UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the fiscal year ended |
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the Transition Period from ________ to _______ |
Commission File No.
(Exact name of registrant as specified in its charter)
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(I.R.S. Employer Identification No.) |
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Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange on which registered |
None |
N/A |
None |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ |
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Accelerated Filer ¨ |
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Smaller reporting company |
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Emerging growth company |
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. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ¨ No
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No
There is
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes
The number of shares of the registrant's Class A Common Stock outstanding on March 7, 2024 was
DOCUMENTS INCORPORATED BY REFERENCE
Not applicable.
TABLE OF CONTENTS
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PART I |
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Item 1 |
5 |
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Item 1A |
10 |
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Item 1B |
Unresolved Staff Comments |
22 |
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Item 1C |
22 |
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Item 2 |
23 |
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Item 3 |
23 |
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Item 4 |
23 |
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PART II |
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Item 5 |
24 |
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Item 7 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
25 |
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Item 7A |
33 |
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Item 8 |
34 |
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Item 9 |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
71 |
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Item 9A |
71 |
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Item 9B |
72 |
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Item 9C |
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
72 |
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PART III |
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Item 10 |
Directors, Executive Officers and Corporate Governance |
72 |
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Item 11 |
74 |
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Item 12 |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
87 |
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Item 13 |
Certain Relationships and Related Transactions, and Director Independence |
88 |
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Item 14 |
88 |
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PART IV |
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Item 15 |
89 |
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K for the year ended December 31, 2023 (the “Form 10-K”) and other documents filed by us with the Securities and Exchange Commission (the “SEC”) contain, and future oral or written statements or press releases by us and our management may contain, forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Generally, the words “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks”, “will” and “estimates,” variations of such words and similar expressions identify forward-looking statements, although not all forward-looking statements contain these identifying words. All statements other than statements of historical fact included in this Form 10-K or such other materials regarding our financial position, financial performance, liquidity, strategic alternatives, market outlook, future capital needs, capital allocation plans, business strategies and other plans and objectives of our management for future operations and activities are forward-looking statements. These statements are based on certain assumptions and analyses made by our management in light of their experience and prevailing circumstances on the date such statements are made. Such forward-looking statements, and the assumptions on which they are based, are inherently speculative and are subject to a number of risks and uncertainties that could cause our actual results to differ materially from such statements. Such risks and uncertainties include, but are not limited to:
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These risks and other uncertainties related to our business are described in detail below in Part I, Item 1A of this Form 10-K. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Investors are cautioned that many of the assumptions on which our forward-looking statements are based are likely to change after such statements are made, including for example the market prices of oil and gas and regulations affecting oil and gas operations, which we cannot control or anticipate. Further, we may make changes to our business strategies and plans (including our capital spending and capital allocation plans) at any time and without notice, based on any changes in the above-listed factors, our assumptions or otherwise, any of which could or will affect our results. For all these reasons, actual events and results may differ materially from those anticipated, estimated, projected or implied by us in our forward-looking statements. We undertake no obligation to update any of our forward-looking statements for any reason, notwithstanding any changes in our assumptions, changes in our business plans, our actual experience, or other changes. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.
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PART I
Item 1. Business
General
We are a global oilfield products and services company with a portfolio of premier rental and well servicing brands providing customers with robust inventory, expedient delivery, engineered solutions and expert consultative service — all aligned with enterprise-wide Shared Core Values for safe, sustainable operations, corporate citizenship and a commitment to free cash flow generation and value creation.
From drilling equipment rentals to oilfield services, our portfolio of global companies provides highly specialized solutions for maintaining safety, efficiency, profitability, and ESG compliance.
Products and Services
Combining financial discipline with corporate services expertise, we maintain a strategy focused on businesses critical to our customers' success. We support our portfolio of brands with the necessary resources and leadership so they can add value to our customers’ operations with an emphasis on quality, safety, and sustainability.
Rentals
Our rentals services brands offer value-added products and services to meet a wide range of project needs. With a long history of delivering maximum value, these brands help customers and vendor partners achieve safety, efficiency and sustainability goals. Our rental segment operates with low labor intensity and a substantial catalog of product offerings.
The products and service offerings of Rentals are:
Well Services
Our Well Services brands provide specialized solutions for drilling, production, completion and decommissioning. They have a proven track record of meeting operators’ expectations and delivering the products and expertise success demands. Among our customers and vendor partners, these brands have a history of strong, collaborative relationships.
The products and service offerings of Well Services are:
Emergence from Voluntary Reorganization under Chapter 11
On December 7, 2020, certain of our direct and indirect wholly-owned domestic subsidiaries filed petitions for reorganization under the provisions of Chapter 11 of the Bankruptcy Code and, in connection therewith, filed the proposed Joint Prepackaged Plan of Reorganization (as amended, modified or supplemented from time to time, the “Plan”). On February 2, 2021 (the “Emergence Date”), the conditions to the effectiveness of the Plan were satisfied and we emerged from Chapter 11.
As used herein, “we,” “us,” “our” and similar terms refer to (i) prior to the Emergence Date, SESI Holdings, Inc. and its subsidiaries (“Predecessor”) and (ii) after the Emergence Date, Superior Energy Services, Inc. and its subsidiaries (“Successor”).
As used herein, the following terms refer to our operations:
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“Predecessor Period” |
January 1, 2021 through February 2, 2021 |
“Successor Period” |
February 3, 2021 through December 31, 2021 |
“Prior Year” |
January 1, 2022 through December 31, 2022 |
“Current Year” |
January 1, 2023 through December 31, 2023 |
Customers
Our customers are major and independent oil and gas companies that are active in the geographic areas in which we operate. There were no customers that exceeded 10% of our total revenues in 2023, 2022 or 2021. A reduction in sales to any of our existing large customers could have a material adverse effect on our business and operations.
Competition
We provide products and services worldwide in highly competitive markets, with competitors comprised of both small or regionally focused companies in our Rentals segment, and large or international companies in our Well services segment. Our revenues and earnings can be affected by several factors, including but not limited to changes in competition, fluctuations in drilling and completion activity, perceptions of future prices of oil and gas, government regulation, disruptions caused by factors such as weather, pandemics, and geopolitics, and general economic conditions. We believe that the principal competitive factors are price, performance, product and service quality, safety, response time and breadth of products and services.
Potential Liabilities and Insurance
Our operations involve a high degree of operational risk and expose us to significant liabilities. An accident involving our services or equipment, or the failure of a product sold by us, could result in personal injury, loss of life, and damage to property, equipment or the environment. Litigation arising from a catastrophic occurrence, such as fire, explosion, well blowout or vessel loss, may result in substantial claims for damages.
As is customary in our industry, our contracts generally provide that we will indemnify and hold harmless our customers from any claims arising from personal injury or death of our employees, damage to or loss of our equipment, and pollution emanating from our equipment and services. Similarly, our customers generally agree to indemnify and hold us harmless from any claims arising from personal injury or death of their employees, damage to or loss of their equipment or property, and pollution caused from their equipment or the well reservoir (including uncontained oil flow from a reservoir). Nonetheless, our indemnification arrangements may not protect us in every case.
We maintain a liability insurance program that covers against certain operating hazards, including product liability, property damage and personal injury claims, as well as certain limited environmental pollution claims for damage to a third party or its property arising out of contact with pollution for which we are liable, but well control costs are not covered by this program. These policies include primary and excess umbrella liability policies with limits of $200 million per occurrence, including sudden and accidental pollution incidents. All of the insurance policies we purchase contain specific terms, conditions, limitations and exclusions and are subject to either deductibles or self-insured retention amounts for which we are responsible. There can be no assurance that the nature and amount of insurance we maintain will be sufficient to fully protect us against all liabilities related to our business.
Government Regulation
Our business is significantly affected by federal, state and local laws and other regulations. These laws and regulations relate to, among other things:
Numerous permits are required for the conduct of our business and operation of our various facilities and equipment, including our underground injection wells, trucks and other heavy equipment. These permits can be revoked, modified or renewed by issuing authorities based on factors both within and outside our control.
We cannot predict the level of enforcement of existing laws and regulations or how such laws and regulations may be interpreted by enforcement agencies or court rulings in the future. We also cannot predict whether additional laws and regulations will be adopted,
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including changes in regulatory oversight, increase of federal, state or local taxes, increase of inspection costs, or the effect such changes may have on us, our businesses or our financial condition.
Environmental Matters
Our operations, and those of our customers, are subject to extensive laws, regulations and treaties relating to air and water quality, generation, storage and handling of hazardous materials, and emission and discharge of materials into the environment. We believe we are in substantial compliance with all regulations affecting our business. Historically, our expenditures in furtherance of our compliance with these laws, regulations and treaties have not been material, and we do not expect the cost of compliance to be material in the future.
Numerous federal, state and local governmental agencies, such as the U.S. Environmental Protection Agency (the “EPA”), issue laws and regulations that often require difficult and costly compliance measures that carry substantial administrative, civil and criminal penalties and may result in injunctive obligations for non-compliance. These laws and regulations may require the acquisition of a permit before commencing operations, restrict the types, quantities and concentrations of various substances that can be released into the environment in connection with our operations, limit or prohibit construction or drilling activities on certain lands lying within wilderness, wetlands, ecologically or seismically sensitive areas and other protected areas, require action to prevent or remediate pollution from current or former operations, such as plugging abandoned wells or closing pits, result in the suspension or revocation of necessary permits, licenses and authorizations, require that additional pollution controls be installed and impose substantial liabilities for pollution resulting from our operations or related to our owned or operated facilities. Liability under such laws and regulations is often strict (i.e., no showing of “fault” is required) and can be joint and several. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances, hydrocarbons or other waste products into the environment. Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent and costly pollution control or waste handling, storage, transport, disposal or cleanup requirements could materially adversely affect our operations and financial position, as well as the oil and natural gas industry and infrastructure industry in general. We have not experienced any material adverse effect from compliance with these environmental requirements. This trend, however, may not continue in the future.
Climate Change
In recent years, federal, state and local governments have taken steps to reduce emissions of carbon dioxide, methane and other greenhouse gases, collectively referred to as greenhouse gasses (“GHGs”). For example, the Infrastructure Investment and Jobs Act of 2021 and the Inflation Reduction Act of 2022 (“IRA”) include billions of dollars in incentives for the development of renewable energy, clean hydrogen, clean fuels, electric vehicles, investments in advanced biofuels and supporting infrastructure and carbon capture and sequestration. Also, the EPA has proposed rules to reduce harmful air pollutant emissions, including GHGs, from light-, medium-, and heavy-duty vehicles beginning in model year 2027. These incentives and regulations could accelerate the transition of the economy away from the use of fossil fuels towards lower- or zero-carbon emissions alternatives, which could decrease demand for oil and gas and consequently adversely affect the business of our customers thereby reducing demand for our services. In addition, the IRA imposes the first ever federal fee on the emission of GHGs through a methane emissions charge. Specifically, the IRA amends the Clean Air Act to impose a fee on the emission of methane that exceeds an applicable waste emissions threshold from sources required to report their GHG emissions to the EPA, including sources in the offshore and onshore petroleum and natural gas production and gathering and boosting source categories. The methane emissions charge would start in calendar year 2024 at $900 per ton of methane, increase to $1,200 in 2025 and be set at $1,500 for 2026 and each year after. Calculation of the fee is based on certain thresholds established in the IRA. On January 12, 2024, the EPA announced a proposed rule to implement the methane emissions charge. The methane emissions charge could increase the operating costs of our customers, which could, in turn, impact our business, financial condition and cash flows.
The EPA has also finalized a series of GHG monitoring, reporting and emissions control rules for the oil and natural gas industry, and almost half of the states have already taken measures to reduce emissions of GHGs primarily through the development of GHG emission inventories and/or regional GHG cap-and-trade programs. Also, states have imposed increasingly stringent requirements related to the venting or flaring of gas during oil and gas operations. While we are subject to certain federal GHG monitoring and reporting requirements, our operations currently are not adversely impacted by existing federal, state and local climate change initiatives.
At the international level, in December 2015, the United States participated in the 21st Conference of the Parties of the United Nations Framework Convention on Climate Change in Paris, France. The resulting Paris Agreement calls for the parties to undertake “ambitious efforts” to limit the average global temperature, and to conserve and enhance sinks and reservoirs of GHGs. The Agreement went into effect on November 4, 2016. On April 21, 2021, the United States announced that it was setting an economy-wide target of reducing its greenhouse gas emissions by 50 to 52 percent below 2005 levels in 2030. In November 2021, in connection with the 26th Conference of the Parties in Glasgow, Scotland, the United States and other world leaders made further commitments to reduce greenhouse gas
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emission, including reducing global methane emissions by at least 30% by 2030 from 2020 levels. More than 150 countries have now signed on to this pledge. Most recently, at the 28th Conference of the Parties in the United Arab Emirates, world leaders agreed to transition away from fossil fuels in a just, orderly and equitable manner and to triple renewables and double energy efficiency globally by 2030. Furthermore, many state and local leaders have stated their intent to intensify efforts to support the international commitments.
Restrictions on emissions of methane or carbon dioxide that may be imposed could adversely affect the oil and natural gas industry by reducing demand for hydrocarbons and by making it more expensive to develop and produce hydrocarbons, either of which could have a material adverse effect on future demand for our services. At this time, it is not possible to accurately estimate how potential future laws or regulations addressing GHG emissions would impact our business.
In addition, there have also been efforts in recent years to influence the investment community and certain financial institutions, including investment advisors and certain sovereign wealth, pension and endowment funds promoting divestment of fossil fuel equities and pressuring lenders to limit funding to companies engaged in the extraction of fossil fuel reserves, and insurance companies to limit available coverage for entities engaged in the production or use of fossil fuels. Such environmental activism and initiatives aimed at limiting climate change and reducing air pollution could interfere with our business activities, operations and our ability to access capital and obtain third party insurance. Furthermore, claims have been made against certain energy companies alleging that GHG emissions from oil and natural gas operations constitute a public nuisance under federal and/or state common law. As a result, private individuals or public entities may seek to enforce environmental laws and regulations against certain energy companies and could allege personal injury, property damages or other liabilities. While our business is not a party to any such litigation, we could be named in actions making similar allegations. An unfavorable ruling in any such case could significantly impact our operations and could have an adverse impact on our financial condition.
Moreover, climate change may cause more extreme weather conditions such as more intense hurricanes, thunderstorms, tornadoes and snow or ice storms, as well as rising sea levels and increased volatility in seasonal temperatures. Extreme weather conditions can interfere with our productivity and increase our costs and damage resulting from extreme weather may not be fully insured. However, at this time, we are unable to determine the extent to which climate change may lead to increased storm or weather hazards affecting our operations.
Raw Materials
We purchase various raw materials and component parts in connection with delivering our products and services. These materials are generally, but not always, available from multiple sources and may be subject to price volatility. While we generally do not experience significant long-term shortages of these materials, we have from time to time experienced temporary shortages of particular raw materials. We are always seeking ways to ensure the availability of resources, as well as manage costs of raw materials.
Seasonality
Seasonal weather and severe weather conditions can temporarily impair our operations and reduce demand for our products and services. Examples of seasonal events that negatively affect our operations include high seas associated with cold fronts during the winter months and hurricanes during the summer months in the Gulf of Mexico, and severe cold during winter months in the U.S. land market area.
Human Capital
As of December 31, 2023, we had approximately 2,300 employees. Approximately 26% of our total employee base are subject to union contracts and are located in Argentina and Brazil. We believe that we have good relationships with our employees. We strive to employ a dynamic workforce to complement our core values. Our hiring policy forbids discrimination in employment on the basis of age, culture, gender, national origin, sexual orientation, physical appearance, race or religion. We are an inclusive company with people of various backgrounds, experience, culture, styles and talents. We are committed to the health, safety and wellness of our employees, and we pride ourselves on workplace safety. We track and maintain several key safety metrics, which senior management reviews periodically and we evaluate management on their ability to provide safe working conditions on job sites and to create a safety culture.
Facilities
We own or lease a large number of facilities in the U.S. and in various other countries throughout the world. Our international operations are primarily focused in Latin America, Asia-Pacific and the Middle East/North Africa regions.
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Other Information
We have our principal executive offices at 1001 Louisiana Street, Suite 2900, Houston, Texas 77002. Our telephone number is (713) 654-2200. We also have a website at http://www.superiorenergy.com.
Our Shared Core Values at Work (Code of Conduct) applies to all of our directors, officers and employees. This Code of Conduct is publicly available on the Corporate Governance page in the About Us section of our website at http://www.superiorenergy.com. Any waivers granted to directors or executive officers and any material amendment to our Code of Conduct will be posted promptly on our website and/or disclosed in a current report on Form 8-K.
Copies of the annual, quarterly and current reports we file with or furnish to the SEC, and any amendments to those reports, as well as our Code of Conduct, are available on our website free of charge soon after such reports are filed with or furnished to the SEC. The information posted on our website is not incorporated into this Form 10-K. Alternatively, you may access these reports at the SEC’s website at http://www.sec.gov/.
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Item 1A. Risk Factors
The following information should be read in conjunction with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Part II, Item 7 of this Form 10-K, the consolidated financial statements and related notes contained in Part II, Item 8 of this Form 10-K and the matters contained under the caption “Forward-Looking Statements” at the beginning of this Form 10-K.
The following discussion of “risk factors” identifies the most significant risks or uncertainties that could (i) materially and adversely affect our business, financial condition, results of operations, liquidity or prospects, as well as the market value of our securities, or (ii) cause our actual results to differ materially from our anticipated results or other expectations. These risks are not the only risks that we face. Our business operations could also be affected by additional factors that apply to all companies operating in the U.S. and globally, as well as other risks that are not presently known to us or that we currently consider to be immaterial to our operations. These risks include:
Risks Related to Our Business
Our business depends on conditions in the oil and gas industry, especially oil and natural gas prices and capital expenditures by oil and gas companies.
Our business depends on the level of oil and natural gas exploration, development and production activity of, and the corresponding capital spending by, oil and gas companies worldwide. The level of exploration, development and production activity is directly affected by trends in oil and natural gas prices, which historically have been volatile and difficult to predict and are likely to continue to be volatile. Oil and natural gas prices are subject to large fluctuations in response to relatively minor changes in supply and demand, economic growth trends, market uncertainty and a variety of other factors beyond our control. In addition, oil prices are particularly sensitive to actual and perceived threats to global political stability, such as Russia's invasion of Ukraine, the conflict in Israel and broader geopolitical tensions in the Middle East and eastern Europe, and to changes in production from OPEC+ member states. Lower oil and natural gas prices generally lead to decreased spending by our customers, while higher oil and natural gas prices generally lead to increased spending up to a point. Our customers may also consider the volatility of oil and natural gas prices and other risk factors, which may reduce capital expenditures or require higher returns for individual projects if there is higher perceived risk. Any of these factors could significantly affect the demand for oil and natural gas, which could affect the level of capital spending by our customers and in turn could have a material effect on our business, results of operations, financial condition and cash flow.
The availability of quality drilling prospects, exploration success, relative production costs, expectations about future oil and natural gas demand and prices, the stage of reservoir development, the availability of financing, and political and regulatory environments are also expected to affect levels of exploration, development, and production activity, which would impact the demand for our services. Any prolonged reduction of oil and natural gas prices, as well as anticipated declines, could also result in lower levels of exploration, development, and production activity. In addition, the transition of the global energy sector from a primarily fossil fuel-based system to a diverse system which includes renewable energy sources could affect our customers’ levels of expenditures.
The demand for our services may be affected by numerous factors, including the following:
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The oil and gas industry has historically experienced periodic downturns, which have been characterized by significantly reduced demand for oilfield services and downward pressure on the prices we charge. Moreover, weakness in the oil and gas industry may adversely impact the financial position of our customers, which in turn could cause them to fail to pay amounts owed to us in a timely manner or at all. We expect continued volatility in both crude oil and natural gas prices, as well as in the level of drilling and production related activities as a result of decisions of OPEC+ and other oil exporting nations regarding production, and the other factors listed above. Any of these events have affected, and could further affect, the demand for oil and natural gas and has and could further have a material adverse effect on our business, results of operations, financial condition and cash flow.
Our business may also be affected by new sanctions and export controls targeting Russia and other responses to Russia’s invasion of Ukraine.
As a result of Russia’s invasion of Ukraine, the European Union (and certain of its member states), the United Kingdom and the United States, among others, have developed coordinated sanctions and export-control measure packages.
Based on actions taken and other public statements to date, these packages have included, for example:
As the invasion of Ukraine continues, there can be no certainty regarding whether such governments or other governments will impose additional sanctions, export-controls or other economic or military measures against Russia. We have no operational exposure in Russia, and – in compliance with relevant sanctions regimes – we do not intend to commit further capital towards projects in Russia. The impact the invasion of Ukraine, including economic sanctions and export controls or additional war or military conflict, as well as potential responses to them by Russia, is currently unknown and they could adversely affect oil and gas companies, including many of which are our customers, as well as the global supply chain. In addition, the continuation of the invasion of Ukraine by Russia could lead to other disruptions, instability and volatility in global markets and industries, which could have a material adverse effect on our business, results of operations, financial condition and cash flow.
Our failure to comply with the FCPA and other similar laws could have a negative impact on our ongoing operations.
The FCPA and other anti-corruption laws in the countries where we operate prohibit companies and their employees, or other individuals acting on their behalf, from providing anything of value to a public official for the purposes of influencing any act or decision of these individuals to help obtain or retain business or obtain any unfair advantage. We have implemented policies and procedures designed to encourage compliance with applicable anti-corruption laws. However, our ability to comply with such laws depends on the success of our ongoing compliance programs and we cannot assure that our programs will always protect us from criminal acts committed by our employees or agents. Allegations of violations of anti-corruption laws may result in internal, independent, or government investigations. Violations of anti-corruption laws may result in severe criminal or civil sanctions, as well as legal expenses and reputational harm, and we may be subject to other liabilities, which could have a material adverse effect on our business, operations, and financial condition.
Our long-term liquidity requirements and the adequacy of our capital resources are difficult to predict at this time.
While we have a significant cash balance currently, we face uncertainty regarding the adequacy of our liquidity and capital resources over the long-term and have extremely limited, if any, access to additional financing. We cannot assure you that cash on hand, letters of credit and borrowings under the Credit Facility, and cash flow from operations will be sufficient to continue to fund our operations over the long-term.
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Furthermore, turmoil in the credit and financial markets could adversely affect financial institutions, inhibit lending and limit our access to funding through borrowings under the Credit Facility or obtaining other financing in the public or private capital markets on terms we believe to be reasonable. Prevailing market conditions could be adversely affected by the ongoing disruptions in domestic or overseas sovereign or corporate debt markets, low commodity prices or other factors impacting our business, contractions or limited growth in the economy or other similar adverse economic developments in the U.S. or abroad. Instability in the global financial markets has from time to time resulted in periodic volatility in the capital markets. In addition, there has been a relatively recent increased focus of debt and equity capital providers on environmental, social and governance (“ESG”) investing, and the energy industry has been generally facing growing negative sentiment in the market. This volatility, as well as this increased focus on ESG investing and negative sentiment, could limit our access to the credit markets, leading to higher borrowing costs or, in some cases, the inability to obtain financing on terms that are acceptable to us, or at all. Any such failure to obtain additional financing could jeopardize our ability to repay, refinance or reduce our debt obligations, or to meet our other financial commitments.
Restrictive covenants in the Credit Facility could limit our growth and our ability to finance our operations, fund our capital needs, respond to changing conditions and engage in other business activities that may be in our best interests.
The Credit Facility imposes operating and financial restrictions. Unless all loans are paid off and letters of credit outstanding are cash collateralized and the Credit Agreement terminated, these restrictions limit the ability to, among other things, subject to permitted exceptions:
The restrictions contained in the Credit Facility could:
The Credit Facility includes provisions that require mandatory prepayment of outstanding borrowings and/or a borrowing base redetermination when there are asset dispositions over a certain threshold, which could limit the ability to generate liquidity from asset sales. Also, the Credit Facility requires compliance with a specified financial ratio if triggered by an event of default or availability beneath specified thresholds. The ability to comply with this ratio may be affected by events beyond our control and, as a result, this ratio may not be met in circumstances when it is tested. This financial ratio restriction could limit the ability to obtain future financings, make needed capital expenditures, withstand a continued downturn in our business or a downturn in the economy in general or otherwise conduct necessary corporate activities. Declines in oil and natural gas prices could result in failure to meet one or more of the financial covenants under the Credit Facility, which could require refinancing or amendment of such obligations resulting in the payment of consent fees or higher interest rates or require a capital raise at an inopportune time or on terms not favorable.
A breach of any of these covenants or the inability to comply with the required financial ratios or financial condition tests could result in a default under the Credit Facility. A default under the Credit Facility, if not cured or waived, could result in acceleration of all indebtedness outstanding thereunder and/or a requirement to cash collateralize letters of credit issued thereunder and ultimately, exercise of remedies by the lenders thereunder against the Company and the other guarantors under the Credit Facility and/or the collateral securing the Credit Facility.
Our business may be materially and adversely impacted by U.S. and global market and economic conditions, including impacts relating to inflation and supply chain disruptions.
Our revenue is derived from the services and products that we offer to major, national and independent oil and natural gas exploration and production companies around the world for the various phases of their respective well’s economic life cycles. Given the concentration of our business activities in the oil and gas industry, we will be particularly exposed to certain economic downturns.
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United States and global market and economic conditions have been, and continue to be, disrupted and volatile due to many factors, component shortages and related supply chain challenges, geopolitical developments such as the conflicts in Israel (and broader geopolitical tensions in the Middle East and eastern Europe) and between Ukraine and Russia, and inflation rates and the responses by central banking authorities to control such inflation, among others.
General business and economic conditions that could affect us and our customers include fluctuations in economic growth, debt and equity capital markets, liquidity of the global financial markets, the availability and cost of credit, investor and consumer confidence, and the strength of the economies in which we and our customers operate. A weak economic environment could result in significant decreases in demand for our products and services, including the delay or cancellation of current or anticipated projects. In particular, inflation rates in the United States have affected businesses across many industries, including ours, by increasing the costs of labor, equipment, parts, consumables and shipping. An inflationary environment may also cause customers to defer or decrease their expenditures on the services and products that we provide. In addition, supply chain disruptions and delays, could adversely affect our ability to provide our services and deliver our products in a timely manner, which could impair our ability to meet customer demand and result in lost sales, increased supply chain costs or damage to our reputation. Any of foregoing these economic conditions could have a material adverse effect on our business, financial condition, and results of operations.
There are operating hazards inherent in the oil and gas industry that could expose us to substantial liabilities.
Our operations are subject to hazards inherent in the oil and gas industry that may lead to property damage, personal injury, death or the discharge of hazardous materials into the environment. Many of these events are outside of our control. While our personnel has decreased significantly in recent years as a result of divestitures, from time to time, personnel are injured or equipment or property is damaged or destroyed as a result of accidents, failed equipment, faulty products or services, failure of safety measures, uncontained formation pressures or other dangers inherent in oil and natural gas exploration, development and production. Any of these events can be the result of human error or purely accidental, and it may be difficult or impossible to definitively determine the ultimate cause of the event or whose personnel or equipment contributed thereto. All of these risks expose us to a wide range of significant health, safety and environmental risks and potentially substantial litigation claims for damages. With increasing frequency, our products and services are deployed in more challenging exploration, development and production locations. From time to time, customers and third parties may seek to hold us accountable for damages and costs incurred as a result of an accident, including pollution, even under circumstances where we believe we did not cause or contribute to the accident. Our insurance policies are subject to exclusions, limitations and other conditions, and may not protect us against liability for some types of events, including events involving a well blowout, or against losses from business interruption. Our insurance also may not cover losses associated with pandemics. Moreover, we may not be able to maintain insurance at levels of risk coverage or policy limits that we deem adequate or on terms that we deem commercially reasonable, or at all. Additionally, insurance rates have in the past been subject to wide fluctuation and may be unavailable on terms that we or our customers believe are economically acceptable. Reductions in coverage, changes in the insurance markets and accidents affecting our industry may result in further increases in our cost and higher deductibles and retentions in future years and may also result in reduced activity levels in certain markets. As a result, we may not be able to continue to obtain insurance on commercially reasonable terms. Any damages or losses that are not covered by insurance, or are in excess of policy limits or subject to substantial deductibles or retentions, could adversely affect our financial condition, results of operations and cash flows.
