<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1994
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from [ ]to [ ]
Commission File Number 1-8097
ENERGY SERVICE COMPANY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0232579
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2700 Fountain Place
1445 Ross Avenue, Dallas Texas 75202 - 2792
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 922-1500
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 twelve 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. YES [ X ] NO [ ]
There were 56,142,992 shares of Common Stock, $.10 par value, of the
registrant outstanding as of August 4, 1994.
Page 1 of 22 sequentially numbered pages.
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ENERGY SERVICE COMPANY, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1994
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheet
June 30, 1994 and December 31, 1993 3
Consolidated Statement of Operations
Three Months Ended June 30, 1994 and 1993 4
Consolidated Statement of Operations
Six Months Ended June 30, 1994 and 1993 5
Consolidated Statement of Cash Flows
Six Months Ended June 30, 1994 and 1993 6
Notes to Consolidated Financial Statements 7 - 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10 - 20
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
SIGNATURE 22
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
ENERGY SERVICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
(Unaudited)
<S> <C> <C>
ASSETS (In thousands)
CURRENT ASSETS
Cash and Cash Equivalents..................... $108,959 $128,060
Accounts Receivable, net...................... 51,709 51,232
Inventory..................................... 3,504 3,350
Net Assets of Discontinued Operations......... - 399
Prepaid Expenses and Other.................... 6,705 9,950
Total Current Assets.................... 170,877 192,991
INVESTMENTS..................................... 8,583 8,276
PROPERTY AND EQUIPMENT, AT COST................. 652,593 580,730
Less Accumulated Depreciation................. 130,244 124,713
Property and Equipment, net............. 522,349 456,017
OTHER ASSETS
Goodwill...................................... 27,883 28,636
Other......................................... 6,211 5,492
Total Other Assets...................... 34,094 34,128
$735,903 $691,412
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable.............................. $ 7,259 $ 3,448
Accrued Liabilities........................... 37,234 35,240
Current Maturities of Long-Term Debt.......... 34,632 27,198
Total Current Liabilities............... 79,125 65,886
LONG-TERM DEBT.................................. 135,905 125,983
DEFERRED INCOME TAXES........................... 28,209 26,856
OTHER LIABILITIES............................... 17,044 17,785
PREFERRED STOCK
$1.50 Cumulative Convertible Exchangeable
Preferred Stock, $25.00 stated, liquidation
and redemption value ....................... 70,977 70,977
STOCKHOLDERS' EQUITY
Common Stock, $.10 par value, 125.0 million
and 500.0 million shares authorized, 61.5
million and 245.0 million shares issued..... 6,152 24,500
Additional Paid-in Capital.................... 542,305 520,775
<PAGE>
Accumulated Deficit, since January 1, 1984.... (86,891) (106,693)
Restricted Stock (Unearned Compensation)...... (6,048) (5,614)
Cumulative Translation Adjustment............. (1,134) (1,230)
Treasury Stock at Cost, 5.4 million and
21.0 million shares......................... (49,741) (47,813)
Total Stockholders' Equity ............. 404,643 383,925
$735,903 $691,412
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ENERGY SERVICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
THREE MONTHS ENDED
JUNE 30,
1994 1993
<S> <C> <C>
(In thousands, except
per share data)
OPERATING REVENUES........................... $ 67,075 $ 58,266
OPERATING EXPENSES
Operating Costs............................ 36,947 37,127
Depreciation and Amortization.............. 13,495 10,271
General and Administrative................. 2,342 3,350
52,784 50,748
OPERATING INCOME............................. 14,291 7,518
OTHER INCOME (EXPENSE)
Interest Income............................ 932 626
Interest Expense........................... (2,609) (2,370)
Income from Equity Affiliates, net......... 28 127
Other, net................................. (415) 33
(2,064) (1,584)
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND MINORITY INTEREST......... 12,227 5,934
PROVISION FOR INCOME TAXES................... 1,047 2,345
INCOME BEFORE MINORITY INTEREST.............. 11,180 3,589
MINORITY INTEREST............................ 645 2,177
INCOME FROM CONTINUING OPERATIONS............ 10,535 1,412
INCOME FROM DISCONTINUED OPERATIONS.......... - 2,913
NET INCOME .................................. 10,535 4,325
PREFERRED STOCK DIVIDEND REQUIREMENT......... 1,065 1,065
INCOME APPLICABLE TO COMMON STOCK............ $ 9,470 $ 3,260
INCOME PER COMMON SHARE
Continuing Operations...................... $ 0.17 $ 0.01
Discontinued Operations.................... - 0.10
Income Per Common Share.................... $ 0.17 $ 0.11
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING... 56,044 30,348
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ENERGY SERVICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
SIX MONTHS ENDED
JUNE 30,
1994 1993
<S> <C> <C>
(In thousands, except
per share data)
OPERATING REVENUES........................... $132,440 $110,103
OPERATING EXPENSES
Operating Costs............................ 72,687 74,858
Depreciation and Amortization.............. 26,197 19,982
General and Administrative................. 4,493 6,483
103,377 101,323
OPERATING INCOME............................. 29,063 8,780
OTHER INCOME (EXPENSE)
Interest Income............................ 1,996 1,197
Interest Expense........................... (5,315) (4,371)
Income from Equity Affiliates, net......... 272 128
