |||||||
Average revenue per operating day (5) | $ | 20,538 | $ | 18,034 | $ | 19,687 | $ | 18,061 | |||||||
Average cost per operating day (6) | $ | 12,986 | $ | 13,513 | $ | 13,141 | $ | 12,825 | |||||||
Average rig margin per operating day | $ | 7,552 | $ | 4,521 | $ | 6,546 | $ | 5,236 |
(1) | Our 15th ShaleDriller rig commenced operations during the third quarter of 2018. |
(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 nine months ended September 30, 2018, we did not earn any revenue on a standby basis. During the three and nine months ended September 30, 2017, there were zero and 77.9 operating days in which we earned revenue on a standby basis, respectively, including zero and 69.0 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. |
(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 $0.8 million and $1.2 million during the three months ended September 30, 2018 and 2017, respectively, and $3.6 million and $3.2 million during the nine months ended September 30, 2018 and 2017, 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) out-of-pocket costs reimbursed by customers of $0.8 million and $1.2 million during the three months ended September 30, 2018 and 2017, respectively, and $3.6 million and $3.2 million during the nine months ended September 30, 2018 and 2017, respectively, (ii) new crew training costs of zero and zero during the three months ended September 30, 2018 and 2017, respectively, and $0.1 million and $0.1 million during the nine months ended September 30, 2018 and 2017, respectively, (iii) construction overhead costs expensed due to reduced rig construction activity of $0.1 million and $0.4 million during the three months ended September 30, 2018 and 2017, respectively, and $0.7 million and $0.6 million during the nine months ended September 30, 2018 and 2017, respectively, (iv) rig reactivation costs associated with the redeployment of previously stacked rigs, excluding new crew training costs (included in (ii) above), of zero and $1.0 million during the three and nine months ended September 30, 2017, respectively, and (v) out-of-pocket expenses of $0.1 million, net of insurance recoveries, incurred as a result of damage to one of our rig's mast during the nine months ended September 30, 2017. |
• | limiting our operational flexibility due to the covenants contained in our debt agreements; |
• | limiting our ability to invest operating cash flow in our business due to debt service requirements; |
• | limiting our ability to pay quarterly dividends or to repurchase shares; |
• | limiting our ability to obtain additional financing; |
• | limiting our ability to compete with companies that are not as highly leveraged and that may be better positioned to withstand economic downturns; |
• | increasing our vulnerability to economic downturns, changing market conditions and changes in the radio broadcast industry; |
• | limiting our flexibility in planning for, or reacting to, changes in its business or industry; and |
• | to the extent that our debt is subject to floating interest rates, increasing our vulnerability to fluctuations in market interest rates. |
• | challenges in combining the cultural and management teams of two different companies |
• | challenges in combining rig product offerings, including integration of the underlying technology, and sales and marketing activities; |
• | our inability to achieve the cost savings and operating synergies anticipated in the transaction, which would prevent us from achieving the positive earnings gains expected as a result of the transaction; |
• | diversion of management attention from ongoing business concerns to integration matters; |
• | difficulties in consolidating and rationalizing information technology platforms and administrative infrastructures; |
• | complexities in managing a larger company than before the completion of transaction; |
• | difficulties in the assimilation of the personnel and the integration of two business cultures; |
• | challenges in demonstrating to our customers and to customers of Sidewinder that the transaction will not result in adverse changes in product and technology offerings, customer service standards or business focus; and |
• | possible cash flow interruption or loss of revenue as a result of change of ownership transitional matters. |
Exhibit Number | Description | |
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/ J. Anthony Gallegos, Jr. | ||
Name: | J. Anthony Gallegos, Jr. | ||
Title: | President and Chief Executive Officer (Principal Executive Officer) |
By: | /s/ Philip A. Choyce | ||
Name: | Philip A. Choyce | ||
Title: | Executive 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/ J. Anthony Gallegos, Jr. |
J. Anthony Gallegos, Jr. |
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/ J. Anthony Gallegos, Jr. |
J. Anthony Gallegos, Jr. |
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 |
9 Months Ended | |
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Sep. 30, 2018 |
Nov. 02, 2018 |
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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 | Sep. 30, 2018 | |
Document Fiscal Year Focus | 2018 | |
Document Fiscal Period Focus | Q3 | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 75,693,676 | |
Entity Small Business | false | |
Entity Ex Transition Period | true | |
Entity Emerging Growth | true |
Balance Sheets (Unaudited) (Parenthetical) - $ / shares |
Sep. 30, 2018 |
Dec. 31, 2017 |
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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) | 38,597,447 | 38,246,919 |
Shares outstanding (in shares) | 38,252,765 | 37,985,225 |
Treasury stock (in shares) | 344,682 | 261,694 |
Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
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Income Statement [Abstract] | ||||
Revenues | $ 28,439 | $ 23,445 | $ 79,820 | $ 64,966 |
Costs and expenses | ||||
Operating costs | 18,420 | 18,247 | 55,312 | 48,953 |
Selling, general and administrative | 3,903 | 2,948 | 10,877 | 10,101 |
Merger expenses | 1,933 | 0 | 2,376 | 0 |
Depreciation and amortization | 6,831 | 6,529 | 20,001 | 19,120 |
Asset impairment, net | 431 | 899 | 396 | 1,574 |
(Gain) loss on disposition of assets, net | (260) | 0 | (675) | 1,573 |
Total costs and expenses | 31,258 | 28,623 | 88,287 | 81,321 |
Operating loss | (2,819) | (5,178) | (8,467) | (16,355) |
Interest expense | (1,168) | (772) | (3,049) | (2,088) |
Loss before income taxes | (3,987) | (5,950) | (11,516) | (18,443) |
Income tax (benefit) expense | (50) | 30 | (120) | 110 |
Net loss | $ (3,937) | $ (5,980) | $ (11,396) | $ (18,553) |
Loss per share: | ||||
Basic and diluted (in dollars per share) | $ (0.10) | $ (0.16) | $ (0.30) | $ (0.49) |
Weighted average number of common shares outstanding: | ||||
Basic and diluted (in shares) | 38,253 | 37,839 | 38,210 | 37,688 |
Statement of Stockholders’ Equity (Unaudited) - 9 months ended Sep. 30, 2018 - USD ($) $ in Thousands |
Total |
Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Treasury Stock |
---|---|---|---|---|---|
Beginning balance (shares) at Dec. 31, 2017 | 37,985,225 | ||||
Beginning balance at Dec. 31, 2017 | $ 235,482 | $ 380 | $ 326,616 | $ (89,645) | $ (1,869) |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||
RSUs vested, net of shares withheld for taxes (shares) | 350,528 | ||||
RSUs vested, net of shares withheld for taxes | (95) | $ 3 | (98) | ||
Purchase of treasury stock (shares) | (82,988) | ||||
