Form 10-Q
Table of Contents

 

 

UNITED STATES

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, 2013

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 No. 001-34037

 

 

SUPERIOR ENERGY SERVICES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   75-2379388

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

11000 Equity Drive, Suite 300

Houston, TX

  77041
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (281) 999-0047

 

 

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (do not check if smaller reporting company)    Smaller reporting company   ¨

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

The number of shares of the registrant’s common stock outstanding on April 26, 2013 was 159,563,314.

 

 

 


Table of Contents

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Quarterly Report on Form 10-Q for

the Quarterly Period Ended March 31, 2013

TABLE OF CONTENTS

 

         Page  

PART I.

  FINANCIAL INFORMATION   

Item 1.

  Financial Statements      1   

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      14   

Item 3.

  Quantitative and Qualitative Disclosures about Market Risk      18   

Item 4.

  Controls and Procedures      19   

PART II.

  OTHER INFORMATION   

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      19   

Item 6.

  Exhibits      20   


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

March 31, 2013 and December 31, 2012

(in thousands, except share data)

 

     3/31/2013     12/31/2012  
     (Unaudited)     (Audited)  

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 77,075      $ 91,199   

Accounts receivable, net of allowance for doubtful accounts of $29,801 and $28,715 as of March 31, 2013 and December 31, 2012, respectively

     1,030,674        1,027,218   

Deferred income taxes

     27,317        34,120   

Prepaid expenses

     93,936        93,190   

Inventory and other current assets

     244,090        214,630   
  

 

 

   

 

 

 

Total current assets

     1,473,092        1,460,357   

Property, plant and equipment, net of accumulated depreciation and depletion of $1,461,736 and $1,342,631 as of March 31, 2013 and December 31, 2012, respectively

     3,220,215        3,255,220   

Goodwill

     2,547,497        2,532,065   

Notes receivable

     45,558        44,838   

Intangible and other long-term assets, net of accumulated amortization of $62,112 and $53,148 as of March 31, 2013 and December 31, 2012, respectively

     503,022        510,406   
  

 

 

   

 

 

 

Total assets

   $ 7,789,384      $ 7,802,886   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current liabilities:

    

Accounts payable

   $ 238,739      $ 252,363   

Accrued expenses

     331,520        346,490   

Income taxes payable

     39,371        153,212   

Current maturities of long-term debt

     20,000        20,000   
  

 

 

   

 

 

 

Total current liabilities

     629,630        772,065   

Deferred income taxes

     759,908        745,144   

Decommissioning liabilities

     94,565        93,053   

Long-term debt, net

     1,844,584        1,814,500   

Other long-term liabilities

     169,523        147,045   

Stockholders’ equity:

    

Preferred stock of $0.01 par value. Authorized, 5,000,000 shares; none issued

     —          —     

Common stock of $0.001 par value.

    

Authorized - 250,000,000, Issued - 159,301,044, Outstanding - 159,523,242 as of March 31, 2013

    

Authorized - 250,000,000, Issued - 157,501,635, Outstanding - 157,933,224 as of December 31, 2012

     159        158   

Additional paid in capital

     2,859,572        2,850,855   

Accumulated other comprehensive loss, net

     (31,667     (19,317

Retained earnings

     1,463,110        1,399,383   
  

 

 

   

 

 

 

Total stockholders’ equity

     4,291,174        4,231,079   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 7,789,384      $ 7,802,886   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Consolidated Statements of Income

Three Months Ended March 31, 2013 and 2012

(in thousands, except per share data)

(Unaudited)

 

     2013     2012  

Revenues

   $ 1,135,479     $ 966,837  

Costs and expenses:

    

Cost of services (exclusive of items shown separately below)

     707,487       546,767  

Depreciation, depletion, amortization and accretion

     149,634       102,596  

General and administrative expenses

     150,164       176,021  
  

 

 

   

 

 

 

Income from operations

     128,194       141,453  

Other income (expense):

    

Interest expense, net

     (27,540     (30,494

Other income

     500       401  
  

 

 

   

 

 

 

Income from continuing operations before income taxes

     101,154       111,360  

Income taxes

     37,427       41,203  
  

 

 

   

 

 

 

Net income from continuing operations

     63,727       70,157  

Loss from discontinued operations, net of income tax

     —          (16,237
  

 

 

   

 

 

 

Net income

   $ 63,727     $ 53,920  
  

 

 

   

 

 

 

Earnings (loss) per share information:

    

Basic

    

Continuing operations

   $ 0.40     $ 0.56  

Discontinued operations

     —          (0.13
  

 

 

   

 

 

 

