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Summary Of Significant Accounting Policies (Policy)

12 Months Ended

Dec. 31, 2015

Summary Of Significant Accounting Policies [Abstract]

The consolidated financial statements include the accounts of Superior Energy Services, Inc. and subsidiaries (the Company). All significant intercompany accounts and transactions are eliminated in consolidation. Certain previously reported amounts have been reclassified to conform to the 2015 presentation.

Business

The Company provides a wide variety of services and products to the energy industry related to the exploration, development and production of oil and natural gas. The Company serves major, national and independent oil and natural gas companies throughout the world. The Company’s operations are managed and organized by business units, which offer products and services within the various phases of a well’s economic life cycle. The Company reports its operating results in four business segments: Drilling Products and Services; Onshore Completion and Workover Services; Production Services; and Technical Solutions. Given the Company’s history of growth and long-term strategy of expanding geographically, the Company also provides supplemental segment revenue information in three geographic areas: U.S. land; Gulf of Mexico; and International.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Major Customers and Concentration of Credit Risk

The majority of the Company’s business is conducted with major and independent oil and gas companies. The Company evaluates the financial strength of its customers and provides allowances for probable credit losses when deemed necessary.

The market for the Company’s services and products is the oil and gas industry in the U.S. land and Gulf of Mexico areas and select international market areas. Oil and gas companies make capital expenditures on exploration, development and production operations. The level of these expenditures historically has been characterized by significant volatility.

The Company derives a large amount of revenue from a small number of major and independent oil and gas companies. There were no customers that exceeded 10% of total revenue in 2015 and 2014. In 2013 EOG Resources, Inc. accounted for 10% of total revenue, primarily within the Onshore Completion and Workover Services segment.

In addition to trade receivables, other financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and derivative instruments used in hedging activities. The financial institutions in which the Company transacts business are large, investment grade financial institutions which are “well capitalized” under applicable regulatory capital adequacy guidelines, thereby minimizing its exposure to credit risks for deposits in excess of federally insured amounts and for failure to perform as the counterparty on interest rate swap agreements. The Company periodically evaluates the creditworthiness of financial institutions that may serve as a counterparty to its derivative instruments.

Cash Equivalents

The Company considers all short-term investments with a maturity of 90 days or less when purchased to be cash equivalents.

Accounts Receivable and Allowances

Trade accounts receivable are recorded at the invoiced amount or the earned amount but not yet invoiced and do not bear interest. The Company maintains allowances for estimated uncollectible receivables, including bad debts and other items. The allowance for doubtful accounts is based on the Company’s best estimate of probable uncollectible amounts in existing accounts receivable. The Company determines the allowance based on historical write-off experience and specific identification.

Inventory

Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out or weighted-average cost methods for finished goods and work-in-process. Supplies and consumables consist principally of products used in the Company’s services provided to its customers. The components of inventory balances are as follows (in thousands):



	December 31,
	2015		2014
Finished goods	$	71,951	$	72,788
Raw materials		23,418		29,718
Work-in-process		18,203		20,317
Supplies and consumables		35,189		42,739
Total	$	148,761	$	165,562

Property, Plant and Equipment

Property, plant and equipment are stated at cost, except for assets for which reduction in value is recorded during the period and assets acquired using purchase accounting, which are recorded at fair value as of the date of acquisition. With the exception of certain marine assets and oil and natural gas properties, depreciation is computed using the straight line method over the estimated useful lives of the related assets as follows:

Buildings and improvements	5	to	40	years
Marine vessels and equipment	5	to	25	years
Machinery and equipment	2	to	25	years
Automobiles, trucks, tractors and trailers	3	to	10	years
Furniture and fixtures	2	to	10	years

The Company follows the successful efforts method of accounting for its investment in oil and natural gas properties. Under the successful efforts method, the costs of successful exploratory wells and leases containing productive reserves are capitalized. Costs incurred to drill and equip developmental wells, including unsuccessful wells, are capitalized. Other costs such as geological and geophysical costs and the drilling costs of unsuccessful exploratory wells are expensed. Leasehold and well costs are depleted on a units-of-production basis based on the estimated remaining equivalent oil and gas reserves of each field.