Other, net................................. (379) 289
(3,426) (2,757)
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES, MINORITY INTEREST AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE..... 25,637 6,023
PROVISION FOR INCOME TAXES................... 2,222 3,624
INCOME BEFORE MINORITY INTEREST.............. 23,415 2,399
MINORITY INTEREST............................ 1,483 3,313
INCOME (LOSS) FROM CONTINUING OPERATIONS..... 21,932 (914)
INCOME FROM DISCONTINUED OPERATIONS.......... - 3,153
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE.......................... 21,932 2,239
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET
OF MINORITY INTEREST....................... - (2,542)
NET INCOME (LOSS)............................ 21,932 (303)
PREFERRED STOCK DIVIDEND REQUIREMENT......... 2,130 2,130
INCOME (LOSS) APPLICABLE TO COMMON STOCK..... $ 19,802 $ (2,433)
INCOME (LOSS) PER COMMON SHARE
Continuing Operations...................... $ 0.35 $ (0.10)
Discontinued Operations.................... - 0.10
Cumulative Effect.......................... - (0.08)
Income (Loss) Per Common Share............. $ 0.35 $ (0.08)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING... 56,023 30,341
</TABLE>
<PAGE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ENERGY SERVICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
SIX MONTHS ENDED
JUNE 30,
1994 1993
<S> <C> <C>
(In thousands)
OPERATING ACTIVITIES
Net Income (Loss)................................. $ 21,932 $ (303)
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided by Operating Activities:
Net Cash Provided by Discontinued Operations. - 5,686
Depreciation and Amortization................ 26,197 8,348
Provision for Deferred Income Taxes.......... 1,353 938
Amortization of Debt Discount and
Other Assets............................... 1,359 934
Provision for Compensatory Stock Grants...... 507 489
Losses or Undistributed Income from Equity
Affiliates................................. (272) (1,333)
Cumulative Effect of Change in Accounting
Principle.................................. - 2,542
Other Adjustments............................ 846 268
Changes in Operating Assets and Liabilities:
Decrease in Accounts Receivable............ 2,988 16,021
Increase in Inventory...................... (154) (538)
Decrease in Prepaid Expenses and
Other.................................... 5,190 317
Increase (Decrease) in Accounts Payable and
Accrued Liabilities...................... 4,068 (4,413)
Net Cash Provided By
Operating Activities................. 64,014 28,956
INVESTING ACTIVITIES
Additions to Property and Equipment............... (109,310) (66,926)
Net Proceeds from Sales of Discontinued
Operations...................................... 399 -
Proceeds from Disposition of Assets............... 12,025 829
Other............................................. (1,840) (1,763)
Net Cash Used by Investing Activities......... (98,726) (67,860)
FINANCING ACTIVITIES
Long-Term Borrowings.............................. 30,040 70,749
Reduction of Long-Term Borrowings................. (12,675) (8,277)
Exercise of Stock Options......................... 376 376
Preferred Stock Dividends......................... (2,130) (2,130)
Net Cash Provided By Financing Activities....... 15,611 60,718
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... (19,101) 21,814
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...... 128,060 25,503
CASH AND CASH EQUIVALENTS, END OF PERIOD............ $108,959 $ 47,317
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ENERGY SERVICE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Unaudited Financial Statements
The consolidated financial statements included herein have been prepared by
Energy Service Company, Inc. (the "Company"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission and in
accordance with generally accepted accounting principles and, in the opinion of
management, reflect all adjustments (which consist of normal recurring
adjustments) which are necessary for a fair statement of the results of
operations for the interim periods presented.
In August 1993, the Company completed the acquisition (the "Penrod
Acquisition") of the remaining 63.7% of the outstanding common stock of Penrod
Holding Corporation ("Penrod") that was not then beneficially owned by the
Company. The Company has included the income from continuing operations of
Penrod in its consolidated results of operations beginning January 1, 1993 and
has presented the preacquisition earnings attributable to the 63.7% of Penrod
that the Company did not own prior to the Penrod Acquisition as "Minority
Interest" in calculating the Company's net income for the three and six months
ended June 30, 1993.
The Company's consolidated statement of cash flows for the six months ended June
30, 1993 does not include the cash provided by operating activities of Penrod or
the cash flows from investing and financing activities of Penrod.
Certain previously reported amounts have been reclassified to conform to the
1994 presentation.
It is recommended that these statements be read in conjunction with the
Company's consolidated financial statements and notes thereto for the year ended
December 31, 1993 included in the Company's Annual Report to the Securities and
Exchange Commission on Form 10-K.
Note 2 - Acquisition
On February 14, 1994, the Company purchased two jackup rigs located in the North
Sea and simultaneously entered into a bareboat charter agreement with the seller
for an initial twelve month period, with the seller having the option to extend
the charter for an additional twelve months under the same terms as the original
agreement. The purchase price consisted of $50.0 million paid at closing and an
additional $6.0 million to be credited against the bareboat charter payments
during the last four months of the initial twelve month bareboat charter
agreement.