Basic earnings per share

   $ 0.40     $ 0.43  
  

 

 

   

 

 

 

Diluted

    

Continuing operations

   $ 0.40     $ 0.55  

Discontinued operations

     —          (0.13
  

 

 

   

 

 

 

Diluted earnings per share

   $ 0.40     $ 0.42  
  

 

 

   

 

 

 

Weighted average common shares used in computing earnings per share:

    

Basic

     158,946       125,542  

Incremental common shares from stock based compensation

     1,487       1,802  
  

 

 

   

 

 

 

Diluted

     160,433       127,344  
  

 

 

   

 

 

 

Consolidated Statements of Comprehensive Income

Three Months Ended March 31, 2013 and 2012

(in thousands)

(Unaudited)

 

     2013     2012  

Net income

   $ 63,727     $ 53,920  

Unrealized net loss on investment securities, net of tax

     (988     —     

Change in cumulative translation adjustment, net of tax

     (11,362     5,905  
  

 

 

   

 

 

 

Comprehensive income

   $ 51,377     $ 59,825  
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Three Months Ended March 31, 2013 and 2012

(in thousands)

(Unaudited)

 

     2013     2012  

Cash flows from operating activities:

    

Net income

   $ 63,727      $ 53,920   

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

    

Depreciation, depletion, amortization and accretion

     149,634        103,841   

Deferred income taxes

     19,724        (10,979

Excess tax benefit from stock-based compensation

     (264     (843

Stock based and performance share unit compensation expense

     7,979        10,591   

Retirement and deferred compensation plan expense

     (98     621   

Amortization of debt acquisition costs and note discount

     2,394        2,210   

Loss on sale of businesses

     —          6,649   

Other reconciling items, net

     (223     6,402   

Changes in operating assets and liabilities, net of acquisitions and dispositions:

    

Accounts receivable

     17,343        (64,163

Inventory and other current assets

     (26,431     (15,868

Accounts payable

     3,327        28,436   

Accrued expenses

     (11,504     (56,346

Decommissioning liabilities

     (87     (2,661

Income taxes

     (115,007     38,809   

Other, net

     26,207        (6,562
  

 

 

   

 

 

 

Net cash provided by operating activities

     136,721        94,057   

Cash flows from investing activities:

    

Payments for capital expenditures

     (157,715     (273,245

Change in restricted cash held for acquisition of business

     —          785,280   

Acquisitions of businesses, net of cash acquired

     (23,797     (1,038,241

Cash proceeds from sale of businesses

     —          185,912   

Other

     305        3,305   
  

 

 

   

 

 

 

Net cash used in investing activities

     (181,207     (336,989

Cash flows from financing activities:

    

Proceeds from revolving line of credit

     196,350        381,197   

Payments on revolving line of credit

     (161,350     (456,197

Proceeds from issuance of long-term debt

     —          400,000   

Principal payments on long-term debt

     (5,000     (12,546

Payment of debt acquisition costs

     —          (25,011

Proceeds from exercise of stock options

     5,100        12,256   

Excess tax benefit from stock-based compensation

     264        843   

Proceeds from issuance of stock through employee benefit plans

     1,133        819   

Other

     (3,562     (3,610
  

 

 

   

 

 

 

Net cash provided by financing activities

     32,935        297,751   

Effect of exchange rate changes on cash

     (2,573     665   
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (14,124     55,484   

Cash and cash equivalents at beginning of period

     91,199        80,274   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 77,075      $ 135,758   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

Three Months Ended March 31, 2013

 

(1) Basis of Presentation

Certain information and footnote disclosures normally in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission; however, management believes the disclosures that are made are adequate to make the information presented not misleading. These financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in Superior Energy Services, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2012, and Management’s Discussion and Analysis of Financial Condition and Results of Operations herein.

The financial information of Superior Energy Services, Inc. and subsidiaries (the Company) for the three months ended March 31, 2013 and 2012 has not been audited. However, in the opinion of management, all adjustments necessary to present fairly the results of operations for the periods presented have been included therein. The results of operations for the first three months of the year are not necessarily indicative of the results of operations that might be expected for the entire year. Certain previously reported amounts have been reclassified to conform to the 2013 presentation.

 

(2) Acquisitions

Complete Production Services, Inc.

On February 7, 2012, the Company acquired Complete Production Services, Inc. (Complete) in a cash and stock merger transaction valued at approximately $2,914.8 million. Complete focused on providing specialized completion and production services and products that help oil and gas companies develop hydrocarbon reserves, reduce costs and enhance production. Complete’s operations were located throughout the U.S. and Mexico. The acquisition of Complete substantially expanded the size and scope of the Company’s services. Complete’s legacy businesses are currently reported in the Onshore Completion and Workover Services and Production Services segments.