Reduction in Value of Long-Lived Assets Text Block

Reduction in Value of Long-Lived Assets

Long-lived assets, such as property, plant and equipment and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is assessed by a comparison of the carrying amount of such assets to their fair value calculated, in part, by the estimated undiscounted future cash flows expected to be generated by the assets. Cash flow estimates are based upon, among other things, historical results adjusted to reflect the best estimate of future market rates, utilization levels, and operating performance. Estimates of cash flows may differ from actual cash flows due to, among other things, changes in economic conditions or changes in an asset’s operating performance. The Company’s assets are grouped by subsidiary or division for the impairment testing, which represent the lowest level of identifiable cash flows. Impairment testing for these long-lived assets is based on the consolidated entity. If the asset grouping’s fair value is less than the carrying amount of those items, impairment losses are recorded in the amount by which the carrying amount of such assets exceeds the fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less estimated costs to sell. The net carrying value of assets not fully recoverable is reduced to fair value. The estimate of fair value represents the Company’s best estimate based on industry trends and reference to market transactions and is subject to variability. The oil and gas industry is cyclical and estimates of the period over which future cash flows will be generated, as well as the predictability of these cash flows, can have a significant impact on the carrying values of these assets and, in periods of prolonged down cycles, may result in impairment charges. See note 3 for a discussion of the reduction in value of long-lived assets recorded during 2015 and 2013.

Goodwill

The following table summarizes the activity for the Company’s goodwill (in thousands):



			Onshore
	Drilling		Completion
	Products		and Workover		Production
	and Services		Services		Services		Total
Balance, December 31, 2013	$	144,872	$	1,419,550	$	893,687	$	2,458,109
Acquisition activities		-		-		13,909		13,909
Foreign currency translation adjustment		(2,033)		-		(1,576)		(3,609)
Balance, December 31, 2014		142,839		1,419,550		906,020		2,468,409
Acquisition activities		-		-		1,170		1,170
Reduction in value of assets		-		(740,000)		(586,701)		(1,326,701)
Foreign currency translation adjustment		(1,557)		-		(1,220)		(2,777)
Other		-		44,000		(44,000)		-
Balance, December 31, 2015	$	141,282	$	723,550	$	275,269	$	1,140,101

Goodwill is tested for impairment annually as of October 1st or on an interim basis if events or circumstances indicate that the fair value of the asset has decreased below its carrying value. In order to estimate the fair value of the reporting units (which is consistent with the reported business segments), the Company used a weighting of the discounted cash flow method and the public company guideline method of determining fair value of each reporting unit. There is no outstanding goodwill balance associated with the Company’s Technical Solutions segment. The Company weighted the discounted cash flow method 80% and the public company guideline method 20% due to differences between the Company’s reporting units and the peer companies’ size, profitability and diversity of operations. In order to validate the reasonableness of the estimated fair values obtained for the reporting units, a reconciliation of fair value to market capitalization was performed for each unit on a standalone basis. A control premium, derived from market transaction data, was used in this reconciliation to ensure that fair values were reasonably stated in conjunction with the Company’s capitalization. These fair value estimates were then compared to the carrying value of the reporting units. If the fair value of the reporting unit exceeds the carrying amount, no impairment loss is recognized. If the estimated fair value of the reporting unit is below the carrying value, then a second step must be performed to determine the goodwill impairment, if any. In this second step, the estimated fair value is used as the purchase price in a hypothetical acquisition of the reporting unit. The hypothetical purchase price is allocated to the reporting unit’s assets and liabilities, with the residual amount representing an implied fair value of the goodwill. The carrying amount of the goodwill is then compared to the implied fair value of the goodwill for each reporting unit and is written down to the implied fair value, if lower. The Company uses all available information to estimate fair value of the reporting units, including discounted cash flows. The Company engages third-party appraisal firms to assist in fair value determination of property, plant and equipment, intangible assets and any other significant assets or liabilities when appropriate. A significant amount of judgment was involved in performing these evaluations since the results are based on estimated future events. See note 3 for a discussion of the reduction in value of goodwill recorded during 2015 and 2013. As of December 31, 2015 and 2014, the Company’s accumulated reduction in value of goodwill was $1,417.7 million and $91.0 million, respectively.

