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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2021

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 1-39270

 

Patterson-UTI Energy, Inc.

(Exact name of registrant as specified in its charter)

 

 Delaware

 

75-2504748

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

10713 W. Sam Houston Pkwy N, Suite 800

Houston, Texas

 

77064

(Address of principal executive offices)

 

(Zip Code)

(281) 765-7100

(Registrant’s telephone number, including area code)


N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, $0.01 Par Value

 

PTEN

 

The Nasdaq Global Select Market

 

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 12 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      No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes     No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

 

 

Accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

Non-accelerated filer

 

 

 

 

 

  

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.          

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes     No 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

188,516,013 shares of common stock, $0.01 par value, as of April 28, 2021

 

 

 


 

 

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

 

 

PART I — FINANCIAL INFORMATION

 

 

 

 

 

 

Page

ITEM 1.

 

Financial Statements

  

 

 

 

Unaudited condensed consolidated balance sheets

  

3

 

 

Unaudited condensed consolidated statements of operations

  

4

 

 

Unaudited condensed consolidated statements of comprehensive loss

  

5

 

 

Unaudited condensed consolidated statements of changes in stockholders’ equity

  

6

 

 

Unaudited condensed consolidated statements of cash flows

  

7

 

 

Notes to unaudited condensed consolidated financial statements

  

8

ITEM 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

24

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

  

34

ITEM 4.

 

Controls and Procedures

  

34

 

 

 

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Legal Proceedings

  

35

ITEM 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

35

ITEM 6.

 

Exhibits

  

36

Signature  

 

 

  

 

 

 

 

 


 

 

PART I — FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

The following unaudited condensed consolidated financial statements include all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented.

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share data)

 

 

March 31,

 

 

December 31,

 

 

2021

 

 

2020

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

214,144

 

 

$

224,915

 

Accounts receivable, net of allowance for credit losses of $10,838 and $10,842

   at March 31, 2021 and December 31, 2020, respectively

 

181,092

 

 

 

160,214

 

Federal and state income taxes receivable

 

169

 

 

 

4,428

 

Inventory

 

34,369

 

 

 

33,085

 

Other

 

57,828

 

 

 

55,314

 

Total current assets

 

487,602

 

 

 

477,956

 

Property and equipment, net

 

2,627,912

 

 

 

2,761,041

 

Right of use asset

 

15,900

 

 

 

16,850

 

Intangible assets

 

27,065

 

 

 

30,087

 

Deposits on equipment purchases

 

1,958

 

 

 

1,716

 

Other

 

11,405

 

 

 

11,419

 

Total assets

$

3,171,842

 

 

$

3,299,069

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

101,165

 

 

$

91,622

 

Accrued liabilities

 

164,179

 

 

 

175,004

 

Lease liability

 

6,916

 

 

 

7,096

 

Total current liabilities

 

272,260

 

 

 

273,722

 

Long-term lease liability

 

17,497

 

 

 

19,118

 

Long-term debt, net of debt discount and issuance costs of $7,066 and $7,271

   at March 31, 2021 and December 31, 2020, respectively

 

901,689

 

 

 

901,484

 

Deferred tax liabilities, net

 

56,703

 

 

 

77,676

 

Other

 

11,547

 

 

 

11,010

 

Total liabilities

 

1,259,696

 

 

 

1,283,010

 

Commitments and contingencies (see Note 9)

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Preferred stock, par value $0.01; authorized 1,000,000 shares, no shares issued

 

 

 

 

 

Common stock, par value $0.01; authorized 400,000,000 shares with 271,192,193

   and 271,028,688 issued and 187,789,871 and 187,626,366 outstanding at

   March 31, 2021 and December 31, 2020, respectively

 

2,712

 

 

 

2,710

 

Additional paid-in capital

 

2,908,125

 

 

 

2,902,236

 

Retained earnings

 

361,792

 

 

 

472,014

 

Accumulated other comprehensive income

 

5,830

 

 

 

5,412

 

Treasury stock, at cost, 83,402,322 shares at

   March 31, 2021 and December 31, 2020

 

(1,366,313

)

 

 

(1,366,313

)

Total stockholders' equity

 

1,912,146

 

 

 

2,016,059

 