We may not be fully indemnified against losses incurred due to catastrophic events.
As is customary in our industry, our contracts generally provide that we will indemnify and hold harmless our customers from any claims arising from personal injury or death of our employees, damage to or loss of our equipment, and pollution emanating from our equipment and services. Similarly, our customers generally agree to indemnify and hold us harmless from any claims arising from personal injury or death of their employees, damage to or loss of their equipment or property, and pollution caused from their equipment or the well reservoir (including uncontained oil flow from a reservoir). Our indemnification arrangements may not protect us in every case. For example, from time to time we may enter into contracts with less favorable indemnities or perform work without a contract that protects us. In addition, our indemnification rights may not fully protect us if we cannot prove that we are entitled to be indemnified or if the customer is bankrupt or insolvent, does not maintain adequate insurance or otherwise does not possess sufficient resources to indemnify us. In addition, our indemnification rights may be held unenforceable in some jurisdictions.
Our customers’ changing views on risk allocation could cause us to accept greater risk to win new business or could result in us losing business if we are not prepared to take such risks. To the extent that we accept such additional risk, and insure against it, our insurance premiums could rise.
The credit risks of our customer base could result in losses.
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Many of our customers are oil and gas companies that from time to time face liquidity constraints as the commodity price environment changes. These customers impact our overall exposure to credit risk as they are also affected by prolonged changes in economic and industry conditions. If a significant number of our customers experience a prolonged business decline or disruptions, we may incur increased exposure to credit risk and bad debts.
We are subject to environmental and worker health and safety laws and regulations, which could reduce our business opportunities and revenue, and increase our costs and liabilities.
Our business is significantly affected by a wide range of environmental and worker health and safety laws and regulations in the areas in which we operate, including increasingly rigorous environmental laws and regulations governing air emissions, water discharges and waste management. Generally, these laws and regulations have become more stringent and have sought to impose greater liability on a larger number of potentially responsible parties. The Macondo well explosion in 2010 resulted in additional regulation of our offshore operations, and similar onshore or offshore accidents in the future could result in additional increases in regulation. Failure to comply with these laws and regulations may result in a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, imposition of remedial requirements, permit revocations, requirements for additional pollution controls, and injunctions limiting or prohibiting some or all of our operations.
Environmental laws and regulations may provide for “strict liability” for remediation costs, damages to natural resources or threats to public health and safety as a result of our conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, prior owners or operators or other third parties. Strict liability can render a party liable for damages without regard to negligence or fault on the part of the party. Some environmental laws provide for joint and several strict liability for remediation of spills and releases of hazardous substances. For example, our well service and fluids businesses routinely involve the handling of significant amounts of waste materials, some of which are classified as hazardous substances. We also store, transport and use radioactive and explosive materials in certain of our operations. In addition, many of our current and former facilities are, or have been, used for industrial purposes. Accordingly, we could become subject to material liabilities relating to the containment and disposal of hazardous substances, oilfield waste and other waste materials, the use of radioactive materials, the use of underground injection wells, and to claims alleging personal injury or property damage as the result of exposures to, or releases of, hazardous substances. In addition, stricter enforcement of existing laws and regulations, new domestic or foreign laws and regulations, the discovery of previously unknown contamination or the imposition of new or increased requirements could require us to incur costs or become the basis of new or increased liabilities that could reduce our earnings and our cash available for operations.
In addition, we and our customers may need to apply for or amend facility permits or licenses from time to time with respect to storm water or wastewater discharges, waste handling, or air emissions relating to manufacturing activities or equipment operations, which subjects us and our customers to new or revised permitting conditions that may be onerous or costly to comply with.
Climate change legislation or regulations restricting emissions of greenhouse gases or incentivizing zero-carbon energy sources could result in increased operating costs and reduced demand for the oil and natural gas our customers produce.
Increasing concerns that emissions of carbon dioxide, methane and other greenhouse gases (“GHGs”) may endanger public health and produce climate changes with significant physical effects, such as increased frequency and severity of storms, floods, droughts and other climatic events, have drawn significant attention from government agencies, environmental advocacy groups and technological initiatives aimed at reducing the use of hydrocarbons. In response, additional costly requirements and restrictions have been imposed on the oil and gas industry to regulate and reduce the emission of GHGs and transition to a global low carbon economy.
For example, the Infrastructure Investment and Jobs Act of 2021 and the Inflation Reduction Act of 2022 (“IRA”) include billions of dollars in incentives for the development of renewable energy, clean hydrogen, clean fuels, electric vehicles, investments in advanced biofuels and supporting infrastructure and carbon capture and sequestration. Also, the EPA has proposed rules to reduce harmful air pollutant emissions, including greenhouse gases, from light-, medium-, and heavy-duty vehicles beginning in model year 2027. These incentives and regulations could accelerate the transition of the economy away from the use of fossil fuels towards lower- or zero-carbon emissions alternatives, which could decrease demand for oil and gas and consequently adversely affect the business of our customers, thereby reducing demand for our services. In addition, the IRA imposes the first ever federal fee on the emission of GHGs through a methane emissions charge. Specifically, the IRA amends the Clean Air Act to impose a fee on the emission of methane that exceeds an applicable waste emissions threshold from sources required to report their GHG emissions to the EPA, including sources in the offshore and onshore petroleum and natural gas production and gathering and boosting source categories. The methane emissions charge would start in calendar year 2024 at $900 per ton of methane, increase to $1,200 in 2025 and be set at $1,500 for 2026 and each year after. Calculation of the fee is based on certain thresholds established in the IRA. On January 12, 2024, the EPA announced a proposed rule
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to implement the methane emissions charge. The methane emissions charge could increase the operating costs of our customers, which could, in turn, impact our business, financial condition and cash flows.
The EPA has also finalized a series of GHG monitoring, reporting and emissions control rules for the oil and natural gas industry, and almost half of the states have already taken measures to reduce emissions of GHGs primarily through the development of GHG emission inventories and/or regional GHG cap-and-trade programs. Also, states have imposed increasingly stringent requirements related to the venting or flaring of gas during oil and gas operations. While we are subject to certain federal GHG monitoring and reporting requirements, our operations currently are not adversely impacted by existing federal, state and local climate change initiatives.
At the international level, in December 2015, the United States participated in the 21st Conference of the Parties of the United Nations Framework Convention on Climate Change in Paris, France. The resulting Paris Agreement calls for the parties to undertake “ambitious efforts” to limit the average global temperature, and to conserve and enhance sinks and reservoirs of GHGs. The Agreement went into effect on November 4, 2016. On April 21, 2021, the United States announced that it was setting an economy-wide target of reducing its greenhouse gas emissions by 50 to 52 percent below 2005 levels in 2030. In November 2021, in connection with the 26th Conference of the Parties in Glasgow, Scotland, the United States and other world leaders made further commitments to reduce greenhouse gas emission, including reducing global methane emissions by at least 30% by 2030 from 2020 levels. More than 150 countries have now signed on to this pledge. Most recently, at the 28th Conference of the Parties in the United Arab Emirates, world leaders agreed to transition away from fossil fuels in a just, orderly and equitable manner and to triple renewables and double energy efficiency globally by 2030. Furthermore, many state and local leaders have stated their intent to intensify efforts to support the international commitments.
Restrictions on emissions of methane or carbon dioxide that may be imposed could adversely affect the oil and natural gas industry by reducing demand for hydrocarbons and by making it more expensive to develop and produce hydrocarbons, either of which could have a material adverse effect on future demand for our services.
In addition, our customers are also requiring additional equipment upgrades to address the growing concerns of GHG emission and climate change which result in higher operational costs for service providers such as us.
There have also been efforts in recent years to influence the investment community, including investment advisors and certain sovereign wealth, pension and endowment funds promoting divestment of fossil fuel equities and pressuring lenders to limit funding to companies engaged in the extraction of fossil fuel reserves. Such environmental activism and initiatives aimed at limiting climate change and reducing air pollution could interfere with our business activities, operations and ability to access capital. Furthermore, claims have been made against certain energy companies alleging that GHG emissions from oil and natural gas operations constitute a public nuisance under federal and/or state common law. As a result, private individuals or public entities may seek to enforce environmental laws and regulations against certain energy companies and could allege personal injury, property damages or other liabilities. While our business is not a party to any such litigation, we could be named in actions making similar allegations. An unfavorable ruling in any such case could significantly impact our operations and could have an adverse impact on our financial condition.
At this stage, we cannot predict the impact of these or other initiatives on our or our customers’ operations, nor can we predict whether, or which of, other currently pending GHG emission proposals will be adopted, or what other actions may be taken by domestic or international regulatory bodies. The potential passage of climate change laws or regulations may curtail production and demand for fossil fuels such as oil and gas in areas of the world where our customers operate and thus adversely affect future demand for our products and services, which may in turn adversely affect future results of operations.
Continuing or worsening inflationary pressures and associated changes in monetary policy have resulted in and may result in additional increases to our operating costs, which in turn have caused and may continue to cause our capital expenditures and operating costs to rise.
Increases in the U.S. inflation rate in recent years has resulted in and may result in additional increases to our operating costs, which in turn have caused and may continue to cause our capital expenditures and operating costs to rise. Sustained levels of high inflation have likewise caused the Federal Reserve and other central banks to increase interest rates, which could have the effects of raising the cost of capital and depressing economic growth, either of which - or the combination thereof - could hurt the financial and operating results of our business.
Adverse and unusual weather conditions may affect our operations.
Our operations may be materially affected by severe weather conditions in areas where we operate. Severe weather, such as hurricanes, high winds and seas, blizzards and extreme temperatures may cause evacuation of personnel, curtailment of services and suspension of
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operations, inability to deliver materials to jobsites in accordance with contract schedules, loss of or damage to equipment and facilities and reduced productivity. In addition, variations from normal weather patterns can have a significant impact on demand for oil and natural gas, thereby reducing demand for our services and equipment.
Our inability to retain key employees and skilled workers could adversely affect our operations.
Our performance could be adversely affected, especially in light of our emergence from bankruptcy, if we are unable to retain certain key employees and skilled technical personnel. Our ability to continue to expand the scope of our services and products depends in part on our ability to increase the size of our skilled labor force. The loss of the services of key employees or the inability to employ or retain skilled technical personnel could adversely affect our operating results. In the past, the demand for skilled personnel has been high and the supply limited. We have experienced increases in labor costs in recent years and may continue to do so in the future. Furthermore, these internal and external factors may also be impacted by our February 2021 emergence from bankruptcy, the uncertainties currently facing us and the business environment and changes we may make to the organizational structure to adjust to changing circumstances.
If we do not successfully manage the transition associated with changes in our executive officers or directors, it could have an adverse impact on our business.
As disclosed in Item 9B “Other Information” Michael McGovern, our Executive Chair, has informed the Company of his intent to resign from his position as Executive Chair and to not stand for reelection as a member of our Board at the Company’s 2024 Annual Meeting of Stockholders (the “Meeting”). In addition, Krishna Shivram, one of our directors, also informed the Company of his decision not to stand for reelection at the Meeting. These announcements were not the result of any dispute or disagreement with the Company or our Board on any matter relating to our operations, policies or practices.
Leadership transitions can be difficult to manage. An inadequate transition of an executive officer or director may result in the loss of institutional knowledge and changes to business strategy or objectives. In addition, these changes have the potential to negatively impact our operations and relationships with employees, customers and investors due to increased or unanticipated expenses, operational inefficiencies, uncertainty regarding changes in strategy, decreased employee morale and productivity and increased turnover. In addition, if we are unable to attract and retain a qualified candidates to replace departing officers or directors in a timely manner, our ability to meet our financial and operational goals and strategic plans may be adversely impacted, as well as our financial performance. This may also make it more difficult for us to retain and hire key management and other team members.
We face significant competition in attracting and retaining talented employees. Further, managing succession for, and retention of, key executives is critical to our success, and our failure to do so could adversely affect our future performance.
Our ability to attract and retain qualified and experienced employees is essential to meet our current and future goals and objectives. There is no guarantee we will be able to attract and retain such employees or that competition among potential employers will not result in increased salaries or other benefits. If we are unable to retain existing employees or attract additional employees, we could experience a material adverse effect on our business and results of operations. We may not be able to locate or employ on acceptable terms qualified replacements for key executives if their services are no longer available. Furthermore, our business could be affected adversely if suitable replacement personnel are not recruited quickly or effectively. Our failure to adequately plan for succession of senior management and other key management roles or the failure of key employees to successfully transition into new roles could have a material adverse effect on our businesses and results of operations.
Our international operations and revenue are affected by political, economic and other uncertainties worldwide.
Our international operations are subject to varying degrees of regulation in each of the foreign jurisdictions in which we provide services. Local laws and regulations, and their interpretation and enforcement, differ significantly among those jurisdictions, and can change significantly over time. Future regulatory, judicial and legislative changes or interpretations may have a material adverse effect on our ability to deliver services within various foreign jurisdictions.
In addition to these international regulatory risks, our international operations are subject to a number of other risks inherent in any business operating in foreign countries, including, but not limited to, the following:
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These and the other risks outlined above could cause us to curtail or terminate operations, result in the loss of personnel or assets, disrupt financial and commercial markets and generate greater political and economic instability in some of the geographic areas in which we operate. International areas where we operate that have significant risk include the Middle East, Indonesia, Nigeria and Angola.
We are subject to foreign currency exchange risks and limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries or to repatriate assets from some countries.
A sizable portion of our consolidated revenue and consolidated operating expenses is in foreign currencies. As a result, we are subject to significant risks, including foreign currency exchange risks resulting from changes in foreign currency exchange rates and the implementation of exchange controls; and limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries.
As an example, we conduct business in countries that have restricted or limited trading markets for their local currencies and restrict or limit cash repatriation. We may accumulate cash in those geographies, but we may be limited in our ability to convert our profits into United States dollars or to repatriate the profits from those countries. During 2023, we experienced these conditions in Argentina and though we have been able to develop processes to repatriate cash when we believe it is appropriate to do so, we have incurred losses from devaluation of the local currency and from repatriating cash. We expect restrictions on currency repatriation to continue in Argentina during 2024.
Laws, regulations or practices in foreign countries could materially restrict our operations or expose us to additional risks.
In many countries around the world where we do business, all or a significant portion of the decision making regarding procuring our services and products is controlled by state-owned oil companies. State-owned oil companies or prevailing laws may (i) require us to meet local content or hiring requirements or other local standards, (ii) restrict with whom we can contract or (iii) otherwise limit the scope of operations that we can legally or practically conduct. Our inability or failure to meet these requirements, standards or restrictions may adversely impact our operations in those countries. In addition, our ability to work with state-owned oil companies is subject to our ability to negotiate and agree upon acceptable contract terms, and to enforce those terms. In addition, many state-owned oil companies may require integrated contracts or turnkey contracts that could require us to provide services outside our core businesses. Providing services on an integrated or turnkey basis generally requires us to assume additional risks.
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Moreover, in order to effectively compete in certain foreign jurisdictions, it is frequently necessary or required to establish joint ventures or strategic alliances with local contractors, partners or agents. In certain instances, these local contractors, partners or agents may have interests that are not always aligned with ours. Reliance on local contractors, partners or agents could expose us to the risk of being unable to control the scope or quality of our overseas services or products, or being held liable under the FCPA, or other anti-corruption laws for actions taken by our strategic or local contractors, partners or agents even though these contractors, partners or agents may not themselves be subject to the FCPA or other applicable anti-corruption laws. Any determination that we have violated the FCPA or other anti-corruption laws could have a material adverse effect on our business, results of operations, reputation or prospects.
If we are not able to design, develop, and produce commercially competitive products and to implement commercially competitive services in a timely manner in response to changes in the market, customer requirements, competitive pressures, and technology trends, our business and results of operations could be materially and adversely affected.
The market for oilfield services in which we operate is highly competitive and includes numerous small companies capable of competing effectively in our markets on a local basis, as well as several large companies that possess substantially greater financial resources than we do. Contracts are traditionally awarded on the basis of competitive bids or direct negotiations with customers.
The market for our services and products is characterized by continual technological developments to provide better and more reliable performance and services. If we are not able to design, develop, and produce commercially competitive products and to implement commercially competitive services in a timely manner in response to changes in the market, customer requirements, competitive pressures, and technology trends, our business and consolidated results of operations could be materially and adversely affected. Likewise, if our proprietary technologies, equipment, facilities, or work processes become obsolete, we may no longer be competitive, and our business and results of operations could be materially and adversely affected. In addition, we may be disadvantaged competitively and financially by a significant movement of exploration and production operations to areas of the world in which we are not currently active.
We depend on particular suppliers and are vulnerable to product shortages and price increases.
Some of the materials that we use are obtained from a limited group of suppliers. Our reliance on these suppliers involves several risks, including price increases, supply chain disruptions, inferior quality and a potential inability to obtain an adequate supply in a timely manner. We do not have long-term contracts with most of these sources, and the partial or complete loss of certain of these sources could have a negative impact on our results of operations and could damage our customer relationships. Further, a significant increase in the price of one or more of these materials could have a negative impact on our results of operations.
Estimates of our potential liabilities relating to our oil and natural gas property may be incorrect.
Actual abandonment expenses may vary substantially from those estimated by us and any significant variance in these assumptions could materially affect the estimated liability recorded in our consolidated financial statements. Therefore, the risk exists we may underestimate the cost of plugging wells and abandoning production facilities. If costs of abandonment are materially greater than our estimates, this could have an adverse effect on our financial condition, results of operations and cash flows.
Potential changes of Bureau of Ocean Energy Management security and bonding requirements for offshore platforms could impact our operating cash flows and results of operations.
Federal oil and natural gas leases contain standard terms and require compliance with detailed Bureau of Safety and Environmental Enforcement (“BSEE”) and BOEM regulations and orders issued pursuant to various federal laws, including the Outer Continental Shelf Lands Act. In 2016, BOEM undertook a review of its historical policies and procedures for determining a lessee’s ability to decommission platforms on the Outer Continental Shelf (“OCS”) and whether lessees should furnish additional security. Following a 2016 Notice to Lessees that was subsequently withdrawn, BOEM published a proposed rule to modify the financial assurance requirements for offshore leaseholders on June 29, 2023. BOEM is also planning to update its Oil Spill Financial Responsibility regulations in 2024. If adopted, these new requirements could impact us and our customers by increasing operating costs and impacting our ability to obtain leases, thereby reducing demand for our products.
We cannot predict when these laws and regulations may be adopted or change in the future. If BOEM withdraws the October 2020 rule proposal and proceeds to implement a rule or other regulatory action requiring additional security similar to the Notice to Lessees issued in July 2016 and we are unable to obtain the additional required bonds or post other acceptable security to secure of decommissioning obligations, BOEM may suspend or cancel operations at the oil and gas property or otherwise impose monetary penalties. Any of these actions could have a material adverse effect on our financial condition, operating cash flows and liquidity. A BSEE final rule, published
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on August 23, 2023, that strengthens testing and performance requirements for blowout preventers and other well control equipment could have a similar impact.
Moreover, under existing BOEM and BSEE rules relating to assignment of offshore leases and other legal interests on the OCS, assignors of such interests may be held jointly and severally liable for decommissioning of OCS facilities existing at the time the assignment was approved by BOEM, in the event that the assignee or any subsequent assignee is unable or unwilling to conduct required decommissioning.
Risks Related to Our Class A Common Stock
There may be circumstances in which the interests of our significant stockholders could conflict with the interests of our other stockholders.
On the Emergence Date, in order to implement certain transactions contemplated by the Plan, the Stockholders Agreement was executed (or deemed executed) with each stockholder pursuant to the Plan (constituting all of the stockholders on the Emergence Date) and all other stockholders from time to time, to provide for certain governance matters. As of March 7, 2024, two groups of these stockholders currently hold approximately 63% of our Class A Common Stock. Furthermore, pursuant to the Stockholders Agreement, these two groups of stockholders have appointed three of our seven directors.
Circumstances may arise in which these groups of stockholders may have an interest in pursuing or preventing acquisitions, divestitures or other transactions, including the issuance of additional shares or debt, that, in their judgment, could enhance their investment in us, and their interests may not in all cases be aligned with our interests.
There is no public market for shares of our Class A Common Stock, and we do not expect there to be a market for shares of our Class A Common Stock.
There is no existing trading market for shares of our Class A Common Stock, and no market for our shares may develop in the future. If developed, any such market may not be sustained. In the absence of a trading market, our stockholders may be unable to liquidate an investment in our Class A Common Stock. Upon our emergence from bankruptcy, the Predecessor’s common stock was cancelled and we issued new Class A Common Stock. The Class A Common Stock is not currently traded on a national securities exchange. No assurance can be given that an active market will develop for our Class A Common Stock or as to the liquidity of the trading market for our Class A Common Stock. Our Class A Common Stock may be traded only infrequently, if at all, and reliable market quotations may not be available. Holders of our Class A Common Stock may experience difficulty in reselling, or an inability to sell, their shares. In addition, if an active trading market does not develop or is not maintained, significant sales of our Class A Common Stock, or the expectation of these sales, could materially and adversely affect the price of our Class A Common Stock. For so long as our Class A Common Stock is not listed on a national securities exchange, our ability to access equity markets, obtain financing and provide equity incentives could be negatively impaired. Furthermore, certain transfers of our Class A Common Stock require an exemption from the registration requirements of the Securities Act and applicable state securities laws.
Provisions in the Stockholders Agreement could delay or prevent a change in control.
Certain provisions of our Stockholders Agreement may delay, discourage, prevent or render more difficult an attempt to obtain control of us, whether through a tender offer, business combination, proxy contest or otherwise. These provisions include, among other things, those that:
Our ability to pay dividends on our common stock is restricted.
We declared a special dividend of $12.45 per share on our Class A Common Stock that was paid on December 28, 2022 to holders of record as of the close of business on December 16, 2022, and we declared a special dividend of $12.38 per share on our Class A Common Stock that will be paid on March 12, 2024 to holders of record as of the close of business on February 27, 2024. Our Board of Directors continuously evaluates opportunities to pay dividends in accordance with our evolving strategic outlook. As a result, our decision to declare any further cash dividends on our Class A Common Stock in the foreseeable future is unknown. Any decision to declare and pay dividends in the future will be made at the discretion of our Board of Directors and will depend on, among other things, our business
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prospects, results of operations, financial condition, cash requirements and availability, industry trends and other factors that our Board of Directors may deem relevant. Any such decision will also be subject to compliance with contractual restrictions and covenants in the agreements governing our current and future indebtedness.
We do not have a class of our securities registered under Section 12 of the Exchange Act. Until we do, we will not be required to provide certain reports to our stockholders.
We do not have a class of our securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Until we do, we will not be required to provide certain reports to our stockholders. We are currently required to file periodic reports with the SEC by virtue of Section 15(d) of the Exchange Act. However, until we register a class of our securities under Section 12 of the Exchange Act, we are not subject to the SEC’s proxy rules, and large holders of our capital stock will not be subject to beneficial ownership reporting requirements under Sections 13 or 16 of the Exchange Act and their related rules. As a result, our stockholders and potential investors may not have available to them as much or as robust information as they may have if and when we become subject to those requirements.
General Risk Factors
From time to time, we are subject to various claims, litigation and other proceedings that could ultimately be resolved against us, requiring material future cash payments or charges, which could impair our financial condition or results of operations.
The size, nature and complexity of our business make us susceptible to various claims, both in litigation and binding arbitration proceedings. We may in the future become subject to various claims, which, if not resolved within amounts we have accrued, could have a material adverse effect on our financial position, results of operations or cash flows. In addition, during periods of depressed market conditions we may be subject to an increased risk of our customers, vendors, former employees and others initiating legal proceedings against us.
Any litigation or claims, even if fully indemnified or insured, could negatively impact our reputation among our customers and the public, and make it more difficult for us to compete effectively or obtain adequate insurance in the future.
Changes in tax laws or tax rates, adverse positions taken by taxing authorities and tax audits could impact our operating results.
We are subject to taxation in a significant number of domestic and foreign jurisdictions. Changes in tax laws or tax rates, the resolution of tax assessments or audits by various tax authorities could impact our operating results. In addition, we may periodically restructure our legal entity organization. If taxing authorities were to disagree with our tax positions in connection with any such restructurings, our effective income tax rate could be impacted. The final determination of our income tax liabilities involves the interpretation of local tax laws, tax treaties and related authorities in each taxing jurisdiction, as well as the significant use of estimates and assumptions regarding future operations and results and the timing of income and expenses. We may be audited and receive tax assessments from taxing authorities that may result in assessment of additional taxes that are ultimately resolved with the authorities or through the courts. We believe these assessments may occasionally be based on erroneous and even arbitrary interpretations of local tax law. Resolution of any tax matter involves uncertainties and there are no assurances that the outcomes will be favorable. If U.S. or other foreign tax authorities change applicable tax laws, our overall taxes could increase, and our business, financial condition or results of operating may be adversely impacted.
The IRA 2022 imposes a 15% corporate alternative minimum tax (“CAMT”) on the “adjusted financial statement income” of certain large corporations (generally, corporations reporting at least $1 billion average adjusted pre-tax net income on their consolidated financial statements) as well as an excise tax of 1% on the fair market value of certain public company stock repurchases for tax years
beginning after December 31, 2022.
Currently, we do not believe the CAMT, or any of the other tax provisions, will have a material impact on us for 2023, however, we will continue to monitor the future impact to us related to this new law. The U.S. Treasury Department, the Internal Revenue Service and other standard-setting bodies are expected to issue guidance on how the CAMT, stock buyback excise tax and other provisions of the IRA 2022 will be applied or otherwise administered that may differ from our interpretations.
An ownership change could limit our use of net operating losses arising prior to an ownership change.
If we were to experience an “ownership change,” as determined under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), our ability to offset taxable income arising after the ownership change with net operating losses (“NOLs”) arising prior to
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the ownership change would be limited, possibly substantially. An ownership change would establish an annual limitation on the amount of our pre‑change NOLs we could utilize to offset our taxable income in any future taxable year to an amount generally equal to the value of our stock immediately prior to the ownership change multiplied by the long term tax‑exempt rate. In general, an ownership change will occur if there is a cumulative increase in our ownership of more than 50 percentage points by one or more “5% shareholders” (as defined in the Code) at any time during a rolling three‑year period.
We experienced an “ownership change” on February 2, 2021 due to the Plan that subject certain of our tax attributes, including our NOLs and other carryforwards, to an annual limitation under Section 382 of the Code. However, we do not expect the Section 382 limitation to impact our ability to use U.S. tax attributes under Section 382 relief provisions. Calculations pursuant to Section 382 of the Code can be very complicated and no assurance can be given that upon further analysis, our ability to take advantage of our NOLs may be limited to a greater extent than we currently anticipate. As of December 31, 2023, we had NOLs of $90.0 million. Future changes in our stock ownership could result in an additional ownership change.
Our ability to remediate the identified material weakness in our internal control over financial reporting.
In connection with the preparation of our consolidated financial statements as of and for the year ended December 31, 2022, we identified a material weakness in our internal control over financial reporting as we did not design and maintain effective controls to review the reasonableness of assumptions determined by, and accuracy of calculations performed by, our external tax service providers. Although this material weakness was remediated as of December 31, 2023, if we identify another material weakness that we are not able to remediate and otherwise to maintain effective internal control over financial reporting, our financial statements may be materially misstated and investors may lose confidence in the accuracy and completeness of our financial reports. Furthermore, we cannot assure you that additional material weaknesses will not be identified in the future. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
We are affected by global economic factors and political events.
