Basic Energy Services Inc., which provides well site services across the U.S. onshore, is jockeying for business as vendors duke it out in an increasingly harsh market, CEO Roe Patterson said.
The oilfield operator is working on lowering its input costs and, like its peers, shrinking the workforce.
"Our overall headcount is now 20% lower than its peak of mid-fourth quarter 2014," when Basic employed more than 4,000 people. "As we allocate assets into markets where activity is strongest, we continue to high-grade our marketed fleet and to stack excess equipment. We have increased our stacked well servicing rig count by 40 during the first quarter and added to it during April."
No doubt, it was a challenging first quarter, said Patterson, which "has triggered drastic capital spending reductions by our customers, resulting in the scaling back of our operations to fit operating cash flow in order to preserve liquidity and match customer activity. As customers reduce their service needs, pricing concessions have been required to maximize our utilization levels across all of our lines of business."
Basic also took it on the chin because of severe weather disruptions early in the year, he said.
Margins mostly were impacted in the completion and remedial services businesses because of the rapid decline in the U.S. land drilling rig count.
"We continue to face fierce rate competition in the completion lines of business across all of our operating areas, with pricing discounts reaching as high as 40% from their peak levels in 2014," Patterson said.
Revenue declined 21% year/year and was down 35% sequentially to $261.7 million from $400.9 million "as all lines of services experienced reduced activity levels and pricing pressures." Net losses totaled $32.6 million (minus 81 cents/share) in 1Q2015, versus a fourth quarter loss of $18.8 million (minus 45 cents). In 1Q2014, net losses were $3.3 million (minus 8 cents/share).
The plan is to maintain a strategy to protect market share, maximize the use of equipment and reduce rates as necessary across the board, the CEO said.
"We have successfully employed these defensive strategies in previous down cycles, and combined with the strength of our current financial position, these strategies should allow us to withstand the effects of a prolonged downturn in activity. In light of these challenging operating conditions, we have scaled back our 2015 capital expenditure plan down below our original estimate of $100 million, having already shifted primarily to a maintain-and-sustain revenue mode. At current activity levels, this number could be as low as $75 million for 2015."
March showed a glimmer of hope, with fewer sequential reductions in activity levels versus previous month/month periods, "and we are starting to see some signs of flattening utilization levels," Patterson said. "However, it is still too early to predict whether the second quarter will reflect a potential floor for activity. Looking ahead, we currently anticipate our second quarter revenue to be down 10-15% sequentially as declines in activity and continued pricing pressures will likely combine to reduce utilization. Generating free cash flow and preserving liquidity remain our main financial focus."