News Column

Seventy Seven Energy Inc. Announces Second Quarter 2014 Operational and Financial Results

August 22, 2014



By a News Reporter-Staff News Editor at Energy Weekly News -- Seventy Seven Energy Inc. (NYSE: SSE), an independent diversified oilfield services company, which spun off from Chesapeake Energy Corporation (NYSE: CHK) on June 30, 2014, reported financial and operational results for the second quarter of 2014. Key information related to the second quarter is as follows: Total Revenue was $549.5 million, Adjusted Revenue was $497.7 million Net income per fully diluted share was $0.46, Adjusted net income per fully diluted share was $0.17 Adjusted EBITDA was $120.9 million Revenues from non-Chesapeake customers increased 30% from the first quarter of 2014 to the second quarter of 2014 to 19% of consolidated revenues. SSE reported total revenues of $549.5 million for the second quarter of 2014, an 8% increase compared to $509.7 million for the first quarter of 2014 and a 6% decrease compared to $583.1 million for the second quarter of 2013. As part of the spin-off, SSE distributed its compression unit manufacturing business and its geosteering business to Chesapeake and sold its crude hauling assets to a third party. SSE's adjusted revenues were $497.7 million for the second quarter of 2014 assuming these transactions occurred on March 31, 2014. Adjusted EBITDA for the second quarter of 2014 was $120.9 million, compared to $85.5 million for the first quarter of 2014 and $122.1 million for the second quarter of 2013. Net income for the second quarter of 2014 was $21.7 million, or $0.46 per diluted share, compared to a net loss of ($18.6) million, or ($0.40) per diluted share, for the first quarter of 2014 and $7.2 million, or $0.15 per diluted share, for the second quarter of 2013. Adjusted net income, which excludes the impact of the distributed compression unit manufacturing and geosteering businesses to Chesapeake, the net operating loss attributable to the crude hauling assets sold to a third party, the net gain on the sale of property and equipment due primarily to the sale of the company's crude hauling assets and 14 drilling rigs and a one-time credit to stock compensation expense related to the spin-off from Chesapeake, was $8.1 million, or $0.17 per diluted share. Adjusted revenues, adjusted EBITDA and adjusted net income are non-GAAP financial measures. Reconciliations of these measures to comparable financial measures calculated in accordance with generally accepted accounting principles (GAAP) are provided on pages 8 - 13 of this release.

On June 30, 2014, 46,932,433 shares of SSE common stock were distributed to Chesapeake shareholders in connection with the spin-off. For comparative purposes, and to provide a more meaningful calculation for weighted average shares, SSE assumed this amount to be outstanding as of the beginning of each period presented in the calculation of weighted average shares.

Chief Executive Officer Jerry Winchester commented, "We are pleased to bring you our first quarterly earnings as a standalone public company. A lot of work has gone into getting us to this point, and we are excited about our future and our potential to deliver superior shareholder returns." Winchester added, "We have a flexible balance sheet, and our objective is to pursue strategic growth opportunities while exercising financial discipline to maximize returns to our shareholders." Drilling SSE's drilling segment contributed revenues of $189.2 million and Adjusted EBITDA of $68.9 million during the second quarter of 2014, compared to $180.4 million of revenues and Adjusted EBITDA of $62.3 million for the first quarter of 2014 and revenues of $188.9 million and Adjusted EBITDA of $61.4 million for the second quarter of 2013. The increase in revenues for the second quarter of 2014 compared to the first quarter of 2014 was due to an increase in utilization and revenue days. Revenue days for the second quarter of 2014 were 7,396 compared to 7,036 and 7,142 for the first quarter of 2014 and the second quarter of 2013, respectively. Revenues from non-Chesapeake customers increased $6.9 million from the first quarter of 2014 to 31% of total segment revenues for the second quarter of 2014. As of July 1, 2014, the company's drilling backlog was $1.3 billion with an average duration of 17 months. A reconciliation of adjusted EBITDA to comparable financial measures calculated in accordance with GAAP is provided on pages 8 - 10 of this release.

Average revenue per revenue day for the second quarter of 2014 was $23,219, down slightly from $23,421 in the first quarter of 2014 and $23,506 in the second quarter of 2013 due to lower non-drilling revenue associated with the drilling segment. Average operating costs per revenue day in the second quarter of 2014 were $13,802, net of rig rent expense and a one-time credit to stock compensation expense of $4.3 million related to the spin-off from Chesapeake, a decrease of $500 per day from $14,302 in the first quarter of 2014. The decrease in average operating costs per revenue day was due primarily to a reduction in labor related costs.

As of June 30, 2014, the company's marketed fleet consisted of 20 Tier 1 rigs, including 10 proprietary PeakeRigs™, 57 Tier 2 rigs and 13 Tier 3 rigs. SSE currently has 16 contracted PeakeRigs™ under construction. PeakeRigs™ are designed for long lateral drilling of multiple wells from a single location, which makes them well suited for unconventional resource development. The company is aggressively pursuing a strategy of upgrading its fleet to better align with the market's demand for multi-well pad drilling in unconventional resource plays. Accordingly, SSE plans to upgrade or sell all of the Tier 3 rigs that it owns, and expects that its fleet will primarily include only Tier 1 and Tier 2 rigs by the end of 2014. Hydraulic Fracturing SSE's hydraulic fracturing segment contributed $226.1 million of revenues and Adjusted EBITDA of $41.7 million during the second quarter of 2014, compared to $201.6 million of revenues and Adjusted EBITDA of $20.2 million for the first quarter of 2014 and revenues of $250.3 million and Adjusted EBITDA of $41.8 million for the second quarter of 2013. Revenues increased quarter over quarter due to higher utilization as SSE completed 2,054 fracturing stages during the second quarter of 2014, compared to 1,722 fracturing stages for the first quarter of 2014 and 1,873 fracturing stages for the second quarter of 2013. As of July 1, 2014, the company's hydraulic fracturing backlog was $1.5 billion with an average duration of 26 months. A reconciliation of adjusted EBITDA to comparable financial measures calculated in accordance with GAAP is provided on pages 8 - 10 of this release.

Average revenue per stage for the second quarter of 2014 was $110,084, down from $117,085 in the first quarter of 2014 and $133,660 in the second quarter of 2013. Average revenue per stage decreased from the first quarter of 2014 primarily as a result of rate differences due to a geographic relocation of a frac spread. The decrease from the second quarter of 2013 was due to industry wide pricing pressure. Average operating costs per stage in the second quarter were $87,285, a decrease of $15,509 per stage from $102,794 in the first quarter of 2014. The decrease in average operating costs per stage was primarily due to lower expendables, repairs and maintenance and product costs. As a percentage of hydraulic fracturing revenues, maintenance and supplies expense were 11% for the second quarter of 2014 and 17% for the first quarter of 2014.

Keywords for this news article include: Seventy Seven Energy Inc.

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Source: Energy Weekly News


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