Pursuant to the merger agreement, Complete stockholders received 0.945 of a share of the Company’s common stock and $7.00 cash for each share of Complete’s common stock outstanding at the time of the acquisition. In total, the Company paid approximately $553.3 million in cash and issued approximately 74.7 million shares valued at approximately $2,308.2 million (based on the closing price of the Company’s common stock on the acquisition date of $30.90). Additionally, the Company paid $676.0 million, inclusive of a $26.0 million prepayment premium, to redeem $650 million of Complete’s 8.0% senior notes. The Company also assumed all outstanding stock options and shares of non-vested and unissued restricted stock held by Complete’s employees and directors at the time of acquisition.

Acquisition related expenses totaled approximately $33.3 million, of which approximately $28.7 million was recorded in the three months ended March 31, 2012. The remainder was recorded in the three months ended December 31, 2011. These acquisition related costs include expenses directly related to acquiring Complete and have been recorded in general and administrative expenses in the consolidated statements of income.

Other Acquisitions

In March 2013, the Company acquired 100% of the equity interest in a company that provides cementing services to oil and gas companies in Colombia. This acquisition provides the Company with a platform for continued expansion in the South American market area. The Company paid approximately $20.4 million at closing and will pay an additional $3.7 million over the next two years, subject to the settlement of certain liabilities. Goodwill of approximately $16.4 million was recognized as a result of this acquisition and was calculated as the excess of the consideration paid over the net assets recognized and represents estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. None of the goodwill related to this acquisition will be deductible for tax purposes. All of the goodwill was assigned to the Production Services segment.

In August 2012, the Company acquired 100% of the equity interest in a company that provides mechanical wireline, electric line and well testing services to the oil and gas exploration and production industry in Argentina. The Company paid approximately $31.1 million in cash related to this acquisition. As of March 31, 2013, the Company had a current liability of approximately $6.5 million for contingent consideration based upon certain performance metrics. As these performance metrics exceeded expectations, this liability was paid and settled in April 2013.

 

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(3) Dispositions

On February 15, 2012, the Company sold one of its derrick barges and received proceeds of approximately $44.5 million, inclusive of selling costs. The Company recorded a pre-tax loss of approximately $3.1 million, inclusive of approximately $9.7 million of goodwill, during the three months ended March 31, 2012 in connection with this sale. This business was previously reported in the Company’s former Subsea and Well Enhancement segment. The operations and loss on the sale of this disposal group have been reported within loss from discontinued operations in the condensed consolidated statement of income.

On March 30, 2012, the Company sold 18 liftboats and related assets comprising its former Marine segment. The Company received cash proceeds of approximately $138.6 million, inclusive of working capital and selling costs. In connection with the sale, the Company repaid approximately $12.5 million in U.S. Government guaranteed long-term financing. Additionally, the Company paid approximately $4.0 million of make-whole premiums and wrote off approximately $0.7 million of unamortized loan costs as a result of this repayment. The Company’s total pre-tax loss on the disposal of this segment was approximately $56.1 million, which includes a $46.1 million write off of long-lived assets and goodwill recorded in the fourth quarter of 2011 in order to approximate the segment’s indicated fair value, and an additional loss of $10.0 million recorded in the first quarter of 2012, comprised of an approximate $3.6 million loss on sale of assets and approximately $6.4 million of additional costs related to the disposition.

The following table summarizes the components of loss from discontinued operations, net of tax for the three months ended March 31, 2012 (in thousands):

 

Revenues

   $  16,235   
  

 

 

 

Loss from discontinued operations, net of tax benefit of $1,227

     (5,508

Loss on disposition, net of tax benefit of $2,391

     (10,729
  

 

 

 

Loss from discontinued operations, net of tax

   $ (16,237
  

 

 

 

 

(4) Stock-Based Compensation and Retirement Plans

The Company maintains various stock incentive plans that provide long-term incentives to the Company’s key employees, including officers, directors, consultants and advisors (Eligible Participants). Under the incentive plans, the Company may grant incentive stock options, non-qualified stock options, restricted stock, restricted stock units, stock appreciation rights, other stock-based awards or any combination thereof to Eligible Participants. The Company’s total compensation expense related to these plans was approximately $9.0 million and $13.1 million for the three months ended March 31, 2013 and 2012, respectively, which is reflected in general and administrative expenses.

