<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 March 31, 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 224,066,380 shares of Common Stock, $.10 par value, of
the registrant outstanding as of May 3, 1994.
Page 1 of 17 sequentially numbered pages.
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ENERGY SERVICE COMPANY, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1994
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheet
March 31, 1994 and December 31, 1993 3
Consolidated Statement of Operations
Three Months Ended March 31, 1994 and 1993 4
Consolidated Statement of Cash Flows
Three Months Ended March 31, 1994 and 1993 5
Notes to Consolidated Financial Statements 6 - 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8 - 16
SIGNATURE 17
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
ENERGY SERVICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
(Unaudited)
<S> <C> <C>
ASSETS (In thousands)
CURRENT ASSETS
Cash and Cash Equivalents..................... $ 88,778 $128,060
Accounts Receivable, net...................... 49,289 51,232
Inventory..................................... 3,531 3,350
Net Assets of Discontinued Operations......... - 399
Prepaid Expenses and Other.................... 9,578 9,950
Total Current Assets.................... 151,176 192,991
INVESTMENTS..................................... 8,520 8,276
PROPERTY AND EQUIPMENT, AT COST................. 652,725 580,730
Less Accumulated Depreciation................. 136,423 124,713
Property and Equipment, net............. 516,302 456,017
OTHER ASSETS
Goodwill...................................... 28,217 28,636
Other......................................... 4,506 5,492
Total Other Assets...................... 32,723 34,128
$708,721 $691,412
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable.............................. $ 4,721 $ 3,448
Accrued Liabilities........................... 38,615 35,240
Current Maturities of Long-Term Debt.......... 31,327 27,198
Total Current Liabilities............... 74,663 65,886
LONG-TERM DEBT.................................. 123,417 125,983
DEFERRED INCOME TAXES........................... 27,596 26,856
OTHER LIABILITIES............................... 17,477 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, 500.0 million
shares authorized, 245.1 million and
245.0 million shares issued................. 24,509 24,500
Additional Paid-in Capital.................... 520,978 520,775
Accumulated Deficit, since January 1, 1984.... (96,361) (106,693)
Restricted Stock (Unearned Compensation)...... (5,362) (5,614)
Cumulative Translation Adjustment............. (1,284) (1,230)
Treasury Stock at Cost, 21.0 million shares... (47,889) (47,813)
Total Stockholders' Equity ............. 394,591 383,925
$708,721 $691,412
<PAGE>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
ENERGY SERVICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1994 1993
<S> <C> <C>
OPERATING REVENUES........................... $ 65,365 $ 51,837
OPERATING EXPENSES
Operating Costs............................ 35,740 37,731
Depreciation and Amortization.............. 12,702 9,711
General and Administrative................. 2,151 3,133
50,593 50,575
OPERATING INCOME............................. 14,772 1,262
OTHER INCOME (EXPENSE)
Interest Income............................ 1,064 580
Interest Expense........................... (2,706) (1,999)
Income from Equity Affiliates, net......... 244 -
Other, net................................. 36 246
(1,362) (1,173)
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES, MINORITY INTEREST AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE..... 13,410 89
PROVISION FOR INCOME TAXES................... 1,175 1,279
INCOME (LOSS) BEFORE MINORITY INTEREST....... 12,235 (1,190)
MINORITY INTEREST............................ 838 1,136
INCOME (LOSS) FROM CONTINUING OPERATIONS..... 11,397 (2,326)
INCOME FROM DISCONTINUED OPERATIONS.......... - 240
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE.......................... 11,397 (2,086)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET
OF MINORITY INTEREST....................... - (2,542)
NET INCOME (LOSS)............................ 11,397 (4,628)
PREFERRED STOCK DIVIDEND REQUIREMENT......... 1,065 1,065
INCOME (LOSS) APPLICABLE TO COMMON STOCK..... $ 10,332 $ (5,693)
INCOME (LOSS) PER COMMON SHARE
Continuing Operations...................... $ 0.05 $ (0.03)
Discontinued Operations.................... - 0.00
Cumulative Effect.......................... - (0.02)
Income (Loss).............................. $ 0.05 $ (0.05)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING... 224,009 121,335
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
ENERGY SERVICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In Thousands)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1994 1993
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss)................................. $ 11,397 $ (4,628)
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided by Operating Activities:
Net Cash Provided by Discontinued Operations. - 423
Depreciation and Amortization................ 12,702 3,901
Provision for Deferred Income Taxes.......... 740 305
Amortization of Debt Discount and
Other Assets............................... 694 472
Provision for Compensatory Stock Grants...... 252 245
Losses or Undistributed Income from Equity
Affiliates................................. (244) (376)
Cumulative Effect of Change in Accounting
Principle.................................. - 2,542
Other Adjustments............................ (57) (278)
Changes in Operating Assets and Liabilities:
Decrease in Accounts Receivable............ 1,943 4,548
Increase in Inventory...................... (181) (449)
(Increase) Decrease in Prepaid Expenses and
Other.................................... 326 (330)
Increase (Decrease) in Accounts Payable and
Accrued Liabilities...................... 4,060 (2,289)
Net Cash Provided By
Operating Activities................. 31,632 4,086
INVESTING ACTIVITIES
Additions to Property and Equipment............... (73,174) (16,628)
Net Proceeds from Sales of Discontinued
Operations...................................... 399 845
Proceeds from Disposition of Assets............... 690 166
Property and Equipment Additions Related to
Discontinued Operations......................... - (13)
Other............................................. 472 (1,247)
Net Cash Used by Investing Activities......... (71,613) (16,877)
FINANCING ACTIVITIES
Long-Term Borrowings.............................. 10,448 16,301
Reduction of Long-Term Borrowings................. (8,876) (1,403)
Exercise of Stock Options......................... 192 -
Preferred Stock Dividends......................... (1,065) (1,065)
Net Cash Provided By Financing Activities....... 699 13,833
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... (39,282) 1,042
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...... 128,060 25,503
CASH AND CASH EQUIVALENTS, END OF PERIOD............ $ 88,778 $ 26,545
</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
acquisition as "Minority Interest" in calculating the Company's net income
for the three months ended March 31, 1993.
The Company's consolidated statement of cash flows for the three months
ended March 31, 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 - Acquisitions
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 - 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 March 31, 1994, the subsidiary had borrowed $13.8 million under the
financing arrangement. The construction loans carry a floating interest
rate, which was 5.19% at March 31, 1994. The construction loans are
secured by the four barge drilling rigs under construction, which had a
<PAGE>
combined net book value of $22.8 million at March 31, 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. ("Caribbean"). Each loan is expected 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 when the rigs are placed into service.
Upon completion of construction the secured term loans are expected to 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 4 - Stockholders' Equity
In February 1994, the Board of Directors authorized the Company to seek
approval of a one-for-four reverse stock split at its Annual Meeting of
Stockholders scheduled for May 24, 1994.
Note 5 - Provision for Income Taxes
The provision for income taxes for the three months ended March 31, 1994
includes a provision for U.S. alternative minimum taxes and provisions 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 months ended March 31, 1994 due to the
utilization of net operating loss carryforwards to offset taxes currently
payable.
At March 31, 1994, the Company had regular and alternative minimum tax net
operating loss and investment tax credit carryforwards of approximately
$334.8 million, $199.9 million, and $3.6 million, respectively.
<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. Generally, oil and gas companies'
expenditures for exploration and development have not substantially
increased since the early 1980's due to the continuing depressed level, as
well as volatility, of oil and natural gas prices. The general increase in
oil and 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 being achieved throughout
1993 which caused the Company's revenues and operating margins to improve.
However, exploration and development activity has declined modestly in the
first three months of 1994 from the levels prevalent in the last three
months of 1993. Based on current conditions and outlook for the remainder
of 1994, the Company anticipates that its results of operations for the
first half of 1994 will be comparable with the results achieved in the
second half of 1993, with a slight decline in the second half of 1994 as
compared to the second half of 1993.
Offshore rig and oilfield supply vessel industry utilization for the three
months ended March 31, 1994 and 1993 is summarized below:
INDUSTRY WIDE AVERAGES *
1994 1993
Offshore Rigs
Gulf of Mexico:
All Rigs:
Rigs Under Contract 126 105
Total Rigs Available 167 146
% Utilization 75.4% 71.9%
Jackup Rigs:
Rigs Under Contract 99 85
Total Rigs Available 127 112
% Utilization 78.0% 75.9%
Worldwide:
All Rigs:
Rigs Under Contract 543 536
Total Rigs Available 658 671
% Utilization 82.5% 79.9%
Jackup Rigs:
Rigs Under Contract 326 328
Total Rigs Available 391 395
% Utilization 83.4% 83.0%
<PAGE>
INDUSTRY WIDE AVERAGES *
1994 1993
Oilfield Supply Vessels:
Gulf of Mexico:
Vessels Under Contract 220 190
Total Vessels Available 249 242
% Utilization 88.4% 78.5%
* Industry utilization based on data
published by Offshore Data Services, Inc.
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 acquisition has been deducted as
"Minority Interest" in calculating the Company's net income for the three
months ended March 31, 1993.
The following analysis highlights the Company's operating results for the
three months ended March 31, 1994 and 1993 (in thousands).
<TABLE>
1994 1993
<S> <C> <C>
Operating Results
Operating Revenues $ 65,365 $ 51,837
Operating Margin 29,625 14,106
Operating Income 14,772 1,262
Other Expense, Net (1,362) (1,173)
Provision for Income Tax (1,175) (1,279)
Minority Interest (838) (1,136)
Income (Loss) from Continuing
Operations 11,397 (2,326)
Income from Discontinued Operations - 240
Cumulative Effect of Accounting Change,
Net of Minority Interest - (2,542)
Net Income (Loss) 11,397 (4,628)
Preferred Stock Dividend Requirements 1,065 1,065
Income (Loss) Applicable to Common
Stock 10,332 (5,693)
Operating Revenues
Contract Drilling $ 52,015 $ 40,281
Marine Transportation 8,504 7,577
Technical Services 4,846 3,979
Total $ 65,365 $ 51,837
Operating Margin
Contract Drilling $ 24,719 $ 12,526
Marine Transportation 3,104 1,110
Technical Services 1,802 470
Total $ 29,625 $ 14,106
<PAGE>
</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 first three months of 1994
increased substantially, as shown in the above table, compared to the same
period in 1993. The 1994 increase is primarily attributable to higher day
rates for the Company's contract drilling and marine transportation
segments and increased activity in the Company's technical services
segment.
The Company reported a significant increase in operating income to $14.8
million for the first three months of 1994 compared to $1.3 million in the
same period in 1993. The increase in operating income was primarily
attributable to the reasons stated above with respect to the increases in
revenues and operating margin over the prior year period and was also
positively impacted by a reduction in general and administrative costs of
$1.0 million from the prior year period. Operating income was negatively
impacted by additional depreciation and amortization being recorded in the
first three months of 1994 as compared to the same period 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 jackup rigs acquired
in mid-February 1994, as well as increased depreciation and amortization of
the additional value assigned to the assets acquired in the Penrod
Acquisition resulting from the application of purchase accounting.
Contract Drilling Operations
Certain financial information regarding the Company's contract drilling
operations for the three months ended March 31, 1994 and 1993 is summarized
below (in thousands, except utilization rates and average day rates):
<TABLE>
1994 1993
<S> <C> <C>
Revenues
Jackup Rigs:
United States $ 26,756 $ 17,965
International 9,511 13,914
36,267 31,879
Barge Drilling Rigs - Venezuela 9,303 2,836
Total Offshore Rigs 45,570 34,715
Land Rigs:
United States 5,595 4,181
International 850 1,385
Total Land Rigs 6,445 5,566
Total $ 52,015 $ 40,281
Operating Margin
Jackup Rigs:
United States $ 13,597 $ 6,182
International 4,072 4,395
17,669 10,577
Barge Drilling Rigs - Venezuela 6,355 1,654
Total Offshore Rigs 24,024 12,231
Land Rigs:
United States 869 403
International (174) (108)
Total Land Rigs 695 295
Total $ 24,719 $ 12,526
<PAGE>
Utilization Rates
Jackup Rigs:
United States 81.9% 99.4%
International 67.7% 67.0%
77.8% 85.6%
Barge Drilling Rigs - Venezuela 100.0% 100.0%
Total Offshore Rigs 82.7% 86.9%
Land Rigs: *
United States 88.0% 87.0%
International 9.2% 35.0%
Total Land Rigs 65.5% 72.1%
Total 76.8% 81.4%
Average Day Rates
Jackup Rigs:
United States $ 24,214 $ 16,712
International 25,321 25,611
$ 24,489 $ 19,701
Barge Drilling Rigs - Venezuela $ 15,815 $ 11,075
Land Rigs: *
United States $ 6,223 $ 5,342
International 15,741 9,951
Total Land Rigs $ 6,604 $ 6,659
* 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 months ended March 31, 1994
compared to the same period in the prior year primarily due to improved
market 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 months ended March 31, 1994, average day
rates for the Company's rigs in the Gulf of Mexico increased by 44.9% with
results offset partially by a 17.6% decrease in utilization from the prior
year's same period. The decreased utilization was partially attributable
to two of the Company's Gulf of Mexico jackup rigs being upgraded in the
first three months of 1994. Both of the upgraded rigs are now under
contract with a major oil company in the Gulf of Mexico. The Company's
Gulf of Mexico rigs generally operate under relatively short-term
agreements with contract durations normally not exceeding six months. Day
rates on new rig contracts in the Gulf of Mexico softened over the course
of the first three months of 1994 and it is anticipated that average day
rates for the Company's Gulf of Mexico rigs will be slightly lower during
the second quarter of 1994.