Note 3 - Disposition
On June 30, 1994, the Company completed the sale of its United States land rig
operations consisting of twelve land rigs and related equipment and pipe, as
well as an office building and yard, to an unrelated third party. The total
purchase price was approximately $15.5 million consisting of cash, a promissory
<PAGE>
note and receivables. Included under the caption "Other, net" in the
consolidated statement of operations is a loss on the sale of $201,000.
Revenues for the United States land rig operations for the three and six months
ended June 30, 1994 were $3.9 million and $9.5 million, respectively, and $4.7
million and $8.8 million for the three and six months ended June 30, 1993,
respectively.
Note 4 - Debt
In December 1993, a subsidiary of the Company entered into a financing
arrangement with a subsidiary of a Japanese corporation in connection with the
construction of four barge drilling rigs to be completed in 1994. As of June
30, 1994, the Company's subsidiary had borrowed $33.4 million under the
financing arrangement. The construction loans carry a floating interest rate,
which was 5.88% at June 30, 1994. The construction loans are secured by the
four barge drilling rigs under construction, which had a combined net book value
of $51.2 million at June 30, 1994. Upon completion of construction of the
barge drilling rigs, the interim construction loans are expected to be repaid
from the proceeds of separate secured term loans made by the Japanese
corporation to a subsidiary of ENSCO Drilling (Caribbean), Inc. The financing
agreement provides that each loan is to be secured by a specific barge drilling
rig and the related charter contract. The aggregate amount of the secured term
loans is anticipated to be approximately $78.0 million upon completion. The
interest rate on the secured term loans will be fixed within four months of when
the rigs are placed into service. The financing agreement provides that upon
completion of construction the secured term loans will be without recourse to
the Company.
In March 1994, the Company redeemed its convertible subordinated debentures
consisting of $5.1 million principal amount of 8.25% convertible subordinated
debentures which were originally due July 1, 1995.
Note 5 - Stockholders' Equity
At the Company's Annual Meeting of Stockholders held on May 24, 1994, the
stockholders approved a one share for four shares reverse stock split ("reverse
stock split") of the Company's common stock. The reverse stock split was
effective June 1, 1994. Accordingly, all weighted average share and per share
amounts have been restated for both 1993 and 1994 to reflect the reverse stock
split. In connection with the reverse stock split, the aggregate par value of
the common stock was reduced and additional paid-in capital was increased to
reflect the decreased aggregate par value of the common stock outstanding
subsequent to the reverse stock split.
Note 6 - Provision for Income Taxes
The income tax provisions for the three and six months ended June 30, 1994
include provisions for U.S. alternative minimum taxes and for deferred foreign
taxes, primarily for operations in Venezuela and the United Kingdom. No
provision for regular U.S. federal income taxes has been recorded for the three
and six months ended June 30, 1994 due to the utilization of net operating loss
carryforwards to offset taxes currently payable.
<PAGE>
At June 30, 1994, the Company had regular and alternative minimum tax net
operating loss and investment tax credit carryforwards of approximately $302.6
million, $189.8 million, and $3.6 million, respectively.
Note 7 - Subsequent Event
On July 22, 1994, the Company announced that it will redeem the 2,839,100
outstanding shares of the Company's $1.50 Cumulative Convertible Exchangeable
Preferred Stock ("$1.50 Preferred Stock") on August 26, 1994. The redemption
price for the $1.50 Preferred Stock is $25.60 per share plus accrued dividends
of $.175 to the date of redemption. Holders of the $1.50 Preferred Stock may
elect to convert each share of the $1.50 Preferred Stock into approximately
1.786 shares of the Company's common stock, based upon the $25.00 liquidation
preference and the $14.00 conversion price per share of the $1.50 Preferred
Stock.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BUSINESS ENVIRONMENT
The Company conducts its business in three primary operating segments serving
the oil and gas industry: contract drilling, marine transportation, and
technical services. The demand for services provided by the Company and, thus,
the operating results of the Company are significantly affected by worldwide
expenditures of the energy industry for oil and gas drilling, particularly in
the Gulf of Mexico where the Company has a large concentration of its rigs and
vessels. Expenditures for oil and gas drilling activities have been generally
depressed since the early 1980's when a sharp decline in oil and natural gas
prices led to reduced exploration and development activities.
A general increase in U.S. natural gas prices in the second half of 1992
resulted in increased exploration and development activity, particularly in the
Gulf of Mexico, which continued throughout 1993. This increased activity
resulted in higher average day rates and utilization levels for offshore rigs in
the Gulf of Mexico throughout 1993, which caused the Company's revenues and
operating margins to improve. However, oil prices declined in late 1993 causing
a number of competitor's rigs to be mobilized to the Gulf of Mexico. This
increase in the supply of drilling rigs resulted in reduced average day rates
for the Company's Gulf of Mexico rigs over the course of 1994.
