Basis of Presentation and Current Environment
|3 Months Ended|
Mar. 31, 2021
|Organization, Consolidation and Presentation of Financial Statements [Abstract]|
|Basis of Presentation and Current Environment||Basis of Presentation and Current Environment
Description of Business
Basic Energy Services, Inc. and subsidiaries (“Basic”, the “Company”, “we”, “us” or “our”) provides wellsite services essential to maintaining production from the oil and gas wells within its operating areas. The Company's operations are managed regionally and are concentrated in major United States onshore oil-producing regions located in Texas, California, New Mexico, Oklahoma, Arkansas, Louisiana, Wyoming, North Dakota, Colorado, and Montana. Our operations are focused in prolific basins that have historically exhibited strong drilling and production economics in recent years as well as natural gas-focused shale plays characterized by prolific reserves. Specifically, the Company has a significant presence in the Permian Basin, Bakken, Los Angeles and San Joaquin Basins, Eagle Ford, Haynesville and Powder River Basin.
Basis of Presentation
These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial reporting. Accordingly, certain information and disclosures normally included in our annual financial statements have been condensed or omitted. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.
In the opinion of management, the condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature considered necessary for a fair presentation of the results of operations, financial position and cash flows of the Company and its subsidiaries for the periods presented and are not indicative of the results that may be expected for a full year. The Company's financial statements have been prepared on a consolidated basis and all intercompany accounts and transactions have been eliminated.
Current Environment, Liquidity and Going Concern
Demand for services offered by our industry is a function of our customers’ willingness and ability to make operating and capital expenditures to explore for, develop and produce hydrocarbons in the United States. Our customers’ expenditures are affected by both current and expected levels of commodity prices. Industry conditions during 2021 continue to be influenced by factors that impacted the supply and demand of the global oil markets in 2020, primarily the outbreak of the novel coronavirus ("COVID-19") and the resulting lower demand for oil. The increased price of West Texas Intermediate oil ("WTI") in the first quarter of 2021 increased our customers' activity levels; however, we continue to maintain discipline to only offer our services into the market at profitable job margins, which we began to realize in the second half of the first quarter. This trend has continued into the second quarter. Our first quarter results were also negatively impacted by the severe winter storm that affected our Texas operating locations in February 2021.
As a result of weak energy sector conditions that began in 2020 and the resulting lower demand for our services, our customer pricing, our operating results, our working capital and our operating cash flows have been negatively impacted. During the last half of 2020, we had difficulty paying for our contractual obligations as they came due, and we continue to have this difficulty in 2021.
Management has taken several steps to generate additional liquidity, including reducing operating and administrative costs, employee headcount reductions, closing operating locations, implementing employee furloughs, other cost reduction measures, and the suspension of growth capital expenditures. The decline in customers’ demand for our services has had a material adverse impact on the financial condition of the Company, resulting in recurring losses from operations, a net capital deficiency, and liquidity constraints that raise substantial doubt about the Company's ability to continue as a going concern within one year after the May 17, 2021 issuance date of these financial statements. Other steps that we may or are implementing to attempt to alleviate this substantial doubt include additional sales of non-strategic assets, obtaining waivers of debt covenant requirements from our lenders, restructuring or refinancing our debt agreements, or obtaining equity financing. In addition, we had a significant contractual obligation to pay cash or issue additional 10.75% senior secured notes due 2023 (the "Senior Notes") to our largest shareholder, Ascribe III Investments LLC ("Ascribe"), resulting from our acquisition of CJWS. On March 31, 2021, the Company negotiated a settlement of this obligation with Ascribe in exchange for issuing additional Senior Notes to Ascribe with an aggregate par value of $47.5 million.
On April 15, 2021, the Company announced it elected to utilize the 30-day grace period under the terms of the
indenture governing its Senior Notes with respect to a $16.3 million interest payment (the "Senior Notes Interest Payment") due that day. The Company believed it was in the best interests of all stakeholders to use the grace period to continue its ongoing discussions with its debtholders regarding strategic alternatives to improve the Company’s long-term capital structure.
The Company also announced it had entered into a Forbearance Agreement (the "ABL Forbearance Agreement") on April 14, 2021 with a majority of the lenders under its revolving credit facility who agreed to forbear from exercising remedies in respect of certain events of default thereunder, including the failure to pay interest on the Senior Notes, until April 28, 2021 (subject to certain early termination events) (the "ABL Forbearance Period").
On April 28, 2021, the Company entered into the Limited Consent and First Amendment to the ABL Forbearance Agreement (the “ABL Forbearance Amendment”) with a majority of its lenders under its revolving credit facility who agreed to extend the ABL Forbearance Period to May 15, 2021 and consent to the incurrence of the New Term Loan Facility (as defined below), if the Company completed certain asset sales, amended the indenture governing its Senior Notes to allow for the incurrence of the New Term Loan Facility and, obtained a forbearance for certain of its other indebtedness, as applicable. The Company satisfied these conditions and on May 3, 2021, the Company entered into a Super Priority Credit Agreement (the “Super Priority Credit Agreement”), among the Company, as borrower, the lenders party thereto and Cantor Fitzgerald Securities, as administrative agent and collateral agent.
