Pioneer Energy Services Banks on Increased Activity in 2017

Pioneer Energy Services Banks on Increased Activity in 2017

On February 17, 2017, Pioneer Energy Services (NYSE: PES) shared with investors its Q4’16 results and some details from its Q1’17 guidance. The company’s drilling rig utilization was 48% in Q4’16, up from 38% in Q3’16; for Q1’17, utilization is expected to increase to 70-73%.

Forty-one percent of PES’ TTM revenue came from its US drilling services and 57% from its production services, encompassing well servicing, wireline, and coiled tubing:

Source: Pioneer Energy Services Investor Presentation, February 2017

 

The company reported that some of its Q4’16 results were affected by ramp-up costs associated with the anticipated increase in activity for Q1’17 across all service lines.

Drilling Fleet Upgrade to Be Completed in Q2’17

During 2016, PES started to upgrade its US drilling fleet to 16 high-spec AC rigs. Once the upgrade is completed in Q2’17, all rigs will include 7,500psi mud systems.

The company also sold three SCR walking drilling rigs and removed four SCR rigs from the marketed fleet, resulting in a domestic fleet of 16 pad-capable AC rigs. During Q4’16, PES moved one drilling rig from the Bakken to West Texas.

Margin per day for PES’ drilling services was $7,088 in Q4’16, up from Q3’16 but down from the year-earlier quarter. The Q3-to-Q4’16 increase was partially due to costs incurred in moving three domestic rigs from the Bakken to other markets. The year-over-year decrease is primarily due to reduced revenues from rigs that were earning but not working during Q4’15.

For 2017, PES’ is estimating a total drilling rig count of 24 rigs (16 in the United States plus 8 in Colombia):

Source: Pioneer Energy Services Investor Presentation, February 2017

PES’ U.S. drilling fleet is made up entirely of pad-ready AC rigs, and 100% of them will include 7,500psi mud systems once the upgrade is complete in Q2’17. Of all 16 U.S. rigs, 94% are walking rigs, and 94% have drawworks of 1,500 HP or higher, as reflected in the chart below:

Source: Pioneer Energy Services Investor Presentation, February 2017

Production Services Sees Mixed Results in Q4’16

PES’ well servicing rig utilization was 40% in the fourth quarter, down slightly from 41% in Q3’16 and down from 55% in the year-earlier quarter. Coiled tubing utilization was 21% in the fourth quarter, down slightly from 22% in Q3’16 and down from 25% in Q4’15.

Fourth quarter margins for PES production services were down from Q3’17 and from the year-earlier quarter, due in part to approximately $1.1 million of additional costs related to lost pipe and pipe recovery efforts as well as additional ramp-up costs connected to an expected increase in activity for Q1’17 across all service lines.

In Q4’16, in anticipation of an improving market, PES entered into an agreement to exchange 20 of its older well servicing rigs for 20 new-model rigs that will be received throughout Q1’17. Three of the new rigs have already been added to PES’ marketed fleet and committed to clients, and the company hopes to add the remaining 17 new rigs into the market over the next few months.

Also in the fourth quarter, PES ordered four completion-oriented wireline units for specific clients.

For 2017, PES’ coiled tubing and well servicing fleet counts are expected to hold steady at 17 and 125 rigs, respectively, while its wireline fleet is expected to grow from 114 to 118 rigs, as reflected in the following charts:

Source: Pioneer Energy Services Investor Presentation, February 2017

Well Servicing Highlights

The company performs well servicing in the Bakken, Eagle Ford, and Fayetteville plays, as well as along the Texas-Louisiana coast. All of PES’ well servicing rigs have either 550 or 600 hp, making theirs the highest average horsepower fleet among top well-servicing providers, and all rigs are capable of working in unconventional plays. With all rig masts measuring between 104 and 121 feet, the company can also claim the highest percentage of taller-mast rigs among its peers.

Wireline Highlights

PES delivers wireline services in the Bakken, Eagle Ford, Niobrara, and Mississippian plays and in Louisiana. Most of the company’s wireline revenue comes from cased-hole operations, including perforating, logging, and pipe recovery.

Coiled Tubing Highlights

For coiled tubing services, PES is established in the Eagle Ford play and in Louisiana, and its coil capabilities range from 1-¼” to 2-⅝” coiled tubing.

Forecasting Growth in 2017

For Q1’17, PES is foreseeing growth in its drilling rig utilization, which is expected to reach 70–73%. The company’s drilling services segment margin is estimated to increase to $7,300-7,700 per day in Q1’17. Production services segment margin is estimated to be 17-20% of revenues in the first quarter, which includes some continued ramp-up costs to support the expected increase in activity.

 

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