Offshore rig and oilfield supply vessel industry utilization for the three and
six months ended June 30, 1994 and 1993 is summarized below:
INDUSTRY WIDE AVERAGES (1)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1994 1993 1994 1993
Offshore Rigs
Gulf of Mexico:
All Rigs:
Rigs Under Contract 127 112 126 108
Total Rigs Available 174 148 170 147
% Utilization 73.0% 75.7% 74.1% 73.5%
Jackup Rigs:
Rigs Under Contract 104 90 102 87
Total Rigs Available 135 112 131 112
% Utilization 77.0% 80.4% 77.9% 77.7%
Worldwide:
All Rigs:
Rigs Under Contract 527 549 535 543
Total Rigs Available 659 666 659 669
% Utilization 80.0% 82.4% 81.2% 81.2%
Jackup Rigs:
Rigs Under Contract 320 334 323 331
Total Rigs Available 391 395 391 395
% Utilization 81.8% 84.6% 82.6% 83.8%
<PAGE>
Oilfield Supply Vessels:(2)
Gulf of Mexico:
Vessels Under Contract 213 220 217 205
Total Vessels Available 257 249 253 246
% Utilization 82.9% 88.4% 85.8% 83.3%
(1) Industry utilization based on data
published by Offshore Data Services,
Inc.
(2) Excludes utility vessels
Worldwide utilization for oilfield supply vessels is not readily obtainable.
The demand for oilfield supply vessels is closely related to the level of
drilling activity, particularly in the Gulf of Mexico.
RESULTS OF OPERATIONS
In August 1993, the Company completed the acquisition (the "Penrod Acquisition")
of the remaining 63.7% of the outstanding common stock of Penrod Holding
Corporation ("Penrod") that was not then beneficially owned by the Company. The
Company has included the operating results of Penrod in its consolidated results
of operations beginning January 1, 1993. The preacquisition earnings
attributable to the 63.7% of Penrod that the Company did not own prior to the
Penrod Acquisition has been deducted as "Minority Interest" in calculating the
Company's net income for the three and six months ended June 30, 1993.
The following analysis highlights the Company's operating results for the three
and six months ended June 30, 1994 and 1993 (in thousands):
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
OPERATING RESULTS
Operating Revenues $ 67,075 $ 58,266 $132,440 $110,103
Operating Margin 30,128 21,139 59,753 35,245
Operating Income 14,291 7,518 29,063 8,780
Other Expense, Net (2,064) (1,584) (3,426) (2,757)
Provision for Income Tax (1,047) (2,345) (2,222) (3,624)
Minority Interest (645) (2,177) (1,483) (3,313)
Income (Loss) from
Continuing Operations 10,535 1,412 21,932 (914)
Income from Discontinued
Operations - 2,913 - 3,153
Cumulative Effect of
Accounting Change,
Net of Minority Interest - - - (2,542)
Net Income (Loss) 10,535 4,325 21,932 (303)
Preferred Stock Dividend
Requirements 1,065 1,065 2,130 2,130
Income (Loss) Applicable
to Common Stock 9,470 3,260 19,802 (2,433)
<PAGE>
OPERATING REVENUES
Contract Drilling $ 54,048 $ 43,748 $106,063 $ 84,029
Marine Transportation 9,149 9,401 17,653 16,978
Technical Services 3,878 5,117 8,724 9,096
Total $ 67,075 $ 58,266 $132,440 $110,103
OPERATING MARGIN
Contract Drilling $ 25,441 $ 17,631 $ 50,160 $ 30,157
Marine Transportation 3,413 2,501 6,517 3,611
Technical Services 1,274 1,007 3,076 1,477
Total $ 30,128 $ 21,139 $ 59,753 $ 35,245
</TABLE>
The Company's consolidated revenues and operating margins (defined as operating
revenues less operating expenses, exclusive of depreciation and general and
administrative expenses) for the three months ended June 30, 1994 increased
15.1% and 42.5%, respectively, and for the six months ended June 30, 1994
increased 20.3% and 69.5%, respectively, over comparable 1993 levels. The 1994
increases are primarily attributable to higher domestic day rates for the
Company's contract drilling and marine transportation segments in comparison to
1993 levels.
The Company reported significant increases in operating income for the three and
six months ended June 30, 1994 of 90.1% and 231.0%, respectively, compared to
the same periods in 1993. The increases in operating income were primarily
attributable to higher domestic day rates for the Company's contract drilling
and marine transportation segments and were also positively impacted by a
reduction in general and administrative costs for the three and six months ended
June 30, 1994 of $1.0 million and $2.0 million, respectively, from the
comparable 1993 periods. Operating income was negatively impacted by additional
depreciation and amortization expense for the three and six months ended June
30, 1994, as compared to the same periods in 1993, related to the depreciation
on the four barge drilling rigs delivered to Venezuela in March through June of
1993, depreciation on the two North Sea jackup rigs acquired in mid-February
1994, and depreciation and amortization of the additional value assigned to the
assets acquired in the Penrod Acquisition resulting form the application of
purchase accounting.