Total liabilities and stockholders' equity

$

3,171,842

 

 

$

3,299,069

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


 

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share data)

 

 

Three Months Ended

 

 

March 31,

 

 

2021

 

 

2020

 

Operating revenues:

 

 

 

 

 

 

 

Contract drilling

$

133,501

 

 

$

267,364

 

Pressure pumping

 

75,839

 

 

 

125,107

 

Directional drilling

 

19,670

 

 

 

34,485

 

Other

 

11,919

 

 

 

18,971

 

Total operating revenues

 

240,929

 

 

 

445,927

 

Operating costs and expenses:

 

 

 

 

 

 

 

Contract drilling

 

79,378

 

 

 

163,420

 

Pressure pumping

 

76,510

 

 

 

114,855

 

Directional drilling

 

16,637

 

 

 

32,329

 

Other

 

10,226

 

 

 

16,024

 

Depreciation, depletion, amortization and impairment

 

152,882

 

 

 

186,797

 

Impairment of goodwill

 

 

 

 

395,060

 

Selling, general and administrative

 

22,558

 

 

 

30,346

 

Credit loss expense

 

 

 

 

1,055

 

Other operating expenses, net

 

265

 

 

 

451

 

Total operating costs and expenses

 

358,456

 

 

 

940,337

 

Operating loss

 

(117,527

)

 

 

(494,410

)

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

Interest income

 

139

 

 

 

657

 

Interest expense, net of amount capitalized

 

(10,009

)

 

 

(11,224

)

Other

 

14

 

 

 

85

 

Total other expense

 

(9,856

)

 

 

(10,482

)

 

 

 

 

 

 

 

 

Loss before income taxes

 

(127,383

)

 

 

(504,892

)

 

 

 

 

 

 

 

 

Income tax benefit

 

(20,970

)

 

 

(70,170

)

 

 

 

 

 

 

 

 

Net loss

$

(106,413

)

 

$

(434,722

)

 

 

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

 

Basic

$

(0.57

)

 

$

(2.28

)

Diluted

$

(0.57

)

 

$

(2.28

)

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

Basic

 

187,677

 

 

 

190,674

 

Diluted

 

187,677

 

 

 

190,674

 

Cash dividends per common share

$

0.02

 

 

$

0.04

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

4


 

 

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited, in thousands)

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

 

Net loss

$

(106,413

)

 

$

(434,722

)

 

Other comprehensive income (loss), net of taxes of $0 for all periods:

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

418

 

 

 

(1,386

)

 

Total comprehensive loss

$

(105,995

)

 

$

(436,108

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

5


 

 

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited, in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Treasury

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Income (Loss)

 

 

Stock

 

 

Total

 

Balance, December 31, 2020

 

271,029

 

 

$

2,710

 

 

$

2,902,236

 

 

$

472,014

 

 

$

5,412

 

 

$

(1,366,313

)

 

$

2,016,059

 

Net loss

 

 

 

 

 

 

 

 

 

 

(106,413

)

 

 

 

 

 

 

 

 

(106,413

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

418

 

 

 

 

 

 

418

 

Vesting of restricted stock units

 

163

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

5,891

 

 

 

 

 

 

 

 

 

 

 

 

5,891

 

Payment of cash dividends ($0.02 per share)

 

 

 

 

 

 

 

 

 

 

(3,754

)

 

 

 

 

 

 

 

 

(3,754

)

Dividend equivalents

 

 

 

 

 

 

 

 

 

 

(55

)

 

 

 

 

 

 

 

 

(55

)

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2021

 

271,192

 

 

$

2,712

 

 

$

2,908,125

 

 

$

361,792

 

 

$

5,830

 

 

$

(1,366,313

)

 

$

1,912,146

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Treasury

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Income (Loss)

 

 

Stock

 

 

Total

 

Balance, December 31, 2019

 

269,372

 

 

$

2,694

 

 

$

2,875,680

 

 

$

1,294,902

 

 

$

5,478

 

 

$

(1,345,134

)

 

$

2,833,620

 

Net loss

 

 

 

 

 

 

 

 

 

 

(434,722

)

 

 

 

 

 

 

 

 

(434,722

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,386

)

 

 

 

 

 

(1,386

)

Vesting of restricted stock units

 