Purchase of treasury stock | (350) | (350) | |||
Stock-based compensation | 2,080 | 2,080 | |||
Net loss | (11,396) | (11,396) | |||
Ending balance (shares) at Sep. 30, 2018 | 38,252,765 | ||||
Ending balance at Sep. 30, 2018 | $ 225,721 | $ 383 | $ 328,598 | $ (101,041) | $ (2,219) |
Nature of Operations and Recent Events |
9 Months Ended | ||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||
Nature of Operations and Recent Events | Nature of Operations and Recent Events Except as expressly stated or the context otherwise requires, the terms "we," "us," "our," "ICD," and the "Company" refer to Independence Contract Drilling, Inc. We provide land-based contract drilling services for oil and natural gas producers targeting unconventional resource plays in the United States. As of September 30, 2018, our rig fleet consisted of 15 premium 200 Series ShaleDriller® rigs, all of which are equipped with integrated omni-directional walking systems specifically designed to optimize pad drilling for our customers. Our 15th ShaleDriller rig commenced operations in the third quarter of 2018. On October 1, 2018, we acquired all of the outstanding equity interests in Sidewinder Drilling LLC ("Sidewinder") pursuant to a merger of a subsidiary with and into Sidewinder (the “Sidewinder Combination”). See "Sidewinder Merger" below. As a result of the Sidewinder Combination, we added 19 rigs to our rig fleet. Following the Sidewinder Combination, our rig fleet includes 30 AC powered (“AC”) rigs and four 1500hp ultra-modern SCR rigs. We currently focus our operations on unconventional resource plays located in geographic regions that we can efficiently support from our Texas-based facilities in order to maximize economies of scale. Currently, our rigs are operating in the Permian Basin and the Haynesville Shale; however, our rigs have previously operated in the Eagle Ford Shale and the Mid-Continent and Eaglebine regions as well. Our business depends on the level of exploration and production activity by oil and natural gas companies operating in the United States, and in particular, the regions where we actively market our contract drilling services. The oil and natural gas exploration and production industry is a historically cyclical industry characterized by significant changes in the levels of exploration and development activities. Oil and natural 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 natural 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 United States and the regions where we market our contract drilling services, whether resulting from changes in oil and natural gas prices or otherwise, could materially and adversely affect our business. Oil and Natural Gas Prices and Drilling Activity Oil prices declined from a high of $107.95 per barrel in the second quarter of 2014, to a low of $26.19 per barrel in the first quarter of 2016 (West Texas Intermediate - Cushing, Oklahoma (“WTI”) spot price as reported by the United States Energy Information Administration (the “EIA”). Similarly, natural gas prices (as measured at Henry Hub) declined from an average of $4.37 per MMBtu in 2014 to $2.52 per MMBtu in 2016. Oil and natural gas prices have recovered from the lows experienced in 2016, with WTI oil prices reaching a three-year high of $77.41 per barrel in the second quarter of 2018. Similarly, natural gas prices at Henry Hub have averaged $2.97 per MMBtu in 2018 as of October 15, 2018. Sidewinder Merger On July 19, 2018, we announced our entry into a definitive merger agreement (the "Merger Agreement") with Patriot Saratoga Merger Sub LLC, a Delaware limited liability company ("Merger Sub") and Sidewinder Drilling LLC, a Delaware limited liability company ("Sidewinder"), pursuant to which Merger Sub merged with and into Sidewinder (the "Sidewinder Merger") and we acquired all of the outstanding equity interests in Sidewinder on October 1, 2018. During the three and nine months ended September 30, 2018, we recorded $1.9 million and $2.4 million, respectively, of merger costs in connection with the Sidewinder Merger comprised primarily of legal and professional fees. The Sidewinder Merger combined two complementary pad-optimal drilling fleets and operations focused in the Permian Basin, Haynesville region and other basins in Texas and its contiguous states, and will more than double the size of our pad-optimal rig fleet to 34 rigs following modest upgrades to five Sidewinder rigs. Under the terms of the Merger Agreement, the Sidewinder unitholders received an aggregate of 36,752,657 shares of our common stock, representing approximately 49% of the total outstanding shares immediately following the closing of the transaction. In conjunction with the closing of the Sidewinder Merger on October 1, 2018, we entered into a term loan Credit Agreement (the “Term Loan Credit Agreement”) for an initial term loan in an aggregate principal amount of $130.0 million, (the “Term Loan Facility”) and (b) a delayed draw term loan facility in an aggregate principal amount of up to $15.0 million (the “DDTL Facility”, and together with the Term Loan Facility, the “Term Facilities”). The Term Facilities have a maturity date of October 1, 2023, at which time all outstanding principal under the Term Facilities and other obligations become due and payable in full. Proceeds from the Term Loan Facility were used to repay our existing debt and the Sidewinder debt assumed in the Sidewinder Merger, as well as certain transaction costs. At our election, interest under the Term Loan Facility is determined by reference at our option to either (i) a “base rate” equal to the higher of (a) the federal funds effective rate plus 0.05%, (b) the London Interbank Offered Rate with an interest period of one month (“LIBOR”), plus 1.0%, and (c) the rate of interest as publicly quoted from time to time by the Wall Street Journal as the “prime rate” in the United States; plus an applicable margin of 6.5%, or (ii) a “LIBOR rate” equal to LIBOR with an interest period of one month, plus an applicable margin of 7.5%. The Term Loan Credit Agreement contains financial covenants, including a liquidity covenant of $10.0 million and a springing fixed charge coverage ratio covenant of 1.00 to 1.00 that is tested when availability under the New ABL Credit Facility (defined below) and the DDTL Facility is below $5.0 million at any time that a DDTL Facility loan is outstanding. The Term Loan Credit Agreement also contains other customary affirmative and negative covenants, including limitations on indebtedness, liens, fundamental changes, asset dispositions, restricted payments, investments and transactions with affiliates. The Term Loan Credit Agreement also provides for customary events of default, including breaches of material covenants, defaults under the New ABL Credit Facility or other material agreements for indebtedness, and a change of control (as defined). The obligations under the Term Loan Credit Agreement are secured by a first priority lien on collateral (the “Term Priority Collateral”) other than accounts receivable, deposit accounts and other related collateral pledged as first priority collateral (“Priority Collateral”) under the New ABL Credit Facility (defined below) and a second priority lien on such Priority Collateral, and are unconditionally guaranteed by all of our current and future direct and indirect subsidiaries. Additionally, in connection with the closing of the Sidewinder Merger on October 1, 2018, we entered into a $40.0 million revolving Credit Agreement (the “New ABL Credit Facility”), including availability for letters of credit in an aggregate amount at any time outstanding not to exceed $7.5 million. Availability under the New ABL Credit Facility is subject to a borrowing base determined based on 85% of the net amount of our eligible accounts receivable, minus reserves. The New ABL Credit Facility has a maturity date of the earlier of October 1, 2023 or the maturity date of the Term Loan Credit Agreement. At our election, interest under the New ABL Credit Facility is determined by reference at our option to either (i) a “base rate” equal to the higher of (a) the federal funds effective rate plus 0.05%, (b) LIBOR with an interest period of one month, plus 1.0%, and (c) the prime rate of Wells Fargo, plus in each case, an applicable base rate margin ranging from 1.0% to 1.5% based on quarterly availability, or (ii) a revolving loan rate equal to LIBOR for the applicable interest period plus an applicable LIBOR margin ranging from 2.0% to 2.5% based on quarterly availability. We also pay, on a quarterly basis, a commitment fee of 0.375% (or 0.25% at any time when revolver usage is greater than 50% of the maximum credit) per annum on the unused portion of the New ABL Credit Facility commitment. The New ABL Credit Facility contains a springing fixed charge coverage ratio covenant of 1.00 to 1.00 that is tested when availability is less than 10% of the maximum credit. The New ABL Credit Facility also contains other customary affirmative and negative covenants, including limitations on indebtedness, liens, fundamental changes, asset dispositions, restricted payments, investments and transactions with affiliates. The New ABL Credit Facility also provides for customary events of default, including breaches of material covenants, defaults under the Term Loan Agreement or other material agreements for indebtedness, and a change of control. The obligations under the New ABL Credit Facility are secured by a first priority lien on Priority Collateral, which includes all accounts receivable and deposit accounts, and a second priority lien on the Term Priority Collateral, and are unconditionally guaranteed by all of our current and future direct and indirect subsidiaries. On October 1, 2018, in connection with our entry into the New ABL Credit Facility, we repaid all outstanding borrowings and obligations under our existing Credit Facility, and terminated it. Amendment to Articles of Incorporation In connection with the Sidewinder Merger, on October 1, 2018, following approval by our shareholders, we amended our certificate of incorporation to increase the authorized number of shares of Common Stock from 100,000,000 shares to 200,000,000 shares. Change in Plan of Sale of Assets During the second quarter of 2017, our management committed to a plan to sell our corporate headquarters and rig assembly yard complex located at 11601 North Galayda Street, Houston, Texas (the "Galayda Facility"). This plan of sale was subsequently affected by Hurricane Harvey, which caused substantial water-related damage to the Galayda Facility in August 2017, as well as our entry into a definitive merger agreement with Sidewinder Drilling in July 2018. The following summarizes material financial statement impacts of this plan of sale and associated changes as result of these matters:
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Interim Financial Information |
9 Months Ended |
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Sep. 30, 2018 | |
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 (“GAAP”). These financial statements should be read along with our audited financial statements for the year ended December 31, 2017, included in our Annual Report on Form 10-K for the year ended December 31, 2017. 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 is presented. Interim results for the three and nine months ended September 30, 2018 may not be indicative of results that will be realized for the full year ending December 31, 2018. Revenue and Cost Recognition In May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09). We adopted ASU 2014-09 and its related amendments (collectively known as ASC 606) effective on January 1, 2018 using the modified retrospective method. While ASC 606 requires additional disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, its adoption did not have a material impact on the measurement or recognition of our revenues. We may recognize demobilization fee revenue earlier in the contract term than we have historically, but demobilization fee revenues are earned very infrequently under our contracts. See Note 3 "Revenue from Contracts with Customers" for the required disclosures related to the impact of adopting this standard and a discussion of our updated policies related to revenue recognition and accounting for costs to obtain and fulfill a customer contract. 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 February 2016, the FASB issued ASU No. 2016-02, Leases, 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. The provisions of this standard also apply to situations where companies are the lessor and therefore it could impact the accounting and related disclosures for our drilling contracts. In July 2018, the FASB issued ASU No. 2018-11, Leases: Targeted Improvements, which provides an option to apply the guidance prospectively, and provides a practical expedient allowing lessors to combine the lease and non-lease components of revenues where the revenue recognition pattern is the same and where the lease component, when accounted for separately, would be considered an operating lease. The practical expedient also allows a lessor to account for the combined lease and non-lease components under ASC Topic 606, Revenue from Contracts with Customers, when the non-lease component is the predominant element of the combined components. We are in the process of evaluating the provisions of ASU No. 2018-11, specifically as they relate to our drilling contracts and the practical expedient for combining the lease and non-lease components of revenue, including the determination of which component is predominant. As a lessee, while we cannot yet quantify the impact at this point, we expect our assets and liabilities to increase as a result of recognizing the right-of-use assets and lease liabilities. We are currently in the process of implementing a lease accounting system for our leases, converting our existing lease data to the new system and implementing relevant internal controls and procedures. We expect to apply this guidance prospectively, effective January 1, 2019. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, as additional guidance on the measurement of credit losses on financial instruments. The new guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. In addition, the guidance amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The new guidance is effective for public companies for interim and annual periods beginning after December 15, 2019, with early adoption permitted for interim and annual periods beginning after December 15, 2018. We are in the initial stages of evaluating the impact this guidance will have on our accounts receivable. In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments in the update are effective for public business entities for fiscal years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact this new guidance will have on our financial statements. |
Revenue from Contracts with Customers |