Contract Drilling Operations
Certain financial information regarding the Company's contract drilling
operations for the three and six months ended June 30, 1994 and 1993 is
summarized below (in thousands, except utilization rates and average day rates):
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues
Jackup Rigs:
United States $ 27,380 $ 20,586 $ 54,136 $ 38,551
International 12,304 10,816 21,815 24,730
39,684 31,402 75,951 63,281
<PAGE>
Barge Drilling Rigs
- Venezuela 8,969 5,508 18,272 8,344
Total Offshore Rigs 48,653 36,910 94,223 71,625
Land Rigs:
United States 3,881 4,657 9,476 8,838
International 1,514 2,181 2,364 3,566
Total Land Rigs 5,395 6,838 11,840 12,404
Total $ 54,048 $ 43,748 $106,063 $ 84,029
Operating Margin
Jackup Rigs:
United States $ 12,985 $ 9,300 $ 26,556 $ 15,482
International 6,591 3,471 10,689 7,866
19,576 12,771 37,245 23,348
Barge Drilling Rigs
- Venezuela 5,698 3,679 12,053 5,333
Total Offshore Rigs 25,274 16,450 49,298 28,681
Land Rigs:
United States 74 646 943 1,049
International 93 535 (81) 427
Total Land Rigs 167 1,181 862 1,476
Total $ 25,441 $ 17,631 $ 50,160 $ 30,157
Utilization Rates
Jackup Rigs:
United States 93.5% 99.5% 87.7% 99.5%
International 75.4% 51.9% 71.8% 59.5%
87.7% 79.4% 82.9% 82.5%
Barge Drilling Rigs
- Venezuela 100.0% 100.0% 100.0% 100.0%
Total Offshore Rigs 90.4% 82.7% 86.6% 84.7%
Land Rigs: *
United States 65.9% 85.1% 76.9% 86.0%
International 23.1% 52.5% 16.2% 43.8%
Total Land Rigs 53.7% 75.8% 59.6% 74.0%
Total 78.1% 80.2% 77.5% 80.8%
Average Day Rates
Jackup Rigs:
United States $ 21,458 $ 18,916 $ 22,737 $ 17,820
International 24,816 26,124 25,034 25,833
$ 22,375 $ 20,904 $ 23,338 $ 20,280
Barge Drilling Rigs
- Venezuela $ 15,233 $ 13,330 $ 15,523 $ 12,539
Land Rigs: *
United States $ 6,467 $ 5,521 $ 6,328 $ 5,431
International 14,102 11,997 14,565 11,172
Total Land Rigs $ 7,404 $ 6,799 $ 6,967 $ 6,402
* Excludes land rigs that are not being marketed.
</TABLE>
Revenues and operating margins for the Company's jackup rigs operating in the
U.S. increased substantially for the three and six months ended June 30, 1994
compared to the same periods in the prior year, primarily due to improved market
<PAGE>
conditions in the Gulf of Mexico and to the relocation of three additional rigs
to the Gulf of Mexico in the second, third and fourth quarters of 1993. For the
three and six months ended June 30, 1994, average day rates for the Company's
rigs in the Gulf of Mexico increased by 13.4% and 27.6%, respectively, compared
to the same periods in 1993, with results offset partially by decreases in
utilization from the prior year same periods. The decreased utilization in 1994
was due in part to two of the Company's Gulf of Mexico jackup rigs being
upgraded in the first three months of 1994 and not available for work.
Revenues and operating margins for the Company's international jackup rigs for
the three months ended June 30, 1994 increased by 13.8% and 89.9%, respectively,
from the prior year same periods. The 1994 increases are primarily attributable
to the two North Sea rigs acquired in mid-February 1994, which are under
bareboat charter agreements.
The Company's international jackup rig revenues decreased by 11.8% and operating
margin increased by 35.9% for the six months ended June 30, 1994 compared to the
same period in 1993. The revenue decrease is primarily attributable to the
mobilization in the second, third and fourth quarters of 1993 of three of the
Company's rigs located in the North Sea to the Gulf of Mexico. These rigs were
included in the international jackup rig results for a portion or all of the six
months ended June 30, 1993. The revenue decrease was partially offset by, and
the operating margin increase was primarily attributable to, the two North Sea
jackup rigs acquired in mid-February 1994.
The Company's jackup rig offshore Brazil completed its contract during the
second quarter of 1994 and is currently being mobilized to the Gulf of Mexico.
The cost of the mobilization, estimated to be $1.5 million, will be expensed in
the third quarter. The rig will be put in the shipyard upon arrival in the U.S.
for enhancements, including extending the rig's water depth capability from 300
feet to 350 feet. Due to the mobilization and shipyard enhancements, the rig
will be unavailable for work in the third quarter of 1994.
The Company's barge drilling rigs are all located on Lake Maracaibo, Venezuela.
Revenues and operating margins from the Company's barges in Venezuela improved
substantially for the three and six months ended June 30, 1994 compared to the
same periods in 1993, primarily due to the addition of four barge drilling rigs.