Our financial results depend on demand for our services and products in the U.S. and the international markets in which we operate. Declining economic conditions, negative perceptions about economic conditions, energy costs and supply chain disruptions, could result in a substantial decrease in demand for our services and products. World political events could also result in further U.S. military actions, terrorist attacks and related unrest. Military action by the U.S. or other nations could escalate and further acts of terrorism may occur in the U.S. or elsewhere. Such acts of terrorism could lead to, among other things, a loss of our investment in the country, impairment of the safety of our employees, extortion or kidnapping, and impairment of our ability to conduct our operations. Such developments have caused instability in the world’s financial and insurance markets in the past, and many experts believe that a confluence of worldwide factors could result in a prolonged period of economic uncertainty and slow growth in the future. In addition, any of these developments could lead to increased volatility in prices for oil and gas and could negatively affect the markets for our products and services. Insurance premiums could also increase and coverages may be unavailable.
Uncertain economic conditions and instability make it particularly difficult for us to forecast demand trends. The timing and extent of any changes to currently prevailing market conditions is uncertain and may affect demand for many of our services and products. Consequently, we may not be able to accurately predict future economic conditions or the effect of such conditions on demand for our services and products and our results of operations or financial condition.
Our operations may be subject to cyber-attacks that could have an adverse effect on our business operations.
Like most companies, we rely heavily on information technology networks and systems, including the Internet, to process, transmit and store electronic information, to manage or support a variety of our business operations, and to maintain various records, which may include information regarding our customers, employees or other third parties, and the integrity of these systems are essential for us to conduct our business and operations. We make significant efforts to maintain the security and integrity of these types of information and systems (and maintain contingency plans in the event of security breaches or system disruptions). However, we cannot provide assurance that our security efforts and measures will prevent security threats from materializing, unauthorized access to our systems, loss or destruction of data, account takeovers, or other forms of cyber-attacks or similar events, whether caused by mechanical failures, human error, fraud, malice, sabotage or otherwise. We have office employees who work remotely. Remote work relies heavily on the use of remote networking and online conferencing services that enable employees to work outside of our corporate infrastructure and, in some cases, use their own personal devices, which exposes us to additional cybersecurity risks, including unauthorized access to sensitive information as a result of increased remote access and other cybersecurity related incidents. Cyber-attacks include, but are not limited to, malicious software, attempts to gain unauthorized access to data, unauthorized release of confidential or otherwise protected
21
information and corruption of data. It is possible that our business, financial and other systems could be compromised, which could go unnoticed for a prolonged period of time. While various procedures and controls are being utilized to mitigate exposure to such risk, there can be no assurance that the procedures and controls that we implement, or which we cause third party service providers to implement, will be sufficient to protect our systems, information or other property. Additionally, customers as well as other third parties whom we rely on face similar cybersecurity threats, which could directly or indirectly impact our business and operations. The frequency, scope and sophistication of cyber-attacks continue to grow, which increases the possibility that our security measures will be unable to prevent our systems’ improper functioning or the improper disclosure of proprietary information. Any failure of our information or communication systems, whether caused by attacks, mechanical failures, natural disasters or otherwise, could interrupt our operations, damage our reputation, or subject us to claims, any of which could materially adversely affect us.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
The Audit Committee of the Board has primary responsibility for overseeing our cyber security risk management process. Our cybersecurity risk management processes are integrated within our established Enterprise Risk Management System. On a regular basis, the Audit Committee and the Board receive updates on cybersecurity matters from the Chief Information Officer ("CIO"). These updates include, but are not limited to, cybersecurity program updates, results of third-party assessments, results of tabletop 'drill' exercises, end user awareness training, and recoverability and resilience. The Audit Committee also receives quarterly reports from our internal audit department.
Our cybersecurity practices are led by the CIO, who has overall responsibility for assessing and managing cybersecurity risks, and uses a risk-based methodology to support the security, confidentiality, integrity and availability of information and IT systems. Our CIO has over 30 years of experience in IT delivery, operations, and management, as well as over 15 years’ experience leading cyber security requirements for global and publicly traded companies.
The Company regularly engages third parties to perform assessments on our cybersecurity measures, including penetration testing, vulnerability scanning and proactive threat hunting, and operating effectiveness of controls. The results of such assessments, audits, and reviews are reported to the Board, and the Company adjusts its cybersecurity policies, standards, processes, and practices as necessary based on the information provided by these assessments, audits and reviews. The Company maintains a comprehensive, risk-based approach to identifying and overseeing cybersecurity risks presented by third parties, including vendors, service providers, and other external users of the Company’s systems. In addition, our internal audit department routinely performs internal audits on various aspects of cybersecurity and reports the results in its quarterly report to the Audit Committee.
The underlying controls of our cybersecurity capabilities are designed to prevent, detect, mitigate and remediate cybersecurity risks and are based on recognized best practices and standards for cybersecurity and information technology, including the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework (“CSF”) and the International Organizational Standardization (“ISO”) 27001 Information Security Management System Requirements.
Significant incidents are escalated and communicated by senior IT management to the CIO to determine severity, cause and remediation. We also maintain a disaster recovery plan in which critical business systems, networks and data may be successfully recreated to minimize the financial impact of a cyber incident on our business. To strengthen resiliency against malware attacks, such as ransomware, we create immutable copies of all critical system data that is isolated from the rest of the network in case data recovery is required.
Our third-party cyber partners are a key component of our cybersecurity capabilities, and we partner with leading cybersecurity companies, leveraging third party technology and expertise. Through these partnerships, we provide continuous monitoring of our global cybersecurity environment and coordinate the investigation and remediation of alerts. Additionally, annual incident response drills are in place to prepare support teams in the event of a significant incident.
We have continued to expand investments in IT security. For example we are in the process of implementing a Cyber & Data Protection Council that will use a risk-based methodology to support the security, confidentiality, integrity, and availability of our information and IT systems. The Cyber & Data Protection Council will be chaired by the CFO and members include IT, legal, and HR leadership. Significant incidents will be escalated and communicated by senior IT management to the CIO and the Cyber & Data Protection Council to determine severity, cause and remediation.
22
We did not experience a material cybersecurity incident in 2023, and although we are subject to ongoing and evolving cybersecurity threats, we are not aware of any risks from cybersecurity threats that have materially affected or are reasonably likely to materially affect our business strategy, results of operation or financial condition. However, despite our efforts, we cannot eliminate all risks from cybersecurity threats, or provide assurances that we have not experienced undetected cybersecurity incidents. See “Risk Factors – Our operations may be subject to cyber-attacks that could have an adverse effect on our business operations.”
Item 2. Properties
Information on properties is contained in Part I, Item 1 of this Form 10-K.
Item 3. Legal Proceedings
From time to time we are involved in various legal actions incidental to our business. However, based on current circumstances, we do not believe that the ultimate resolution of these proceedings, after considering available defenses and any insurance coverage or indemnification rights, will have a material adverse effect on our financial position, results of operations or cash flows. For a description of our material pending legal proceedings, please see Note 17 - “Contingencies”, of this Form 10-K. For the disclosure of environmental proceedings with a governmental entity as a party pursuant to Item 103(c)(3)(iii) of Regulation S-K, we have elected to disclose matters where we reasonably believe such proceeding would result in monetary sanctions, exclusive of interest and costs, of $1.0 million or more.
Item 4. Mine Safety Disclosures
Not Applicable.
23
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common equity consists of Class A Common Stock that is privately held and there is no established public trading market. As of December 31, 2023, there were 547 stockholders of record. All holders of Class A Common Stock have one vote per share in matters subject to a stockholder vote.
On December 18, 2023, following the approval of our Board of Directors and stockholders, each outstanding share of Class B common stock, par value $0.01 per share (“Class B Common Stock”), was reclassified into one share of Class A Common Stock. Prior to the reclassification, holders of Class B Common Stock were not entitled to vote on the election or removal of our directors.
In connection with the reclassification, on December 15, 2023, the Board and the Compensation Committee of the Board (the “Compensation Committee”) approved an amendment to our Management Incentive Plan (“MIP”) to provide for the issuance of shares of Class A Common Stock in connection with the grant of share-based and cash-based awards rather than shares of Class B Common Stock. Prior to the reclassification, grants under the MIP were previously in the form of shares of Class B Common Stock or awards pursuant to which shares of Class B Common Stock would be issued or were issuable.
Dividend Policy
On November 16, 2022, we announced that our Board declared a special dividend of $12.45 per share on our outstanding Class A Common Stock. Additionally, the Board determined that, in addition to the special dividend to holders of our Class A Common Stock, we would make dividend equivalent payments to each holder of unvested restricted stock units. The special dividend was paid on December 28, 2022 to holders of record as of December 16, 2022.
On February 13, 2024, we announced that our Board declared a special dividend of $12.38 per share on our outstanding Class A Common Stock. Additionally, the Board determined that, in addition to the special dividend to holders of our Class A Common Stock, we would make dividend equivalent payments to each holder of unvested restricted stock units. The special dividend will be paid on March 12, 2024 to holders of record as of February 27, 2024.
Any decision to declare and pay dividends in the future will be made at the discretion of our Board and will depend on, among other things, our business prospects, results of operations, financial condition, cash requirements and availability, industry trends and other factors that our Board may deem relevant. Any such decision will also be subject to compliance with contractual restrictions and covenants in the agreements governing our current and future indebtedness.
24
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto included in “Item 8. Financial Statements and Supplementary Data”. Our discussion includes various forward-looking statements about our markets, the demand for our products and services and our future results, which are subject to certain risks and uncertainties. For information about these risks and uncertainties, refer to the section entitled “Forward-Looking Statements” and the section entitled “Item 1A. Risk Factors”.
Executive Summary
General
We are a global oilfield products and services company with a portfolio of premier rental and well services brands providing customers with robust inventory, responsive delivery, engineered solutions, and expert consultative service — all aligned with enterprise-wide Shared Core Values for safe, sustainable operations and corporate citizenship; and committed to free cash flow generation and value creation.
We drive true value to our business units by providing enterprise-wide support, financial discipline, capital strength, and strategic focus. Our experienced, knowledgeable leadership within those businesses has excellent latitude to execute their business strategy, determine pricing, allocate inventory, and develop new products and technology. All with a focus on safety, operational excellence, competitive positioning, and financial performance that entrenches our relationships with our customers and elevates our customers’ satisfaction.
Our product offerings are weighted toward businesses critical to our customer’s oil and gas operations, require deep technical expertise, notably in premium drill pipe and bottom hole assembly rentals, and have strong cash flow generating capacity as was delivered in our 2023 results.
Our ongoing strategy of focusing operations on businesses with solid market positions along with the strength of our brands, their leaders, and teams contributed in no small part to our positive performance, margin expansion, and strong competitive position in 2023 overcoming labor market and supply chain challenges and being an early mover on effective pricing strategies to address cost inflation and margin expansion.
As we strive to be good stewards of our resources, we paid an approximately $250 million dividend and a return of capital to shareholders in December 2022, and will pay an approximate $250 million dividend to our shareholders in March 2024.
Our portfolio of companies operate in two segments, Rentals and Well Services, to provide highly specialized solutions to the upstream oil and gas industry.
Rentals Segment
Our rental services include premium downhole tubulars and drill pipe, design, engineering and manufacturing of bottomhole assembly accessories, and offshore accommodation units. Collaborating closely with customers and strategic suppliers, we also provide engineered solutions to meet their challenges.
Workstrings International (“WSI”)
WSI is a global leader and one of the largest oilfield equipment rentals providers of high-quality, premium connection drill strings, tubing, completion tubulars, and handling accessories. With one of the industry’s most extensive inventories of highly specialized landing string designed for deep water applications and an industry-recognized drilling and completion engineering team, WSI maintains long-standing, strategic relationships with leading oil & gas, drilling and oilfield tubular supply companies globally.
WSIs’ long-tenured leadership assures a high level of knowledge and skill in providing quality service and engineering expertise to develop complementary innovation and new technologies for our long-term major customers. WSI engineers help operators determine what pipe specifications best meet well design requirements, especially in complex, challenging applications, whether during the drilling or completion phase of well construction activities.
25
WSI is strategically positioned to respond globally with a focus on U.S. onshore and offshore Gulf of Mexico (“GOM”), and international offshore opportunities with a variety of sizes and premium thread configurations complimented by in-house inspection and on-site machining capabilities expediting turnaround and deliveries.
WSIs’ depth of inventory resulting from consistent investments through the cycles, seasoned field experience, in-house engineering expertise and long-standing relationships with strategic suppliers enables customer relationships that make it a leading provider in the GOM and international markets with a focus on continued innovation that is difficult to replicate. Capital expenditures over the next year to maintain our existing fleet is expected to be similar to our 2023 capital expenditures assuming that the second half 2023 activity levels and current drilling and completion practices continue throughout 2024.
Stabil Drill
Stabil Drill provides comprehensive Bottom Hole Assembly (BHA) support, ranging from custom component engineering and fabrication to rental drilling tools and repairs. With an inventory of more than 50,000 downhole tools, extensive experience, state-of-the-art facilities, and cutting-edge solutions, Stabil Drill helps operators optimize performance on the most challenging drilling operations.
With significant U.S. land capabilities deployable to offshore and international markets, Stabil Drill serves customers worldwide and is poised for growth opportunities with existing customers and through geographic expansion of product offerings.
In-house manufacturing, repair services, and efficient fleet management practices effectively mitigated supply chain challenges and maintained leading market share positions in U.S. land and select Latin American regions.
HB Rentals
HB Rentals’ offerings span a wide breadth of offshore rentals, from single living quarters to complete multi-module complexes and support infrastructure.
Their comprehensive support for offshore services includes initial consulting and design, project management, engineering, custom fabrication, logistics planning, installation, and commissioning. HB Rentals has opportunities for fleet expansion within the U.S. wind market and defense projects along with plug and abandonment (“P&A”) opportunities in GOM.
Well Services Segment
Our well services include long standing, industry leading brands with a long history of strong, collaborative relationships with customers and suppliers.
Services include risk management, well control and training, hydraulic workover and snubbing, engineering, and manufacturing of premium completion tools including the Multi-zone, single trip (MST) sand control system. The Well Services segment also provides cementing, wireline, and coil tubing services with operations in Latin America and Kuwait.
Wild Well Control (“WWC”)
WWC provides advanced engineering solutions, unconventional intervention, personnel, equipment, and well control training. WWC provides IADC well control training for operators and students worldwide. Additional WWC services include assisting operators in risk management, planning, preparedness, prevention, and response services.
As a leading global provider of onshore and offshore well control emergency response, pressure control, relief well planning, engineering, and well control training services, with the largest team of dedicated professionals and inventory of well control equipment staged for deployment around the world, WWC responds to the majority of the well control emergency responses worldwide.
WWC continues to develop opportunities by leveraging its global Subsea Capping response consortium WellCONTAINED. WWC also continues to pursue additional engineering capabilities and capacity and has brought its well control expertise to consult and advise on future carbon capture projects through its industry relationships with major oil companies.
Superior Completion Services (“SCS”)
26
SCS is primarily focused on offshore sand control applications, including deep water Gulf of Mexico and Brazil, SCS’s multi-zone single-trip systems (MST) with zonal isolation offers flexibility in sand placement techniques. Demonstrated capabilities accommodate high pump rates and exceptional proppant volumes; the system also allows for varied zone spacing and enhanced reservoir production.
Design engineering and in-house manufacturing capacity compliment its focus on innovative technology, service quality and delivery flexibility which enable operators to have the certainty of supply with the flexibility to manage timing of drilling and completion phases of well construction, especially with long lead-time projects in deep water development.
International Snubbing Services (“ISS”)
Operating in two geographical markets, U.S. and Australia, ISS provides hydraulic workover and snubbing services with an emphasis on well plug & abandonment applications.
International Production Services (“IPS”)
With capabilities in three global regions, most notably Argentina and Kuwait, IPS provides well services such as cementing, wireline, pressure pumping, coil tubing and downhole tool services.
Strategic Outlook
The Company’s positive performance in 2023 validates the strategy developed in 2021 with a sequential focus on product lines, geographic footprint and support cost rationalization. Over the last three years, we have met and overcome challenges and delivered on safety, service quality and financial performance. We have consistently demonstrated discipline and stewardship as evidenced by our return of cash to shareholders, with an approximately $250 million dividend in December 2022 and an additional approximately $250 million dividend expected in March 2024, all while retaining a strong capital structure.
In 2024, the Company will continue to explore alternatives to enhance shareholder value, including potential merger or acquisition opportunities. As part of this process, we remain in, and continue to pursue, preliminary or exploratory dialogue with various potential counterparties. In parallel, the Company will continue to seek opportunities to optimize its capital structure, including actions to facilitate additional return of capital to shareholders.
Our Board has not set a timetable or made any decisions related to further actions or potential strategic alternatives, including a future dividend, at this time. The declaration of dividends is at the discretion of the Company’s board of directors and will depend on the Company’s financial results, cash requirements, future prospects, contractual restrictions and other factors deemed relevant by the Company’s board of directors. Additionally, any potential transaction would depend upon entry into definitive agreements with a potential counterparty on terms acceptable to us. There can be no assurance that we will enter any such transaction or consummate or pursue any transaction or other strategic alternative.
27
Industry Trends
The oil and gas industry is both cyclical and seasonal. The level of spending in the energy industry is heavily influenced by the current and expected future prices of oil and natural gas, but is also impacted by ESG initiatives and ongoing supply chain shortages. Changes in spending result in an increased or decreased demand for our services and products. Rig count is an indicator of the level of spending by oil and gas companies.
Our financial performance is significantly affected by the rig count in the U.S. land and offshore market areas as well as oil and natural gas prices and worldwide rig count, which are summarized in the table below.
|
|
For the Year Ended |
|
|
|
For the Year Ended |
|
|
|
||||||
|
|
December 31, |
|
|
2023 to 2022 |
December 31, |
|
|
2022 to 2021 |
||||||
|
|
2023 |
|
|
2022 |
|
|
% Change |
|
2021 |
|
|
% Change |
||
Worldwide Rig Count (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|||
U.S.: |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Land |
|
|
669 |
|
|
|
708 |
|
|
(5.5%) |
|
464 |
|
|
52.6% |
Offshore |
|
|
19 |
|
|
|
15 |
|
|
26.7% |
|
14 |
|
|
7.1% |
Total |
|
|
688 |
|
|
|
723 |
|
|
(4.8%) |
|
478 |
|
|
51.3% |
International (2) |
|
|
942 |
|
|
|
851 |
|
|
10.7% |
|
755 |
|
|
12.7% |
Worldwide Total |
|
|
1,630 |
|
|
|
1,574 |
|
|
3.6% |
|
1,233 |
|
|
27.7% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Commodity Prices (average) |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Crude Oil (West Texas Intermediate) |
|
$ |
76.96 |
|
|
$ |
94.90 |
|
|
(18.9%) |
$ |
68.14 |
|
|
39.3% |
Natural Gas (Henry Hub) |
|
$ |
2.64 |
|
|
$ |
6.42 |
|
|
(58.9%) |
$ |
3.91 |
|
|
64.2% |
28
Comparison of the Results of Operations for the Years Ended December 31, 2023 and 2022
We reported net income from continuing operations for the year ended December 31, 2023 (the “Current Year”) of $174.6 million on revenues of $919.4 million. This compares to a net income from continuing operations for the year ended December 31, 2022 (the “Prior Year”) of $291.0 million on revenues of $884.0 million. The decrease in net income from continuing operations in the Current Year is partially attributable to recognition of a worthless stock deduction and valuation allowance releases in the Prior Year with estimated net tax benefits of $104.0 million and $18.5 million, respectively. An immaterial misstatement was identified and recorded in the Current Year related to the worthless stock deduction, resulting in additional income tax expense of $7.6 million.
|
|
Successor |
|
|
|
|
||||||||
|
|
For the Year Ended |
|
|
|
|
|
|
||||||
|
|
December 31, |
|
|
Change |
|||||||||
|
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|||
Rentals |
|
$ |
452,249 |
|
|
$ |
402,942 |
|
|
$ |
49,307 |
|
|
12.2% |
Well Services |
|
|
467,171 |
|
|
|
481,018 |
|
|
|
(13,847 |
) |
|
(2.9%) |
Total revenues |
|
|
919,420 |
|
|
|
883,960 |
|
|
|
35,460 |
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|||
Rentals |
|
|
149,835 |
|
|
|
137,626 |
|
|
|
12,209 |
|
|
8.9% |
Well Services |
|
|
324,292 |
|
|
|
339,325 |
|
|
|
(15,033 |
) |
|
(4.4%) |
Total cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
|
474,127 |
|
|
|
476,951 |
|
|
|
(2,824 |
) |
|
|
Depreciation, depletion, amortization and accretion |
|
|
81,068 |
|
|
|
98,060 |
|
|
|
(16,992 |
) |
|
(17.3%) |
General and administrative expenses |
|
|
125,659 |
|
|
|
128,294 |
|
|
|
(2,635 |
) |
|
(2.1%) |
Restructuring and transaction expenses |
|
|
3,294 |
|
|
|
6,375 |
|
|
|
(3,081 |
) |
|
(48.3%) |
Other gains, net |
|
|
(6,549 |
) |
|
|
(29,134 |
) |
|
|
22,585 |
|
|
(77.5%) |
Income from operations |
|
|
241,821 |
|
|
|
203,414 |
|
|
|
38,407 |
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|||
Interest income, net |
|
|
25,761 |
|
|
|
11,713 |
|
|
|
14,048 |
|
|
119.9% |
Loss on Blue Chip Swap securities |
|
|
(19,856 |
) |
|
|
- |
|
|
|
(19,856 |
) |
|
100.0% |
Other expense, net |
|
|
(13,391 |
) |
|
|
(1,804 |
) |
|
|
(11,587 |
) |
|
** |
Income from continuing operations before income taxes |
|
|
234,335 |
|
|
|
213,323 |
|
|
|
21,012 |
|
|
|
Income tax benefit (expense) |
|
|
(59,741 |
) |
|
|
77,719 |
|
|
|
(137,460 |
) |
|
(176.9%) |
Net income from continuing operations |
|
|
174,594 |
|
|
|
291,042 |
|
|
|
(116,448 |
) |
|
|
Income (loss) from discontinued operations, net of income tax |
|
|
426 |
|
|
|
(4,577 |
) |
|
|
5,003 |
|
|
(109.3%) |
Net income |
|
$ |
175,020 |
|
|
$ |
286,465 |
|
|
$ |
(111,445 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
** Not a meaningful percentage |
|
|
|
|
|
|
|
|
|
|
|
|||
Revenues and Cost of Revenues
Revenues from our Rentals segment increased $49.3 million, or 12.2%, in the Current Year as compared to the Prior Year. Cost of revenues also increased $12.2 million, or 8.9%, as compared to the Prior Year. These increases are primarily attributable to increased revenue across all rental product service lines, which include our premium drill pipe, accommodations and bottom hole assemblies. Additionally, higher offshore and international rig counts provided for greater utilization of these rentals, which contributed to an increase in gross margin of 66.9% for the Current Year as compared to 65.8% for the Prior Year.
Revenues from our Well Services segment decreased $13.8 million and cost of revenues decreased $15.0 million in the Current Year as compared to the Prior Year. Revenues and cost of revenues in the Current Year were negatively impacted by $36.0 million and $24.0 million, respectively, from the disposition of certain non-core businesses in the second half of 2022 and 2023. Excluding the impact of these dispositions, revenues in the Current Year increased $22.2 million and cost of revenues increased $9.0 million from improvements in our completion services and well control service lines. Excluding the impact of dispositions, gross margin for the Current Year increased to 31.5% as compared to 29.9% for the Prior Year due to continued increases in service revenues with higher margins, such as our U.S. offshore and international completion services and international well control services. Additionally, increased offshore and international rig counts allowed for higher activity in our U.S. offshore and international operations.
Depreciation, Depletion, Amortization and Accretion
29
Depreciation, depletion, amortization and accretion expense for December 31, 2023 decreased $17.0 million, or 17.3%, as compared to the Prior Year. Depreciation expense for the Prior Year was impacted by the valuation process under fresh start accounting, where certain fully depreciated assets were assigned a new estimated fair value and a new remaining useful life of less than 36 months.
Restructuring and Transaction Expenses
Restructuring and transaction expenses relate to charges recorded as part of our strategic efforts to reconfigure our organization both operationally and financially. Current Year restructuring and transaction expense decreased $3.1 million or 48.3%, as compared to the Prior Year.
Other gains, net
Other gains in the Current Year declined by $22.6 million primarily due to inclusion of a $17.4 million gain from revisions in estimates related to our decommissioning liability in the Prior Year.
Loss on Blue Chip Swap Securities
During the Current Year, we utilized an indirect foreign mechanism known as a Blue Chip Swap (“BCS”) to remit a total of $13.9 million U.S. dollars from Argentina through the purchase and sale of BCS securities. These transactions resulted in a net loss of $19.9 million during the Current Year. See “Note 16 - Blue Chip Swap Securities”.
Interest Income, net
Interest income, net for Current Year was $25.8 million compared to $11.7 million for the Prior Year. The increase in interest income was driven by interest derived on overnight money market accounts primarily in the United States and Argentina.
Other Expense, net
Losses on foreign currencies during the Current Year and Prior Year were $12.8 million and $12.6 million, respectively. Losses on foreign currency primarily relate to our operations in Argentina which devalued its peso by more than 50% during the Current Year. Losses on foreign currencies related to our operations in Argentina totaled $14.8 million and $7.5 million in the Current Year and Prior Year, respectively.
Losses on foreign currencies during the Prior Year also include an expense of $2.7 million which represents a correction of an immaterial error relating to a period prior to our emergence from bankruptcy.
During the Prior Year, we disposed of 4.1 million shares of Select Energy Services, Inc. (“Select”) for $34.7 million, and we recognized gains totaling $8.9 million in connection with these transactions. As of December 31, 2022, we had disposed of all shares of Select.
Income Taxes
The effective tax rate in the Current Year was an expense of 25.5%. The effective tax rate for the Current Year is different from the U.S. federal statutory rate of 21.0% due to foreign income taxable in the U.S., a non-recurring non-deductible loss, and foreign tax rates that differ from the U.S. federal statutory rate. The effective tax rate in the Current Year was also impacted by $9.9 million in income tax benefits from reversals of uncertain tax positions in foreign jurisdictions. Finally, the effective tax rate in the Current Year was impacted by adjustments to valuation allowances in the U.S. and foreign jurisdictions. We evaluate deferred tax assets, including tax credits and net operating losses, on a routine basis and this may result in the release of all or a portion of currently recorded valuation allowance when there is sufficient positive evidence.
Additionally, we identified an error in the tax provision for the year ended December 31, 2022 pertaining to certain net operating loss carryforwards that should have been eliminated as part of a worthless stock deduction taken in the fourth quarter of 2022. As such, we recognized an additional income tax expense of $7.6 million during the three months ended March 31, 2023, with a corresponding decrease to deferred tax assets, to correct this immaterial misstatement.
The effective tax rate for the Prior Year was a benefit of 36.4%. The effective tax rate for the Prior Year is different from the U.S. federal statutory rate of 21.0% primarily from the recognition of a worthless stock deduction for U.S. income tax purposes with an estimated net tax benefit of $104.0 million. In addition, there were valuation allowance releases primarily for foreign deferred tax
30
assets and a portion of U.S. foreign tax credits offset by foreign losses for which no tax benefit was recorded resulting in net tax benefit of $18.5 million.
Discontinued Operations
Income from discontinued operations, net of tax, was $0.4 million for the Current Year as compared to a loss from discontinued operations of $4.6 million for the Prior Year. See “Note 18 - Discontinued Operations” to our consolidated financial statements for further discussion.