151

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

9,160

 

 

 

 

 

 

 

 

 

 

 

 

9,160

 

Payment of cash dividends ($0.04 per share)

 

 

 

 

 

 

 

 

 

 

(7,629

)

 

 

 

 

 

 

 

 

(7,629

)

Dividend equivalents

 

 

 

 

 

 

 

 

 

 

(125

)

 

 

 

 

 

 

 

 

(125

)

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,025

)

 

 

(20,025

)

Balance, March 31, 2020

 

269,523

 

 

$

2,695

 

 

$

2,884,839

 

 

$

852,426

 

 

$

4,092

 

 

$

(1,365,159

)

 

$

2,378,893

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

 

6


 

 

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

Three Months Ended

 

 

March 31,

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

$

(106,413

)

 

$

(434,722

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation, depletion, amortization and impairment

 

152,882

 

 

 

186,797

 

Impairment of goodwill

 

 

 

 

395,060

 

Dry holes and abandonments

 

147

 

 

 

174

 

Deferred income tax benefit

 

(20,973

)

 

 

(68,194

)

Stock-based compensation expense

 

5,891

 

 

 

9,160

 

Net gain on asset disposals

 

(840

)

 

 

(1,239

)

Credit loss expense

 

 

 

 

1,055

 

Amortization of debt discount and issuance costs

 

205

 

 

 

228

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

(20,877

)

 

 

19,490

 

Income taxes receivable/payable

 

4,273

 

 

 

(1,978

)

Inventory and other assets

 

(2,825

)

 

 

8,392

 

Accounts payable

 

9,383

 

 

 

(22,999

)

Accrued liabilities

 

(10,882

)

 

 

(15,592

)

Other liabilities

 

(1,349

)

 

 

(2,341

)

Net cash provided by operating activities

 

8,622

 

 

 

73,291

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

(18,523

)

 

 

(71,928

)

Proceeds from disposal of assets and insurance claims

 

2,713

 

 

 

4,280

 

Other

 

(105

)

 

 

 

Net cash used in investing activities

 

(15,915

)

 

 

(67,648

)

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Purchases of treasury stock

 

 

 

 

(20,025

)

Dividends paid

 

(3,754

)

 

 

(7,629

)

Net cash used in financing activities

 

(3,754

)

 

 

(27,654

)

Effect of foreign exchange rate changes on cash

 

276

 

 

 

26

 

Net decrease in cash and cash equivalents

 

(10,771

)

 

 

(21,985

)

Cash and cash equivalents at beginning of period

 

224,915

 

 

 

174,185

 

Cash and cash equivalents at end of period

$

214,144

 

 

$

152,200

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Net cash received (paid) during the period for:

 

 

 

 

 

 

 

Interest, net of capitalized interest of $24 in 2021 and $252 in 2020

$

(10,232

)

 

$

(11,401

)

Income taxes

 

4,256

 

 

 

(2

)

Non-cash investing and financing activities:

 

 

 

 

 

 

 

Net increase (decrease) in payables for purchases of property and equipment

$

161

 

 

$

(7,365

)

Net (increase) decrease in deposits on equipment purchases

 

(242

)

 

 

1,336

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


7


 

 

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Basis of Presentation

Basis of presentation The unaudited interim condensed consolidated financial statements include the accounts of Patterson-UTI Energy, Inc. and its wholly-owned subsidiaries (collectively referred to herein as “we,” “us,” “our,” “ours” and like terms). All significant intercompany accounts and transactions have been eliminated. Except for wholly-owned subsidiaries, we have no controlling financial interests in any other entity which would require consolidation. As used in these notes, “we,” “us,” “our,” “ours” and like terms refer collectively to Patterson-UTI Energy, Inc. and its consolidated subsidiaries. Patterson-UTI Energy, Inc. conducts its business operations through its wholly-owned subsidiaries and has no employees or independent operations.

 

The unaudited interim condensed consolidated financial statements have been prepared by us pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted pursuant to such rules and regulations, although we believe the disclosures included either on the face of the financial statements or herein are sufficient to make the information presented not misleading. In the opinion of management, all recurring adjustments considered necessary for a fair statement of the information in conformity with U.S. GAAP have been included. The unaudited condensed consolidated balance sheet as of December 31, 2020, as presented herein, was derived from our audited consolidated balance sheet but does not include all disclosures required by U.S. GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the full year.

 

The U.S. dollar is the functional currency for all of our operations except for our Canadian operations, which use the Canadian dollar as their functional currency. The effects of exchange rate changes are reflected in accumulated other comprehensive income, which is a separate component of stockholders’ equity.

Recently Adopted Accounting Standards In June 2016, the FASB issued an accounting standards update on measurement of credit losses on financial instruments. The new guidance requires us to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The new standard is effective for fiscal years beginning after December 15, 2019, including all interim periods within those years. We adopted ASU 2016-13 as of January 1, 2020. The adoption of this guidance and recognition of a loss allowance at an amount equal to expected credit losses for accounts receivable was not material and did not result in a transition adjustment to retained earnings. For more information regarding credit losses, see Note 2.

In August 2018, the FASB issued an accounting standards update to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The capitalized implementation costs of a hosting arrangement that is a service contract will be expensed over the term of the hosting arrangement. We adopted this new guidance on January 1, 2020 prospectively with respect to all implementation costs incurred after the date of adoption. There was no material impact on our consolidated financial statements.

In August 2018, the FASB issued an accounting standards update to eliminate certain disclosure requirements for fair value measurements for all entities, require public entities to disclose certain new information and modify certain disclosure requirements. The FASB developed the amendments to Topic 820 as part of its broader disclosure framework project, which aims to improve the effectiveness of disclosures in the notes to financial statements by focusing on requirements that clearly communicate the most important information to users of the financial statements. We adopted this new guidance on January 1, 2020 and there was no material impact on our consolidated financial statements.

In December 2019, the FASB issued an accounting standards update to simplify the accounting for income taxes. The amendments in the update are effective for public business entities for fiscal years beginning after December 15, 2020, with early adoption permitted. We adopted this new guidance on January 1, 2021, and there was no material impact on our consolidated financial statements.

8


 

Recently Issued Accounting Standards In March 2020, the FASB issued an accounting standards update to provide temporary optional expedients that simplify the accounting for contract modifications to existing debt agreements expected to arise from the market transition from LIBOR to alternative reference rates. The amendments in the update are effective as of March 12, 2020 through December 31, 2022 and may be applied to contract modifications from the beginning of an interim period that includes or is subsequent to March 12, 2020. We plan to adopt this standard when LIBOR is discontinued, and we do not expect this new guidance will have a material impact on our consolidated financial statements.

 

2. Credit Losses

ASC Topic 326 Current Expected Credit Losses (CECL)

On January 1, 2020, we adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, which introduces a new model to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Our customers are primarily oil and natural gas exploration and production companies, which are collectively exposed to oil and natural gas commodity price risk. Our customers require services from us at various stages of the exploration and production process. Accordingly, we have aggregated our trade receivables by segment. Any customers that have experienced a deterioration in credit quality are removed from the pool and evaluated individually. We utilized an accounts receivable aging schedule and historical credit loss information to estimate expected credit losses. Due to the significant decline in crude oil prices during the quarter ended March 31, 2020 and its related impact to our customers, we increased our historical credit loss rates used to determine our March 31, 2020 allowance for credit losses in the first quarter of 2020. We continued to monitor and evaluate our expected credit losses using these increased credit loss rates for the three months ended March 31, 2021.

The adoption of the new accounting standard did not have a material impact on our consolidated financial statements and did not result in a transition adjustment to retained earnings.

There was no credit loss expense during the three months ended March 31, 2021.

 

3. Revenues

ASC Topic 606 Revenue from Contracts with Customers

Our contracts with customers include both long-term and short-term contracts. Services that primarily generate our earned revenue include the operating business segments of contract drilling, pressure pumping and directional drilling, which comprise our reportable segments. We also derive revenues from our other operations, which include our operating business segments of oilfield rentals, equipment servicing, electrical controls and automation, and oil and natural gas working interests. For more information on our business segments, including disaggregated revenue recognized from contracts with customers, see Note 14.

Charges for services are considered a series of distinct services. Since each distinct service in a series would be satisfied over time if it were accounted for separately, and the entity would measure its progress towards satisfaction using the same measure of progress for each distinct service in the series, we are able to account for these integrated services as a single performance obligation that is satisfied over time.