The four additional rigs operate under separate five-year contracts with
Lagoven, S.A. ("Lagoven"), a subsidiary of the Venezuelan national oil company.
Two of the barge drilling rigs commenced drilling operations in March and May
1993, with the other two barges commencing operations in June 1993. In late
1993, the Company entered into contracts with Lagoven for four additional new
barge drilling rigs, which will operate on Lake Maracaibo, Venezuela pursuant to
five year firm contracts. The first of these new barges commenced operations on
July 10, 1994 and the other three barges are expected to be operating by
September 30, 1994.
Revenues and operating margins for the land rig operations for the three and six
months ended June 30, 1994 decreased from the prior year same periods. The
decreases are primarily attributable to decreased utilization, offset in part by
increased day rates. On June 30, 1994, the Company completed the sale of its
United States land rig operations, which included twelve land rigs, to an
unrelated third party. The Company continues to own four land rigs, all of
which are located in the Middle East.
<PAGE>
Marine Transportation Operations
Certain financial information regarding the Company's marine transportation
operations for the three and six months ended June 30, 1994 and 1993 is
summarized below (in thousands, except utilization rates and average day rates):
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
REVENUES
United States $ 8,767 $ 7,293 $16,880 $13,415
International 382 2,108 773 3,563
Total $ 9,149 $ 9,401 $17,653 $16,978
OPERATING MARGIN
United States $ 3,408 $ 2,334 $ 6,514 $ 4,062
International 5 167 3 (451)
Total $ 3,413 $ 2,501 $ 6,517 $ 3,611
UTILIZATION RATES
United States 79.3% 80.3% 76.0% 81.6%
International 30.2% 61.8% 30.5% 48.2%
Total 76.4% 76.8% 74.3% 75.1%
AVERAGE DAY RATES
United States $ 3,171 $ 2,454 $ 3,319 $ 2,412
International 4,352 5,118 5,358 5,328
Total $ 3,202 $ 2,855 $ 3,351 $ 2,777
</TABLE>
The Company's marine transportation division currently operates 39 vessels, of
which 35 are owned by the Company and four are leased under long-term
agreements. The Company operated four vessels in Singapore, through a joint
venture, during the second half of 1993 and most of the first half of 1994. The
Singapore joint venture was terminated in May 1994 and three of the vessels are
currently being mobilized to the Gulf of Mexico and the remaining vessel was
sold effective June 30, 1994. During most of 1993, the Company operated two
vessels offshore Brazil. One vessel returned to the Gulf of Mexico in the
fourth quarter of 1993 and the other vessel returned to the Gulf of Mexico in
February 1994.
The Company's marine transportation segment reported increased operating margins
in 1994 compared to the 1993 three and six month periods due to increased day
rates, even though gross revenues are comparable. The 1993 results included
substantial lump-sum mobilization revenue, which is generally greater than day
rate revenues, and included the substantially higher cost associated with this
type of work.
Drilling activity steadily increased in the Gulf of Mexico during 1993, causing
utilization and day rates for the Company's marine transportation vessels to
increase throughout 1993. However, day rates on new contracts in the Gulf of
Mexico began to soften in the first quarter of 1994 and such softening continued
into the second quarter of 1994. Management anticipates that average day rates
for marine transportation vessels should remain steady in the third quarter of
<PAGE>
1994 as compared to the second quarter of 1994 with some improvement in the
fourth quarter.
Technical Services Operations
Certain financial and operational information regarding the Company's technical
services operations for the three and six months ended June 30, 1994 and 1993 is
summarized below (dollars in thousands):
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
REVENUES $ 3,878 $ 5,117 $ 8,724 $ 9,096
OPERATING MARGIN $ 1,274 $ 1,007 $ 3,076 $ 1,477
OPERATING STATISTICS:
Jobs:
Horizontal wells drilled 22 31 48 56
MWD wells serviced 25 33 61 52
Wireline services 3 9 8 15
Total 50 73 117 123
Average days per job:
Horizontal wells 21.6 22.7 21.7 22.5
MWD wells 18.6 13.3 17.7 13.6
Wireline services 11.7 11.4 11.3 13.6
Total 19.5 17.1 18.9 17.6
Average revenue per job:
Horizontal wells $ 110.7 $ 113.1 $ 107.6 $ 115.9
MWD wells 52.1 44.5 54.0 44.2
Wireline services 46.1 15.9 33.3 20.0
Total $ 77.6 $ 70.1 $ 74.6 $ 74.0
</TABLE>
The Company conducts its technical services operations primarily in the Austin
Chalk trend of Texas. The Company's horizontal drilling activity declined in
the three months ended June 30, 1994 and was flat for the six months ended June
30, 1994 as compared to the same periods of 1993. However, operating margins
improved for the three and six months ended June 30, 1994, as compared to the
same periods in 1993, primarily due to reduced operating expenses. The Company
intends to focus primarily on opportunities in the U.S. and Canada for its
technical services segment in 1994.