The Super Priority Credit Agreement provides for a super priority loan facility consisting of term loans in a principal amount of $10.0 million (the “New Term Loan Facility”). The proceeds of the New Term Loan Facility will be used for working capital and other general corporate purposes and the payment of fees and expenses in connection with the New Term Loan Facility and the other agreements entered into in connection with the New Term Loan Facility. The New Term Loan Facility originally matured on May 15, 2021; provided that such date could be extended for up to thirty days with the prior written consent of lenders holding 66 2/3% of the aggregate outstanding amount of the term loans. At the Company’s election, loans outstanding under the New Term Loan Facility accrue interest at an annualized interest rate of either a base rate plus 10.00% or LIBOR plus 11.00%. The Company may prepay the New Term Loan Facility at any time if the Company simultaneously prepays the aggregate outstanding principal amount of its Senior Notes and Senior Secured Promissory Note, plus accrued and unpaid interest. On May 10, 2021, the Lenders under the New Term Loan Facility extended the maturity date of the facility to May 23, 2021 and corresponding adjustments to certain interim milestones therein.
On May 3, 2021, the Company and Ascribe entered into a consent letter (the “Ascribe Consent Letter”) pursuant to which Ascribe agreed to forbear from exercising any rights or remedies they may have in respect of the Company's failure to pay interest on the notes described therein from. On May 14, 2021, the Company entered into an amendment to the Ascribe Consent Letter to extend the forbearance period to May 23, 2021.
On May 14, 2021, the Company entered into the (i) Second Amendment to the ABL Forbearance Agreement with a majority of its lenders under its revolving credit facility who agreed to extend the ABL Forbearance Period to May 23, 2021 and to make corresponding adjustments to certain interim milestones therein, and (ii) the Forbearance Agreement with the requisite number of lenders under the New Term Loan Facility who agreed to forbear from exercising remedies in respect of certain events of default thereunder, including the failure to pay interest on the Senior Notes following the expiration of the applicable grace period, until May 23, 2021 (subject to certain early termination events). In addition, on May 14, 2021, the holders of approximately $316.4 million in aggregate principal amount, or 91.06%, of the $347.5 million issued and outstanding Senior Notes, subject to certain conditions precedent and continuing conditions, agreed that during the Forbearance Period ending on May 23, 2021 (subject to certain early termination events) they would not enforce, or otherwise take any action to direct enforcement of, any of the rights and remedies available to the Holders, the Trustee of the Collateral Agent, under the Indenture for the Senior Notes, or otherwise, including, without limitation, any action to accelerate the Senior Notes with respect to the Senior Notes Interest Payment.
We are in continuing discussions with the holders of the Company’s Senior Notes and other indebtedness regarding strategic alternatives including financings, refinancings, amendments, waivers, forbearances, asset sales, debt issuances, and exchanges of debt, a combination of the foregoing, or other out-of-court or in-court bankruptcy restructurings of our debt and other transactions to address our capital structure.
If the Company is unable to effectuate a successful debt restructuring, the Company expects that it will continue to experience adverse pressures on its relationships with counterparties who are critical to its business, its ability to access the capital markets, its ability to execute on its operational and strategic goals and its business, prospects, results of operations and liquidity generally. There can be no assurance as to when or whether, or on what terms the Company will implement any action as a result of these strategic initiatives, whether the implementation of one or
more such actions will be successful, whether the Company will be able to effect a refinancing of its Senior Notes or the effects the failure to take action may have on the Company’s business, its ability to achieve its operational and strategic goals or its ability to finance its business or refinance or restructure its indebtedness. A failure to address the Company’s level of corporate leverage in the near-term will have a material adverse effect on the Company’s business, prospects, results of operations, liquidity and financial condition, and its ability to service its corporate debt as it becomes due.
Management has prepared these condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles applicable to a going concern, which contemplates that assets will be realized and liabilities will be discharged in the normal course of business as they become due. These condensed consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported revenues and expenses and balance sheet classifications that would be necessary if the Company was unable to realize its assets and settle its liabilities as a going concern in the normal course of operations. Such adjustments could be material and adverse to the financial results of the Company.
Certain reclassifications have been made to prior period amounts to conform to the current period presentation. These reclassifications do not impact net loss and do not reflect a material change to the information previously presented in our condensed consolidated financial statements.
Standards Adopted in 2021
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” ("ASU 2019-12"). ASU 2019-12 intends to simplify various aspects related to accounting for income taxes and removes certain exceptions to the general principles in the standard. Additionally, the ASU clarifies and amends existing guidance to improve consistent application of its requirements. The amendments of ASU 2019-12 were adopted as of January 1, 2021, and the impact of the adoption was not material.
Standards Not Yet AdoptedIn March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)” ("ASU 2020-04"), which provides optional expedients and exceptions for applying US GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The amendments are effective for all entities as of March 12, 2020, through December 31, 2022. We are currently evaluating the impacts of the provisions of ASU 2020-04 on our consolidated financial statements.
The entire disclosure for organization, consolidation and basis of presentation of financial statements disclosure.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef