Superior Energy Services Inc. Reports Operating Results (10-Q)

Author's Avatar
Aug 07, 2009
Superior Energy Services Inc. (SPN, Financial) filed Quarterly Report for the period ended 2009-06-30.

SUPERIOR ENERGY SERVICES INC. is engaged in the business of providingoffshore plugging and abandonment and wireline services in the Gulf ofMexico the development manufacture and sale of electronic torque andpressure control equipment and thread protectors which are used inconnection with oil and gas exploration the development manufacture andsale of oil spill containment boom and ancillary equipment and the rental of specialized oil well equipment and fishing tools. Superior Energy Services Inc. has a market cap of $1.37 billion; its shares were traded at around $17.49 with a P/E ratio of 5.4 and P/S ratio of 0.7. Superior Energy Services Inc. had an annual average earning growth of 27.6% over the past 10 years. GuruFocus rated Superior Energy Services Inc. the business predictability rank of 4.5-star.

Highlight of Business Operations:

During the second quarter of 2009, revenue was $361.2 million, loss from operations was $40.1 million, net loss was $68.9 million and the net loss per share was $0.88. These results include a non-cash, pre-tax charge of $92.7 million for the reduction in value of intangible assets and a non-cash, pre-tax charge of $36.5 million for the reduction in value of our remaining equity-method investment in Beryl Oil and Gas L.P. (BOG). In addition, the losses from equity-method investments item include our share of quarterly losses of $15.7 million from BOG primarily related to impairments of its oil and gas properties, our share of non-cash unrealized losses associated with mark-to-market changes in the value of its outstanding hedging contracts and professional fees associated with BOGs efforts to negotiate new terms and conditions with its lenders and pursue other strategic alternatives. Our losses from equity-method investments also include $6.0 million of our share of non-cash unrealized losses associated with mark-to-market changes in the value of outstanding hedging contracts put in place by SPN Resources.

For the three months ended June 30, 2009, our revenues were $361.2 million, resulting in a net loss of $68.9 million, or $0.88 loss per share. Included in the results for the three months ended June 30, 2009 were non-cash, pre-tax charges of $92.7 million for the reduction in value of intangible assets and $36.5 million for the reduction in value of our remaining equity-method investment in BOG. Unless there is a material change in the ownership of BOG, we will not record future earnings or losses from BOG since we have written off our remaining interest in this investment. Included in the results for the three months ended June 30, 2009, were losses of $15.7 million from our share of BOG primarily related to impairments of its oil and gas properties as well as our share of unrealized losses related to hedges in place at BOG. Losses from equity-method investments also includes $6.0 million of our share of unrealized losses associated with mark-to-market changes in the value of outstanding hedging contracts put in place by SPN Resources. For the three months ended June 30, 2008, revenues were $457.7 million and net income was $71.4 million, or $0.86 diluted earnings per share. Included in the results for the three months ended June 30, 2008 were $7.8 million of losses from equity method investments, which included $19.9 million of pre-tax losses associated with our share of mark-to-market changes in the value of derivative contracts put in place by SPN Resources, and $3.1 million of a pre-tax gain associated with post closing adjustments on the sale of our 75% interest in SPN Resources. Revenues for the three months ended June 30, 2009 were lower in the well intervention segment due to a decrease in work related to a large-scale decommissioning project as well as a decrease in domestic land revenue. Revenue also decreased in the rental tools segment primarily due to decreased rentals of accommodations and stabilization equipment in our domestic land markets. During the three months ended June 30, 2009, revenue in our marine segment increased due primarily to the addition of our two new 265-foot class liftboats.