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Revenue from Contracts with Customer | Revenue from Contracts with Customers Effective January 1, 2018, we adopted Accounting Standards Codification (“ASC”) Revenue from Contracts with Customers (“ASC 606”), using the modified retrospective method. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaborative arrangements and financial instruments. Under ASC 606, an entity recognizes revenue when it transfers control of the promised goods or services to its customer, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. If control transfers to the customer over time, an entity selects a method to measure progress that is consistent with the objective of depicting its performance. In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under the agreement, the following steps must be performed at contract inception: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation. Drilling Services Our revenues are principally derived from contract drilling services and the activities in our drilling contracts, for which revenues may be earned, include: (i) providing a drilling rig and the crews and supplies necessary to operate the rig; (ii) mobilizing and demobilizing the rig to and from the initial and final drill site, respectively; (iii) certain reimbursable activities; (iv) performing rig modification activities required for the contract; and (v) early termination revenues. We account for these integrated services provided under our drilling contracts as a single performance obligation, satisfied over time, that is comprised of a series of distinct time increments. Consideration for activities that are not distinct within the context of our contracts, and that do not correspond to a distinct time increment within the contract term, are allocated across the single performance obligation and recognized ratably in proportion to the actual services performed over the initial term of the contract. If taxes are required to be collected from customers relating to our drilling services, they are excluded from revenue. Dayrate Drilling Revenue. Our drilling contracts provide that revenue is earned based on a specified rate per day for the activity performed. The majority of revenue earned under daywork contracts is variable, and depends on a rate scale associated with drilling conditions and level of service provided for each fractional-hour time increment over the contract term. Such rates generally include the full operating rate, moving rate, standby rate, and force majeure rate and determination of the rate per time increment is made based on the actual circumstances as they occur. Other variable consideration under these contracts could include reduced revenue related to downtime, delays or moving caps. Mobilization/Demobilization Revenue. We may receive fees (on either a fixed lump-sum or variable dayrate basis) for the mobilization and demobilization of our rigs. These activities are not considered to be distinct within the context of the contract and therefore, the associated revenue is allocated to the overall performance obligation and recognized ratably over the initial term of the related drilling contract. We record a contract liability for mobilization fees received, which is amortized ratably to revenue as services are rendered over the initial term of the related drilling contract. Demobilization fee revenue expected to be received upon contract completion is estimated as part of the overall transaction price at contract inception and recognized in earnings ratably over the initial term of the contract with an offset to an accretive contract asset. In our contracts, there is generally significant uncertainty as to the amount of demobilization fee revenue that may ultimately be collected due to contractual provisions which stipulate that certain conditions be present at contract completion for such revenue to be received. For example, the amount collectible may be reduced to zero if the rig has been contracted with a new customer upon contract completion. Accordingly, the estimate for such revenue may be constrained depending on the facts and circumstances pertaining to the specific contract. We assess the likelihood of receiving such revenue based on past experience and knowledge of the market conditions. Reimbursable Revenues. We receive reimbursements from our customers for the purchase of supplies, equipment and other services provided at their request in accordance with a drilling contract or other agreement. Such reimbursable revenue is variable and subject to uncertainty, as the amounts received and timing thereof is highly dependent on factors outside of our influence. Accordingly, reimbursable revenue is fully constrained and not included in the total transaction price until the uncertainty is resolved, which typically occurs when the related costs are incurred on behalf of a customer. We are generally considered a principal in such transactions and record the associated revenue at the gross amount billed to the customer. Capital Modification Revenue. From time to time, we may receive fees (on either a fixed lump-sum or variable dayrate basis) from our customers for capital improvements to our rigs to meet their requirements. Such revenue is allocated to the overall performance obligation and recognized ratably over the initial term of the related drilling contract, as these activities are not considered to be distinct within the context of our contracts. We record a contract liability for such fees received up front, and recognize them ratably as contract drilling revenue over the initial term of the related drilling contract. Early Termination Revenue. Our contracts provide for early termination fees in the event our customers choose to cancel the contract prior to the specified contract term. We record a contract liability for such fees received up front, and recognize them ratably as contract drilling revenue over the initial term of the related drilling contract or until such time that all performance obligations are satisfied. Disaggregation of Revenue The following table summarizes revenues from our contracts disaggregated by revenue generating activity contained therein for the three and nine months ended September 30, 2018 and 2017:
Contract Balances Accounts receivable are recognized when the right to consideration becomes unconditional based upon contractual billing schedules. Payment terms on invoiced amounts are typically 30 days. Contract asset balances could consist of demobilization fee revenue that we expect to receive that is recognized ratably throughout the contract term, but invoiced upon completion of the demobilization activities. Once the demobilization fee revenue is invoiced the corresponding contract asset is transferred to accounts receivable. Contract liabilities include payments received for mobilization fees as well as upgrade activities, which are allocated to the overall performance obligation and recognized ratably over the initial term of the contract. The following table provides information about receivables, contract assets and contract liabilities related to contracts with customers:
Significant changes in contract assets and contract liabilities balances during the period are as follows:
Transaction Price Allocated to the Remaining Performance Obligations The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of September 30, 2018. The estimated revenue does not include amounts of variable consideration that are constrained.