Notes Receivable

The Company’s wholly owned subsidiary, Wild Well has decommissioning obligations related to its ownership of the Bullwinkle platform. Notes receivable consist of a commitment from the seller of the platform towards its eventual abandonment. Pursuant to an agreement with the seller, the Company will invoice the seller an agreed upon amount at the completion of certain decommissioning activities. The gross amount of this obligation totaled $115.0 million and is recorded at present value using an effective interest rate of 6.58%. The related discount is amortized to interest income based on the expected timing of the platform’s removal. During 2015, the Company revised its estimates relating to the timing of decommissioning work on its Bullwinkle assets, due to the changes in the economics of the estimated oil and gas reserves, resulting in a 10 year acceleration of the platform decommissioning to an estimated date of 2028. This change in estimate resulted in an increase of the present value of the note receivable. The Company recorded interest income related to notes receivable of $1.7 million, $1.6 million and $2.6 million during 2015, 2014 and 2013, respectively.

Intangible and Other Long-Term Assets

Intangible assets consist of the following (in thousands):



			December 31,
			2015						2014
	Estimated		Gross		Accumulated		Net		Gross		Accumulated		Net
	Useful Lives		Amount		Amortization		Balance		Amount		Amortization		Balance
Customer relationships	17	years	$	257,364	$	(65,209)	$	192,155	$	339,695	$	(64,954)	$	274,741
Tradenames	10	years		36,119		(15,371)		20,748		41,265		(13,151)		28,114
Non-compete agreements	3	years		3,242		(2,940)		302		4,487		(3,281)		1,206
Total			$	296,725	$	(83,520)	$	213,205	$	385,447	$	(81,386)	$	304,061

Amortization expense was $23.0 million, $25.9 million and $26.2 million during 2015, 2014 and 2013, respectively. Based on the carrying values of intangible assets as of December 31, 2015, amortization expense is estimated to be as follows: $19.2 million for 2016, $18.6 million for 2017, $18.5 million for 2018, $18.3 million for 2019 and $18.0 million for 2020.

During 2015, the Company recorded $68.9 million of expense related to the reduction in carrying values of intangibles primarily in the Production Services segment (see note 3).

As of December 31, 2015 and 2014, intangible and other long-term assets, net included $58.4 million of escrowed cash, primarily related to the future decommissioning obligations of the Bullwinkle platform.

Decommissioning Liabilities

The Company’s decommissioning liabilities associated with the Bullwinkle platform and its related assets consist of costs related to the plugging of wells, the removal of the related platform and equipment, and site restoration. The Company reviews the adequacy of its decommissioning liabilities whenever indicators suggest that the estimated cash flows needed to satisfy the liability have changed materially.

During 2015, the Company revised its estimates relating to the timing and the cost estimates of decommissioning work on its Bullwinkle assets due to changes in the economics of the oil and gas property, including a 10 year acceleration of the platform decommissioning to an estimated date of 2028. This change in estimate resulted in an increase in the present value of decommissioning liabilities. Further, as of December 31, 2015, the Company anticipated that it would be able to decommission several depleted wells that are part of the Bullwinkle assets based on the revised estimates. As a result, the decommissioning liabilities associated with those wells were classified as current liabilities on the consolidated balance sheet.

The following table summarizes the activity for the Company’s decommissioning liabilities (in thousands):



	December 31,
	2015		2014
Decommissioning liabilities, December 31, 2014 and 2013, respectively	$	88,000	$	83,519
Revisions in estimated timing and cash flows		24,660		(276)
Accretion		5,016		4,470
Liability acquisitions and dispositions		266		866
Liabilities settled		-		(579)
Total decommissioning liabilities, December 31, 2015 and 2014, respectively	$	117,942	$	88,000

Revenue Recognition

Products and services are generally sold based upon purchase orders or contracts with customers that include fixed or determinable prices. Revenue is recognized when services or equipment are provided and collectability is reasonably assured. The Company’s drilling products and services are billed on a day rate basis, and revenue from the sale of equipment is recognized when the title to the equipment has been transferred. Reimbursements from customers for the cost of drilling products and services that are damaged or lost down-hole are reflected as revenue at the time of the incident. The Company recognizes oil and gas revenue from its interests in producing wells as oil and natural gas is sold. Taxes collected from customers and remitted to governmental authorities are reported on a net basis in the Company’s financial statements.

Income Taxes

The Company accounts for income taxes and the related accounts under the asset and liability method. Deferred income taxes reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and rates that are in effect when the temporary differences are expected to reverse. The effect of a change in tax rates on the deferred income taxes is recognized in income in the period in which the change occurs. A valuation allowance is recorded when management believes it is more likely than not that at least some portion of any deferred tax asset will not be realized. It is the Company’s policy to recognize interest and applicable penalties related to uncertain tax positions in income tax expense.

Earnings (Loss) per Share

Earnings per Share

Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed in the same manner as basic earnings per share except that the denominator is increased to include the number of additional shares of common stock that could have been outstanding assuming the exercise of stock options and conversion of restricted stock units.

During 2015, the Company incurred a loss from continuing operations; therefore the impact of any incremental shares would be anti-dilutive. Stock options for 1,100,000 shares of the Company’s common stock were excluded in the computation of diluted earnings per share for 2014 and 2013, as the effect would have been anti-dilutive.

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date. Inputs used in determining fair value are characterized according to a hierarchy that prioritizes those inputs based on the degree to which they are observable. The three input levels of the fair value hierarchy are as follows:

Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities;

Level 2: Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical assets or liabilities in inactive markets or model-derived valuations or other inputs that can be corroborated by observable market data; and

Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

Financial Instruments

The fair value of the Company’s financial instruments of cash equivalents, accounts receivable, accounts payable, accrued expenses and borrowings under its credit facility approximates their carrying amounts due to their short maturity or market interest rates. The fair value of the Company’s debt was $1,508.0 million and $1,624.3 million as of December 31, 2015 and 2014, respectively, and was categorized as Level 1 in the fair value hierarchy. The fair value of these debt instruments is determined by reference to the market value of the instrument as quoted in an over-the-counter market.

Foreign Currency

Results of operations for foreign subsidiaries with functional currencies other than the U.S. dollar are translated using average exchange rates during the period. Assets and liabilities of these foreign subsidiaries are translated using the exchange rates in effect at the balance sheet dates, and the resulting translation adjustments are reported as accumulated other comprehensive loss in the Company’s stockholders’ equity.

For international subsidiaries where the functional currency is the U.S. dollar, financial statements are remeasured into U.S. dollars using the historical exchange rate for most of the long-term assets and liabilities and the balance sheet date exchange rate for most of the current assets and liabilities. An average exchange rate is used for each period for revenues and expenses. These transaction gains and losses, as well as any other transactions in a currency other than the functional currency, are included in other income (expense) in the consolidated statements of operations in the period in which the currency exchange rates change. During 2015, 2014 and 2013, the Company recorded $9.6 million, $7.3 million and $7.1 million of foreign currency losses, respectively.

Stock-Based Compensation

The Company records compensation costs relating to share-based payment transactions and includes such costs in general and administrative expenses in the consolidated statements of operations. The cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity award). Excess tax benefits of awards that are recognized in equity related to stock option exercises and restricted stock vesting are reflected as financing cash flows.