The transaction price is the amount of consideration to which we expect to be entitled in exchange for transferring promised goods or services to a customer, based on terms of our contracts with our customers. The consideration promised in a contract with a customer may include fixed amounts and/or variable amounts. Payments received for services are considered variable consideration as the time in service will fluctuate as the services are provided. Topic 606 provides an allocation exception, which allows us to allocate variable consideration to one or more distinct services promised in a series of distinct services that form part of a single performance obligation as long as certain criteria are met. These criteria state that the variable payment must relate specifically to the entity’s efforts to satisfy the performance obligation or transfer the distinct good or service, and allocation of the variable consideration is consistent with the standards’ allocation objective. Since payments received for services meet both of these criteria requirements, we recognize revenue when the service is performed.

9


 

An estimate of variable consideration should be constrained to the extent that it is not probable that a significant revenue reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Payments received for other types of consideration are fully constrained as they are highly susceptible to factors outside the entity’s influence and therefore could be subject to a significant revenue reversal once resolved. As such, revenue received for these types of consideration is recognized when the service is performed.

Estimates of variable consideration are subject to change as facts and circumstances evolve. As such, we will evaluate our estimates of variable consideration that are subject to constraints throughout the contract period and revise estimates, if necessary, at the end of each reporting period.

We are a non-operating working interest owner of oil and natural gas properties primarily located in Texas and New Mexico. The ownership terms are outlined in joint operating agreements for each well between the operator of the well and the various interest owners, including us, who are considered non-operators of the well. We receive revenue each period for our working interest in the well during the period. The revenue received for the working interests from these oil and gas properties does not fall under the scope of the new revenue standard, and therefore, will continue to be reported under current guidance ASC 932-323 Extractive Activities – Oil and Gas, Investments – Equity Method and Joint Ventures.

Reimbursement Revenue — Reimbursements for the purchase of supplies, equipment, personnel services, shipping and other services that are provided at the request of our customers are recorded as revenue when incurred. The related costs are recorded as operating expenses when incurred.

Operating Lease Revenue Lease income from equipment that we lease to others is recognized on a straight-line basis over the lease term.  

Accounts Receivable and Contract Liabilities

Accounts receivable is our right to consideration once it becomes unconditional. Payment terms typically range from 30 to 60 days.

Accounts receivable balances were $178 million and $158 million as of March 31, 2021 and December 31, 2020, respectively. These balances do not include amounts related to our oil and gas working interests as those contracts are excluded from Topic 606. Accounts receivable balances are included in “Accounts receivable” in the condensed consolidated balance sheets.

We do not have any significant contract asset balances. Contract liabilities include prepayments received from customers prior to the requested services being completed. Once the services are complete and have been invoiced, the prepayment is applied against the customer’s account to offset the accounts receivable balance. Also included in contract liabilities are payments received from customers for the initial mobilization of newly constructed or upgraded rigs that were moved on location to the initial well site. These mobilization payments are allocated to the overall performance obligation and amortized over the initial term of the contract. During the three months ended March 31, 2021, no such payments were amortized and recorded in drilling revenue.  During the three months ended March 31, 2020, approximately $0.1 million was amortized and recorded in drilling revenue.

Total contract liability balances were $1.1 million and $0.6 million as of March 31, 2021 and December 31, 2020, respectively. Contract liability balances are included in “Accounts payable” and “Accrued liabilities” in the condensed consolidated balance sheets.

Contract Costs

Costs incurred for newly constructed or rig upgrades based on a contract with a customer are considered capital improvements and are capitalized to drilling equipment and depreciated over the estimated useful life of the asset.

Recognition of Revenue from Performance Obligations Satisfied in a Prior Period

During the three months ended March 31, 2021, we recorded revenue of $2.3 million associated with early termination revenue to which we were contractually entitled from one of our customers. While the performance obligations were satisfied during 2020, we did not record the related revenue due to our doubts about the customer’s ability and intent to pay substantially all of the consideration to which we were entitled in accordance with ASC Topic 606. Those doubts were resolved during the three months ended March 31, 2021, when collectability became probable from the counterparty in connection with its emergence from bankruptcy.  