The amounts presented in the table above consist only of fixed consideration related to fees for rig mobilizations and demobilizations, if applicable, which are allocated to the drilling services performance obligation as such performance obligation is satisfied. We have elected the exemption from disclosure of remaining performance obligations for variable consideration. Therefore, dayrate revenue to be earned on a rate scale associated with drilling conditions and level of service provided for each fractional-hour time increment over the contract term and other variable consideration such as penalties and reimbursable revenues, have been excluded from the disclosure. Contract Costs We capitalize costs incurred to fulfill our contracts that (i) relate directly to the contract, (ii) are expected to generate resources that will be used to satisfy our performance obligations under the contract and (iii) are expected to be recovered through revenue generated under the contract. These costs, which principally relate to rig mobilization costs at the commencement of a new contract, are deferred as a current or noncurrent asset (depending on the length of the contract term), and amortized ratably to contract drilling expense as services are rendered over the initial term of the related drilling contract. Such contract costs amounted to $0.9 million and were recorded as “Prepaid expenses and other current assets” on our balance sheet at September 30, 2018. During the three and nine months ended September 30, 2018, we amortized $0.3 million and $0.9 million of contract costs, respectively. Costs incurred for the demobilization of rigs at contract completion are recognized as incurred during the demobilization process. Costs incurred for rig modifications or upgrades required for a contract, which are considered to be capital improvements, are capitalized as drilling and other property and equipment and depreciated over the estimated useful life of the improvement. Impact of ASC 606 on Financial Statement Line Items The timing of our revenue recognition under ASC 606 is similar to revenue recognition under the previous guidance, except for the recognition of demobilization fee revenue, which we earn infrequently. Such revenue, which was recognized upon completion of a contract under the previous guidance, will now be estimated at contract inception and recognized as contract drilling revenue as the drilling services performance obligation is satisfied, subject to constraint, with an offset to a contract asset. As we had no existing contracts as of January 1, 2018, where we expect to receive a demobilization fee from our customers, there was no cumulative effect of a change in accounting principle required to adjust our January 1, 2018 retained earnings. |
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 financial instruments, 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 Credit Facility 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 6.2%. The fair value of our capital lease obligations is determined using Level 3 measurements using our current incremental borrowing rate. The estimated fair value of our long-term debt, including our capital lease obligations, totaled $72.0 million and $50.6 million as of September 30, 2018 and December 31, 2017, respectively, compared to a carrying amount of $68.6 million and $49.3 million as of September 30, 2018 and December 31, 2017, respectively. The fair value of our assets held for sale is determined using Level 3 measurements. 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. |
Inventories |
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Inventory Disclosure [Abstract] | |
Inventories | Inventories All of our inventory as of September 30, 2018 and December 31, 2017 consisted of supplies held for use in our drilling operations. |
Accrued Liabilities |
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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 Our Credit Facility existing at September 30, 2018, with a maturity date of November 5, 2020, provided for aggregate commitments of $85.0 million (the “Existing Credit Facility”). We had $67.9 million in outstanding borrowings and $17.1 million of remaining availability under the Existing Credit Facility at September 30, 2018. On October 1, 2018, in connection with our entry into the New Term Loan Credit Agreement and New ABL Credit Facility (see Note 1 "Nature of Operations and Recent Events - Merger with Sidewinder Drilling LLC" for further details), we repaid all outstanding borrowings and obligations under the Existing Credit Facility and terminated it. Borrowings under the Existing Credit Facility were subject to a borrowing base formula that allowed for borrowings of up to 85% of eligible trade accounts receivable not more than 90 days outstanding, plus up to a certain percentage, the “advance rate”, of the appraised forced liquidation value of our eligible, completed and owned drilling rigs. As of September 30, 2018, the advance rate was 70%. 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. At our election, interest under the Existing Credit Facility was 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 paid, on a quarterly basis, a commitment fee of 0.50% per annum on the unused portion of the Credit Facility commitment. As of September 30, 2018, the weighted average interest rate on our borrowings was 6.99%. Capital Lease Obligations Our capital lease obligations all relate to vehicles that are leased to support our operations. 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 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 September 30, 2018, approximately 1,016,855 shares were available for future awards. In the first quarter of 2017, we adopted ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The FASB issued this accounting standard in an effort to simplify the accounting for employee share-based payments and improve the usefulness of the information provided to users of financial statements. Our policy is to account for forfeitures of share-based compensation awards as they occur. 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 nine months ended September 30, 2018 or 2017. 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 nine months ended September 30, 2018 or 2017. A summary of stock option activity and related information for the nine months ended September 30, 2018 is as follows:
The number of options vested at September 30, 2018 was 682,950 with a weighted average remaining contractual life of 3.6 years and a weighted average exercise price of $12.74 per share. There were no unvested options or unrecognized compensation cost related to outstanding stock options at September 30, 2018. 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 vesting period. The fair value of restricted stock awards is determined based on the estimated fair market value of our shares on the grant date. As of September 30, 2018, there was no unrecognized compensation cost related to unvested restricted stock awards and all previously issued restricted stock awards had vested. Restricted Stock Units We have granted restricted stock units ("RSUs") to key employees under the 2012 Plan. We have granted three-year time vested 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 two shares of ICD common stock with no exercise price. Exercisability of the market-based RSUs is based on our three-year total shareholder return ("TSR") as measured against the TSR of a defined peer group and vesting of the performance-based RSUs is based on our cumulative EBITDA, safety or uptime performance statistics, 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. The fair value of the performance-based RSUs is 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 September 30, 2018, there was $3.7 million of total unrecognized compensation cost related to unvested RSUs. This cost was expected to be recognized over a weighted average period of 0.9 years, however as a result of the Sidewinder Merger that closed on October 1, 2018, all of these awards were accelerated or forfeited in accordance with the change in control provisions of the RSU's. A non-cash charge of approximately $2.6 million will be recorded in the fourth quarter of 2018. A summary of the status of our RSUs as of September 30, 2018, and of changes in RSUs outstanding during the nine months ended September 30, 2018, 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 September 30, 2018, we had a total of 38,252,765 shares of common stock, $0.01 par value, outstanding. We also had 344,682 shares held as treasury stock. Total authorized common stock is 100,000,000 shares. Basic earnings (loss) per common share (“EPS”) are 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 losses 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 and RSUs because their inclusion would be anti-dilutive. The number of options that were excluded from diluted loss per share were 682,950 during the three and nine months ended September 30, 2018 and 2017. RSUs, which are not participating securities and are excluded from our basic and diluted loss per share because they are anti-dilutive, were 1,226,173 for the three and nine months ended September 30, 2018 and 1,038,707 for the three and nine months ended September 30, 2017. |