Derivative Instruments and Hedging Activities

The Company recognizes all derivative instruments as either assets or liabilities in the balance sheet at their respective fair values. Interest rate swap agreements that are effective at hedging the fair value of fixed-rate debt agreements are designated and accounted for as fair value hedges. The Company also assesses, both at inception of the hedging relationship and on an ongoing basis, whether the derivatives used in hedging relationships are highly effective in offsetting changes in fair value.

In an attempt to achieve a more balanced debt portfolio between fixed and variable interest, the Company enters into interest rate swaps. Under these agreements, the Company is entitled to receive semi-annual interest payments at a fixed rate and is obligated to make quarterly interest payments at a variable rate. The Company had fixed-rate interest on 62% and 61% of its long-term debt as of December 31, 2015 and 2014, respectively. The Company had notional amounts of $300 million related to interest rate swaps with a variable interest rate, adjusted every 90 days, based on LIBOR plus a fixed margin as of December 31, 2015 and 2014.

Self Insurance Reserves

Self-Insurance Reserves

The Company is self-insured, through deductibles and retentions, up to certain levels for losses under its insurance programs. With the Company’s growth, the Company has elected to retain more risk by increasing its self-insurance levels. The Company accrues for these liabilities based on estimates of the ultimate cost of claims incurred as of the balance sheet date. The Company regularly reviews the estimates of reported and unreported claims and provides for losses through reserves. The Company obtains actuarial reviews to evaluate the reasonableness of internal estimates for losses related to workers’ compensation, auto liability and group medical on an annual basis.

Subsequent Events

In accordance with authoritative guidance, the Company has evaluated and disclosed all material subsequent events that occurred after the balance sheet date, but before financial statements were issued

Recently Issued Accounting Pronouncements

Recently Adopted Accounting Guidance

In November 2015, the Financial Accounting Standards Board (FASB) issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes, which amends existing guidance on income taxes to require the classification of all deferred tax assets and liabilities as non-current on the balance sheet. The new standard is effective for the Company on January 1, 2017, with early adoption permitted, and the guidance may be applied either prospectively or retrospectively. The Company adopted this standard as of December 31, 2015 and applied the change retrospectively to prior periods, resulting in a $32.1 million reduction in total current assets and corresponding decrease in non-current deferred income tax liabilities.

In April 2015, the FASB issued ASU No. 2015-03, Interest – Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs, which changes the presentation of debt issuance costs. This guidance requires that debt on the balance sheet be presented net of unamortized debt issuance costs. Amortization of such costs is reported as interest expense, which is consistent with the Company’s current policy. This change conforms the presentation of debt issuance costs with that of debt discounts. The ASU is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2015; early adoption is permitted. The guidance is required to be applied retrospectively to all prior periods. The Company adopted this standard as of December 31, 2015. The effect of the adoption of ASU 2015-03 on the Company’s consolidated balance sheet is a reduction of total assets and long-term debt of $27.5 million as of December 31, 2014.

In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements and Property, Plant and Equipment, which changes the definition of discontinued operations. The guidance permits only those disposed components (or components held-for-sale) representing a strategic shift that have (or will have) a major effect on operations and financial results to be reported in discontinued operations. The new standard is effective prospectively for disposals (or classifications as held-for-sale) occurring after December 31, 2014. The Company has adopted the accounting guidance as of January 1, 2015.

Recently Issued Accounting Guidance

In July 2015, the FASB issued ASU No. 2015-11, Inventory – Simplifying the Measurement of Inventory, which applies to inventory measured using first-in, first-out or average cost. The guidance in this update states that inventory within its scope shall be measured at the lower of cost or net realizable value, and when the net realizable value of inventory is lower than its cost, the difference shall be recognized as a loss in earnings. The new standard is effective for the Company beginning on January 1, 2017 and should be applied on a prospective basis. The Company is evaluating the effect that ASU 2015-11 will have on its consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which will replace most existing revenue recognition guidance in GAAP. The guidance in this update requires an entity to recognize the amount of revenue that it expects to be entitled for the transfer of promised goods or services to customers. The new standard is effective for the Company on January 1, 2018. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the accounting guidance on its ongoing financial reporting.