For the six months ended June 30, 2009, our revenues were $798.3 million, resulting in a net loss of $12.1 million, or $0.16 loss per share. Included in the results for the six months ended June 30, 2009 were non-cash, pre-tax charges of $92.7 million for the reduction in value of intangible assets and $36.5 million for the reduction in value of our remaining equity-method investment in BOG. Unless there is a material change in the ownership of BOG, we will not record future earnings or losses from BOG since we have written off our remaining interest in this investment. Included in the results for the six months ended June 30, 2009 were losses of $14.0 million from our share of BOG primarily related to impairments of its oil and gas properties as well as our share of unrealized losses related to hedges in place at BOG. Losses from equity-method investments also includes $7.4 million of our share of unrealized losses associated with mark-to-market changes in the value of outstanding hedging contracts put in place by SPN Resources. For the six months ended June 30, 2008, revenues were $899.0 million and net income was $170.9 million, or $2.08 diluted earnings per share. Included in the results for the six months ended June 30, 2008 were $3.8 million of losses from equity-method investments which included $19.9 million of pre-tax losses associated with mark-to-market changes in the value of derivative contracts put in place by SPN Resources, and $40.9 million of pre-tax gains associated with the sale of businesses. Revenue for the six months ended June 30, 2009 was lower in the well intervention segment due to a decrease in domestic land revenue. Revenue also decreased in the rental tools segment primarily due to decreased rentals of accommodations and stabilization equipment in our domestic land markets. During the six months ended June 30, 2009, revenue in our marine segment increased primarily due to the addition of our two new 265-foot class liftboats. No activity was recorded in our oil and gas segment for the six months ended June 30, 2009 as we sold 75% of our interest in SPN Resources on March 14, 2008.

Depreciation, depletion, amortization and accretion increased to $100.8 million in the six months ended June 30, 2009 from $83.8 million in the same period in 2008. Depreciation and amortization expense related to our well intervention and rental segments for the six months ended June 30, 2009 increased approximately $18.7 million, or 24%, from the same period in 2008. The increase in depreciation and amortization expense for these segments is primarily attributable to our 2009 and 2008 capital expenditures. Depreciation expense related to the marine segment for the six months ended June 30, 2009 increased approximately $1.1 million, or 24%, from the same period in 2008. The increase in depreciation expense for the marine segment is primarily attributable to the delivery of two vessels partially offset by the decrease in utilization, as liftboats are depreciated primarily on a units of production basis. These increases were offset by the $2.8 million decrease in the oil and gas segment as we sold 75% of our interest in SPN Resources in March 2008.

In the six months ended June 30, 2009, we generated net cash from operating activities of $89.4 million as compared to $131.6 million in the same period of 2008. This decrease is primarily attributable to the increase in costs and estimated earnings in excess of billings related to the large-scale decommissioning contract in the Gulf of Mexico, which is currently scheduled to be completed by the end of the first half of 2010, barring unusual weather or unforeseen technical challenges. Included in other current assets is approximately $280.5 million at June 30, 2009 and $164.3 million at December 31, 2008 of costs and estimated earnings in excess of billings related to this project. Billings and subsequent receipts are based on the completion of milestones. We are working on several aspects of this project at the same time, so we continue to incur costs and recognize revenue in advance of completing milestones. We anticipate collecting approximately $200.0 million of this balance prior to December 31, 2009. Our primary liquidity needs are for working capital, capital expenditures, debt service and acquisitions. Our primary sources of liquidity are cash flows from operations and available borrowings under our revolving credit facility. We had cash and cash equivalents of $36.6 million at June 30, 2009 compared to $44.9 million at December 31, 2008.

In May 2009, we amended our revolving credit facility to increase the borrowing capacity to $325 million from $250 million. Any amounts outstanding under the revolving credit facility are due on June 14, 2011. Costs associated with amending the revolving credit facility were approximately $2.3 million during the six months ended June 30, 2009. These costs were capitalized and are being amortized over the remaining term of the credit facility. At June 30, 2009, we had $55.0 million outstanding under the bank credit facility. We also had approximately $11.3 million of letters of credit outstanding, which reduces our borrowing capacity under this credit facility. The current amounts outstanding on the revolving credit facility are primarily due to increased working capital needs for our large-scale decommissioning project. As of July 31, 2009, we had $56.0 million outstanding under the bank credit facility. Borrowings under the credit facility bear interest at a LIBOR rate plus margins that depend on our leverage ratio. Indebtedness under the credit facility is secured by substantially all of our assets, including the pledge of the stock of our principal subsidiaries. The credit facility contains customary events of default and requires that we satisfy various financial covenants. It also limits our ability to pay dividends or make other distributions, make acquisitions, create liens or incur additional indebtedness.

Read the The complete ReportSPN is in the portfolios of David Dreman of Dreman Value Management.