Liquidity and Capital Resources
Cash flows depend, to a large degree, on the level of spending by oil and gas companies for exploration, development and production activities. Certain sources and uses of cash, such as our level of discretionary capital expenditures and divestitures of non-core assets, are within our control and are adjusted as necessary based on market conditions.
Our primary sources of liquidity have been cash and cash equivalents, cash generated from operations and from asset sales, and availability under our Credit Facility. As of December 31, 2023, we had cash, cash equivalents and restricted cash of $477.1 million. During the Current Year, net cash provided by operating activities was $202.4 million. We received $31.1 million in cash proceeds from the sale of assets and $13.9 million in proceeds from the sale of BCS securities. The primary uses of liquidity are to provide support for operating activities, restructuring activities and capital expenditures. We spent $74.5 million of cash on capital expenditures and $33.8 million on the purchases of BCS securities during the Current Year. Additionally, during the Current Year, we paid $27.1 million to the Washington State Department of Revenue related to a use tax assessment from several years ago that we have appealed and is currently under review.
The energy industry faces growing negative sentiment in the market which may affect our ability to access capital on terms favorable to us. While we have confidence in the level of support from our lenders, this negative sentiment in the energy industry has not only impacted our customers in North America, but also affected the availability and pricing for most credit lines extended to participants in the energy industry. From time to time, we may enter into transactions to dispose of businesses or capital assets that no longer fit our long-term strategy.
Distributions to Shareholders
On November 16, 2022, we announced that our Board declared a special dividend of $12.45 per share on our outstanding Class A Common Stock. Additionally, the Board determined that, in addition to the special dividend to holders of our Class A Common Stock, we would make dividend equivalent payments to each holder of unvested restricted stock units. The special dividend was paid on December 28, 2022 to holders of record as of December 16, 2022.
On February 13, 2024, we announced that our Board declared a special dividend of $12.38 per share on our outstanding Class A Common Stock. Additionally, the Board determined that, in addition to the special dividend to holders of our Class A Common Stock, we would make dividend equivalent payments to each holder of unvested restricted stock units. The special dividend will be paid on March 12, 2024 to holders of record as of February 27, 2024.
Equity Reclassification
On December 18, 2023, following the approval of our Board and stockholders each share of Class B Common Stock was automatically reclassified into one share of Class A Common Stock.
Debt Instruments
During the Current Year, we entered into a new Credit Agreement providing for a $140.0 million asset-based secured revolving Credit Facility, all of which is available for the issuance of letters of credit (the “Credit Facility”). The Credit Facility matures on December 6, 2028, subject to certain conditions set forth in the Credit Agreement. The issuance of letters of credit reduces availability under the Credit Facility on a dollar-for-dollar basis.
For additional information, please see Part II, Item 8, “Financial Statements and Supplementary Data – Note 9 - “Debt”.
31
As of December 31, 2023, the borrowing base under the Credit Facility was approximately $140.0 million and we had $31.5 million of letters of credit outstanding that reduced the borrowing availability under the Credit Facility.
Critical Accounting Policies and Estimates
The accounting policies described below are considered critical in obtaining an understanding of our consolidated financial statements because their application requires significant estimates and judgments by management in preparing our consolidated financial statements. Management’s estimates and judgments are inherently uncertain and may differ significantly from actual results achieved. Management considers an accounting estimate to be critical if the following conditions apply:
It is management’s view that the current assumptions and other considerations used to estimate amounts reflected in our consolidated financial statements are appropriate. However, actual results can differ significantly from those estimates under different assumptions and conditions. The sections below contain information about our most critical accounting estimates.
Long-Lived Assets Valuation We review long-lived assets, such as property, plant and equipment and purchased intangibles subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. We record impairment losses on long-lived assets to be held and used in operations when the fair value of those assets is less than their respective carrying amount. Impairment losses are recorded in the amount by which the carrying amount of such assets exceeds the fair value. Fair value is measured, in part, by the estimated cash flows to be generated by those assets. Our cash flow estimates are based upon, among other things, historical results adjusted to reflect our best estimate of future market rates, utilization levels and operating performance. Our 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. Assets are generally grouped by subsidiary or division for the impairment testing, which represent the lowest level of identifiable cash flows. Assets held for sale are reported at the lower of the carrying amount or fair value less estimated costs to sell. Our estimate of fair value represents our best estimate based on industry trends and reference to market transactions and is subject to variability. The oil and gas industry is cyclical and our 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 value of these assets and, in periods of prolonged down cycles, may result in impairment charges.
Decommissioning liability Our decommissioning liability is associated with our oil and gas property and include costs related to the plugging of wells, removal of the related platform and equipment and site restoration. We review the adequacy of our decommissioning liability whenever indicators suggest that the estimated cash flows and/or relating timing needed to satisfy the liability have changed materially. Estimates of our decommissioning liability are calculated using the income approach. Estimates of future retirement costs are adjusted for an estimated inflation rate over the expected time period prior to retirement and future cash outflows are discounted by a credit adjusted risk-free rate.
Income Taxes We use the asset and liability method of accounting for income taxes. This method considers the differences between financial statement treatment and tax treatment of certain transactions. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Our deferred tax calculation requires us to make certain estimates about our future operations. Changes in state, federal and foreign tax laws, as well as changes in our financial condition or the carrying value of existing assets and liabilities, could affect these estimates. The effect of a change in tax rates is recognized as income or expense in the period that the rate is enacted.
Recently Adopted and Issued Accounting Guidance
See Part II, Item 8, “Financial Statements and Supplementary Data – Note 20 – New Accounting Pronouncements”.
32
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks associated with foreign currency fluctuations and changes in interest rates. A discussion of our market risk exposure in financial instruments follows.
Foreign Currency Exchange Rate Risk
While we continue to be exposed to foreign currency exchange rates, we do not hold derivatives for trading purposes or use derivatives with complex features. When we believe it is prudent, we may enter into forward foreign exchange contracts to hedge the impact of foreign currency fluctuations. As of December 31, 2023, we did not have any outstanding foreign currency forward contracts.
For additional information, please see Part II, Item 8, “Financial Statements and Supplementary Data – Note 16 - ‘Blue Chip Swap Securities’”.
Interest Rate Risk
At December 31, 2023 and 2022, we had no variable rate debt outstanding.
Commodity Price Risk
Our revenues, profitability and future rate of growth significantly depend upon the market prices of oil and natural gas. Lower prices may also reduce the amount of oil and gas that can economically be produced.
33
Item 8. Financial Statements and Supplementary Data
Consolidated Financial Statements and Notes |
Page |
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Reports of Independent Registered Public Accounting Firm (PCAOB ID |
35 |
38 |
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39 |
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40 |
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Consolidated Statements of Changes in Stockholders’ Equity (Deficit) |
41 |
42 |
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43 |
34
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Superior Energy Services, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Superior Energy Services, Inc. and its subsidiaries (Successor) (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations, of comprehensive income (loss), of changes in stockholders' equity (deficit) and of cash flows for the years ended December 31, 2023 and 2022, and for the period from February 3, 2021 through December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years ended December 31, 2023 and 2022, and for the period from February 3, 2021 through December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.
Basis of Accounting
As discussed in Note 1 to the consolidated financial statements, Superior Energy Services, Inc. and certain of its direct and indirect wholly-owned domestic subsidiaries (collectively the “Affiliate Debtors”) filed petitions on December 7, 2020 with the United States Bankruptcy Court for the Southern District of Texas (Bankruptcy Court) for reorganization under the provisions of Chapter 11 of the Bankruptcy Code. The Bankruptcy Court confirmed the Affiliate Debtors’ Joint Prepackaged Plan of Reorganization on January 19, 2021 and the Affiliate Debtors emerged from bankruptcy on February 2, 2021. In connection with its emergence from bankruptcy, the Company adopted fresh start accounting as of February 2, 2021.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition
35
As described in Notes 1 and 3 to the consolidated financial statements, the Company recognized total revenues of $919,420 thousand for the year ended December 31, 2023. Revenues are recognized when performance obligations are satisfied in accordance with contractual terms, in an amount that reflects the consideration management expects to be entitled to in exchange for services rendered, rentals provided or products sold. Services revenue primarily represents amounts charged to customers for the completion of services rendered, including labor, products and supplies necessary to perform the service. Rentals revenue is primarily priced on a per day, per man hour or similar basis and consists of fees charged to customers for use of rental equipment over the term of the rental period, which is generally less than twelve months. Products are generally sold based upon purchase orders or contracts with customers that include fixed or determinable prices but do not include right of return provisions or other significant post-delivery obligations. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. A contract’s standalone selling prices are determined based on the prices charged for services rendered, rentals provided or products sold.
The principal consideration for our determination that performing procedures relating to revenue recognition is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s revenue recognition.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others (i) testing the revenue recognized for a sample of revenue transactions by obtaining and inspecting source documents, such as contracts, purchase orders, invoices, proof of delivery or of services performed, and where applicable, subsequent cash receipts and (ii) testing a sample of outstanding accounts receivable balances as of December 31, 2023 by obtaining and inspecting source documents, such as invoices, proof of delivery or of services performed, and where applicable, subsequent cash receipts.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
March 7, 2024
We have served as the Company’s auditor since 2021.
36
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Superior Energy Services, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of operations, of comprehensive income (loss), of changes in stockholders' equity (deficit) and of cash flows of Superior Energy Services, Inc. and its subsidiaries (Predecessor) (the “Company”) for the period from January 1, 2021 through February 2, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the period from January 1, 2021 through February 2, 2021 in conformity with accounting principles generally accepted in the United States of America.
Basis of Accounting
As discussed in Note 1 to the consolidated financial statements, Superior Energy Services, Inc. and certain of its direct and indirect wholly-owned domestic subsidiaries (collectively the “Affiliate Debtors”) filed petitions on December 7, 2020 with the United States Bankruptcy Court for the Southern District of Texas (Bankruptcy Court) for reorganization under the provisions of Chapter 11 of the Bankruptcy Code. The Bankruptcy Court confirmed the Affiliate Debtors’ Joint Prepackaged Plan of Reorganization on January 19, 2021 and the Affiliate Debtors emerged from bankruptcy on February 2, 2021. In connection with its emergence from bankruptcy, the Company adopted fresh start accounting as of February 2, 2021.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/
March 21, 2022
We have served as the Company’s auditor since 2021.
37
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share data)
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December 31, 2023 |
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December 31, 2022 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Income taxes receivable |
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Prepaid expenses |
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Inventory |
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Other current assets |
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Assets held for sale |
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Total current assets |
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Property, plant and equipment, net |
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Note receivable |
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Restricted cash |
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Operating lease right-of-use assets |
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Deferred tax assets |
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Other assets, net |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
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Current liabilities: |
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Accounts payable |
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$ |
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Accrued expenses |
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Income taxes payable |
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Decommissioning liability |
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Liabilities held for sale |
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Total current liabilities |
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Decommissioning liability |
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Operating lease liability |
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Other liabilities |
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Total liabilities |
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Stockholders’ equity: |
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Class A Common Stock $ |
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Class B Common Stock $ |
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Class A Additional paid-in capital |
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Class B Additional paid-in capital |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See accompanying notes to consolidated financial statements.
38
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except share data)
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Successor |
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Predecessor |
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For the Year Ended |
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For the Year Ended |
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For the Period February 3, 2021 through December 31, 2021 |
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For the Period January 1, 2021 through February 2, 2021 |
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Revenues: |
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Services |
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$ |
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$ |
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$ |
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$ |
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Rentals |
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Product sales |
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Total revenues |
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Cost of revenues: |
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Services |
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Rentals |
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Product sales |
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Total cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
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Depreciation, depletion, amortization and accretion: |
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Services |
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Rentals |
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Product sales |
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Total depreciation, depletion, amortization and accretion |
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General and administrative expenses |
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Other (gains) and losses, net |
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Net income (loss) from operations |
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Other income (expense): |
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Interest income, net |
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Reorganization items, net |
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Loss on Blue Chip Swap securities |
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Other expense, net |
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( |
) |
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( |
) |
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( |
) |
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( |
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Income (loss) from continuing operations before income taxes |
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( |
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Income tax benefit (expense) |
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( |
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Net income (loss) from continuing operations |
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Income (loss) from discontinued operations, net of income tax |
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( |
) |
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( |
) |
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( |
) |
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Net income (loss) |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Income (loss) per share - basic: |
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Net income (loss) from continuing operations |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Income (loss) from discontinued operations, net of income tax |
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( |
) |
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( |
) |
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( |
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Net income (loss) |
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$ |
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$ |
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$ |
( |
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$ |
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Income (loss) per share - diluted: |
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Net income (loss) from continuing operations |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Income (loss) from discontinued operations, net of income tax |
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( |
) |
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( |
) |
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( |
) |
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Net income (loss) |
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$ |
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$ |
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$ |
( |
) |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
See accompanying notes to consolidated financial statements.
39
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
|
Successor |
|
|
|
Predecessor |
|
||||||||||
|
For the Year Ended |
|
|
For the Year Ended |
|
|
For the Period February 3, 2021 through December 31, 2021 |
|
|
|
For the Period January 1, 2021 through February 2, 2021 |
|
||||
Net income (loss) |
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|
$ |
|
|||
Change in cumulative translation adjustment, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Comprehensive income (loss) |
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|
$ |
|
|||
See accompanying notes to consolidated financial statements.
40
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
For the Three Years Ended December 31, 2023
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|||||||||||||
|
|
Common Stock |
|
|
paid-in |
|
|
|
|
|
other |
|
|
|
|
|
|
|
||||||||||||||||||||||
|
|
Class A |
|
|
Class B |
|
|
capital |
|
|
Treasury |
|
|
comprehensive |
|
|
Accumulated |
|
|
|
|
|||||||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Class A |
|
|
Class B |
|
|
stock |
|
|
loss, net |
|
|
deficit |
|
|
Total |
|
||||||||||
Balances, December 31, 2020 (Predecessor) |
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
$ |
( |
) |
|||
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Foreign currency translation adjustment |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Extinguishment of unrecognized compensation expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Stock-based compensation expense, net |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
||||
Restricted stock units vested |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Shares withheld and retired |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cancellation of Predecessor equity |
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
Issuance of Class A Common Stock |
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
||||
Balances, February 2, 2021 (Predecessor) |
|
|
|
|
$ |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Balances, February 3, 2021 (Successor) |
|
|
|
|
$ |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||||
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Stock-based compensation expense, net |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Common stock issued |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|||
Share withheld and retired |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Balances, December 31, 2021 (Successor) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
|
|||||||
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Cash dividends ($ |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Stock-based compensation expense, net |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Restricted stock units vested |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Share withheld and retired |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Shares placed in treasury |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Balances, December 31, 2022 (Successor) |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
( |
) |
|
$ |
|
|||||||
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Stock-based compensation expense, net |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Restricted stock units vested |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
||
Shares withheld and retired |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Reclassification of stock |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|||
Balances, December 31, 2023 (Successor) |
|
|
|
|
$ |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
|||||
See accompanying notes to consolidated financial statements.
41
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
|
|
Successor |
|
|
|
Predecessor |
|
||||||||||
|
|
For the Year Ended |
|
|
For the Year Ended |
|
|
For the Period February 3, 2021 through December 31, 2021 |
|
|
|
For the Period January 1, 2021 through February 2, 2021 |
|
||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|
$ |
|
|||
Adjustments to reconcile net income to net cash from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation, depletion, amortization and accretion |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Right-of-use assets amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Deferred income taxes |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
||
Stock based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Reorganization items, net |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Bad debt |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
( |
) |
||
Gain on sale of assets and businesses |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gain on sale of equity securities |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
||
Unrealized gain on investment in equity securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|||
Other (gains) and losses, net |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Loss on Blue Chip Swap securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Washington State Tax Settlement |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|||
Decommissioning costs |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|||
Other reconciling items, net |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accounts receivable |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
Prepaid expenses |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Inventory and other current assets |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Accounts payable |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
||
Accrued expenses |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
||
Income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other, net |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
( |
) |
|
Net cash from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Payments for capital expenditures |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
( |
) |
Proceeds from sales of assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Proceeds from sales of equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Proceeds from sales of Blue Chip Swap securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Purchases of Blue Chip Swap securities |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|||
Net cash from investing activities |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
( |
) |
||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Credit facility costs |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
( |
) |
||
Tax withholdings for vested restricted stock units |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
Distributions to stockholders |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|||
Net cash from financing activities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
( |
) |
Effect of exchange rate changes on cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net change in cash, cash equivalents, and restricted cash |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|||
Cash, cash equivalents, and restricted cash at beginning of period |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash, cash equivalents, and restricted cash at end of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
||||
See accompanying notes to consolidated financial statements.
42
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of and For the Years Ended December 31, 2023, 2022 and 2020
(1) Summary of Significant Accounting Policies
Basis of Presentation
As used herein, “we,” “us,” “our” and similar terms refer to (i) prior to February 2, 2021 (the “Emergence Date”), SESI Holdings, Inc. and its subsidiaries (“Predecessor”) and (ii) after the Emergence Date, Superior Energy Services, Inc. and its subsidiaries (“Successor”).
As used herein, the following terms refer to our operations:
“Predecessor Period” |
January 1, 2021 through February 2, 2021 |
“Successor Period” |
February 3, 2021 through December 31, 2021 |
“Prior Year” |
January 1, 2022 through December 31, 2022 |
“Current Year” |
January 1, 2023 through December 31, 2023 |
Due to the lack of comparability with historical financials, our consolidated financial statements and related footnotes are presented with a “black line” division to emphasize the lack of comparability between amounts presented as of, and after, the Emergence Date.
Our consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in the accompanying consolidated financial statements.
Business
We serve major, national and independent oil and natural gas exploration and production companies around the world and offer products and services with respect to the various phases of a well’s economic life cycle.
Historically, we provided a wide variety of services and products to many markets within the energy industry. Our core businesses focus on products and services that we believe meet the criteria of:
The result of this approach is a portfolio of business lines grounded in our core mission of providing high quality products and services while maintaining the trust and serving the needs of our customers, with an emphasis on free cash flow generation and capital efficiency.
Emergence from Voluntary Reorganization under Chapter 11
On December 7, 2020, certain of our direct and indirect wholly-owned domestic subsidiaries filed petitions for reorganization under the provisions of Chapter 11 of the Bankruptcy Code and, in connection therewith, filed the proposed Joint Prepackaged Plan of Reorganization (as amended, modified or supplemented from time to time, the “Plan”). On the Emergence Date, the conditions to the effectiveness of the Plan were satisfied and we emerged from Chapter 11.
Use of Estimates
In preparing the accompanying financial statements, we make various estimates and assumptions that affect the reported amounts of assets and liabilities, including contingent liabilities as of the dates of the balance sheets and the amounts of revenues and expenses reported for the periods shown in the income statements. Actual results could differ from those estimates.
43
Major Customers and Concentration of Credit Risk
The majority of our business is conducted with major and independent oil and gas companies. We evaluate the financial strength of our customers and provide allowances for probable credit losses when deemed necessary.
The market for our 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.
We derive a large amount of revenue from a small number of major and independent oil and gas companies. There were no customers that exceeded
Our assets that are potentially exposed to concentrations of credit risk consist primarily of cash, cash equivalents, and trade receivables. The financial institutions with which we transact business are large, investment grade financial institutions which are “well capitalized” under applicable regulatory capital adequacy guidelines, thereby minimizing our exposure to credit risks for deposits in excess of federally insured amounts.
Cash Equivalents
We consider all short-term investments with a maturity of 90 days or less when purchased to be cash equivalents.
Restricted Cash
Restricted cash totaled $
Accounts Receivable and Allowance for Credit Losses
Trade accounts receivable are recorded at the invoiced amount or the earned but not yet invoiced amount and do not bear interest. We maintain an allowance for credit losses based on our best estimate of probable uncollectible amounts in existing accounts receivable. Adjustments to the allowance for credit losses in future periods may be made based on changing customer conditions. Our allowance for credit losses as of December 31, 2023 and 2022 was $
Bad debt expenses or recoveries are recognized within cost of revenues. The following table presents bad debt expense or recoveries for the periods shown (in millions):
|
|
Successor |
|
|
|
Predecessor |
|
||||||||||
|
|
For the Year Ended |
|
|
For the Year Ended |
|
|
For the Period February 3, 2021 through December 31, 2021 |
|
|
|
For the Period January 1, 2021 through February 2, 2021 |
|
||||
Bad debt expense (recoveries) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|
$ |
( |
) |
||
Revenue Recognition
Revenues are recognized when performance obligations are satisfied in accordance with contractual terms, in an amount that reflects the consideration we expect to be entitled to in exchange for services rendered, rentals provided or products sold. Taxes collected from customers and remitted to governmental authorities and revenues are reported on a net basis.
A performance obligation arises under contracts with customers and is the unit of account under Topic 606. We account for services rendered and rentals provided separately if they are distinct and the service or rental is separately identifiable from other items provided to a customer and if a customer can benefit from the services rendered or rentals provided on their own or with other resources that are readily available to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. A contract’s standalone selling prices are determined based on the prices charged for services rendered, rentals provided or products sold. Our payment terms vary by the type of products or services offered. The term between invoicing and when the payment is due is typically
44
Services revenue: primarily represents amounts charged to customers for the completion of services rendered, including labor, products and supplies necessary to perform the service. Rates for these services vary depending on the type of services provided and are primarily based on a per hour or per day basis.
Rentals revenue: primarily priced on a per day, per man hour or similar basis and consists of fees charged to customers for use of rental equipment over the term of the rental period, which is generally less than twelve months.
Product sales: products are generally sold based upon purchase orders or contracts with our customers that include fixed or determinable prices but do not include right of return provisions or other significant post-delivery obligations. We recognize revenue from product sales when title passes to the customer, the customer assumes risks and rewards of ownership, collectability is reasonably assured and delivery occurs as directed by the customer.
We expense sales commissions when incurred as the amortization period would typically be one year or less.
Inventory
Inventories are stated at the lower of cost or net realizable value. We apply net realizable value and obsolescence to the gross value of inventory. Work-in-progress and finished goods are primarily recorded utilizing the standard cost method. Supplies and consumables are recorded at either the first-in first-out or weighted average cost method. Supplies and consumables consist principally of products used in the services provided to our customers.
Decommissioning Liabilities
We account for our decommissioning liability under ASC 410 – Asset Retirement Obligations. Our decommissioning liability is associated with our oil and gas property and includes costs related to the plugging of wells, decommissioning of the related platform and equipment and site restoration. We review the adequacy of our decommissioning liability whenever indicators suggest that the estimated cash flows and/or relating timing needed to satisfy the liability have changed materially.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, except for assets for which impairments have been recorded and assets acquired using purchase accounting, which are recorded at fair value as of the date of acquisition.
Machinery and equipment |
|
|
Buildings, improvements and leasehold improvements |
|
|
Automobiles, trucks, tractors and trailers |
|
|
Furniture and fixtures |
|
Impairment of long-lived assets
We review long-lived assets, such as property, plant and equipment and purchased intangibles subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. The carrying amount of an asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. We record impairment losses on long-lived assets to be held and used when the fair value of those assets is less than their respective carrying amount. Impairment losses are recorded in the amount by which the carrying amount of such assets exceeds the fair value. Fair value is measured, in part, by the estimated cash flows to be generated by those assets. Our cash flow estimates are based upon, among other things, historical results adjusted to reflect our best estimate of future market rates, utilization levels and operating performance. Our 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. Assets are generally grouped by subsidiary or division for the impairment testing, which represent the lowest level of identifiable cash flows. Assets held for sale are reported at the lower of the carrying amount or fair value less estimated costs to sell. Our estimate of fair value represents our best estimate based on industry trends and reference to market transactions and is subject to variability. The oil and gas industry is cyclical and our 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 value of these assets and, in periods of prolonged down cycles, may result in impairment charges.
Other (gains) and losses, net
45
Other (gains) and losses, net includes gains and losses on the disposal of assets, as well as impairments related to long-lived assets.
Other gains, net for the Current Year were $
Other gains, net for the Prior Year were $
Other losses, net in the Successor Period were $
Income Taxes
We use the asset and liability method of accounting for income taxes. This method considers the differences between financial statement treatment and tax treatment of certain transactions. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Our deferred tax calculation requires us to make certain estimates about our future operations. Changes in state, federal and foreign tax laws, as well as changes in our financial condition or the carrying value of existing assets and liabilities, could affect these estimates. The effect of a change in tax rates is recognized as income or expense in the period that the rate is enacted.
We recognize deferred tax assets (“DTAs”) to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations. If we determine that we would be able to realize our DTAs in the future in excess of their net recorded amount, we would make an adjustment to the DTA valuation allowance, which would reduce the provision for income taxes.
We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
Foreign Currency
The functional currency of our international subsidiaries is the U.S. dollar. Financial statements of our international subsidiaries are remeasured into U.S. dollars using the historical exchange rate for affected the long-term assets and liabilities and the balance sheet date exchange rate for affected 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
Foreign currency losses are as follows (in millions):
|
|
Successor |
|
|
|
Predecessor |
|
||||||||||
|
|
For the Year Ended |
|
|
For the Year Ended |
|
|
For the Period February 3, 2021 through December 31, 2021 |
|
|
|
For the Period January 1, 2021 through February 2, 2021 |
|
||||
Loss on foreign currency |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
||||
Stock-Based Compensation
46
We record compensation costs relating to share-based payment transactions and include such costs in general and administrative expenses in the consolidated statements of operations. The cost is measured at the grant date, based on the estimated 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).
Self-Insurance Reserves
We are self-insured, through deductibles and retentions, up to certain levels for losses under our insurance programs. We accrue for these liabilities based on estimates of the ultimate cost of claims incurred as of the balance sheet date. We regularly review the estimates of asserted and unasserted claims and provide for losses through reserves. We obtain actuarial reviews to evaluate the reasonableness of internal estimates for losses related to workers’ compensation, auto liability and group medical on an annual basis.
Restructuring and Transaction Expenses
Restructuring and transaction expenses in our consolidated statement of operations are as follows (in millions):
|
|
Successor |
|
|
|
Predecessor |
|
||||||||||
|
|
For the Year Ended |
|
|
For the Year Ended |
|
|
For the Period February 3, 2021 through December 31, 2021 |
|
|
|
For the Period January 1, 2021 through February 2, 2021 |
|
||||
Restructuring and transaction expenses |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
||||
Expenses in the Current Year represent charges recorded as part of our strategic efforts to reconfigure our organization both operationally and financially. Expenses in the Prior Year represent costs associated with these strategic efforts, as well as legal and other professional expenses primarily related to certain tax and stockholder distribution matters. Expenses in the Successor Period and Predecessor Period primarily relate to professional fees and separation costs related to former executives and personnel. During the Successor Period, we incurred shut down costs of $
47
(2) Fresh Start Accounting
In connection with the emergence from bankruptcy and in accordance with ASC 852, we qualified for and adopted fresh start accounting on the Emergence Date because (1) the holders of our then existing common shares received less than 50 percent of our new common shares outstanding upon emergence and (2) the reorganization value of our assets immediately prior to confirmation of the Plan of $
Reorganization Value
In accordance with ASC 852, upon adoption of fresh start accounting, the reorganization value derived from the enterprise value as disclosed in the Plan was allocated to our assets and liabilities based on their fair values (except for deferred income taxes) in accordance with FASB ASC Topic No. 805 - Business Combinations (ASC 805) and FASB ASC Topic No. 820 - Fair Value Measurements (ASC 820). The amount of deferred income taxes recorded due to the fair value adjustments to assets and liabilities was determined in accordance with FASB ASC Topic No. 740 - Income Taxes.