Revenues and operating margins for the Company's international jackup rigs
for the three months ended March 31, 1994 decreased by 31.6% and 7.3%,
respectively, from the prior year's same period. The revenue and operating
margin decreases are 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, which rigs were included in the
international jackup rig results for the three months ended March 31, 1993.
The revenue and operating margin decreases were offset partially by the
addition of the two rigs acquired in mid-February 1994 which contributed
approximately $1.8 million to the operating margin for the first three
months of 1994.
The Company's barge drilling rigs are all located on Lake Maracaibo,
<PAGE>
Venezuela. Revenues and operating margins from the Company's barges in
Venezuela improved substantially for the first three months of 1994
compared to the same period of 1993 primarily due to the addition of four
new barge drilling rigs which 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. The Company has entered into contracts with Lagoven for four new
barge drilling rigs which are expected to operate on Lake Maracaibo,
Venezuela pursuant to five year firm contracts. The first barge is
scheduled to commence operations by July 1994, with the other three barges
following in approximately one month intervals thereafter.
Revenues and operating margins for the land rig operations for the three
months ended March 31, 1994 increased by $879,000 and $400,000,
respectively, from the prior year's same period. The increases are
primarily attributable to increased day rates and utilization of the
Company's U.S. land rigs, offset in part by decreased utilization of the
Company's international land rigs.
Marine Transportation Operations
Certain financial information regarding the Company's marine transportation
operations for the three months ended March 31, 1994 and 1993 is summarized
below (in thousands, except utilization rates and average day rates):
<TABLE>
1994 1993
<S> <C> <C>
Revenues
United States $ 8,113 $ 6,122
International 391 1,455
Total $ 8,504 $ 7,577
Operating Margin
United States $ 3,105 $ 1,718
International (1) (608)
Total $ 3,104 $ 1,110
Utilization Rates
United States 72.6% 82.9%
International 32.3% 35.7%
Total 72.2% 73.4%
Average Day Rates
United States $ 3,485 $ 2,370
International 11,795 5,664
Total $ 3,521 $ 2,695
</TABLE>
The Company's marine transportation division currently operates 40 vessels
of which 36 are owned by the Company and four are leased under long-term
agreements.
The Company's marine transportation revenue increased 12.2% for the three
months ended March 31, 1994, compared to the same period in 1993, with an
increase in operating margin of 179.6% from the same period in 1993. The
increases are primarily attributable to the increase in day rates from the
prior year period, offset in part by reduced utilization rates.
<PAGE>
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 softened over the course of the first three months of
1994 and it is anticipated that average day rates will be slightly lower in
the second quarter of 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.
Technical Services Operations
Certain financial and operational information regarding the Company's
technical services operations for the three months ended March 31, 1994 and
1993 is summarized below (dollars in thousands):
<TABLE>
1994 1993
<S> <C> <C>
Revenues $ 4,846 $ 3,979
Operating margin $ 1,802 $ 470
Operating statistics:
Jobs:
Horizontal wells drilled 26 29
MWD wells serviced 48 19
Wireline services 3 6
Total 77 54
Average days per job:
Horizontal wells 22.0 19.2
MWD wells 12.7 14.1
Wireline services 18.3 16.8
Total 16.1 17.1
Average revenue per job:
Horizontal wells $ 105.0 $ 102.8
MWD wells 41.4 43.8
Wireline services 42.0 27.5
Total $ 62.9 $ 73.7
</TABLE>
The Company's technical services operations primarily serve the horizontal
drilling business. Horizontal drilling activity in the Austin Chalk trend
of Texas, where the Company's technical services activities are
concentrated, improved in the first three months of 1994 from the levels
achieved in the same period of 1993. Average job margins in the first
three months of 1994 also improved as a result of the increased demand for
the Company's services coupled with the results of cost cutting programs
implemented in the latter part of 1992 and continuing into 1993. The
Company will primarily focus on opportunities in the U.S. and Canada for
its technical services segment in 1994.