Depreciation and Amortization
Depreciation and Amortization expense for the three and six months ended June
30, 1994 increased by $3.2 million and $6.2 million, respectively, compared to
the same periods in 1993. The increases are primarily attributable to
depreciation on the four barge drilling rigs delivered to Venezuela in March
through June of 1993, depreciation on the two North Sea jackup rigs acquired in
mid-February 1994, and depreciation and amortization related to the step-up in
basis of the assets acquired in the Penrod Acquisition.
<PAGE>
General and Administrative
General and Administrative expense for the three and six months ended June 30,
1994 decreased by $1.0 million and $2.0 million, respectively, compared to the
same periods in 1993. The decreases are primarily attributable to the
consolidation of Penrod's general and administrative functions with the
Company's in 1993 following the Penrod Acquisition.
Interest Income
Interest income increased for the three and six months ended June 30, 1994 by
$306,000 and $799,000, respectively, compared to the same periods in 1993 due to
higher average cash levels and a general increase in interest rates.
Interest Expense
Interest expense increased for the three and six months ended June 30, 1994 by
$239,000 and $944,000, respectively, compared to the same periods in 1993 due
primarily to higher average levels of debt outstanding.
Income from Equity Affiliates, net
Income from Equity Affiliates, net for the three and six months ended June 30,
1994 consists of the Company's 50% share of the earnings (loss) of a Mexican
joint venture formed in June 1993 to operate a jackup rig in the Gulf of Mexico
and a joint venture in Singapore formed in August 1993 to operate marine vessels
in Southeast Asia. The Singapore joint venture was terminated in May 1994.
Other, net
Other, net for the three months ended June 30, 1994 consists primarily of
foreign currency translation losses and the loss on the sale of the Company's
United States land rig operations, offset by other miscellaneous income. Other,
net for the six months ended June 30, 1994 consists primarily of the items
discussed above and was further offset by net gains on the sale of equipment and
net gains related to equipment lost downhole for which the customer
reimbursement exceeded the net book value of the equipment lost.
Provision for Income Taxes
The Company recorded income tax provisions of $1.0 million and $2.2 million for
the three and six months ended June 30, 1994, respectively, as compared to $2.3
million and $3.6 million for the three and six months ended June 30, 1993,
respectively. The 1994 provisions include U.S. alternative minimum taxes and
deferred foreign taxes primarily related to the Company's operations in
Venezuela and the United Kingdom. The 1993 provisions were primarily related to
deferred foreign taxes in Venezuela and the United Kingdom.
At June 30, 1994, the Company had regular and alternative minimum tax net
operating loss and investment tax credit carryforwards of approximately $302.6
million, $189.8 million, and $3.6 million, respectively.
Minority Interest
Minority Interest for the three and six months ended June 30, 1994 decreased by
$1.5 million and $1.8 million, respectively, compared to the same periods in
<PAGE>
1993. The minority interest charges for 1994 relate to the minority
shareholder's interest in the net income of ENSCO Drilling (Caribbean), Inc.
("Caribbean"). The 1993 charges include the minority shareholders interest in
the net income of Caribbean and $1.6 million and $2.5 million for the three and
six months ended June 30, 1993, respectively, for the preacquisition earnings
related to the 63.7% of Penrod which the Company did not own prior to the Penrod
Acquisition.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated statement of cash flows for the six months ended June
30, 1993 does not include the cash provided by operating activities of Penrod
nor the cash flows from Penrod's investing and financing activities.
Cash Flow and Capital Expenditures
The Company's cash flow from operations and capital expenditures for the six
months ended June 30, 1994 and 1993 are as follows (in thousands):
1994 1993
Cash Flow from Operations $ 64,014 $ 28,956
Capital Expenditures 109,310 66,926
Cash flow from operations increased $35.1 million in the first six months of
1994 compared to the same period in 1993. The improved cash flow is primarily a
result of improved operations and the contribution from the cash flow of
Penrod's operations.
The Company's capital expenditures for the six months ended June 30, 1994
consisted principally of $55.7 million for the purchase of the two jackup rigs
located in the North Sea, $40.2 million towards the construction of the four new
barge drilling rigs to be delivered to Venezuela in the third quarter of 1994,
$10.6 million for contract drilling equipment and $2.8 million for other
equipment, primarily for marine transportation vessels and technical services
operations. Management anticipates that capital expenditures in 1994 will total
approximately $40.0 million for existing operations, $64.0 million towards the
construction of the four new barge drilling rigs and $55.7 million for the
purchase of the two jackup rigs located in the North Sea.
Financing and Capital Resources
The Company's long-term debt, total capital and debt to capital ratios at June
30, 1994 and December 31, 1993 are summarized below (in thousands, except
percentages):
JUNE 30, DECEMBER 31,
1994 1993
Long-term Debt $135,905 $125,983
Total Capital 611,525 580,885
Long-term Debt to Total Capital 22.2% 21.7%
<PAGE>
In March 1994, the Company redeemed its convertible subordinated debentures
consisting of $5.1 million principal amount of 8.25% convertible subordinated
debentures which were originally due July 1, 1995. The Company's cash reserves
were used to redeem the convertible subordinated debentures.