Income Taxes |
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Sep. 30, 2018 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Income Taxes Our effective tax rate was 1.3% and 1.0% for the three and nine months ended September 30, 2018, respectively, and (0.5)% and (0.6)% for the three and nine months ended September 30, 2017, respectively. Taxes in the current year period relate to Louisiana state income tax and Texas margin tax. Taxes in the prior year period relate to 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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Commitments and Contingencies | Commitments and Contingencies Purchase Commitments As of September 30, 2018, we had outstanding purchase commitments to a number of suppliers totaling $5.8 million, net of deposits previously made, related primarily to the construction of drilling rigs. All of these commitments relate to equipment currently scheduled for delivery in 2018. Lease Commitments We have several non-cancelable operating and capital leases primarily for the rental of office space, certain equipment and vehicles. Future minimum lease payments under operating and capital lease commitments, with lease terms in excess of one year subsequent to September 30, 2018, were as follows:
As of September 30, 2018, property, plant and equipment on our balance sheet included $1.3 million of equipment under capital lease, which is net of $0.6 million of accumulated amortization. As of December 31, 2017, property, plant and equipment in our balance sheet included $1.3 million of equipment under capital lease, net of $0.5 million of accumulated amortization. This equipment consists entirely of vehicles used in our operations. Contingencies We may be the subject of lawsuits and claims arising in the ordinary course of business from time to time. Management cannot predict the ultimate outcome of such lawsuits and claims. While lawsuits and claims are asserted for amounts that may be material should an unfavorable outcome be the result, management does not currently expect that the outcome of any of these known legal proceedings or claims will have a material adverse effect on our financial position or results of operations. |
Interim Financial Information (Policies) |
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Accounting Policies [Abstract] | |||||||||||||
Basis of Accounting | These unaudited financial statements include the accounts of ICD, and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These financial statements should be read along with our audited financial statements for the year ended December 31, 2017, included in our Annual Report on Form 10-K for the year ended December 31, 2017. 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 is presented. Interim results for the three and nine months ended September 30, 2018 may not be indicative of results that will be realized for the full year ending December 31, 2018. |
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Revenue and Cost Recognition | Revenue and Cost Recognition In May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09). We adopted ASU 2014-09 and its related amendments (collectively known as ASC 606) effective on January 1, 2018 using the modified retrospective method. While ASC 606 requires additional disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, its adoption did not have a material impact on the measurement or recognition of our revenues. We may recognize demobilization fee revenue earlier in the contract term than we have historically, but demobilization fee revenues are earned very infrequently under our contracts. Impact of ASC 606 on Financial Statement Line Items The timing of our revenue recognition under ASC 606 is similar to revenue recognition under the previous guidance, except for the recognition of demobilization fee revenue, which we earn infrequently. Such revenue, which was recognized upon completion of a contract under the previous guidance, will now be estimated at contract inception and recognized as contract drilling revenue as the drilling services performance obligation is satisfied, subject to constraint, with an offset to a contract asset. As we had no existing contracts as of January 1, 2018, where we expect to receive a demobilization fee from our customers, there was no cumulative effect of a change in accounting principle required to adjust our January 1, 2018 retained earnings. Revenue from Contracts with Customers Effective January 1, 2018, we adopted Accounting Standards Codification (“ASC”) Revenue from Contracts with Customers (“ASC 606”), using the modified retrospective method. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaborative arrangements and financial instruments. Under ASC 606, an entity recognizes revenue when it transfers control of the promised goods or services to its customer, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. If control transfers to the customer over time, an entity selects a method to measure progress that is consistent with the objective of depicting its performance. In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under the agreement, the following steps must be performed at contract inception: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation. Drilling Services Our revenues are principally derived from contract drilling services and the activities in our drilling contracts, for which revenues may be earned, include: (i) providing a drilling rig and the crews and supplies necessary to operate the rig; (ii) mobilizing and demobilizing the rig to and from the initial and final drill site, respectively; (iii) certain reimbursable activities; (iv) performing rig modification activities required for the contract; and (v) early termination revenues. We account for these integrated services provided under our drilling contracts as a single performance obligation, satisfied over time, that is comprised of a series of distinct time increments. Consideration for activities that are not distinct within the context of our contracts, and that do not correspond to a distinct time increment within the contract term, are allocated across the single performance obligation and recognized ratably in proportion to the actual services performed over the initial term of the contract. If taxes are required to be collected from customers relating to our drilling services, they are excluded from revenue. Dayrate Drilling Revenue. Our drilling contracts provide that revenue is earned based on a specified rate per day for the activity performed. The majority of revenue earned under daywork contracts is variable, and depends on a rate scale associated with drilling conditions and level of service provided for each fractional-hour time increment over the contract term. Such rates generally include the full operating rate, moving rate, standby rate, and force majeure rate and determination of the rate per time increment is made based on the actual circumstances as they occur. Other variable consideration under these contracts could include reduced revenue related to downtime, delays or moving caps. Mobilization/Demobilization Revenue. We may receive fees (on either a fixed lump-sum or variable dayrate basis) for the mobilization and demobilization of our rigs. These activities are not considered to be distinct within the context of the contract and therefore, the associated revenue is allocated to the overall performance obligation and recognized ratably over the initial term of the related drilling contract. We record a contract liability for mobilization fees received, which is amortized ratably to revenue as services are rendered over the initial term of the related drilling contract. Demobilization fee revenue expected to be received upon contract completion is estimated as part of the overall transaction price at contract inception and recognized in earnings ratably over the initial term of the contract with an offset to an accretive contract asset. In our contracts, there is generally significant