Depreciation and Amortization
Depreciation and Amortization expense for the first three months of 1994
increased by $3.0 million compared to the same period in 1993. The
<PAGE>
increase is primarily attributable to depreciation on the four barge
drilling rigs delivered to Venezuela in March through June of 1993,
depreciation on the two jackup rigs acquired in mid-February 1994, as well
as increased depreciation and amortization related to the step-up in basis
of the assets acquired in the Penrod Acquisition.
General and Administrative
General and Administrative expense for the first three months of 1994
decreased by $1.0 million compared to the same period in 1993. The
decrease is 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 in the first three months of 1994 by $484,000, or
83.4%, compared to the same period in 1993 due to higher average cash
levels which were partially offset by lower interest rates.
Interest Expense
Interest expense increased in the first three months of 1994 by $707,000,
or 35.4%, compared to the same period in 1993 due to a higher average level
of debt outstanding which was partially offset by lower average interest
rates.
Income from Equity Affiliates, net
Income from Equity Affiliates, net for the first three months of 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.
Other, Net
Other, net for the three months ended March 31, 1994 consists primarily of
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, offset by foreign currency translation losses.
Provision for Income Taxes
The Company recorded a provision for income taxes of $1.2 million and $1.3
million for the three months ended March 31, 1994 and 1993, respectively.
The 1994 provision includes U.S. alternative minimum taxes and deferred
foreign taxes primarily related to the Company's operations in Venezuela
and the United Kingdom. The provision for the three months ended March 31,
1993 primarily related to deferred foreign taxes in Venezuela and the
United Kingdom.
At March 31, 1994, the Company had regular and alternative minimum tax net
operating loss and investment tax credit carryforwards of approximately
$334.8 million, $199.9 million, and $3.6 million, respectively.
Minority Interest
Minority Interest for the first three months of 1994 decreased by $298,000
compared to the same period in 1993. The minority interest charge for the
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first three months of 1994 relates to the minority shareholder's interest
in the net income of ENSCO Drilling (Caribbean), Inc. ("Caribbean"). The
first three months of 1993 charge includes the minority shareholders
interest in the net income of Caribbean of $94,000 and $1.0 million 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 three months
ended March 31, 1993 does not include the cash provided by operating
activities of Penrod nor the cash flows from investing and financing
activities of Penrod.
Cash Flow and Capital Expenditures
The Company's cash flow from operations and capital expenditures for the
three months ended March 31, 1994 and 1993 are as follows (in thousands):
1994 1993
Cash Flow from Operations $ 31,632 $ 4,086
Capital Expenditures 73,174 16,628
Cash flow from operations increased $27.5 million in the first three 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 three months ended March 31,
1994 consisted principally of $55.7 million for the purchase of the two
jackup rigs located in the North Sea, $11.7 million for the new barge
drilling rigs currently under construction for delivery to Venezuela in
1994, $5.3 million for contract drilling equipment, $259,000 for equipment
used in the Company's technical services operations and $148,000 for other
equipment primarily for marine transportation vessels. Management
anticipates that capital expenditures in 1994 will total approximately
$37.4 million for existing operations, $64.2 million towards the
construction of 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
March 31, 1994 and December 31, 1993 are summarized below (in thousands,
except percentages):
1994 1993
Long-term Debt $123,417 $125,983
Total Capital 588,985 580,885
Long-term Debt to Total Capital 21.0% 21.7%
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.
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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 is expected to commence operations by July 1994,
with the other three barges following in approximately one month intervals
thereafter. 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 March 31, 1994, the subsidiary had borrowed $13.8
million under the financing arrangement. The construction loans carry a
floating interest rate, which was 5.19% at March 31, 1994. The
construction loans are secured by the four barge drilling rigs under
construction, which had a combined net book value of $22.8 million at March
31, 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. Each loan is
expected 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 when the rigs are
placed into service. Upon completion of construction the secured term
loans are expected to 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 5.94% at March 31,
1994. The revolver portion of the facility was undrawn at March 31, 1994.
The Company's liquidity position at March 31, 1994 and December 31, 1993 is
summarized in the table below (in thousands, except ratios):
1994 1993
Cash $ 88,778 $128,060
Working Capital 76,513 127,105
Current Ratio 2.0 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
preferred stock dividend requirements and to fund the capital additions of
the Company for the next twelve months.
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SIGNATURES
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: [ May 4, 1994 ] [ /s/ H. E. Malone ]
H. E. Malone, Corporate Controller
and Chief Accounting Officer
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