 

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(5) Inventory and Other Current Assets

Inventory and other current assets includes approximately $143.1 million and $136.5 million of inventory at March 31, 2013 and December 31, 2012, respectively. The Company’s inventory balance at March 31, 2013 consisted of approximately $63.7 million of finished goods, $7.1 million of work-in-process, $12.3 million of raw materials and $60.0 million of supplies and consumables. The Company’s inventory balance at December 31, 2012 consisted of approximately $63.7 million of finished goods, $6.0 million of work-in-process, $5.0 million of raw materials and $61.8 million of supplies and consumables. Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out or weighted-average cost methods for finished goods and work-in-process. Supplies and consumables consist principally of products used in our services provided to customers.

On April 17, 2012, SandRidge Energy Inc. (NYSE: SD) (SandRidge) completed its acquisition of Dynamic Offshore Resources, LLC (Dynamic Offshore), at which time the Company received approximately $34.1 million in cash and approximately $51.6 million in shares of SandRidge stock (approximately 7.0 million shares valued at $7.33 per share) in consideration for its 10% interest in Dynamic Offshore. In accordance with authoritative guidance related to equity securities, the Company is accounting for the shares received through this transaction as available-for-sale securities. The changes in fair values, net of applicable taxes, on available-for-sale securities are recorded as unrealized holding gains (losses) on securities as a component of accumulated other comprehensive loss in shareholders’ equity.

The fair value of the remaining 1.5 million shares of SandRidge stock at March 31, 2013 was approximately $7.7 million. During the three months ended March 31, 2013, the Company recorded an unrealized loss related to the fair value of these securities of $1.6 million, of which $1.0 million was reported within accumulated other comprehensive loss, net of tax expense of $0.6 million. The Company evaluates whether unrealized losses on investments in securities are other-than-temporary, and if it is believed the unrealized losses are other-than-temporary, an impairment charge is recorded. There were no other-than-temporary impairment losses recognized during the three months ended March 31, 2013.

 

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(6) Debt

The Company has a $1.0 billion bank credit facility, comprised of a $600 million revolving credit facility and a $400 million term loan. The principal balance of the term loan is payable in installments of $5.0 million on the last day of each fiscal quarter, which began on June 30, 2012. Any amounts outstanding on the revolving credit facility and the term loan are due on February 7, 2017.

At March 31, 2013, the Company had $35.0 million outstanding under the revolving portion of our credit facility. The Company also had approximately $57.2 million of letters of credit outstanding, which reduce the Company’s borrowing availability under this portion of the credit facility. Amounts borrowed under the credit facility bear interest at LIBOR plus margins that depend on the Company’s leverage ratio. Indebtedness under the credit facility is secured by substantially all of the Company’s assets, including the pledge of the stock of the Company’s principal domestic subsidiaries. The credit facility contains customary events of default and requires that the Company satisfy various financial covenants. It also limits the Company’s ability to pay dividends or make other distributions, make acquisitions, make changes to the Company’s capital structure, create liens or incur additional indebtedness. At March 31, 2013, the Company was in compliance with all such covenants.

In August 2012, the Company redeemed $150 million, or 50%, of the principal amount of its $300 million 6 7/8% unsecured senior notes due 2014 at 100% of face value. The indenture governing the remaining $150 million 6 7/8% senior notes outstanding requires semi-annual interest payments on June 1st and December 1st of each year through the maturity date of June 1, 2014. The indenture contains certain covenants that, among other things, limit the Company from incurring additional debt, repurchasing capital stock, paying dividends or making other distributions, incurring liens, selling assets or entering into certain mergers or acquisitions. At March 31, 2013, the Company was in compliance with all such covenants.

The Company has outstanding $500 million of 6 3/8% unsecured senior notes due 2019. The indenture governing the 6 3/8% senior notes requires semi-annual interest payments on May 1st and November 1st of each year through the maturity date of May 1, 2019. The indenture contains certain covenants that, among other things, limit the Company from incurring additional debt, repurchasing capital stock, paying dividends or making other distributions, incurring liens, selling assets or entering into certain mergers or acquisitions. At March 31, 2013, the Company was in compliance with all such covenants.

The Company also has outstanding $800 million of 7 1/8% unsecured senior notes due 2021. The indenture governing the 7 1/8% senior notes requires semi-annual interest payments on June 15th and December 15th of each year through the maturity date of December 15, 2021. The indenture contains certain covenants that, among other things, limit the Company from incurring additional debt, repurchasing capital stock, paying dividends or making other distributions, incurring liens, selling assets or entering into certain mergers or acquisitions. At March 31, 2013, the Company was in compliance with all such covenants.