In November 1993, Caribbean signed four separate five-year contracts with
Lagoven, a subsidiary of the Venezuelan national oil company, to operate four
barge drilling rigs on Lake Maracaibo in Venezuela. The first of the four barge
drilling rigs commenced operations on July 10, 1994 and the other three are
expected to be operating by September 30, 1994. In December 1993, a subsidiary
of Caribbean entered into a financing arrangement with a subsidiary of a
Japanese corporation in connection with the construction of the four barge
drilling rigs to be completed in 1994. As of June 30, 1994, the Company's
subsidiary had borrowed $33.4 million under the financing arrangement. The
construction loans carry a floating interest rate, which was 5.88% at June 30,
1994. The construction loans are secured by the four barge drilling rigs under
construction, which had a combined net book value of $51.2 million at June 30,
1994. Upon completion of construction, the construction loans are expected to
be repaid from the proceeds of separate secured term loans made by the Japanese
corporation to a subsidiary of Caribbean. The financing agreement provides that
each loan is to be secured by a specific barge drilling rig and the related
charter contract. The aggregate amount of the secured term loans is anticipated
to be approximately $78.0 million upon completion. The interest rate on the
secured term loans will be fixed within four months of when the rigs are placed
into service. The financing agreement provides that upon completion of
construction the secured term loans will be without recourse to the Company.
Under the terms of the Lagoven contracts, the barges will earn day rates which
the Company believes will be sufficient to fully amortize the loans.
In December 1993, a subsidiary of the Company entered into a $100.0 million loan
arrangement with a group of international banks. The facility consists of a
$60.0 million secured term loan and a $40.0 million revolving line of credit.
Proceeds of the secured term loan were used to repay a revolving credit
agreement and existing term loans of Penrod. The revolver will be reduced semi-
annually by $1.0 million over five years with the final $30.0 million line
expiring at the end of the five year term. The facility carries a floating
interest rate, which was 6.56% at June 30, 1994. The revolver portion of the
facility was undrawn at June 30, 1994.
On July 22, 1994, the Company announced that it will redeem the 2,839,100 shares
of the Company's $1.50 Cumulative Convertible Exchangeable Preferred Stock
("$1.50 Preferred Stock") on August 26, 1994. The redemption price for the
$1.50 Preferred Stock is $25.60 per share plus accrued dividends of $.175 to the
date of redemption. Holders of the $1.50 Preferred Stock may elect to convert
each share of the $1.50 Preferred Stock into approximately 1.786 shares of the
Company's common stock, based upon the $25.00 liquidation preference and the
$14.00 conversion price per share of the $1.50 Preferred Stock. The Company
expects to use existing cash to redeem any remainder of the $1.50 Preferred
Stock that is not converted.
The Company's liquidity position at June 30, 1994 and December 31, 1993 is
summarized in the table below (in thousands, except ratios):
<PAGE>
JUNE 30, DECEMBER 31,
1994 1993
Cash $108,959 $128,060
Working Capital 91,752 127,105
Current Ratio 2.2 2.9
Based on current energy industry conditions, management believes cash flow from
operations, the Company's existing credit facilities and the Company's working
capital should be sufficient to fund the Company's debt and capital additions
for the next twelve months.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a vote of Security Holders
On May 24, 1994, the Company held an annual meeting of
stockholders to consider the following proposals: "Proposal 1"
- To elect two Class I directors; "Proposal 2" - To approve a
reverse stock split of the Company's stock whereby each
outstanding share of common stock would be reclassified into
0.25 of a share of new common stock; and "Proposal 3" - To
approve the appointment of Price Waterhouse as the Company's
independent public accountants for 1994. A description of the
foregoing matters is contained in the Company's proxy
statement, dated April 11, 1994, relating to the 1994 annual
meeting of stockholders.
There were 224,061,280 shares of the Company's common stock
entitled to vote at the annual meeting based on the April 5,
1994 record date. The Company solicited proxies pursuant to
Regulation 14 of the Securities Exchange Act of 1934, and there
was no solicitation in opposition to management's nominees for
directors as listed in the proxy statement. Each director
received a minimum of 195,000,000 votes, which was in excess of
87% of the outstanding common shares entitled to vote.
With respect to Proposal 1 listed above, the voting was as
follows:
VOTES FOR VOTES AGAINST ABSTENTIONS
Gerald W. Haddock 195,984,200 458,363 942,287
Carl F. Thorne 195,988,608 453,955 937,879
With respect to Proposals 2 and 3 listed above, the voting was
as follows:
PROPOSAL VOTES FOR VOTES AGAINST ABSTENTIONS
2 193,263,942 3,166,299 496,245
3 195,880,093 853,667 192,726
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
The Company filed Current Reports on Form 8-K dated (i)
May 18, 1994, with respect to earnings of the Company
during the remainder of 1994, and (ii) June 30, 1994 with
respect to the sale of the Company's United States land
rig operations.
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
ENERGY SERVICE COMPANY, INC.
Date: August 4, 1994 [ /s/ H. E. Malone ]
H. E. Malone, Corporate Controller
and Chief Accounting Officer
<PAGE>