uncertainty as to the amount of demobilization fee revenue that may ultimately be collected due to contractual provisions which stipulate that certain conditions be present at contract completion for such revenue to be received. For example, the amount collectible may be reduced to zero if the rig has been contracted with a new customer upon contract completion. Accordingly, the estimate for such revenue may be constrained depending on the facts and circumstances pertaining to the specific contract. We assess the likelihood of receiving such revenue based on past experience and knowledge of the market conditions. Reimbursable Revenues. We receive reimbursements from our customers for the purchase of supplies, equipment and other services provided at their request in accordance with a drilling contract or other agreement. Such reimbursable revenue is variable and subject to uncertainty, as the amounts received and timing thereof is highly dependent on factors outside of our influence. Accordingly, reimbursable revenue is fully constrained and not included in the total transaction price until the uncertainty is resolved, which typically occurs when the related costs are incurred on behalf of a customer. We are generally considered a principal in such transactions and record the associated revenue at the gross amount billed to the customer. Capital Modification Revenue. From time to time, we may receive fees (on either a fixed lump-sum or variable dayrate basis) from our customers for capital improvements to our rigs to meet their requirements. Such revenue is allocated to the overall performance obligation and recognized ratably over the initial term of the related drilling contract, as these activities are not considered to be distinct within the context of our contracts. We record a contract liability for such fees received up front, and recognize them ratably as contract drilling revenue over the initial term of the related drilling contract. Early Termination Revenue. Our contracts provide for early termination fees in the event our customers choose to cancel the contract prior to the specified contract term. We record a contract liability for such fees received up front, and recognize them ratably as contract drilling revenue over the initial term of the related drilling contract or until such time that all performance obligations are satisfied. Contract Balances Accounts receivable are recognized when the right to consideration becomes unconditional based upon contractual billing schedules. Payment terms on invoiced amounts are typically 30 days. Contract asset balances could consist of demobilization fee revenue that we expect to receive that is recognized ratably throughout the contract term, but invoiced upon completion of the demobilization activities. Once the demobilization fee revenue is invoiced the corresponding contract asset is transferred to accounts receivable. Contract liabilities include payments received for mobilization fees as well as upgrade activities, which are allocated to the overall performance obligation and recognized ratably over the initial term of the contract. |
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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. |
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Recent Accounting Pronouncements | Recent Accounting Pronouncements In February 2016, the FASB issued ASU No. 2016-02, Leases, 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. The provisions of this standard also apply to situations where companies are the lessor and therefore it could impact the accounting and related disclosures for our drilling contracts. In July 2018, the FASB issued ASU No. 2018-11, Leases: Targeted Improvements, which provides an option to apply the guidance prospectively, and provides a practical expedient allowing lessors to combine the lease and non-lease components of revenues where the revenue recognition pattern is the same and where the lease component, when accounted for separately, would be considered an operating lease. The practical expedient also allows a lessor to account for the combined lease and non-lease components under ASC Topic 606, Revenue from Contracts with Customers, when the non-lease component is the predominant element of the combined components. We are in the process of evaluating the provisions of ASU No. 2018-11, specifically as they relate to our drilling contracts and the practical expedient for combining the lease and non-lease components of revenue, including the determination of which component is predominant. As a lessee, while we cannot yet quantify the impact at this point, we expect our assets and liabilities to increase as a result of recognizing the right-of-use assets and lease liabilities. We are currently in the process of implementing a lease accounting system for our leases, converting our existing lease data to the new system and implementing relevant internal controls and procedures. We expect to apply this guidance prospectively, effective January 1, 2019. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, as additional guidance on the measurement of credit losses on financial instruments. The new guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. In addition, the guidance amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The new guidance is effective for public companies for interim and annual periods beginning after December 15, 2019, with early adoption permitted for interim and annual periods beginning after December 15, 2018. We are in the initial stages of evaluating the impact this guidance will have on our accounts receivable. In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments in the update are effective for public business entities for fiscal years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact this new guidance will have on our financial statements. |
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Fair Value Measurement | 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 financial instruments, 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. |
Revenue from Contracts with Customers (Tables) |
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Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disaggregation of Revenue | The following table summarizes revenues from our contracts disaggregated by revenue generating activity contained therein for the three and nine months ended September 30, 2018 and 2017:
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Summary of Contract with Customer, Asset and Liability | The following table provides information about receivables, contract assets and contract liabilities related to contracts with customers:
Significant changes in contract assets and contract liabilities balances during the period are as follows:
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Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction | The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of September 30, 2018. The estimated revenue does not include amounts of variable consideration that are constrained.
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Accrued Liabilities (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accrued Liabilities | Accrued liabilities consisted of the following:
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Long-term Debt (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Long-term Debt | Our Long-term Debt consisted of the following:
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Stock-Based Compensation (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 nine months ended September 30, 2018 is as follows:
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Schedule of Restricted Stock Activity | A summary of the status of our RSUs as of September 30, 2018, and of changes in RSUs outstanding during the nine months ended September 30, 2018, is as follows:
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Stockholders’ Equity and Earnings (Loss) per Share (Tables) |
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 losses per share computations is as follows:
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Commitments and Contingencies (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||
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 September 30, 2018, were as follows:
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Nature of Operations and Recent Events - Operations & Oil and Natural Gas Prices and Drilling Activity (Details) |
3 Months Ended | 12 Months Ended | |||||
---|---|---|---|---|---|---|---|
Oct. 15, 2018
$ / MMBTU
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Jun. 30, 2018