The reorganization value represents the fair value of our total assets before considering certain liabilities and is intended to approximate the amount a willing buyer would pay for our assets immediately after restructuring. The Plan confirmed by the Bankruptcy Court estimated a range of enterprise values between $
The following table reconciles the enterprise value to the reorganization value of our assets that has been allocated to our individual assets as of the Emergence Date (in thousands):
|
|
Emergence Date |
|
|
Selected Enterprise Value within Bankruptcy Court Range |
|
$ |
|
|
Plus: Cash and cash equivalents |
|
|
|
|
Plus: Liabilities excluding the decommissioning liabilities |
|
|
|
|
Plus: Decommissioning liabilities, including decommissioning liabilities classified as held for sale |
|
|
|
|
Reorganization Value |
|
$ |
|
|
Management determined the enterprise and corresponding equity value using various valuation methods, including (i) discounted cash flow analysis (“DCF”), (ii) comparable company analysis and (iii) precedent transaction analysis. The use of each approach provides corroboration for the other approaches.
In order to estimate the enterprise value using the DCF analysis approach, management’s estimated future cash flow projections, plus a terminal value which was calculated by applying a multiple based on our internal rate of return (“IRR”) of
The comparable company analysis provides an estimate of our value relative to other publicly traded companies with similar operating and financial characteristics, by which a range of EBITDA multiples of the comparable companies was then applied to management’s projected EBITDA to derive an estimated enterprise value.
Precedent transaction analysis provides an estimate of enterprise value based on recent sale transactions of similar companies, by deriving the implied EBITDA multiple of those transactions, based on sales prices, which was then applied to management’s projected EBITDA.
The enterprise value and corresponding equity value are dependent upon achieving the future financial results set forth in our valuations, as well as the realization of certain other assumptions. All estimates, assumptions, valuations and financial projections, including the fair value adjustments, the enterprise value and equity value projections, are inherently subject to significant uncertainties and the resolution of contingencies beyond our control. Accordingly, we cannot assure you that the estimates, assumptions, valuations or financial projections will be realized, and actual results could vary materially.
Valuation Process
48
The reorganization value was allocated to the Successor’s reporting segments using the discounted cash flow approach. The reorganization value was then allocated to the Successor’s identifiable assets and liabilities using the fair value principle as contemplated in ASC 820. The specific approach, or approaches, used to allocate reorganization value by asset class are noted below.
Inventory
The fair value of the inventory was determined by using both a cost approach and income approach. Inventory was segregated into raw materials, spare parts, work in process (“WIP”), and finished goods. Fair value of raw materials and spare parts inventory were determined using the cost approach. Fair value of finished goods and WIP inventory were determined by using the net realizable value approach. The fair value of finished goods was measured using an estimate of the costs to sell or dispose of the inventory plus a reasonable profit allowance on those efforts adjusted for holding costs. The fair value of WIP was measured using an estimate of the costs to complete and sell or consume the inventory plus a reasonable profit allowance on those efforts adjusted for holding costs.
Property, Plant and Equipment
Real Property
The fair values of real property locations were estimated using the sales comparison (market) approach and cost approach. As part of the valuation process, information was obtained on the Successor’s current usage, building type, year built, and cost history for all properties valued. In determining the fair value and remaining useful life for real property assets, functional and economic obsolescence was considered and taken as an adjustment at the asset level.
Tangible Assets Excluding Real Property and Oil and Gas Assets
The fair values of our tangible assets were calculated using either the cost or market approach. For most tangible asset categories, a cost approach was utilized relying on purchase year, historic costs, and industry/equipment based trend factors to determine replacement cost new of the assets. Readily available market transaction data was used and adjusted for current market conditions for asset categories with active secondary markets such as heavy trucks and computer equipment. In both approaches, consideration was made for the effects of physical deterioration as well as functional and economic obsolescence in determining both estimates of fair value and the remaining useful lives of the assets.
Oil and Gas Assets
The oil and gas assets were valued using estimates of the reserve volumes and associated income data based on escalated price and cost parameters.
Internally-Developed Software
Internally-developed software was valued using the cost approach in which a replacement cost was estimated based on the software developer time, materials, and other supporting services required to replicate the software.
Decommissioning Liabilities
In accordance with FASB ASC Topic No. 410 – Asset Retirement and Environmental Obligations (“ASC 410”), the decommissioning liabilities associated with our oil and gas assets were valued using the income approach. Estimates of future retirement costs were adjusted for an estimated inflation rate over the expected time period prior to retirement and future cash outflows were discounted by a credit adjusted risk-free rate. We changed our presentation to consolidate the decommissioning liabilities previously recorded to other long-term liabilities into decommissioning liabilities.
Intangible Assets
Intangible assets were identified apart from goodwill using the guidance provided in ASC 805. Intangible assets that were identified as either separable or arose from contract or other legal rights were valued using either the cost or income approaches. The principal intangible assets identified were trademarks and patents. Trademarks and patents were valued using the relief from royalty method in which the subject intangible asset is valued by reference to the amount of royalty income it could generate if it was licensed in an arm’s length transaction to a third party.
Lease Liabilities and Right of Use Assets
49
The fair value of lease liabilities was measured as the present value of the remaining lease payments, as if the lease were a new lease as of the Emergence Date. The Successor used its incremental borrowing rate of
Consolidated Balance Sheet
The adjustments included in the following fresh start consolidated balance sheet as of February 2, 2021 reflect the effects of the transactions contemplated by the Plan and executed by the Successor on the Emergence Date (reflected in the column Reorganization Adjustments), and fair value and other required accounting adjustments resulting from the adoption of fresh start accounting (reflected in the column Fresh Start Adjustments). The explanatory notes provide additional information with regard to the adjustments recorded, the methods used to determine the fair values and significant assumptions.
The consolidated balance sheet as of the Emergence Date was as follows (in thousands):
|
|
As of February 2, 2021 |
|
|||||||||||||||||
|
|
|
|
|
Reorganization |
|
|
|
|
Fresh Start |
|
|
|
|
|
|
||||
|
|
Predecessor |
|
|
Adjustments |
|
|
|
|
Adjustments |
|
|
|
|
Successor |
|
||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
|
|
$ |
( |
) |
|
(1) |
|
$ |
- |
|
|
|
|
$ |
|
||
Restricted cash - current |
|
|
- |
|
|
|
|
|
(2) |
|
|
- |
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
|
|
|
|
|
(3) |
|
|
- |
|
|
|
|
|
|
|||
Income taxes receivable |
|
|
|
|
|
- |
|
|
|
|
|
( |
) |
|
(16) |
|
|
|
||
Prepaid expenses |
|
|
|
|
|
- |
|
|
|
|
|
- |
|
|
|
|
|
|
||
Inventory and other current assets |
|
|
|
|
|
- |
|
|
|
|
|
|
|
(17) |
|
|
|
|||
Assets held for sale |
|
|
|
|
|
- |
|
|
|
|
|
( |
) |
|
(18) |
|
|
|
||
Total current assets |
|
|
|
|
|
( |
) |
|
|
|
|
( |
) |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property, plant and equipment, net |
|
|
|
|
|
- |
|
|
|
|
|
|
|
(19) |
|
|
|
|||
Operating lease right-of-use assets |
|
|
|
|
|
- |
|
|
|
|
|
|
|
(20) |
|
|
|
|||
Goodwill |
|
|
|
|
|
- |
|
|
|
|
|
( |
) |
|
(21) |
|
|
- |
|
|
Notes receivable |
|
|
|
|
|
- |
|
|
|
|
|
- |
|
|
|
|
|
|
||
Restricted cash - non-current |
|
|
|
|
|
- |
|
|
|
|
|
- |
|
|
|
|
|
|
||
Intangible and other long-term assets, net |
|
|
|
|
|
( |
) |
|
(4) |
|
|
( |
) |
|
(22) |
|
|
|
||
Total assets |
|
$ |
|
|
$ |
( |
) |
|
|
|
$ |
( |
) |
|
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
|
|||||||||||||||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accounts payable |
|
$ |
|
|
$ |
( |
) |
|
(5) |
|
$ |
|
|
|
|
$ |
|
|||
Accrued expenses |
|
|
|
|
|
|
|
(6) |
|
|
|
|
(23) |
|
|
|
||||
Liabilities held for sale |
|
|
|
|
|
|
|
(7) |
|
|
( |
) |
|
(24) |
|
|
|
|||
Total current liabilities |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Decommissioning liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
(25) |
|
|
|
||||
Operating lease liabilities |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
(26) |
|
|
|
|||
Deferred income taxes |
|
|
|
|
|
|
|
(8) |
|
|
|
|
(27) |
|
|
|
||||
Other long-term liabilities |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
(28) |
|
|
|
|||
Total non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities subject to compromise |
|
|
|
|
|
( |
) |
|
(9) |
|
|
- |
|
|
|
|
|
- |
|
|
Total liabilities |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stockholders’ equity (deficit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Predecessor common stock $ |
|
|
|
|
|
( |
) |
|
(10) |
|
|
- |
|
|
|
|
|
- |
|
|
Predecessor Additional paid-in capital |
|
|
|
|
|
( |
) |
|
(11) |
|
|
- |
|
|
|
|
|
- |
|
|
Predecessor Treasury stock at cost |
|
|
( |
) |
|
|
|
|
(12) |
|
|
- |
|
|
|
|
|
- |
|
|
Successor Class A common stock $ |
|
|
- |
|
|
|
|
|
(13) |
|
|
|
|
|
|
|
|
|||
Successor Additional paid-in capital |
|
|
- |
|
|
|
|
|
(14) |
|
|
|
|
|
|
|
|
|||
Accumulated other comprehensive loss, net |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
(29) |
|
|
- |
|
||
Accumulated deficit |
|
|
( |
) |
|
|
|
|
(15) |
|
|
( |
) |
|
(30) |
|
|
- |
|
|
Total stockholders’ equity (deficit) |
|
|
( |
) |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
||
Total liabilities and stockholders’ equity (deficit) |
|
$ |
|
|
$ |
( |
) |
|
|
|
$ |
( |
) |
|
|
|
$ |
|
||
50
Reorganization Adjustments (in thousands)
Payment of debtor in possession financing fees |
|
$ |
( |
) |
Payment of professional fees at the Emergence Date |
|
|
( |
) |
Payment of lease rejection damages classified as liabilities subject to compromise |
|
|
( |
) |
Transfers from cash to restricted cash for Professional Fees Escrow and General |
|
|
( |
) |
Payment of debt issuance costs for the Credit Facility |
|
|
( |
) |
Net change in cash and cash equivalents |
|
$ |
( |
) |
Transfer from cash for Professional Fee Escrow |
|
$ |
|
|
Transfer from cash for General Unsecured Creditors Escrow |
|
|
|
|
Net change in restricted cash - current |
|
$ |
|
Write-off of deferred financing costs related to the Delayed-Draw Term Loan |
|
$ |
( |
) |
Capitalization of debt issuance costs associated with the Credit Facility |
|
|
|
|
Net change in intangibles and other long-term assets |
|
$ |
( |
) |
Payment of professional fees at the Emergence Date |
|
$ |
( |
) |
Professional fees recognized and payable at the Emergence Date |
|
|
|
|
Net change in accounts payable |
|
$ |
( |
) |
Payment of debtor in possession financing fees |
|
$ |
( |
) |
Accrual of professional fees |
|
|
|
|
Accrual for transfer taxes |
|
|
|
|
Reinstatement of lease rejection liabilities to be settled post-emergence |
|
|
|
|
Accrual of general unsecured claims against parent |
|
|
|
|
Net change in accrued liabilities |
|
$ |
|
51
Prepetition |
|
$ |
|
|
Rejected lease liability claims |
|
|
|
|
Allowed Class 6 General Unsecured Claims against Parent |
|
|
|
|
Liabilities subject to compromise settled in accordance with the Plan |
|
|
|
|
Reinstatement of accrued liabilities for lease rejection claims |
|
|
( |
) |
Reinstatement of liabilities held for sale for lease rejection claims |
|
|
( |
) |
Payment to settle lease rejection claims |
|
|
( |
) |
Cash proceeds from rights offering |
|
|
|
|
Cash payout provided to cash opt-in noteholders |
|
|
( |
) |
Cash Pool to settle GUCs against Parent |
|
|
( |
) |
Issuance of common stock to prepetition noteholders, incremental to rights |
|
|
( |
) |
Additional paid-in capital attributable to successor common stock issuance |
|
|
( |
) |
Successor common stock issued to cash opt-out noteholders in the rights |
|
|
( |
) |
Additional paid-in capital attributable to rights offering shares |
|
|
( |
) |
Gain on settlement of liabilities subject to compromise |
|
$ |
|
The Equity Rights Offering generated $
Extinguishment of APIC related to Predecessor's outstanding equity interests |
|
$ |
( |
) |
Extinguishment of RSUs for the Predecessor's incentive plan |
|
|
|
|
Net change in Predecessor's additional paid-in capital |
|
$ |
( |
) |
Issuance of successor Class A common stock to prepetition noteholders, |
|
$ |
|
|
Successor Class A common stock issued to cash opt-out noteholders in |
|
|
|
|
Net change in Successor Class A common stock |
|
$ |
|
Additional paid-in capital (Successor Class A common stock) |
|
$ |
|
|
Additional paid-in capital (rights offering shares) |
|
|
|
|
Net change in Successor additional paid-in capital |
|
$ |
|
52
Gain on settlement of liabilities subject to compromise |
|
$ |
|
|
Accrual for transfer tax |
|
|
( |
) |
Extinguishment of RSUs for Predecessor incentive plan |
|
|
( |
) |
Adjustment to net deferred tax liability taken to tax expense |
|
|
( |
) |
Professional fees earned and payable as a result of consummation of the Plan of Reorganization |
|
|
( |
) |
Write-off of deferred financing costs related to the Delayed-Draw Term Loan |
|
|
( |
) |
Extinguishment of Predecessor equity (par value, APIC, and treasury stock) |
|
|
|
|
Net change in retained earnings (deficit) |
|
$ |
|
Fresh Start Adjustments (in thousands)
Fair value adjustment to inventory - Global Segment |
|
$ |
|
|
Fair value adjustment to other current assets |
|
|
( |
) |
Net change in inventory and other current assets due to the adoption of fresh |
|
$ |
|
|
|
Successor Fair |
|
|
|
Predecessor Book |
|
||
Land, Buildings, and Associated Improvements |
|
$ |
|
|
|
$ |
|
||
Machinery and Equipment |
|
|
|
|
|
|
|
||
Rental Services Equipment |
|
|
|
|
|
|
|
||
Other Depreciable or Depletable Assets |
|
|
|
|
|
|
|
||
Construction in Progress |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
||
Less: Accumulated Depreciation and Depletion |
|
|
- |
|
|
|
|
( |
) |
Property, Plant and Equipment, net |
|
$ |
|
|
|
$ |
|
||
The fair value changes of $
|
|
Successor Fair Value |
|
|
|
Predecessor Net Book Value |
|
||
Customer Relationships |
|
$ |
- |
|
|
|
$ |
|
|
Trademarks |
|
|
|
|
|
|
|
||
Patents |
|
|
|
|
|
|
|
||
Intangible Assets, Net |
|
$ |
|
|
|
$ |
|
||
53
Fresh start valuation adjustments |
|
$ |
( |
) |
Adjustment to net deferred tax liability taken to tax expense |
|
|
( |
) |
Net impact to accumulated other comprehensive loss and accumulated deficit |
|
$ |
( |
) |
Reorganization Items, net
In the Predecessor Period, we incurred costs associated with the reorganization, primarily unamortized debt issuance costs, expenses related to rejected leases and post-petition professional fees. In accordance with applicable guidance, costs associated with the Chapter 11 Cases have been recorded as reorganization items, net within the accompanying consolidated statement of operations for the Predecessor Period. Reorganization items, net was zero for the Successor Period, with $
|
|
Predecessor |
|
|
|
|
For the Period |
|
|
Gain on settlement of liabilities subject to compromise |
|
$ |
|
|
Allowed claim adjustment for Class 6 claims |
|
|
( |
) |
Fresh Start valuation adjustments (1) |
|
|
( |
) |
Professional fees |
|
|
( |
) |
Predecessor lease liabilities rejected per the Plan |
|
|
|
|
Write off of deferred financing costs related to the Delayed-Draw Term Loan |
|
|
( |
) |
Lease rejection damages |
|
|
( |
) |
Extinguishment of RSU's for the Predecessor's incentive plan |
|
|
( |
) |
Other items |
|
|
( |
) |
Total reorganization items, net |
|
$ |
|
|
54
(1) Includes approximately $
55
(3) Revenue
Disaggregation of Revenue
The following table presents revenues by segment disaggregated by geography (in thousands):
|
|
Successor |
|
|
|
Predecessor |
|
||||||||||
|
|
For the Year Ended |
|
|
For the Year Ended |
|
|
For the Period February 3, 2021 through December 31, 2021 |
|
|
|
For the Period January 1, 2021 through February 2, 2021 |
|
||||
U.S. land |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rentals |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
||||
Well Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total U.S. land |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. offshore |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rentals |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Well Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total U.S. offshore |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rentals |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Well Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total International |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
||||
The following table presents revenues by segment disaggregated by type (in thousands):
|
|
Successor |
|
|
|
Predecessor |
|
||||||||||
|
|
For the Year Ended |
|
|
For the Year Ended |
|
|
For the Period February 3, 2021 through December 31, 2021 |
|
|
|
For the Period January 1, 2021 through February 2, 2021 |
|
||||
Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rentals |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
||||
Well Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rentals |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rentals |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Well Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Rentals |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Product Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rentals |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Well Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Product Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
||||
(4) Inventory
The components of inventory balances are as follows (in thousands):
56
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
||
Finished goods |
|
$ |
|
|
$ |
|
||
Raw materials |
|
|
|
|
|
|
||
Work-in-process |
|
|
|
|
|
|
||
Supplies and consumables |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Finished goods inventory includes component parts awaiting assembly of approximately $
(5) Decommissioning Liability
The following table presents our decommissioning liability as of the periods indicated:
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
||
Wells |
|
$ |
|
|
$ |
|
||
Platform |
|
|
|
|
|
|
||
Total decommissioning liability |
|
|
|
|
|
|
||
Note receivable |
|
|
( |
) |
|
|
( |
) |
Total decommissioning liability, net of note receivable |
|
$ |
|
|
$ |
|
||
In December 2023, revisions to our decommissioning cost estimates resulted in an $
The following table presents the activity during 2023 impacting our decommissioning liability, the related note receivable and oil and gas producing assets:
|
|
December 31, |
|
|
2023 |
|
|
2023 |
|
|
December 31, |
|
||||
|
|
2022 |
|
|
Activity (1) |
|
|
Revision |
|
|
2023 |
|
||||
Wells |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
Platform |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Decommissioning liability |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Note receivable |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Decommissioning liability, net of note receivable |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
(1) Activity during 2023 includes $
The following table presents accretion expense as of the periods indicated (in millions):
|
|
For the Year Ended |
|
|
For the Year Ended |
|
|
For the Period February 3, 2021 through December 31, 2021 |
|
|
|
For the Period January 1, 2021 through February 2, 2021 |
|
||||
Accretion expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
||||
During the second quarter of 2022, we undertook an initiative to alter our decommissioning program, whereby we intend to convert the platform into an artificial reef (“reef-in-place”). The reduction in cost estimates under a reef-in-place program resulted in a reduction in the carrying value of our decommissioning liability and related note receivable (see “Note 6 - Note Receivable”), as well as impacted the carrying value of our oil and gas producing assets, such that as of June 30, 2022, our decommissioning liability was reduced by $
(6) Note Receivable
57
Our note receivable consists of a commitment from the seller of our oil and gas property for costs associated with the abandonment of the platform. Pursuant to an agreement with the seller, we will invoice the seller an agreed upon amount at the completion of certain decommissioning activities. In December 2023, revisions to our decommissioning cost estimates increased the gross amount of the seller’s obligation to us, which totaled $
The discount on the note receivable is currently based on an effective interest rate of
We recorded non-cash interest income related to the note receivable as follows (in millions):
|
|
Successor |
|
|
|
Predecessor |
|
||||||||||
|
|
For the Year Ended |
|
|
For the Year Ended |
|
|
For the Period February 3, 2021 through December 31, 2021 |
|
|
|
For the Period January 1, 2021 through February 2, 2021 |
|
||||
Interest income |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
||||
Interest income is included in Other, net in the Consolidated Statements of Cash Flows.
(7) Property, Plant and Equipment, Net
A summary of property, plant and equipment, net is as follows (in thousands):
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
||
Machinery and equipment |
|
$ |
|
|
$ |
|
||
Buildings, improvements and leasehold improvements |
|
|
|
|
|
|
||
Automobiles, trucks, tractors and trailers |
|
|
|
|
|
|
||
Furniture and fixtures |
|
|
|
|
|
|
||
Construction-in-progress |
|
|
|
|
|
|
||
Land |
|
|
|
|
|
|
||
Oil and gas producing assets |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
Accumulated depreciation and depletion |
|
|
( |
) |
|
|
( |
) |
Property, plant and equipment, net |
|
$ |
|
|
$ |
|
||
We had $
A summary of depreciation and depletion expense associated with our property, plant and equipment is as follows:
|
|
For the Year Ended |
|
|||||
|
|
December 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Depreciation |
|
$ |
|
|
$ |
|
||
Depletion |
|
|
|
|
|
|
||
Total depreciation and depletion |
|
$ |
|
|
$ |
|
||
(8) Leases
We determine if an arrangement is a lease at inception. All of our leases are operating leases and are included in right-of-use (“ROU”) assets, accounts payable and operating lease liabilities in the consolidated balance sheet per ASC 842.
58
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligations to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the respective lease term. We use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Our lease terms may include options to extend or terminate the lease. We have elected not to recognize ROU assets and lease liabilities that arise from short-term leases for any class of underlying asset,
Our operating leases are primarily for real estate, machinery and equipment, and vehicles. The terms and conditions for these leases vary by the type of underlying asset. Total operating lease expense was as follows (in thousands):
|
|
Successor |
|
|
|
Predecessor |
|
||||||||||
|
|
For the Year Ended |
|
|
For the Year Ended |
|
|
For the Period February 3, 2021 through December 31, 2021 |
|
|
|
For the Period January 1, 2021 through February 2, 2021 |
|
||||
Long-term fixed lease expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
||||
Long-term variable lease expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Short-term lease expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total operating lease expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
||||
Operating leases for the Current Year were as follows (dollars in thousands):
|
|
December 31, 2023 |
|
|
Weighted average remaining lease term |
|
|
||
Weighted average discount rate |
|
|
% |
|
|
|
|
|
|
Cash paid for operating leases |
|
$ |
|
|
ROU assets obtained in exchange for lease obligations |
|
|
|
|
Maturities of operating lease liabilities at December 31, 2023 are as follows (in thousands):
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total lease payments |
|
|
|
|
Less: imputed interest |
|
|
( |
) |
Total |
|
$ |
|
(9) Debt
Credit Facility
On December 6, 2023, we, certain of our subsidiaries (the “Parent Entities”) and SESI, L.L.C. (the “Borrower”) entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative and collateral agent, and other lenders providing for a senior secured asset-based revolving credit facility in an aggregate principal amount of $
The obligations under the Credit Agreement are guaranteed by the Parent Entities and the Borrower’s direct and indirect, existing and future domestic subsidiaries, subject to certain exceptions (collectively, the “Guarantors” and each, a “Guarantor”). The obligations under the Credit Agreement are secured by a first priority lien on substantially all of the personal property of the Borrower and the Guarantors (collectively, the “Loan Parties”).
Subject to certain limitations set forth in the Credit Agreement, the Credit Agreement includes certain conditions to borrowings, representations and warranties, affirmative and negative covenants, and events of default customary for financings of its type and size.
59
Under the terms of the Credit Agreement, the amount available for advances is subject to a borrowing base, which is calculated by reference to the value of certain eligible accounts receivable, inventory, equipment, cash and cash equivalents, offset by certain reserves. As of December 31, 2023, the borrowing base under the Credit Facility was approximately $
(10) Equity and Earnings per Share
Our common equity consists of Class A Common Stock, par value $
Class B Common Stock Reclassification
On December 18, 2023, following the approval of our Board and stockholders each outstanding share of Class B Common Stock, par value $
This reclassification became effective as of December 18, 2023, at which time our Class B Common Stock was no longer outstanding. There was no impact on basic and diluted EPS or the carrying value of total common stock as presented in our consolidated balance sheet as it was a one-for-one stock exchange.
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 using the weighted average number of Common Stock outstanding during the period plus any potentially dilutive Common Stock, such as restricted stock awards and restricted stock units calculated using the treasury stock method.
The following table presents the reconciliation between the weighted average number of shares for basic and diluted earnings per share.
|
|
Successor |
|
|
|
Predecessor |
|
||||||||||
|
|
For the Year Ended |
|
|
For the Year Ended |
|
|
For the Period February 3, 2021 through December 31, 2021 |
|
|
|
For the Period January 1, 2021 through February 2, 2021 |
|
||||
Weighted-average shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Potentially dilutive stock awards and units |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average shares outstanding - diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(11) Stock-Based Compensation Plans
2021 Management Incentive Plan
On December 15, 2023, the Board and the Compensation Committee approved an amendment to the Management Incentive Plan (“MIP”), to provide for the grant of share-based and cash-based awards and to provide for the issuance from time to time of up to
The RSAs vest over a period of three years, subject to earlier vesting and forfeiture on terms and conditions set forth in the applicable award agreement. RSUs granted in 2022 generally vest in three equal annual installments over the
60
The following sets forth activity related to issuances under the MIP for the year ended December 31, 2023 and 2022:
|
|
Grants of Share-Based Awards |
|
|||||||||||||||||
|
|
|
|
|
July/ |
|
|
|
|
|
|
|
|
|
|
|||||
|
|
June |
|
|
August |
|
|
March |
|
|
July |
|
|
|
|
|||||
|
|
2021 |
|
|
2021 |
|
|
2022 |
|
|
2022 |
|
|
Total |
|
|||||
Unvested awards outstanding, December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Vested |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Unvested awards outstanding, December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Estimated grant date fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Unamortized grant date fair value, December 31, 2022 (in millions) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Unamortized grant date fair value, December 31, 2023 (in millions) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
|
Grants of Share-Based Awards |
|
|||||||||||||||||
|
|
|
|
|
July/ |
|
|
|
|
|
|
|
|
|
|
|||||
|
|
June |
|
|
August |
|
|
March |
|
|
July |
|
|
|
|
|||||
|
|
2021 |
|
|
2021 |
|
|
2022 |
|
|
2022 |
|
|
Total |
|
|||||
Unvested awards outstanding, December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Vested |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Unvested awards outstanding, December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Estimated grant date fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Unamortized grant date fair value, December 31, 2021 (in millions) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Unamortized grant date fair value, December 31, 2022 (in millions) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Compensation expense associated with RSA and RSU grants are as follows:
|
|
For the Year Ended |
|
|||||
|
|
December 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Compensation Expense |
|
$ |
|
|
$ |
|
||
Liability-Classified Compensation
401(k)
We maintain a defined contribution profit sharing plan for employees who have satisfied minimum service requirements. Employees may contribute up to
We made contributions to the plan as follows (in millions):
|
|
Successor |
|
|
|
Predecessor |
|
||||||||||
|
|
For the Year Ended |
|
|
For the Year Ended |
|
|
For the Period February 3, 2021 through December 31, 2021 |
|
|
|
For the Period January 1, 2021 through February 2, 2021 |
|
||||
401K |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
||||
Supplemental Executive Retirement Plan
61
We have a supplemental executive retirement plan (“SERP”). The SERP provides retirement benefits to our executive officers and certain other designated key employees. The SERP is an unfunded, non-qualified defined contribution retirement plan, and all contributions under the plan are unfunded credits to a notional account maintained for each participant. We suspended all contributions to the plan effective January 1, 2020.