 

10


 

 

4. Inventory

Inventory consisted of the following at March 31, 2021 and December 31, 2020 (in thousands):

 

 

 

 

 

 

 

 

 

  

March 31, 2021

 

 

December 31, 2020

 

Finished goods

$

866

 

 

$

600

 

Work-in-process

 

255

 

 

 

802

 

Raw materials and supplies

 

33,248

 

 

 

31,683

 

Inventory

$

34,369

 

 

$

33,085

 

 

5. Property and Equipment

Property and equipment consisted of the following at March 31, 2021 and December 31, 2020 (in thousands):

 

 

March 31, 2021

 

 

December 31, 2020

 

Equipment

$

7,605,879

 

 

$

7,647,451

 

Oil and natural gas properties

 

225,176

 

 

 

222,738

 

Buildings

 

192,282

 

 

 

193,503

 

Land

 

25,599

 

 

 

25,781

 

Total property and equipment

 

8,048,936

 

 

 

8,089,473

 

Less accumulated depreciation, depletion and impairment

 

(5,421,024

)

 

 

(5,328,432

)

Property and equipment, net

$

2,627,912

 

 

$

2,761,041

 

 

 

On a periodic basis, we evaluate our fleet of drilling rigs for marketability based on the condition of inactive rigs, expenditures that would be necessary to bring them to working condition and the expected demand for drilling services by rig type.  The components comprising rigs that will no longer be marketed are evaluated, and those components with continuing utility to our other marketed rigs are transferred to other rigs or to our yards to be used as spare equipment.  The remaining components of these rigs are retired. We had no impairment related to the marketability or condition of our drilling rigs during the three months ended March 31, 2021.

 

We review our long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amounts of certain assets may not be recovered over their estimated remaining useful lives (“triggering events”). In connection with this review, assets are grouped at the lowest level at which identifiable cash flows are largely independent of other asset groupings. We estimate future cash flows over the life of the respective assets or asset groupings in our assessment of impairment. These estimates of cash flows are based on historical cyclical trends in the industry as well as our expectations regarding the continuation of these trends in the future. Provisions for asset impairment are charged against income when estimated future cash flows, on an undiscounted basis, are less than the asset’s net book value. Any provision for impairment is measured at fair value.

 

6. Goodwill and Intangible Assets

 

Goodwill — As a result of a triggering event in the first quarter of 2020, we fully impaired our remaining goodwill balance, and as a result, we had no goodwill balance as of March 31, 2021. At times when we have a goodwill balance, we are required to evaluate goodwill at least annually as of December 31, or when circumstances require, to determine if the fair value of recorded goodwill has decreased below its carrying value. For impairment testing purposes, goodwill is evaluated at the reporting unit level. Our reporting units for impairment testing are our operating segments. We determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value after considering qualitative, market and other factors, and if this is the case, any necessary goodwill impairment is determined using a quantitative impairment test. From time to time, we may perform quantitative testing for goodwill impairment in lieu of performing the qualitative assessment. If the resulting fair value of goodwill is less than the carrying value of goodwill, an impairment loss would be recognized for the amount of the shortfall.

Due to the decline in the market price of our common stock and commodity prices in the first quarter of 2020, we lowered our expectations with respect to future activity levels in our contract drilling reporting unit. We performed a quantitative impairment assessment of our goodwill as of March 31, 2020. In completing the assessment, the fair value of our contract drilling operating segment was estimated using the income approach. The estimate of fair value required the use of significant unobservable inputs,

11


 

representative of a Level 3 fair value measurement. The assumptions included discount rates, revenue growth rates, operating expense growth rates, and terminal growth rates.

 

Based on the results of the goodwill impairment test as of March 31, 2020, impairment was indicated in our contract drilling reporting unit. We recognized an impairment charge of $395 million in the quarter ended March 31, 2020 associated with the impairment of all of the goodwill in our contract drilling reporting unit. 

Intangible Assets — The following table presents the gross carrying amount and accumulated amortization of our intangible assets as of March 31, 2021 and December 31, 2020 (in thousands):

 

 

March 31, 2021

 

 

December 31, 2020

 

 

Gross

 

 

 

 

 

 

Net

 

 

Gross