$ / bbl
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Mar. 31, 2016
$ / bbl
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Jun. 30, 2014
$ / bbl
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Dec. 31, 2016
$ / MMBTU
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Dec. 31, 2014
$ / MMBTU
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Sep. 30, 2018
drilling_rig
|
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Property, Plant and Equipment [Line Items] | |||||||
Number of rigs | drilling_rig | 15 | ||||||
Closing price of oil (in dollars per barrel) | $ / bbl | 107.95 | ||||||
Market price of oil (in dollars per barrel) | $ / bbl | 77.41 | 26.19 | |||||
Natural gas price (in dollars per MMBtu) | $ / MMBTU | 2.52 | 4.37 | |||||
Subsequent Event | |||||||
Property, Plant and Equipment [Line Items] | |||||||
Natural gas price (in dollars per MMBtu) | $ / MMBTU | 2.97 |
Interim Financial Information - Narrative (Details) |
9 Months Ended |
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Sep. 30, 2018
segment
| |
Accounting Policies [Abstract] | |
Reportable segments | 1 |
Revenue From Contracts with Customers - Disaggregation of Revenues (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
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Disaggregation of Revenue [Line Items] | ||||
Revenue from contracts with customers | $ 28,439 | $ 23,445 | $ 79,820 | $ 64,966 |
Dayrate drilling | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenue from contracts with customers | 27,552 | 22,125 | 75,776 | 61,369 |
Mobilization | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenue from contracts with customers | 331 | 619 | 1,061 | 1,586 |
Reimbursables | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenue from contracts with customers | 555 | 700 | 2,788 | 2,001 |
Capital modification | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenue from contracts with customers | 1 | 0 | 195 | 0 |
Other products and services | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenue from contracts with customers | $ 0 | $ 1 | $ 0 | $ 10 |
Revenue from Contracts with Customers - Assets and Liabilities (Details) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Revenue from Contract with Customer [Abstract] | ||
Receivables, which are included in Accounts receivable, net | $ 23,879 | $ 18,028 |
Contract assets | 0 | 0 |
Contract liabilities | $ (1,267) | $ (836) |
Revenue from Contracts with Customers - Assets and Liabilities Rollforward (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended |
---|---|---|
Sep. 30, 2018 |
Sep. 30, 2018 |
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Revenue from Contract with Customer [Abstract] | ||
Revenue recognized that was included in contract liabilities at beginning of period | $ 34 | $ 730 |
Increase in contract liabilities due to cash received, excluding amounts recognized as revenue | (868) | $ (1,163) |
Transferred to receivables from contract assets at beginning of period | $ 0 |
Revenue from Contracts with Customers - Narrative (Details) $ in Millions |
3 Months Ended | 9 Months Ended |
---|---|---|
Sep. 30, 2018
USD ($)
|
Sep. 30, 2018
USD ($)
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Revenue from Contract with Customer [Abstract] | ||
Capitalized contract costs, current | $ 0.9 | $ 0.9 |
Amortization of contract costs | $ 0.3 | $ 0.9 |
Financial Instruments and Fair Value (Details) $ in Thousands |
Sep. 30, 2018
USD ($)
|
Dec. 31, 2017
USD ($)
|
---|---|---|
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Long-term debt, fair value | $ 72,000 | $ 50,600 |
Long-term debt, carrying value | $ 68,631 | $ 49,278 |
Measurement Input, Discount Rate | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Debt instrument, measurement input | 0.062 |
Accrued Liabilities (Details) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Payables and Accruals [Abstract] | ||
Accrued salaries and other compensation | $ 3,686 | $ 2,646 |
Insurance | 1,511 | 507 |
Deferred revenues (contract liabilities) | 1,267 | 762 |
Property, sales and other taxes | 2,018 | 2,693 |
Other | 430 | 361 |
Accrued liabilities | $ 8,912 | $ 6,969 |
Long-term Debt - Schedule of Long-Term Debt (Details) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Debt Instrument [Line Items] | ||
Long-term debt, including current portion | $ 69,206 | $ 49,811 |
Less: current portion | (575) | (533) |
Long-term debt | 68,631 | 49,278 |
Capital lease obligations | ||
Debt Instrument [Line Items] | ||
Long-term debt, including current portion | 1,289 | 1,270 |
Credit Facility due November 5, 2020 | Line of credit | ||
Debt Instrument [Line Items] | ||
Long-term debt, including current portion | $ 67,917 | $ 48,541 |
Stock-Based Compensation - Compensation Cost (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
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Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||||
Total stock-based compensation | $ 718 | $ 867 | $ 2,080 | $ 3,036 |
Stock options | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||||
Total stock-based compensation | 0 | 0 | 0 | 0 |
Restricted stock and restricted stock units | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||||
Total stock-based compensation | $ 718 | $ 867 | $ 2,080 | $ 3,036 |
Stock-Based Compensation - Stock Option Activity (Details) - $ / shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Options | ||
Options, beginning balance (in shares) | 682,950 | |
Options, granted (in shares) | 0 | 0 |
Options, exercised (in shares) | 0 | |
Options, forfeited/expired (in shares) | 0 | |
Options, ending balance (in shares) | 682,950.00 | |
Options, exercisable (in shares) | 682,950 | |
Weighted Average Exercise Price | ||
Weighted average exercise price, beginning balance (in dollars per share) | $ 12.74 | |
Weighted average exercise price, granted (in dollars per share) | 0.00 | |
Weighted average exercise price, exercised (in dollars per share) | 0.00 | |
Weighted average exercise price, forfeited/expired (in dollars per share) | 0.00 | |
Weighted average exercise price, ending balance (in dollars per share) | 12.74 | |
Weighted-average exercise price, exercisable (in dollars per share) | $ 12.74 |
Stock-Based Compensation - Restricted Stock Activity (Details) - Restricted stock units (RSUs) |
9 Months Ended |
---|---|
Sep. 30, 2018
$ / shares
shares
| |
Shares | |
Number, beginning balance (in shares) | shares | 993,320 |
Number, granted (in shares) | shares | 641,041 |
Number, vested and converted (in shares) | shares | (350,528) |
Number, forfeited (in shares) | shares | (57,660) |
Number, ending balance (in shares) | shares | 1,226,173 |
Weighted Average Grant-Date Fair Value Per Share | |
Weighted average grant date fair value per share, beginning balance (in dollars per share) | $ / shares | $ 5.11 |
Weighted average grant date fair value per share, granted (in dollars per share) | $ / shares | 4.55 |
Weighted average grant date fair value per share, vested and converted (in dollars per share) | $ / shares | 5.03 |
Weighted average grant date fair value per share, forfeited (in dollars per share) | $ / shares | 5.36 |
Weighted average grant date fair value per share, ending balance (in dollars per share) | $ / shares | $ 4.83 |
Stockholders’ Equity and Earnings (Loss) per Share - Basic and Diluted Computation (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Net loss (numerator): | ||||
Net loss | $ (3,937) | $ (5,980) | $ (11,396) | $ (18,553) |
Loss per share: | ||||
Basic and diluted (in dollars per share) | $ (0.10) | $ (0.16) | $ (0.30) | $ (0.49) |
Shares (denominator): | ||||
Weighted average common shares outstanding - basic (in shares) | 38,253 | 37,839 | 38,210 | 37,688 |
Weighted average common shares outstanding - diluted (in shares) | 38,253 | 37,839 | 38,210 | 37,688 |
Income Taxes (Details) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Income Tax Disclosure [Abstract] | ||||
Effective income tax rate (as a percent) | 1.30% | (0.50%) | 1.00% | (0.60%) |
Commitments and Contingencies (Details) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Commitments and Contingencies Disclosure [Abstract] | ||
Outstanding purchase commitments | $ 5,800 | |
2018 | 209 | |
2019 | 1,085 | |
2020 | 834 | |
2021 | 478 | |
2022 | 360 | |
Thereafter | 401 | |
Total future lease payments | 3,367 | |
Long-term Purchase Commitment [Line Items] | ||
Property, plant and equipment, net | 277,978 | $ 272,388 |
Assets Held under Capital Leases | ||
Long-term Purchase Commitment [Line Items] | ||
Property, plant and equipment, net | 1,300 | 1,300 |
Accumulated depreciation | $ 600 | $ 500 |