We made payments to eligible participants in the SERP as follows (in millions):
|
|
Successor |
|
|
|
Predecessor |
|
||||||||||
|
|
For the Year Ended |
|
|
For the Year Ended |
|
|
For the Period February 3, 2021 through December 31, 2021 |
|
|
|
For the Period January 1, 2021 through February 2, 2021 |
|
||||
SERP |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
||||
Non-Qualified Deferred Compensation Plan
The Nonqualified Deferred Compensation Plan (“NQDC Plan”) provides an income deferral opportunity for executive officers and certain senior managers who qualified for participation. Participants in the NQDC Plan could make an advance election each year to defer portions of their base salary, bonus and other compensation. Payments made to participants are based on their enrollment elections and plan balances. No deferrals were elected for 2023. We have not had enrollment periods for the NQDC since 2019.
Retention Bonus Agreements
On December 15, 2023, the Board and the Compensation Committee of the Board approved retention bonus agreements for executives pursuant to which each is eligible to earn a cash retention bonus beginning on March 15, 2024, subject to continued employment on each payment date. As a condition to execution of the retention bonus, all rights and obligations under the existing PSU agreements were forfeited and PSUs were cancelled.
(12) Income Taxes
The income tax provision is as follows:
|
Successor |
|
|
|
Predecessor |
|
|
|||||||||
In thousands: |
For the Year Ended December 31, 2023 |
|
For the Year Ended December 31, 2022 |
|
|
Period |
|
|
|
Period |
|
|
||||
Current income tax expense/(benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Federal |
$ |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
$ |
|
|
||
State |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|||
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total current income tax expense/(benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Deferred income tax expense/(benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Federal |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
||
State |
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
||
Foreign |
|
( |
) |
|
( |
) |
|
|
|
|
|
|
|
|
||
Total deferred income tax expense/(benefit) |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
||
Total income tax expense/(benefit) |
$ |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
$ |
|
|
||
Federal current and deferred tax primarily reflect use of NOL carryforwards. Foreign current tax is commensurate with prior year’s based on profitable operations in jurisdictions with limited annual or little NOL carryforwards and deferred benefit related to the release of valuation allowances on deferred tax assets in jurisdictions where there was positive evidence.
The Organization for Economic Co-operation and Development (“OECD”) reached agreement on Pillar Two Model Rules (“Pillar Two”) to implement a minimum
62
as new guidance emerges. Due to the uncertainty regarding the timing and manner in which the separate jurisdictions in which we operate may adopt the Pillar Two rules, its impact is not currently estimable.
Effective in tax year 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to deduct research and development expenditures in the current period and requires taxpayers to capitalize and amortize them over five or fifteen years pursuant to Internal Revenue Code Section 174. The legislation did not have a material impact in our business, operating results, and financial condition.
A reconciliation of the U.S. statutory federal tax rate to the consolidated effective tax rate is as follows:
|
Successor |
|
|
|
Predecessor |
|
|||||||||
Continuing Operations (in thousands): |
For the Year Ended December 31, 2023 |
|
For the Year Ended December 31, 2022 |
|
|
Period |
|
|
|
Period |
|
||||
Computed expected tax expense/(benefit) |
$ |
|
$ |
|
|
$ |
( |
) |
|
|
$ |
|
|||
State and foreign income taxes |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
||
Foreign Tax Credit |
|
( |
) |
|
( |
) |
|
|
- |
|
|
|
|
- |
|
Valuation allowance |
|
( |
) |
|
( |
) |
|
|
- |
|
|
|
|
( |
) |
Release of unrecognized tax benefits |
|
( |
) |
|
- |
|
|
|
- |
|
|
|
|
- |
|
Non-recurring non-deductible |
|
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
Foreign income inclusion in US |
|
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
Gain on Settlement of Liabilities Subject to Compromise |
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Reduction in Deferred Tax Assets |
|
|
|
|
|
|
|
|
|
|
|
||||
Fresh Start Adjustments |
|
|
|
|
|
|
|
|
|
|
|
||||
Worthless stock deduction |
|
|
|
( |
) |
|
|
|
|
|
|
|
|||
Other |
|
|
|
|
|
|
( |
) |
|
|
|
|
|||
Total income tax expense/(benefit) |
$ |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
$ |
|
||
The effective tax rate in the Current Year is different from the U.S. federal statutory rate of
Additionally, we identified an error in the tax provision for the year ended December 31, 2022 pertaining to certain net operating loss carryforwards that should have been eliminated as part of a worthless stock deduction taken in the fourth quarter of 2022. As such, we recognized an additional income tax expense of $
The effective tax rate for the Prior Year is different from the U.S. federal statutory rate of
For the year ended December 31, 2021, we evaluated the tax impact resulting from our emergence from Chapter 11 Bankruptcy on February 2, 2021 and the Plan. As part of the debt restructuring, a substantial portion of our pre-petition debt was extinguished. We recognized cancellation of indebtedness income (“CODI”) upon discharge of our outstanding indebtedness. Due to bankruptcy, CODI was excluded from taxable income provided tax attributes were reduced by the amount of CODI realized. We realized CODI for U.S. federal income tax purposes of approximately $
Section 382 of the Internal Revenue Code of 1986 provides an annual limitation with respect to the ability of a corporation to utilize its tax attributes, as well as certain built-in-losses, against future U.S. taxable income in the event of a change in ownership. We experienced an ownership change on February 2, 2021, as defined in Section 382, due to the Plan. The limitation under Section 382 is based on the value of the corporation as of the Emergence Date. Currently, we do not expect the Section 382 limitation to impact our ability to use U.S. NOLs and FTC carryover tax attributes under Section 382 relief provisions.
63
Significant components of our deferred tax assets and liabilities are as follows:
In thousands: |
December 31, 2023 |
|
|
December 31, 2022 |
|
||
Deferred tax assets: |
|
|
|
|
|
||
Allowance for doubtful accounts |
$ |
|
|
$ |
|
||
U.S. operating loss and tax credit carryforwards |
|
|
|
|
|
||
Compensation and employee benefits |
|
|
|
|
|
||
Decommissioning liabilities |
|
|
|
|
|
||
Goodwill and other intangible assets |
|
|
|
|
|
||
Operating leases |
|
|
|
|
|
||
Foreign deferred tax assets |
|
|
|
|
|
||
Other assets |
|
|
|
|
|
||
Total gross deferred tax assets |
|
|
|
|
|
||
Less: Valuation allowance |
|
( |
) |
|
|
( |
) |
Total deferred tax assets |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
Deferred tax liabilities: |
|
|
|
|
|
||
Property, plant and equipment |
$ |
|
|
$ |
|
||
Notes receivable |
|
|
|
|
|
||
Other Liability |
|
|
|
|
|
||
Total deferred tax liabilities |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
Net deferred tax assets (liabilities) |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
The Balance Sheet classification is based on a jurisdictional grouping: |
|
|
|
|
|
||
Deferred tax assets |
|
|
|
|
|
||
Less: Deferred tax liabilities (included in Other liabilities) |
|
( |
) |
|
|
( |
) |
Total deferred tax assets and liabilities |
$ |
61,104 |
|
|
$ |
94,104 |
|
Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the tax basis of an asset or liability and its reported amount in the consolidated financial statements. The measurement of deferred tax assets and liabilities is based on enacted tax laws and rates currently in effect in each of the jurisdictions in which we have operations. In recording deferred income tax assets, we consider whether it is more likely than not that some portion or all of the deferred income tax assets will be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income of the appropriate character during the periods in which those deferred income tax assets would be deductible. We consider all available positive and negative evidence, including scheduled reversal of deferred income tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations for this determination.
The ultimate realization of deferred tax assets for the U.S. FTC carryovers is dependent on the generation of future taxable income of the appropriate character during the FTC carryforward period. During 2022, we determined there was enough positive evidence to realize a portion of the tax benefit related to FTC carryforwards. This is due to a pattern of sustained profitability in the U.S. since we emerged from bankruptcy and capacity of relief under Section 382. At December 31, 2023, we had a FTC carryforward of $
The amount of our net deferred tax assets considered realizable could be adjusted if projections of future taxable income are reduced or objective negative evidence in the form of a three-year cumulative loss is present or both. Should we no longer have a level of sustained profitability, excluding non-recurring charges, we will have to rely more on our future projections of taxable income to determine if we have an adequate source of taxable income for the realization of our deferred tax assets, namely NOL, interest limitation, and tax credit carryforwards. This may result in the need to record a valuation allowance against all or a portion of our deferred tax assets.
The amount of U.S. consolidated net operating losses available as of December 31, 2023 is $
We have not provided additional US income tax expense on foreign earnings of foreign affiliates. We are repatriating from foreign subsidiaries and the distributions are not subject to incremental US taxation because they represent either 1) return of basis where there
64
is not current or accumulated earnings and profits, 2) previously taxed earnings and profits or 3) foreign earnings exempt from incremental US tax.
We file income tax returns in the U.S., including federal and various state filings, and certain foreign jurisdictions. The number of years that are open under the statute of limitations and subject to audit varies depending on the tax jurisdiction. We remain subject to U.S. federal tax examinations for years after 2019.
The activity in unrecognized tax benefits is as follows:
|
Successor |
|
|
|
Predecessor |
|
|||||||||
In thousands: |
For the Year Ended December 31, 2023 |
|
For the Year Ended December 31, 2022 |
|
|
Period |
|
|
|
Period |
|
||||
Unrecognized tax benefits at beginning of period |
$ |
|
$ |
|
|
$ |
|
|
|
$ |
|
||||
Additions based on tax positions related to prior years |
|
|
|
|
|
|
|
|
|
|
|
||||
Reductions based on tax positions related to prior years |
|
( |
) |
|
( |
) |
|
|
( |
) |
|
|
|
- |
|
Additions based on tax positions related to current year |
|
|
|
|
|
|
|
|
|
|
- |
|
|||
Reductions as a result of a lapse of the applicable statute of limitations |
|
( |
) |
|
|
|
|
|
|
|
|
- |
|
||
Reductions relating to settlements with taxing authorities |
|
( |
) |
|
( |
) |
|
|
( |
) |
|
|
|
- |
|
Unrecognized tax benefits at end of period |
$ |
|
$ |
|
|
$ |
|
|
|
$ |
|
||||
We had unrecognized tax benefits of $
(13) Segment Information
Our reportable segments are Rentals and Well Services.
Business Segments
The products and service offerings of Rentals are comprised of value-added engineering and design services, rental of premium drill strings, tubing, landing strings, completion tubulars and handling accessories, manufacturing and rental of bottom hole assemblies, and rentals of accommodation units.
The products and service offerings of Well Services are comprised of risk management, well control and training solutions, hydraulic workover and snubbing services, engineering and manufacturing of premium sand control tools, and onshore international production services. The Well Services segment also includes the operations of our offshore oil and gas property.
We evaluate the performance of our reportable segments based on income or loss from operations. The segment measure is calculated as segment revenues less segment operating expenses, including general and administrative expenses, depreciation, depletion, amortization and accretion expense and other (gains) and losses, net. We use this segment measure to evaluate our reportable segments as it is the measure that is most consistent with how we organize and manage our business operations. Corporate and other costs primarily include expenses related to support functions, including salaries and benefits for corporate employees.
Summarized financial information for our segments is as follows (in thousands):
65
For the year ended December 31, 2023 (Successor) |
|
|
|
|
Well |
|
|
Corporate and |
|
|
Consolidated |
|
||||
|
|
Rentals |
|
|
Services |
|
|
Other |
|
|
Total |
|
||||
Revenues |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||
Depreciation, depletion, amortization and accretion |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restructuring expenses |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Other gains, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income (loss) from operations |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
For the year ended December 31, 2022 (Successor) |
|
|
|
|
Well |
|
|
Corporate and |
|
|
Consolidated |
|
||||
|
|
Rentals |
|
|
Services |
|
|
Other |
|
|
Total |
|
||||
Revenues |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||
Depreciation, depletion, amortization and accretion |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restructuring expenses |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Other gains, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income (loss) from operations |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
For the Period February 3, 2021 through December 31, 2021 (Successor) |
|
|
|
|
Well |
|
|
Corporate and |
|
|
Consolidated |
|
||||
|
|
Rentals |
|
|
Services |
|
|
Other |
|
|
Total |
|
||||
Revenues |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||
Depreciation, depletion, amortization and accretion |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restructuring expenses |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Other losses, net |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||
Loss from operations |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
For the Period January 1, 2021 through February 2, 2021 (Predecessor) |
|
|
|
|
Well |
|
|
Corporate and |
|
|
Consolidated |
|
||||
|
|
Rentals |
|
|
Services |
|
|
Other |
|
|
Total |
|
||||
Revenues |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion) |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||
Depreciation, depletion, amortization and accretion |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restructuring expenses |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Income (loss) from operations |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Identifiable Assets
|
|
|
|
|
Well |
|
|
Corporate |
|
|
Consolidated |
|
||||
|
|
Rentals |
|
|
Services |
|
|
and Other |
|
|
Total |
|
||||
December 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
The Corporate and Other segment as of December 31, 2023 and 2022 includes $
Capital Expenditures
The following represents capital expenditures for the periods presented:
|
|
|
|
|
Well |
|
|
Corporate |
|
|
Consolidated |
|
||||
|
|
Rentals |
|
|
Services |
|
|
and Other |
|
|
Total |
|
||||
December 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
For the period from February 3, 2021 through December 31, 2021 (Successor) |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||
For the period from January 1, 2021 through February 2, 2021 (Predecessor) |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||
66
Geographic Information
We operate in the U.S. and in various other countries throughout the world. Our international operations are primarily focused in Latin America, Asia-Pacific and the Middle East regions. We attribute revenue to various countries based on the location where services are performed or the destination of the drilling products or equipment sold or rented. See “Note 3 - Revenues” for a detail of our domestic and international revenues. Long-lived assets consist primarily of property, plant and equipment and are attributed to various countries based on the physical location of the asset at the end of a period
Long-Lived Assets
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
||
United States |
|
$ |
|
|
$ |
|
||
International |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
(14) 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.
The following tables provide a summary of the financial assets and liabilities measured at fair value on a recurring basis (in thousands):
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
||
Non-qualified deferred compensation assets and liabilities |
|
|
|
|
|
|
||
Other assets, net |
|
$ |
|
|
$ |
|
||
Accrued expenses |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
|
||
Our non-qualified deferred compensation plans investments are reported at fair value based on unadjusted quoted prices in active markets for identifiable assets and observable inputs for similar assets and liabilities, which represent a Level 2 in the fair value hierarchy.
The carrying amount of cash equivalents, accounts receivable, accounts payable and accrued expenses, as reflected in the consolidated balance sheets, approximates fair value due to the short maturities.
(15) Other Income (Expense)
Other income (expense) primarily relates to re-measurement gains and losses associated with our foreign currencies and gains on our investment in common stock of Select Energy Services, Inc. (“Select”).
Foreign currency losses are as follows (in millions):
|
|
Successor |
|
|
|
Predecessor |
|
||||||||||
|
|
For the Year Ended |
|
|
For the Year Ended |
|
|
For the Period February 3, 2021 through December 31, 2021 |
|
|
|
For the Period January 1, 2021 through February 2, 2021 |
|
||||
Loss on foreign currency |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
||||
67
Losses on foreign currencies during the Prior Year include an expense of $
During the Prior Year, we disposed of
(16) Blue Chip Swap Securities
The functional currency for our Argentine operations is the U.S. dollar and we use Argentina’s official exchange rate to remeasure our Argentine peso-denominated net monetary assets into U.S. dollars at each balance sheet date. The Central Bank of Argentina has maintained certain currency controls that limited our ability to access U.S. dollars in Argentina and to remit cash from our Argentine operations.
During the third quarter of 2023, we utilized an indirect foreign exchange mechanism known as a Blue Chip Swap (“BCS”) to remit $
Additionally, during the fourth quarter of 2023, we performed a BCS to remit approximately $
These BCS transactions resulted in a net loss of $
We continue to use the official exchange rate for remeasurement of our Argentine peso-denominated net monetary assets under U.S. GAAP as the BCS rate does not meet the criteria for remeasurement under U.S. GAAP.
(17) Contingencies
Due to the nature of our business, we are involved, from time to time, in various routine litigation or subject to disputes or claims or actions, including those commercial in nature, regarding our business activities in the ordinary course of business. Legal costs related to these matters are expensed as incurred. Management is of the opinion that none of the claims and actions will have a material adverse impact on our financial position, results of operations or cash flows.
We are currently involved in legal proceedings with the Washington State Department of Revenue in relation to a dispute arising in April 2019 pertaining to a use tax assessment from 2016 as a result of the construction of a vessel by one of our subsidiaries. The matter was appealed to the Washington State Board of Tax Appeals, which affirmed the assessment on May 22, 2023. In order to appeal the assessment to Whatcom County Superior Court, we paid the full $
(18) Discontinued Operations
68
The following table summarizes the components of loss from discontinued operations, net of tax (in thousands):
|
|
Successor |
|
|
|
Predecessor |
|
||||||||||
|
|
For the Year Ended December 31, |
|
|
For the Period February 3, 2021 through December 31, 2021 |
|
|
|
For the Period January 1, 2021 through February 2, 2021 |
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
|
|
|
|
|
|
||||
Revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
||||
Cost of services |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation, depletion, amortization and accretion |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other (gains) and losses, net |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Loss from operations |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
( |
) |
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income (loss) from discontinued operations before tax |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
( |
) |
|
Income tax benefit (expense) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|||
Income (loss) from discontinued operations, net of income tax |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
$ |
( |
) |
|
The following summarizes the assets and liabilities related to our discontinued operations (in thousands):
|
|
For the Year Ended December 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Assets: |
|
|
|
|
|
|
||
Accounts receivable, net |
|
$ |
|
|
$ |
|
||
Property, plant and equipment, net |
|
|
|
|
|
|
||
Other assets, net |
|
|
|
|
|
|
||
Total assets held for sale |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Liabilities: |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Accrued expenses |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
|
||
Total liabilities held for sale |
|
$ |
|
|
$ |
|
||
Significant operating non-cash items and cash flows from investing activities for our discontinued operations were as follows (in thousands):
|
|
For the Year Ended December 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash flows from discontinued operating activities: |
|
|
|
|
|
|
||
Other gains, net |
|
$ |
( |
) |
|
$ |
( |
) |
Cash flows from discontinued investing activities: |
|
|
|
|
|
|
||
Proceeds from sales of assets |
|
$ |
|
|
$ |
|
||
(19) Supplemental Cash Flow Information
The table below is a reconciliation of cash, cash equivalents and restricted cash for the beginning and the end of the period for all periods presented:
69
|
|
Successor |
|
|
|
Predecessor |
|
||||||||||
|
|
For the Year Ended December 31, |
|
|
For the Period February 3, 2021 through December 31, 2021 |
|
|
|
For the Period January 1, 2021 through February 2, 2021 |
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
||||
Restricted cash-current |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted cash-non-current |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash, cash equivalents, and restricted cash, beginning of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
||||
Restricted cash-current |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted cash-non-current |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash, cash equivalents, and restricted cash, end of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
||||
(20) New Accounting Pronouncements
On January 1, 2023, we adopted Financial Accounting Standards Board (FASB) ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements, which replaces the incurred loss impairment methodology from previous U.S. GAAP with the Current Expected Credit losses model (“CECL”). The CECL model contemplates a broader range of information to estimate expected credit losses over the contractual lifetime of an asset. It also requires consideration on the risk of loss even if it is remote. We estimate expected credit losses through an assessment of our portfolio on a collective (pool) basis with the primary factor based on the aging of our customer accounts. Additionally, we review historical collection experience and the financial condition of our customers when assessing the CECL allowance.
In November 2023, the FASB issued ASU 2023-07, “Segment reporting (Topic 280)”, which is intended to improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses. The amendments require disclosure of significant segment expenses regularly provided to the chief operating decision maker (CODM) as well as other segment items, extend certain annual disclosures to interim periods, clarify the applicability to single reportable segment entities, permit more than one measure of profit or loss to be reported under certain conditions, and require disclosure of the title and position of the CODM. We expect to adopt the new disclosures as required for the year ended December 31, 2024.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires the annual financial statements to include consistent categories and greater disaggregation of information in the rate reconciliation, and income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted, and should be applied on a prospective basis with a retrospective option.
We are currently evaluating the effect the adoption of ASU 2023-07 and ASU 2023-09 will have on our disclosures.
(21) Subsequent Events
On February 13, 2024, we announced that our Board declared a special dividend of $
70
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. In addition, the disclosure controls and procedures provide reasonable assurance that such information is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. An evaluation was carried out, under the supervision and with the participation of our management, including our CEO and CFO, regarding the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures as of December 31, 2023 were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. See disclosure of a material weakness below under “Remediation of Previously Reported Material Weakness.”
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, and for performing an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2023. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, with the participation of our CEO and CFO, performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2023 based upon criteria in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management determined that as of December 31, 2023, our internal control over financial reporting was effective based on those criteria.
Remediation of Previously Reported Material Weakness
As of December 31, 2022, management determined that we did not design and maintain effective controls to review the reasonableness of assumptions determined by, and accuracy of calculations performed by, our external tax service providers and was deemed a material weakness. This material weakness resulted in an adjustment to deferred tax benefit and income tax benefit that was recorded in the consolidated financial statements as of and for the year ended December 31, 2022.
In order to address the material weakness described above, management implemented a remediation plan that included implementing enhancements to our controls around reviewing the reasonableness of assumptions determined by, and the accuracy of calculations performed by, our external tax service providers. The remediation plan was implemented during 2023, and management determined that the controls have been satisfactorily implemented and have operated effectively for a sufficient period of time. Therefore, management concluded the previously reported material weakness is remediated as of December 31, 2023.
Changes in Internal Control Over Financial Reporting
71
There have been no changes in our internal control over financial reporting during the fourth quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
On March 4, 2024, Michael Y. McGovern and on March 5, 2024, Krishna Shivram, each informed the Board of their intentions to not stand for re-election at the Company’s 2024 Annual Meeting of Stockholders (the “Meeting”), which is currently expected to be held in May 2024, and to step down from the Board following the conclusion of their current term which ends effective as of the Meeting date. Each of Mr. McGovern and Mr. Shivram have also announced their intention to step down as a member of the Board’s Audit Committee and Compensation Committee and, in the case of Mr. Shivram, Chairman of the Board’s Audit Committee. Mr. McGovern, in addition to his intention not to stand for re-election as a director and to resign as director effective as of immediately prior to the Meeting, informed the Board of his intent to resign from his position as Executive Chairman, effective as of the later of (i) the Meeting date and (ii) if applicable, the expiration of the 90-day notice period required under his Executive Chairman Agreement, dated July 18, 2022 but effective as of July 1, 2022, with the Company (the “Executive Chairman Agreement”). The Company has approved the acceleration of Mr. McGovern’s effective date of termination in his capacity as Executive Chairman to the Meeting date if it occurs before the expiration of the 90-day notice period referred to above, in accordance with the terms of the Executive Chairman Agreement, to coincide with the conclusion of his term as a director. Following Mr. McGovern’s departure from the Board, the Company expects that the Board would appoint Mr. Brian K. Moore, Chief Executive Officer, as Chairman of the Board, effective as of such time.
In connection with the foregoing, the Company anticipates that the Board would reduce the size of the Board from seven to six directors, effective immediately prior to the Meeting and concurrent with Mr. McGovern’s resignation, subject to entering into an amendment to the Stockholders Agreement, dated as of February 2, 2021, between the Company and its stockholders party thereto (the “Stockholders Agreement”) to permit the number of directors to be fixed at between six and seven, in anticipation of nominating six individuals for election to serve on the Board at the Meeting.
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Board of Directors
Pursuant to the Stockholders Agreement (defined below), our current Board consists of the following seven members:
As disclosed in Item 9B “Other Information” Mr. McGovern has informed the Company of his intent to resign from his position as Executive Chair and to not stand for reelection as a member of our Board at the Meeting. In addition, Mr. Shivram also informed the Company of his decision not to stand for reelection at the Meeting. These announcements were not the result of any dispute or disagreement with the Company or our Board on any matter relating to our operations, policies or practices.
We currently have an Audit Committee and a Compensation Committee. All directors serve on each committee. The Board believes under NYSE listing standards (which we are not currently subject to), that all of the directors, except for Mr. Moore and Mr. McGovern, may be independent directors, provided that Mr. Citarrella, Mr. Flores and Mr. Foster may not be independent for Audit Committee purposes. The Board considers Ms. Robertson and Mr. Shivram to be Audit Committee financial experts.
Joseph Citarrella, 37, is currently a Managing Principal for Monarch Alternative Capital LP (“Monarch”), a private investment firm. From 2008 to 2012, Mr. Citarrella was an Associate at Goldman Sachs in the Global Investment Research equity group covering the integrated oil, exploration and production, and refining sectors. From 2017 to 2018, Mr. Citarrella served as nonexecutive Chairman of the Board of Vanguard Natural Resources, Inc., a Houston based independent oil and gas company. From 2018 to 2019, Mr. Citarrella served as an independent director for Resolute Energy. Mr.
72
Citarrella is a designated director of Monarch. Mr. Citarrella is a valuable member of our Board because of his extensive experience in the oil and gas industry.
Daniel E. Flores, 53, is currently a Partner at GoldenTree Asset Management LP (“GoldenTree”), an employee-owned global asset management firm. Mr. Flores served as Senior Vice President of Avenue Capital Group from 2008 to 2013. Previously, Mr. Flores worked in the Restructuring and Finance Group at Lehman Brothers and as an analyst at Merrill Lynch. Mr. Flores is a designated director of GoldenTree. Mr. Flores is a valuable member of our Board because of his extensive experience in the financial industry.
Michael Y. McGovern, 72, is currently our Executive Chairman. Mr. McGovern also serves as a director of Cactus, Inc. and previously served as a director of Nuverra Environmental Services and ION Geophysical Corporation. Mr. McGovern has more than 40 years of experience in the energy industry having served as a director and an executive at multiple public and private companies. Mr. McGovern is a valuable member of our Board because of his extensive experience in the oil and gas industry.
Julie J. Robertson, 68, served as the Executive Chair of Noble Corporation and previously served as Chair of the Board, President and Chief Executive Officer from January 2018 until her retirement in May 2020. From 2001 to 2018, Ms. Robertson served in various other management roles for Noble Corporation and its subsidiaries. Ms. Robertson served continuously as Corporate Secretary of Noble Corporation from 1993 until assuming the Chair’s role in 2018 and served as Chair at the time of the filing by Noble Corporation and certain other debtors of voluntary petitions for reorganization pursuant to chapter 11 of the United States Code on July 31, 2020. Ms. Robertson resigned as Chair of Noble Corporation in 2021. Ms. Robertson is also Chair of the Board and the Joint Nomination and Remuneration Committee of Seadrill Limited, a director of EOG Resources, Inc. and a trustee of Spindletop Charities, Inc. In 2020, Ms. Robertson was elected the first female Chair of the International Association of Drilling Contractors. Ms. Robertson serves as the Chair of our Compensation Committee. Ms. Robertson is a valuable member of our Board because of her extensive experience in the oil and gas industry.
Krishna Shivram, 61, has over 31 years of experience spread across financial and management positions in the oil and gas industry in the United States, Middle East, Europe and India. Mr. Shivram serves as a director of Allison Transmission Holdings Inc. and Ranger Energy Services Inc. He is also Managing Partner of Veritec Ventures LLC, a venture capital firm focused on making energy transition and climate tech investments. Mr. Shivram served as Chief Executive Officer of Sentinel Energy Services Inc. from 2017 to 2020. Prior to that, Mr. Shivram served as a director of Gulfmark Offshore from 2017 to 2018 and held executive positions, including CFO and interim CEO at Weatherford International Plc and VP Treasurer at Schlumberger Limited. Mr. Shivram serves as the Chairman of our Audit Committee.
Ian S. Foster, 39, is currently a Partner at GoldenTree, an employee-owned global asset management firm. Mr. Foster worked in the Goldman Sachs Investment Banking Division from 2007 to 2021, most recently as a Managing Director, Head of Industrials M&A and served as a member of the firmwide M&A fairness committee. Mr. Foster is a designated director of GoldenTree. Mr. Foster is a valuable member of our Board because of his extensive experience in the financial industry.
Brian K. Moore, 67, is currently our President and Chief Executive Officer and a member of the Board since January 2022. Mr. Moore has previously served as our Executive Vice President of Corporate Services from April 2016 to January 2022, and as our Senior Executive Vice President of North America Services from February 2012 to March 2016. Prior to that, Mr. Moore held executive positions at Complete Production Services and Integrated Production Services. Mr. Moore is a valuable member of our Board because of his extensive experience as a senior executive in the oil field service industry.
We entered into the Stockholders Agreement to provide for certain governance matters. Other than obligations related to Confidential Information (as defined in the Stockholders Agreement), the rights and preferences of each stockholder under the Stockholders Agreement will terminate when such stockholder ceases to own shares of the Class A Common Stock. While the initial Board designees post-emergence were appointed by GoldenTree, Monarch, and the ad hoc noteholders, going forward, pursuant to the Stockholders Agreement, the Board currently consists of seven directors, of whom:
Furthermore, the Board is given special governance rights in the Stockholders Agreement, including approval rights over certain corporate and other transactions, such as (i) any merger, consolidation, reorganization (including conversion) or any other business combination, (ii) certain acquisitions or dispositions of assets or liabilities, (iii) incurrence of indebtedness (subject to certain monetary thresholds), and (iv) issuances of equity, subject to the limitations therein, among other actions.
The Stockholders Agreement also provides the stockholders certain preemptive rights, drag-along rights, tag-along rights, and registration rights, subject, in each case, to the terms and conditions identified in the Stockholders Agreement.
Executive Officers
Set forth below is certain information regarding our current executive officers, including all offices and positions held by each in the past five years.
73
Name |
|
Age |
|
Offices Held and Term of Office |
Michael Y. McGovern (1) |
|
72 |
|
Executive Chairman of the Board since March 2021 |
Brian K. Moore |
|
67 |
|
President and Chief Executive Officer since January 2022, Executive Vice President of Corporate Services from April 2016 to January 2022, Senior Executive Vice President of North America Services from February 2012 to March 2016 |
James W. Spexarth |
|
56 |
|
Executive Vice President and Chief Financial Officer since August 2021, Interim Chief Financial Officer from March 2021 to August 2021, Chief Accounting Officer since March 2018, Vice President and Corporate Controller from August 2013 to February 2018 |
Family Relationships
There are no family relationships among any of our current directors or executive officers.
Code of Conduct
Our Shared Core Values at Work (Code of Conduct) applies to all of our directors, officers and employees. This Code of Conduct is publicly available on the Corporate Governance page in the About Us section of our website at http://www.superiorenergy.com. Any waivers granted to directors or executive officers and any material amendment to our Code of Conduct will be posted promptly on our website and/or disclosed in a current report on Form 8-K. We will provide to any person without charge, upon request, a copy of such code of ethics. The request may be made via mail to: Superior Energy Services, Inc., 1001 Louisiana Street, Suite 2900, Houston, Texas 77002.
Item 11. Executive Compensation
Compensation Discussion and Analysis
The Compensation Discussion and Analysis (“CD&A”) describes our executive compensation philosophy and practices applicable to named executive officers’ compensation for 2023. For 2023, our named executive officers (“NEOs”) were:
Name |
|
Offices Held |
Michael Y. McGovern |
|
Executive Chairman |
Brian K. Moore |
|
President, Chief Executive Officer |
James W. Spexarth |
|
Executive Vice President, Chief Financial Officer and Treasurer |
Michael J. Delahoussaye |
|
President, Workstrings International |
Bryan M. Ellis |
|
President, Wild Well Control, International Snubbing Services, and International Production Services |
Deidre D. Toups |
|
President, Stabil Drill, Superior Completion Services, and HB Rentals |
Executive Compensation Philosophy
The Compensation Committee of the Board (the “Compensation Committee”) is responsible for designing, implementing and administering our executive compensation program. The primary objective of that program is to attract and retain key personnel. Our Compensation Committee is guided by several key principles to leverage the Company’s ability to motivate key talent. Our Compensation Committee believes compensation should:
Compensation Practices in 2023
The CEO developed recommendations for compensation practices in 2023 that were subject to Compensation Committee approval. The CEO’s recommendations are based on his evaluations of the performance of the executives and are based on several factors, including individual performance, business results, and general market information. The Compensation Committee on its own reviews the performance and compensation of the CEO and approves his level of compensation.
In 2023, compensation practices were aligned with the Company to address a number of realities, including:
74
The Compensation Committee regularly reviews and considers the effectiveness of the Company’s existing compensation programs and modifies such programs or develops new programs to better effectuate the Compensation Committee’s compensation objectives. In addition, the Compensation Committee annually evaluates with its independent compensation consultant whether the program is balanced and appropriate in terms of base pay and incentives, both short-term and long-term.
In 2023, the Compensation Committee engaged Lyons, Benenson & Company Inc. (“LB&Co”) as its independent executive compensation consultant, as it did in 2022. LB&Co is a leading independent compensation consulting firm that advises and counsels boards of directors and their compensation and governance committees on matters related to executive compensation, board compensation and corporate governance. They work collaboratively with directors and top management to develop compensation solutions that are supportive of each client's goals, objectives and long-term plans.
LB&Co advises the Compensation Committee on executive compensation matters and assists in developing and implementing our executive compensation program. LB&Co also informs the Compensation Committee on current trends to ensure the Compensation Committee is aware of evolving market conditions.
Brian K. Moore, who served as a member of the Compensation Committee in 2023 was an officer of the Company and is currently the CEO, and Michael Y. McGovern, who served as a member of our Compensation Committee in 2023 is currently the Company’s Executive Chairman.
None of our executive officers serves or served during the last completed fiscal year as a director or member of the compensation committee of another organization one of whose executive officers serves or served at the same time as a member of either the Board or the Compensation Committee.
In 2023, LB&Co was directed to compile an analysis of compensation for our key executives. Included in this analysis was a review of our “Peer Group”. In establishing the Peer Group, the Compensation Committee sought to include companies in similar industries, with applicable revenue scope, similar business characteristics and adequate executive compensation disclosures. For 2023, the Peer Group was unchanged from 2022 and made up of the following companies for comparison:
As part of a multi-faceted review process, competitive data was drawn from both the Peer Group and publicly available survey data in order to analyze where the Company’s compensation stands relative to the market in terms of base salary, short-term and long-term incentive targets and the resulting total estimated direct compensation (“TEDC”). Relative to the peer group analyses by position, all of Superior’s executives’ TEDC register at or below the median for the Peer Group and generally within the range of competitive practice. Target pay may vary from the median based on the executive’s industry experience, company experience and performance in his or her role, internal pay equity among our executives and other factors the Compensation Committee considers relevant, for example, the lack
75
of liquidity in the Company’s common stock. Overall, the Compensation Committee believes the compensation program of the Company’s executives to be competitive.
Share Ownership Guidelines
Officers and directors of the Company are encouraged to make a substantial investment in Company stock to further align the interests of officers, directors and stockholders. Accordingly, in December 2023 our Board established minimum stock ownership guidelines for officers and directors in the following amounts:
Chief Executive Officer |
|
Common stock equivalent to 5 times base salary |
Other Executives |
|
Common stock equivalent to 3 times base salary |
Independent Non-Employee Directors |
|
Common stock equivalent to 5 times the annual cash retainer |
Each officer and director is expected to attain his or her ownership target within five years of appointment to such position. The Compensation Committee may, in its discretion, extend the period of time for attainment of such ownership levels in appropriate circumstances up to seven years. New hires or directors or executives newly appointed into a role subject to these guidelines would revert to the five year timeline. In December 2023 our Board extended such period to seven years for our current executive officers and directors.
The value of a share shall be measured as the greater of the then current market price or, if applicable, the closing price of a share of the Company’s common stock on the acquisition date.
For purposes of these guidelines, an officer’s or director’s stock ownership includes stock owned directly by the officer or director, restricted stock, stock deferred under any deferral plan and stock held in trust for the officer or director and his or her immediate family.
Components of Executive Compensation
During 2023, the Company continued to evolve the executive compensation program in response to changing market conditions. The equity awards and employment agreements granted and entered into in 2022 identified the future executive leadership, including the CEO, CFO and business unit leaders, of the Company and were intended to provide stability for the organization and retain key executives to support the positioning of the Company for success. The employment agreements were not amended in 2023 and remain in effect, but, as further discussed below, the Company modified its approach to executive compensation in 2023 to better achieve the Company’s stability and success.
As discussed above in Part II, on December 18, 2023, the Company filed the Restated Certificate and the Class B Common Stock of the Company was reclassified as Class A Common Stock of the Company. The Reclassification helps strengthen the relationship between shareholder return and executive compensation by creating a single class of common stock. On December 15, 2023, in connection with, and in order to incorporate the changes related to, the Reclassification, the Board and the Compensation Committee amended the Company’s 2021 Management Incentive Plan to define the term “Common Stock” to mean the Class A Common Stock (and any stock or other securities into which such common stock may be converted or into which they may be exchanged).
In addition, on December 15, 2023, the Board and the Compensation Committee approved retention bonus agreements (the “Retention Bonus Agreements”) for each of Messrs. Moore, Spexarth, Delahoussaye and Ellis and Ms. Toups (each, an “Executive”) pursuant to which each Executive is eligible to earn a cash retention bonus (each, a “Retention Bonus” and collectively, the “Retention Bonuses”) in the amounts set forth in the table below, payable in four equal semi-annual installments beginning on March 15, 2024, subject generally to the Executive’s continued employment on each payment date.
Executive |
|
Retention Bonus |
|
|
Brian K. Moore |
|
$ |
6,750,000.00 |
|
James W. Spexarth |
|
|
1,544,962.50 |
|
Michael J. Delahoussaye |
|
|
1,312,500.00 |
|
Bryan M. Ellis |
|
|
1,326,000.00 |
|
Deidre Toups |
|
|
1,200,000.00 |
|
Pursuant to the Retention Bonus Agreement, as a condition to the grant of the Retention Bonus, each Executive agreed to forfeit all performance stock units (“PSUs”) granted pursuant to an award agreement effective as of March 28, 2022 in the case of Messrs. Moore, Spexarth and Delahoussaye and Ms. Toups, and effective as of July 18, 2022 in the case of Mr. Ellis (each, a “PSU Award Agreement”). Upon execution of the Retention Bonus Agreement, all rights and obligations under the PSU Award Agreement were forfeited and
76
terminated and the PSUs granted thereunder were cancelled and are of no further force or effect. The PSUs were subject to termination and forfeiture for no consideration in the event no strategic transaction occurred prior to March 23, 2025. The cancellation, along with the Retention Bonuses, ensure motivation and retention as the Company embarks on its longer-term strategy given that the Company has not yet executed a strategic transaction of the type contemplated by the PSU Award Agreements. Under the Retention Bonus Agreements, payments are structured as four equal installments in March and September of 2024 and 2025 thus extending the duration of retention incentives further into 2025.
As discussed in last year’s CD&A, the equity-based compensation awards granted to our NEOs in 2022 were intended to cover a three year period in lieu of customary annual awards. This intent continues to apply even after the Company adjusted its approach to executive compensation by cancelling the PSUs granted in 2022 and awarding the Retention Bonuses. Accordingly, no equity or equity-based compensation awards were granted to our NEOs in 2023.
The three main components of the executive compensation program for 2023 were base salary, annual incentive plan (“AIP”) awards, and the Retention Bonuses.
Base Salary
The primary role of the base salary element of the executive compensation program during 2023 was to compensate executives for the experience, accomplishments, education, personal qualities and other qualifications that were key for their specific roles as well as their level of responsibility. The Compensation Committee monitors and adjusts salaries for our NEOs over time as necessary to remain competitive with the base salaries of executive officers of members of our Peer Group in order to retain and to continue to develop key talent. For additional salary information, see the 2023 Summary Compensation Table below.
Messrs. Delahoussaye and Ellis and Ms. Toups each received base salary increases in February 2023 to remain consistent with market trends. The table below summarizes each NEO’s base salary for 2022 and 2023:
Name |
|
2022 Base Salary |
|
|
2023 Base Salary |
|
||
Mr. McGovern |
|
$ |
750,000 |
|
|
$ |
750,000 |
|
Mr. Moore |
|
|
750,000 |
|
|
|
750,000 |
|
Mr. Spexarth |
|
|
425,000 |
|
|
|
425,000 |
|
Mr. Delahoussaye |
|
|
375,000 |
|
|
|
390,000 |
|
Mr. Ellis |
|
|
325,000 |
|
|
|
340,000 |
|
Ms. Toups |
|
|
350,000 |
|
|
|
365,000 |
|
2023 Executive Annual Incentive Plan
The purpose of the AIP is to focus management’s attention on key financial metrics that drive our performance and to reward executives for achievement of annual objectives. Furthermore, the AIP is part of a comprehensive compensation program that aligns pay to performance by making a substantial portion of total executive compensation variable, or “at-risk.” The target AIP opportunity for each NEO is 75% of base salary, with the exception of Mr. Moore, for which it is 105%, Mr. Spexarth, for which it is 80%, and Mr. McGovern, who does not participate in the AIP.
Although the Compensation Committee sets annual incentive target levels that result in target-level payouts when performance objectives are met (subject to the target annual incentive award opportunity provided for in Messrs. Moore’s and Spexarth’s employment agreements), our program may pay out below or above target, contingent upon the Company’s performance relative to the Compensation Committee and Board approved goals, which are set annually based on our operating plan.
At the beginning of each year, our Compensation Committee is responsible for reviewing and recommending for approval by our Board quantifiable corporate performance objectives and the relative weighting of those metrics. At the end of each year, the Compensation Committee reviews the Company’s performance results against these objectives. Payments in respect of the 2023 AIP awards were approved by the Compensation Committee in March 2024 based upon EBITDA-based metrics set at the beginning of 2023.
AIP Performance Goals for Executives
Under the AIP, our NEOs (other than Mr. McGovern) are eligible to earn a payout based on a target percentage of their base salary. Given the activity in the oil and gas industry, the Compensation Committee also established what it believed was an appropriate EBITDA target of 301.0 million for 2023 given the evolving market landscape. This performance goal was designed to help achieve a balance between stockholder returns and executive compensation and tie a significant portion of compensation directly to our operating and
77
financial performance. As a financial metric, EBITDA is closely linked to cash flow and encourages management to focus on improving efficiency from existing operations.
For 2023, 100% of the total payout of the AIP was based on the achievement of the EBITDA target, and each eligible NEO’s payout levels are summarized below. The financial metric provides for threshold, target, overachievement and maximum payout levels, expressed as a percentage of salary based upon the achievement of the EBITDA target.
NEO |
|
Threshold |
|
Target |
|
Over Achievement |
|
Maximum |
Mr. Moore |
|
52.5% |
|
105.0% |
|
157.5% |
|
210.0% |
Mr. Spexarth |
|
40.0% |
|
80.0% |
|
120.0% |
|
160.0% |
Mr. Delahoussaye |
|
37.5% |
|
75.0% |
|
112.5% |
|
150.0% |
Mr. Ellis |
|
37.5% |
|
75.0% |
|
112.5% |
|
150.0% |
Ms. Toups |
|
37.5% |
|
75.0% |
|
112.5% |
|
150.0% |
Based on the Company’s EBITDA results for 2023, all NEOs (with the exception of Mr. McGovern, who does not participate in the AIP) received a bonus under the AIP in 2024 in an amount equal to a figure between the applicable target and over achievement percentage of base salary.
2023 Executive Compensation
2023 Summary Compensation Table
The following table summarizes the compensation awarded to, earned by, or paid to each NEO for the years ended December 31, 2023, 2022 and 2021.
Name and Principal Position |
|
Year |
|
Salary |
|
|
Bonus |
|
|
Stock |
|
|
Non-Equity |
|
|
All Other |
|
|
Total ($) |
|
||||||
Michael Y. McGovern |
|
2023 |
|
$ |
750,001 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
13,971 |
|
|
$ |
763,972 |
|
Executive Chairman |
|
2022 |
|
|
637,345 |
|
|
|
- |
|
|
|
4,667,250 |
|
|
|
- |
|
|
|
998,925 |
|
|
|
6,303,520 |
|
|
|
2021 |
|
|
1,203,904 |
|
|
|
- |
|
|
|
1,325,006 |
|
|
|
- |
|
|
|
- |
|
|
|
2,528,910 |
|
Brian K. Moore (5) |
|
2023 |
|
|
750,001 |
|
|
|
|
|
|
- |
|
|
|
1,067,520 |
|
|
|
23,802 |
|
|
|
1,841,324 |
|
|
President and Chief Executive Officer |
|
2022 |
|
|
723,463 |
|
|
|
|
|
|
9,846,000 |
|
|
|
1,500,000 |
|
|
|
583,052 |
|
|
|
12,652,515 |
|
|
|
|
2021 |
|
|
423,896 |
|
|
|
|
|
|
|
|
|
900,000 |
|
|
|
33,038 |
|
|
|
1,356,934 |
|
||
James W. Spexarth |
|
2023 |
|
|
425,001 |
|
|
|
|
|
|
- |
|
|
|
460,898 |
|
|
|
24,342 |
|
|
|
910,241 |
|
|
Executive Vice President, |
|
2022 |
|
|
425,001 |
|
|
|
|
|
|
2,253,600 |
|
|
|
595,000 |
|
|
|
309,057 |
|
|
|
3,582,658 |
|
|
Chief Financial Officer and Treasurer |
|
2021 |
|
|
327,495 |
|
|
|
125,000 |
|
|
|
1,000,030 |
|
|
|
297,500 |
|
|
|
38,526 |
|
|
|
1,788,551 |
|
Michael J. Delahoussaye |
|
2023 |
|
|
387,577 |
|
|
|
|
|
|
- |
|
|
|
352,077 |
|
|
|
14,892 |
|
|
|
754,546 |
|
|
President, |
|
2022 |
|
|
375,001 |
|
|
|
|
|
|
1,914,500 |
|
|
|
525,000 |
|
|
|
308,424 |
|
|
|
3,122,925 |
|
|
Workstrings International |
|
2021 |
|
|
301,077 |
|
|
|
- |
|
|
|
500,015 |
|
|
|
262,500 |
|
|
|
77,892 |
|
|
|
1,141,484 |
|
Bryan M. Ellis (5) |
|
2023 |
|
|
337,576 |
|
|
|
60,667 |
|
|
|
- |
|
|
|
385,905 |
|
|
|
34,334 |
|
|
|
818,482 |
|
President, |
|
2022 |
|
|
293,413 |
|
|
|
60,667 |
|
|
|
1,934,192 |
|
|
|
455,000 |
|
|
|
142,220 |
|
|
|
2,885,492 |
|
Wild Well Control, International Snubbing Services, and International Production Services |
|
2021 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Deidre D. Toups |
|
2023 |
|
|
362,577 |
|
|
|
- |
|
|
|
- |
|
|
|
382,601 |
|
|
|
23,742 |
|
|
|
768,920 |
|
President, |
|
2022 |
|
|
349,999 |
|
|
|
- |
|
|
|
1,750,400 |
|
|
|
490,000 |
|
|
|
280,860 |
|
|
|
2,871,259 |
|
Stabil Drill, HB Rentals and Completions |
|
2021 |
|
|
315,646 |
|
|
|
- |
|
|
|
500,015 |
|
|
|
245,000 |
|
|
|
30,781 |
|
|
|
1,091,442 |
|
78
Name |
|
401(k) |
|
|
Life Insurance |
|
|
Automobile and |
|
|
Country Club |
|
|
Gift Card |
|
|
Total |
|
||||||
Mr. McGovern |
|
$ |
13,200 |
|
|
$ |
771 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
13,971 |
|
Mr. Moore |
|
|
13,200 |
|
|
|
1,002 |
|
|
|
9,600 |
|
|
|
- |
|
|
|
- |
|
|
|
23,802 |
|
Mr. Spexarth |
|
|
13,200 |
|
|
|
1,542 |
|
|
|
9,600 |
|
|
|
- |
|
|
|
- |
|
|
|
24,342 |
|
Mr. Delahoussaye |
|
|
13,200 |
|
|
|
1,542 |
|
|
|
- |
|
|
|
- |
|
|
|
150 |
|
|
|
14,892 |
|
Mr. Ellis |
|
|
13,200 |
|
|
|
1,536 |
|
|
|
9,600 |
|
|
|
9,998 |
|
|
|
- |
|
|
|
34,334 |
|
Ms. Toups |
|
|
13,200 |
|
|
|
1,542 |
|
|
|
9,000 |
|
|
|
- |
|
|
|
- |
|
|
|
23,742 |
|
Grants of Plan-Based Awards During 2023
The following table presents additional information regarding non-equity incentive plan awards granted to NEOs under the 2023 AIP during the year ended December 31, 2023.
|
|
|
|
Estimated Future Payouts Under Non-Equity Incentive Plan Awards |
|
|||||||||||||
Name |
|
Grant Type |
|
Threshold |
|
|
Target |
|
|
Over Achievement |
|
|
Maximum |
|
||||
Michael Y. McGovern |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Brian K. Moore |
|
AIP |
|
|
393,750 |
|
|
|
787,500 |
|
|
|
1,181,250 |
|
|
|
1,575,000 |
|
James W. Spexarth |
|
AIP |
|
|
170,000 |
|
|
|
340,000 |
|
|
|
510,000 |
|
|
|
680,000 |
|
Michael J. Delahoussaye |
|
AIP |
|
|
146,250 |
|
|
|
292,500 |
|
|
|
438,750 |
|
|
|
585,000 |
|
Bryan M. Ellis |
|
AIP |
|
|
127,500 |
|
|
|
255,000 |
|
|
|
382,500 |
|
|
|
510,000 |
|
Deidre D. Toups |
|
AIP |
|
|
136,875 |
|
|
|
273,750 |
|
|
|
410,625 |
|
|
|
547,500 |
|
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
As described above, the Compensation Committee did not grant any equity compensation awards to the NEOs during 2023. Awards made under the forms of RSU award agreements granted in 2022 generally vest in three equal annual installments over a three-year period ending on the third anniversary of January 20, 2022, subject to the grantee’s continued employment through the applicable vesting date, and forfeiture on terms and conditions set forth in the forms of RSU award agreements.
On December 15, 2023, the Board and the Compensation Committee of the Board approved the Retention Bonus Agreements, pursuant to which each Executive is eligible to earn a Retention Bonus, payable in four equal semi-annual installments beginning on March 15, 2024, subject generally to the Executive’s continued employment on each payment date. As discussed above, pursuant to the Retention Bonus Agreement, as a condition to the grant of the Retention Bonus, each Executive agreed to forfeit all PSUs granted pursuant to the PSU award agreement. Upon execution of the Retention Bonus Agreement, all rights and obligations under the PSU award agreement were forfeited and terminated and the PSUs granted thereunder were cancelled and are of no further force or effect.
On March 28, 2022, the Board and the Compensation Committee approved employment agreements for each of Messrs. Moore, Spexarth, Delahoussaye and Ms. Toups, which superseded and replaced their existing employment agreements with the Company, except for Mr. Delahoussaye who was not a party to an employment agreement with the Company, and in Mr. Moore’s case also superseded his binding term sheet with the Company disclosed in the Company’s Current Report on Form 8-K filed on January 24, 2022. Mr. Moore’s employment agreement provides for an annual base salary of $750,000 and a target annual incentive award opportunity of 100% of his annual base salary. Mr. Spexarth’s employment agreement provides for an annual base salary of $425,000 and a target annual incentive award opportunity of 70% of his annual base salary. Messrs. Delahoussaye’s and Ellis’ and Ms. Toups’ employment agreements provide for an annual base salary no lower than his or her current annual base salary as of the effective date of
79
the applicable employment agreement. Please refer to the CD&A for information on the NEOs annual base salaries for 2023. On July 18, 2022, the Board and the compensation committee approved an executive chairman agreement for Michael Y. McGovern, the Company’s Executive Chairman (the “Executive Chairman Agreement”), which provides for an annual base salary of $750,000, with an initial one-year term that automatically extends for an additional one-year term on the first anniversary of the effective date of the Executive Chairman Agreement unless either party gives 60 days’ prior written notice of non-renewal before expiration of the then-current term. Mr. McGovern’s annual base salary is subject to adjustment (upward or downward) if Mr. McGovern’s duties or commitments change during the term of the Executive Chairman Agreement.
Each NEO’s base salary and annual bonus for 2023, as a percentage of total compensation varied, depending on the position. For Mr. McGovern, salary and annual bonus represented approximately 98.2% of total compensation. For Mr. Moore, salary and annual bonus represented approximately 98.7% of total compensation. For Mr. Spexarth, salary and annual bonus represented approximately 97.3% of total compensation. For Mr. Delahoussaye, salary and annual bonus represented approximately 98.0% of total compensation. For Mr. Ellis, salary and annual bonus represented approximately 88.4% of total compensation. For Ms. Toups, salary and annual bonus represented approximately 96.9% of total compensation.
Outstanding Equity Awards at 2023 Year-End
The following table sets forth the outstanding equity awards held by our NEOs as of December 31, 2023.
|
|
|
|
Stock Awards |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||
Name |
|
Grant Date |
|
Number of Shares or Units of Stock That Have Not Vested |
|
|
Market Value of Shares or Units of Stock That Have Not Vested (1) ($) |
|
||
|
|
|
|
|
|
|
|
|
||
Michael Y. McGovern |
|
7/18/2022 |
|
|
52,917 |
|
(2) |
|
3,467,122 |
|
Brian K. Moore |
|
3/28/2022 |
|
|
30,000 |
|
(2) |
|
1,965,600 |
|
James W. Spexarth |
|
6/1/2021 |
|
|
2,614 |
|
(3) |
|
171,269 |
|
|
|
3/28/2022 |
|
|
6,867 |
|
(2) |
|
449,926 |
|
Michael J. Delahoussaye |
|
3/28/2022 |
|
|
5,833 |
|
(2) |
|
382,178 |
|
Bryan M. Ellis |
|
7/18/2022 |
|
|
5,893 |
|
(2) |
|
386,109 |
|
Deidre D. Toups |
|
3/28/2022 |
|
|
5,333 |
|
(2) |
|
349,418 |
|
Stock Vested in 2023
The following table presents information regarding the vesting of restricted stock awards and RSUs held by our NEOs during 2023.
|
|
Stock Awards |
|
|||||
Name |
|
Number of Shares Acquired On Vesting (#) |
|
|
Value Realized on Vesting ($) (1) |
|
||
Michael Y. McGovern |
|
|
26,458 |
|
|
|
1,487,469 |
|
Brian K. Moore |
|
|
15,000 |
|
|
|
843,300 |
|
James W. Spexarth |
|
|
18,696 |
|
|
|
1,051,089 |
|
Michael J. Delahoussaye |
|
|
15,566 |
|
|
|
875,121 |
|
Bryan M. Ellis |
|
|
2,947 |
|
|
|
165,680 |
|
Deidre D. Toups |
|
|
15,316 |
|
|
|
861,066 |
|
|
|
|
|
|
|
|
||
Pension Benefits
80
None of the NEOs participated in any defined benefit pension plans in 2023.
Nonqualified Deferred Compensation for 2023
Name |
|
Aggregate Earnings in 2023 |
|
|
Aggregate |
|
|
Aggregate |
|
|||
Brian K. Moore |
|
|
|
|
|
|
|
|
|
|||
SERP (1) |
|
|
56,973 |
|
|
|
- |
|
|
|
1,425,992 |
|
James W. Spexarth |
|
|
|
|
|
|
|
|
|
|||
NQDC Plan |
|
|
39,664 |
|
|
|
- |
|
|
|
531,090 |
|
SERP (1) |
|
|
3,734 |
|
|
|
- |
|
|
|
93,453 |
|
Deidre D. Toups |
|
|
|
|
|
|
|
|
|
|||
NQDC Plan |
|
|
175,057 |
|
|
|
- |
|
|
|
1,452,174 |
|
SERP (1) |
|
|
16,050 |
|
|
|
- |
|
|
|
401,731 |
|
With regard to the NQDC Plan, participant accounts are treated as if invested in one or more investment vehicles selected by the participant. The annual rate of return for these funds for fiscal year 2023 was as follows:
Fund |
|
One Year |
|
|
Nationwide VIT Money Market V |
|
|
4.80 |
% |
JPMorgan IT Core Bond 1 |
|
|
5.91 |
% |
Vanguard VIF Total Bond Mkt Idx |
|
|
5.58 |
% |
Franklin Templeton VIP Global Bond 1 |
|
|
3.19 |
% |
MFS VIT Value Svc |
|
|
7.63 |
% |
Fidelity VIP Index 500 Initial |
|
|
26.19 |
% |
American Funds IS Growth 2 |
|
|
38.48 |
% |
JPMorgan IT Mid Cap Value 1 |
|
|
10.91 |
% |
Vanguard VIF Mid Cap Index |
|
|
15.83 |
% |
Janus Henderson VIT Enterprise Svc |
|
|
17.78 |
% |
DFA VA U.S. Targeted Value |
|
|
20.03 |
% |
DWS Small Cap Index VIP A |
|
|
16.76 |
% |
Vanguard VIF Small Co Gr |
|
|
19.65 |
% |
Nationwide VIT International Index I |
|
|
17.58 |
% |
Invesco VI EQV International Equity I |
|
|
18.15 |
% |
MFS VIT II International Intrinsic Value Svc |
|
|
17.37 |
% |
Vanguard VIF Real Estate Index |
|
|
11.70 |
% |
Retirement Benefit Programs
Supplemental Executive Retirement Plan
The Supplemental Executive Retirement Plan (SERP) provided retirement benefits to executive officers and certain other designated key employees. The SERP is an unfunded, non-qualified defined contribution retirement plan and all contributions under the SERP are in the form of credits to a notional account maintained for each participant.
81
Nonqualified Deferred Compensation Plan
The Nonqualified Deferred Compensation Plan (NQDC Plan) provides an income deferral opportunity for executive officers and certain senior managers who qualify for participation.
We have not had enrollment periods for the NQDC since 2019.
Potential Payments upon Termination or Change in Control
Because our NEOs became NEOs at different times and under different circumstances, the compensation and benefits awarded to our individual NEOs in the event of termination or a change in control varies. Below is a description of the employment agreements and other arrangements in place with each of our NEOs.
Employment Agreements. Mr. Moore’s and Mr. Spexarth’s employment agreements each have an initial three-year term that automatically extends for an additional one-year term unless either party gives 60 days’ prior written notice of non-renewal before expiration of the then-current term. Mr. Delahoussaye’s and Ms. Toups’ employment agreements each have an initial two-year term that automatically extends for an additional one-year term unless either party gives 60 days’ prior written notice of non-renewal before expiration of the then-current term.
Mr. Ellis’ employment agreement has an initial two-year term that automatically extends for an additional one-year term unless either party gives 60 days’ prior written notice of non-renewal before expiration of the then-current term.
Executive Chairman Agreement for Mr. McGovern. The Executive Chairman Agreement has an initial one-year term with an automatic extension for an additional one-year term on the first anniversary of the effective date and each subsequent anniversary thereafter, unless either the Company or Mr. McGovern gives 60 days’ prior written notice of non-renewal before the next anniversary of the effective date.
The termination and change in control payments and benefits provided for in the employment agreements and Executive Chairman Agreement for our NEOs are described below.
Termination without a Change in Control
82
Termination without Cause or for Good Reason in Connection with a Change in Control
83
The payments and benefits described above are subject to the NEO’s timely execution of a release of claims in favor of us. Each employment agreement includes an indefinite confidentiality and protection of information covenant and a mutual one-year non-disparagement covenant. Upon termination of employment by us for cause or resignation without good reason, each NEO will be bound by a non-competition and non-solicitation covenant for one year after the date of their termination.
Equity Awards
2021 Restricted Stock Awards
With respect to the restricted stock award granted to Mr. Spexarth in 2021, upon the termination of his employment by the Company without “cause” (as defined in the MIP), by Mr. Spexarth for “good reason” (defined in the MIP to have the same meaning as his employment agreement) or due to Mr. Spexarth’s “disability” (as defined in the MIP), Mr. Spexarth will vest in a pro rata portion of his unvested restricted stock. Such pro rata portion will be determined by dividing the number of days that elapsed from the vesting date immediately preceding Mr. Spexarth’s termination date (or, if none, the grant date) through the termination date by 365. In addition, Mr. Spexarth’s outstanding 2021 restricted stock award will become 100% vested upon his death or the occurrence of a “change in control” (as defined in the MIP) (subject to his continued employment immediately prior to such change in control).
2022 RSUs
The RSUs granted to Messrs. Moore, Spexarth, Delahoussaye, Ellis and Ms. Toups do not provide for any accelerated vesting in the event of a termination of the NEO’s employment. With respect to the RSUs granted to Mr. McGovern, in the event that Mr. McGovern’s employment is terminated by the Company without “cause” (excluding due to death or disability (as defined in the Executive Chairman Agreement)) or by Mr. McGovern for “good reason” (as defined in the Executive Chairman Agreement), subject to Mr. McGovern’s timely execution of a release of claims in favor of the Company and continued compliance with his restrictive covenants, the tranche of RSUs scheduled to vest on the next scheduled vesting date following the date of termination (i.e., one third (1/3rd)) will vest. In addition, Mr. McGovern’s RSU award will become 100% vested upon the occurrence of a change in control, subject to Mr. McGovern’s continued employment as of the date of such change in control. The RSU awards granted to the NEOs (other than Mr. McGovern) do not automatically vest upon a change in control.
The Retention Bonus Agreements provide that if a “change in control” (as defined in the MIP) occurs prior to September 15, 2025 or if the NEO’s employment is terminated by the Company without “cause” as defined in the MIP prior to September 15, 2025, then any unpaid portion of the Retention Bonus will accelerate and be payable to the NEO, less applicable tax withholding, on the consummation of such change in control or on the date of termination, as applicable, subject to, in the event of a change in control, the NEO’s continued employment through and including the consummation of such change in control
We do not provide excise tax gross ups under any employment agreement or equity award discussed above. Each of the employment agreements discussed above, as well as the Executive Chairman Agreement, provides for a “best net” approach in the event that severance and other payments and benefits result in “excess parachute payments” under Internal Revenue Code Section 280G. Under a “best net” approach, the NEO’s payments and benefits will be reduced to avoid triggering excise tax if the reduction would result in a greater after-tax amount for the NEO compared to the amount he or she would receive net of the excise tax if no reduction were made.
Except as otherwise noted, the following table quantifies the potential payments to our NEOs under their employment arrangements and equity awards discussed above and the SERP and the NQDC Plan, as described above, for various scenarios involving a change in control or termination of employment of each of our NEOs in such position at the end of the year, assuming a December 31, 2023 termination date and where applicable, using the estimated fair market value as of December 31, 2023 of $65.52 per share of our common stock. Excluded are benefits provided to all employees, such as accrued vacation and benefits provided by third parties under our life and other insurance policies. Also excluded are benefits our NEOs would receive upon termination of employment under our 401(k) plan.
84
Name |
|
Termination without Cause |
|
|
Resignation for Good Reason |
|
|
Termination without Cause / for Good Reason in Connection with a Change of |
|
|
Change of Control Alone |
|
|
Voluntary Termination |
|
|
Death |
|
|
Disability |
|
|||||||
Michael Y. McGovern |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Severance Pay |
|
$ |
408,904 |
|
|
$ |
408,904 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
RSU Acceleration |
|
|
1,733,528 |
|
|
|
1,733,528 |
|
|
|
1,733,528 |
|
|
|
3,467,100 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
COBRA Payments |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total |
|
$ |
2,142,432 |
|
|
$ |
2,142,432 |
|
|
$ |
1,733,528 |
|
|
$ |
3,467,100 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Brian K. Moore |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Severance Pay |
|
$ |
3,075,000 |
|
|
$ |
3,075,000 |
|
|
$ |
3,075,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Prorated Bonus (at target) |
|
|
787,500 |
|
|
|
787,500 |
|
|
|
787,500 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
SERP |
|
|
1,425,992 |
|
|
|
1,425,992 |
|
|
|
1,425,992 |
|
|
|
- |
|
|
|
1,425,992 |
|
|
|
1,425,992 |
|
|
|
1,425,992 |
|
Retention Bonus Acceleration |
|
|
6,750,000 |
|
|
|
- |
|
|
|
6,750,000 |
|
|
|
6,750,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
COBRA Payments |
|
|
32,380 |
|
|
|
32,380 |
|
|
|
32,380 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total |
|
$ |
12,070,871 |
|
|
$ |
5,320,871 |
|
|
$ |
12,070,871 |
|
|
$ |
6,750,000 |
|
|
$ |
1,425,992 |
|
|
$ |
1,425,992 |
|
|
$ |
1,425,992 |
|
James W. Spexarth |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Severance Pay |
|
$ |
1,530,000 |
|
|
$ |
1,530,000 |
|
|
$ |
1,530,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Prorated Bonus (at target) |
|
|
340,000 |
|
|
|
340,000 |
|
|
|
340,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
SERP |
|
|
93,453 |
|
|
|
93,453 |
|
|
|
93,453 |
|
|
|
- |
|
|
|
93,453 |
|
|
|
93,453 |
|
|
|
93,453 |
|
NQDC Plan |
|
|
531,090 |
|
|
|
531,090 |
|
|
|
531,090 |
|
|
|
- |
|
|
|
531,090 |
|
|
|
531,090 |
|
|
|
531,090 |
|
Restricted Stock Acceleration |
|
|
160,454 |
|
|
|
160,454 |
|
|
|
160,454 |
|
|
|
276,254 |
|
|
|
- |
|
|
|
276,254 |
|
|
|
160,454 |
|
Retention Bonus Acceleration |
|
|
1,544,963 |
|
|
|
- |
|
|
|
1,544,963 |
|
|
|
1,544,963 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
COBRA Payments |
|
|
49,519 |
|
|
|
49,519 |
|
|
|
49,519 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total |
|
$ |
4,249,478 |
|
|
$ |
2,704,516 |
|
|
$ |
4,249,478 |
|
|
$ |
1,821,217 |
|
|
$ |
624,543 |
|
|
$ |
900,797 |
|
|
$ |
784,997 |
|
Michael J. Delahoussaye |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Severance Pay |
|
$ |
682,500 |
|
|
$ |
- |
|
|
$ |
1,365,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Prorated Bonus (at target) |
|
|
292,500 |
|
|
|
- |
|
|
|
292,500 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Retention Bonus Acceleration |
|
|
1,312,500 |
|
|
|
- |
|
|
|
1,312,500 |
|
|
|
1,312,500 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
COBRA Payments |
|
|
24,948 |
|
|
|
- |
|
|
|
49,896 |
|
|
|
49,896 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total |
|
$ |
2,312,448 |
|
|
$ |
- |
|
|
$ |
3,019,896 |
|
|
$ |
1,362,396 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Bryan M. Ellis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Severance Pay |
|
$ |
580,000 |
|
|
$ |
- |
|
|
$ |
1,190,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Prorated Bonus (at target) |
|
|
255,000 |
|
|
|
- |
|
|
|
255,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Retention Bonus Acceleration |
|
|
1,326,000 |
|
|
|
- |
|
|
|
1,326,000 |
|
|
|
1,326,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
COBRA Payments |
|
|
24,948 |
|
|
|
- |
|
|
|
37,358 |
|
|
|
37,358 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total |
|
$ |
2,185,948 |
|
|
$ |
- |
|
|
$ |
2,808,358 |
|
|
$ |
1,363,358 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Deidre D. Toups |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Severance Pay |
|
$ |
638,750 |
|
|
$ |
- |
|
|
$ |
1,225,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Prorated Bonus (at target) |
|
|
273,750 |
|
|
|
- |
|
|
|
273,750 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
SERP |
|
|
401,731 |
|
|
|
401,731 |
|
|
|
401,731 |
|
|
|
- |
|
|
|
401,731 |
|
|
|
401,731 |
|
|
|
401,731 |
|
NQDC Plan |
|
|
1,452,174 |
|
|
|
1,452,174 |
|
|
|
1,452,174 |
|
|
|
- |
|
|
|
1,452,174 |
|
|
|
1,452,174 |
|
|
|
1,452,174 |
|
Retention Bonus Acceleration |
|
|
1,200,000 |
|
|
|
- |
|
|
|
1,200,000 |
|
|
|
1,200,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
COBRA Payments |
|
|
24,948 |
|
|
|
- |
|
|
|
37,358 |
|
|
|
37,358 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total |
|
$ |
3,991,353 |
|
|
$ |
1,853,905 |
|
|
$ |
4,590,013 |
|
|
$ |
1,237,358 |
|
|
$ |
1,853,905 |
|
|
$ |
1,853,905 |
|
|
$ |
1,853,905 |
|
CEO Pay Ratio
The table below sets forth comparative information regarding (A) the 2023 annual total compensation of Mr. Moore and (B) the 2023 annual total compensation of the median employee.
CEO Pay Ratio |
|
|||
CEO 2023 Annual Total Compensation |
|
$ |
1,841,324 |
|
Median Employee 2023 Annual Total Compensation |
|
|
76,027 |
|
Developments during 2023 required a review of the analysis to determine the median employee for comparison to determine the CEO pay ratio. The methodology used in identifying the 2023 median employee was substantially similar to prior period reviews. As we did for 2022, for 2023, no international employees were excluded under the 5% de minimis exception. We consistently applied the compensation measure of total taxable compensation which included base salary, overtime, bonuses paid in 2023, long-term incentives granted in 2023 and all other types of taxable compensation. In the analysis, all part-time and full-time U.S. and non-U.S. employees who were employed by us as of December 31, 2023 were included.
85
Approximately 2,292 part-time and full-time U.S. and non-U.S. employees (other than Mr. Moore), who were employed as of December 31, 2023, were included. December 31, 2023 was selected as the date to identify our median compensated employee. Given that we have global operations and employees located in many locations, pay and reporting systems and pay practices vary depending on the region. As a result, assumptions, adjustments and estimates were consistently applied to identify the annual total taxable compensation of the median compensated employee. International compensation was converted to USD for comparison purposes using conversion rates as of December 31, 2023. Based on the methodology described above, the median employee is an hourly operations employee who has worked for us for approximately a year and a half.
In 2023, the median employee earned an annual total compensation of $76,027. The 2023 annual total compensation for Mr. Moore was $1,841,324. This amount equals Mr. Moore’s total compensation as reported in the Summary Compensation Table. As a result, the pay ratio between our CEO’s annual total compensation and the median employee’s annual total compensation was 25:1 in 2023.
2023 Director Compensation
In 2023, the non-management directors received:
The table below summarizes the compensation for the year ended 2023 for non-management directors (regardless of when earned). All non-management directors were reimbursed for reasonable expenses incurred in attending Board and Board committee meetings.
Name |
|
Fees Earned or |
|
|
Stock |
|
|
All Other |
|
|
Total |
|
||||
Joseph Citarrella (1) |
|
$ |
75,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
75,000 |
|
Daniel E. Flores (2) |
|
|
75,000 |
|
|
|
- |
|
|
|
- |
|
|
|
75,000 |
|
Julie J. Robertson |
|
|
90,000 |
|
|
|
- |
|
|
|
- |
|
|
|
90,000 |
|
Krishna Shivram |
|
|
95,000 |
|
|
|
- |
|
|
|
- |
|
|
|
95,000 |
|
Timothy J. Winfrey (3) |
|
|
75,000 |
|
|
|
- |
|
|
|
- |
|
|
|
75,000 |
|
Director cash compensation is paid quarterly. There were no additional equity awards to directors in 2023 given the multi-year vesting schedule of the 2021 grants which were intended to compensate the directors for a three year period of service. On January 26, 2024, the Board and the Compensation Committee of the Board approved accelerated vesting with respect to 4,891 and 3,790 outstanding restricted shares of the Company’s Class A common stock granted pursuant to restricted stock awards under the Company’s 2021 Management Incentive Plan to Mr. Winfrey and Ms. Robertson, respectively, that would otherwise vest on June 2, 2024. On March 6, 2024, the Board and the Compensation Committee of the Board approved accelerated vesting with respect to 3,693 outstanding restricted shares of the Company’s Class A common stock granted pursuant to restricted stock awards under the Company’s 2021 Management Incentive Plan to Mr. Shivram that would otherwise vest on June 2, 2024. In addition, on February 15, 2024 we purchased 14,763 vested shares of our Class A common stock for $65.52 per share from Mr. Winfrey following his resignation from the Board in January 2024. Director compensation is structured to attract and retain experienced and qualified directors. The compensation reflects the time commitment of the role as well as the qualifications of the directors. At the end of 2023, the aggregate number of restricted stock awards for each non-management director and the full grant date fair value of such equity award granted to each director computed in accordance with ASC 718 is as follows:
Name |
|
Number of Unvested Restricted Stock Awards Outstanding as of December 31, 2023 |
|
|
Fair Value as of December 31, 2023 |
|
||
Julie J. Robertson |
|
|
3,790 |
|
|
$ |
248,343 |
|
Timothy J. Winfrey |
|
|
4,891 |
|
|
|
320,458 |
|
Krishna Shivram |
|
|
3,693 |
|
|
|
241,944 |
|
Directors and Officers (“D&O”) insurance insures our individual directors and officers against certain losses that they are legally required to bear as a result of their actions while performing duties on our behalf. Our D&O insurance policy does not break out the premium for directors versus officers and, therefore, a dollar amount cannot be assigned to the coverage provided for individual directors.
86
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Securities Authorized for Issuance Under Equity Compensation Plans
Plan Category |
|
Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants and Rights |
|
|
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights |
|
|
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) |
|
|||
Equity Compensation Plans Approved by Security Holders |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Equity Compensation Plans Not Approved by Security Holders |
|
|
121,831 |
|
|
|
|
|
|
1,771,681 |
|
|
Total |
|
|
121,831 |
|
|
|
- |
|
|
|
1,771,681 |
|
Shares were issued under our MIP, discussed above. The Compensation Committee designates participants in the plan, determines the types of cash and share based awards authorized by the plan to be issued to participants, and determines the terms of the individual forms of awards granted under the MIP, among other things. Pursuant to the MIP, the Compensation Committee is authorized to grant awards with respect to an aggregate of 1,999,869 shares of Class A Common Stock.
Principal Stockholders
The following table shows the number of shares of our Class A Common Stock beneficially owned by holders as of March 7, 2024 known by us to beneficially own more than 5% of the outstanding shares of our common stock as well as our directors and executive officers.
The information in the table is based on information provided to us by the entities listed below as well as our transfer agent.
We believe, based on information supplied by the stockholders, that except as may otherwise be indicated in the footnotes to the table below, the stockholders have sole voting and dispositive power with respect to the shares of Class A Common Stock reported as beneficially owned by them.
|
|
Class A Common Stock |
|
|||||
Name and Address of Beneficial Owner |
|
Number |
|
|
Percentage |
|
||
GoldenTree Asset Management LP (1) |
|
|
9,586,613 |
|
|
|
47.5 |
% |
Monarch Energy Holdings (SE) LLC (2) |
|
|
3,115,736 |
|
|
|
15.4 |
% |
Glendon Capital Management, L.P. (3) |
|
|
1,804,808 |
|
|
|
8.9 |
% |
Madison Avenue Partners, LP (4) |
|
|
1,235,568 |
|
|
|
6.1 |
% |
Ian S. Foster |
|
|
- |
|
|
|
- |
|
Joseph Citarrella |
|
|
- |
|
|
|
- |
|
Daniel E. Flores |
|
|
- |
|
|
|
- |
|
Julie J. Robertson |
|
|
11,371 |
|
|
(6) |
|
|
Krishna Shivram |
|
|
11,078 |
|
|
(6) |
|
|
Michael Y. McGovern |
|
|
68,219 |
|
|
(6) |
|
|
Brian K. Moore |
|
|
22,623 |
|
|
(6) |
|
|
James W. Spexarth |
|
|
22,444 |
|
|
(6) |
|
|
Michael J. Delahoussaye |
|
|
10,692 |
|
|
(6) |
|
|
Bryan M. Ellis |
|
|
4,272 |
|
|
(6) |
|
|
Deidre D. Toups |
|
|
12,662 |
|
|
(6) |
|
|
All directors and named executive officers as a group |
|
|
163,361 |
|
|
(6) |
|
|
87
Upon our emergence from Chapter 11 bankruptcy, all existing equity was cancelled and we issued the Class A Common Stock. The address of directors and officers is in care of Superior Energy Services, Inc., 1001 Louisiana Street, Suite 2900, Houston, Texas 77002.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Certain Transactions
Our practice has been that any transaction which would require disclosure under Item 404(a) of Regulation S-K of the rules and regulations of the SEC, with respect to a director or executive officer, must be reviewed and approved by the Audit Committee.
On the Emergence Date, in order to implement the governance related provisions reflected in the Plan, we entered into a Stockholders Agreement to provide for certain governance matters, which is further discussed in Item 10 in this Annual Report on Form 10-K.
On February 15, 2024 we purchased 14,763 shares of our Class A Common Stock for $65.52 per share from Timothy J. Winfrey, a former director that resigned from the Board in January 2024. Because the purchase was from a former director, Audit Committee approval was not required by our practice described above; however, the purchase was unanimously approved by our directors.
Item 14. Principal Accounting Fees and Services
The following table presents fees for professional audit services rendered by our Independent Registered Public Accounting Firm for the audits of our annual financial statements for the years ended December 31, 2023, 2022 and 2021, and fees billed for other services rendered. Our Independent Registered Public Accounting Firm for the years ended December 31, 2023 and 2022 and 2021 was PricewaterhouseCoopers LLP.
|
|
Fiscal Year Ended December 31 |
|
|||||||||
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Audit Fees (1) |
|
$ |
2,650 |
|
|
$ |
2,700 |
|
|
$ |
3,100 |
|
Audit-Related Fees (2) |
|
|
9 |
|
|
|
3 |
|
|
|
3 |
|
Tax Fees (3) |
|
|
371 |
|
|
|
241 |
|
|
|
29 |
|
All Other Fees |
|
|
- |
|
|
|
- |
|
|
|
- |
|
88
PART IV
Item 15. Exhibits, Financial Statement Schedules
Financial Statements and Financial Statement Schedules
The following documents have been included in Part II, Item 8 of this Annual Report on Form 10-K:
Consolidated Financial Statements and Notes |
Page |
|
|
Reports of Independent Registered Public Accounting Firm (PCAOB ID 238) |
35 |
38 |
|
39 |
|
40 |
|
Consolidated Statements of Changes in Stockholders' Equity (Deficit) |
41 |
42 |
|
43 |
All other schedules have been omitted because they are inapplicable or not required or the information is included elsewhere in the consolidated financial statements or notes thereto.
Exhibits
|
|
Exhibit No. |
Description |
|
|
2.1 |
|
2.2 |
|
3.1 |
|
3.2 |
|
4.1 |
|
4.2 |
Indenture, dated December 6, 2011, among SESI, L.L.C., the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated herein by reference to Exhibit 4.1 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed on December 12, 2011 (File No. 001-34037)), as amended by Supplemental Indenture, dated February 29, 2012, by and among SESI, L.L.C., the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.3 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed on March 1, 2012 (File No. 001-34037)), as further amended by Supplemental Indenture dated May 7, 2012, by and among SESI, L.L.C. the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.3 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed on May 8, 2012 (File No. 001-34037)), as further amended by Supplemental Indenture dated August 29, 2014, by and among SESI, L.L.C., the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed on September 2, 2014 (File No. 001-34037)), as further amended by Supplemental Indenture dated August 3, 2015, by and among SESI, L.L.C., the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Superior Energy Services, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (File No. 001-34037)) as further amended by Supplemental Indenture dated August 17, 2017, by and among SESI L.L.C., the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.2 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed on August 17, 2017 (File No. 001-34037)), as further amended by Supplemental Indenture, dated as of October 20, 2017, by and among SESI L.L.C., the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Superior |
89
90
10.16^ |
|
10.17^ |
|
10.18^ |
|
10.19^ |
|
10.20^ |
|
10.21^ |
|
10.22^ |
|
10.23^ |
|
10.24^ |
|
10.25 |
|
10.26 |
|
10.27 |
|
10.28 |
|
10.29 |
|
10.30 |
|
10.31
|
|
10.32 |
91
|
|
10.33 |
|
10.34 |
|
10.35* |
|
10.36 |
|
10.37 |
|
10.38 |
|
10.39 |
|
10.40 |
|
10.41 |
|
10.42^ |
|
10.43^ |
|
10.44^ |
|
10.45^ |
|
10.46^ |
|
10.47^ |
|
10.48^ |
|
10.49^ |
|
10.50^ |
|
10.51^ |
92
10.52^ |
|
10.53^ |
|
10.54^ |
|
10.55^ |
|
10.56^ |
|
10.57^ |
|
10.58^ |
|
10.59^ |
|
10.60^ |
|
10.61^* |
Amendment to 2021 Management Incentive Plan, dated as of December 15, 2023. |
10.62^* |
Retention Bonus Agreement, dated as of December 15, 2023, between the Company and Brian K. Moore. |
10.63^* |
Retention Bonus Agreement, dated as of December 15, 2023, between the Company and James W. Spexarth. |
10.64^* |
|
10.65^* |
Retention Bonus Agreement, dated as of December 15, 2023, between the Company and Deidre D. Toups. |
10.66^* |
Retention Bonus Agreement, dated as of December 15, 2023, between the Company and Bryan M. Ellis. |
10.67^* |
|
14.1 |
|
16.1 |
|
21.1* |
|
31.1* |
|
31.2* |
|
32.1* |
Officer’s certification pursuant to Section 1350 of Title 18 of the U.S. Code. |
32.2* |
Officer’s certification pursuant to Section 1350 of Title 18 of the U.S. Code. |
101.INS* |
Inline XBRL Instance Document |
101.SCH* |
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents |
104* |
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herein
^ Management contract or compensatory plan or arrangement
Item 16. Form 10-K Summary
None.
93
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
SUPERIOR ENERGY SERVICES, INC. |
|
|
|
|
Date: March 7, 2024 |
|
|
|
|
|
By: |
/s/ Brian K. Moore |
|
|
|
Brian K. Moore |
|
|
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
|
|
|
|
|
Signature |
Title |
Date |
|
|
|
s/ Brian K. Moore |
President and Chief Executive Officer |
March 7, 2024 |
Brian K. Moore |
(Principal Executive Officer) |
|
|
|
|
/s/ James W. Spexarth. James W. Spexarth |
Executive Vice President, Chief Financial Officer & Treasurer (Principal Accounting and Financial Officer) |
March 7, 2024 |
|
|
|
/s/ Michael Y. McGovern |
Executive Chairman of the Board |
March 7, 2024 |
Michael Y. McGovern |
|
|
|
|
|
/s/ Joseph Citarrella |
Director |
March 7, 2024 |
Joseph Citarrella |
|
|
|
|
|
/s/ Daniel E. Flores |
Director |
March 7, 2024 |
Daniel E. Flores |
|
|
|
|
|
/s/ Julie J. Robertson |
Director |
March 7, 2024 |
Julie J. Robertson |
|
|
|
|
|
/s/ Krishna Shivram |
Director |
March 7, 2024 |
Krishna Shivram |
|
|
|
|
|
/s/ Ian S. Foster |
Director |
March 7, 2024 |
Ian S. Foster |
|
|
94