 

(7) Earnings per Share

Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. The weighted average number of common shares outstanding excludes the shares of non-vested restricted stock that were assumed by the Company as a result of the Complete acquisition. Diluted earnings per share is computed in the same manner as basic earnings per share except that the denominator is increased to include the number of additional common shares that could have been outstanding assuming the exercise of stock options, conversion of restricted stock units and the vesting of outstanding restricted stock issued in the acquisition of Complete.

Stock options for approximately 1,900,000 shares and 850,000 shares for the three months ended March 31, 2013 and 2012, respectively, were excluded in the computation of diluted earnings per share for these periods as the effect would have been anti-dilutive.

 

(8) Decommissioning Liabilities

The Company records estimated future decommissioning liabilities in accordance with the authoritative guidance related to asset retirement obligations (decommissioning liabilities), which requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred, with a corresponding increase in the carrying amount of the related long-lived asset. Subsequent to initial measurement, the decommissioning liability is required to be accreted each period to present value.

The Company’s decommissioning liabilities associated with the Bullwinkle platform and its related assets consist of costs related to the plugging of wells, the removal of the related facilities and equipment, and site restoration. Whenever practical, the Company utilizes its own equipment and labor services to perform well abandonment and decommissioning work. When the Company performs these services, all recorded intercompany revenues and related costs of services are eliminated in the condensed consolidated financial statements. The recorded decommissioning liability associated with a specific property is fully extinguished when the

 

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property is abandoned. The recorded liability is first reduced by all cash expenses incurred to abandon and decommission the property. If the recorded liability exceeds (or is less than) the Company’s total costs, then the difference is reported as income (or loss) within revenue during the period in which the work is performed.

The Company reviews the adequacy of its decommissioning liabilities whenever indicators suggest that the estimated cash flows needed to satisfy the liability have changed materially. The Company reviews its estimates for the timing of these expenditures on a quarterly basis.

The following table summarizes the activity for the Company’s decommissioning liabilities for the three month periods ended March 31, 2013 and 2012 (in thousands):

 

     2013     2012  

Decommissioning liabilities, December 31, 2012 and 2011, respectively

   $ 93,053      $ 123,176   

Liabilities acquired and incurred

     360        3,573   

Liabilities settled

     (87     (2,661

Accretion

     1,239        1,741   
  

 

 

   

 

 

 

Total decommissioning liabilities, March 31, 2013 and 2012 , respectively

     94,565        125,829   

Less: current portion of decommissioning liabilities as of March 31, 2013 and 2012, respectively

     —          15,678   
  

 

 

   

 

 

 

Long-term decommissioning liabilities, March 31, 2013 and 2012, respectively

   $ 94,565      $ 110,151   
  

 

 

   

 

 

 

 

(9) Notes Receivable

Notes receivable consist of a commitment from the seller of oil and gas properties towards the abandonment of the acquired property. Pursuant to an agreement with the seller, the Company will invoice the seller an agreed upon amount at the completion of certain decommissioning activities. The gross amount of this obligation totaled $115.0 million and is recorded at present value using an effective interest rate of 6.58%. The related discount is amortized to interest income based on the expected timing of the platform’s removal. The Company recorded interest income related to notes receivable of $0.7 million and $1.2 million for the three months ended March 31, 2013 and 2012, respectively.

 

(10) Segment Information

Business Segments

During the fourth quarter of 2012, the Company revised the internal reporting structure that is used by the chief operating decision maker in determining how to allocate the Company’s resources and, as a result, divided the Subsea and Well Enhancement segment into three segments that better reflect the Company’s product and service offerings throughout the life cycle of a well: Onshore Completion and Workover Services, Production Services, and Subsea and Technical Solutions. The Drilling Products and Services segment remains unchanged. Accordingly, all prior period segment disclosures have been recast to reflect this change in reporting structure.

The Drilling Products and Services segment rents and sells bottom hole assemblies, premium drill pipe, tubulars and specialized equipment for use with onshore and offshore oil and gas well drilling, completion, production and workover activities. It also provides on-site accommodations and bolting and machining services. The Onshore Completion and Workover Services segment provides pressure pumping services used to complete and stimulate production in new oil and gas wells, fluid handling services and well servicing rigs that provide a variety of well completion, workover and maintenance services. The Production Services segment provides intervention services such as coiled tubing, cased hole and mechanical wireline, hydraulic workover and snubbing, production testing and optimization, and remedial pumping services. It also provides specialized pressure control tools used to manage and control pressure throughout the life of a well. The Subsea and Technical Solutions segment provides services typically requiring specialized engineering, manufacturing or project planning, including integrated subsea services and engineering services, well control services, well containment systems, stimulation and sand control services and well plug and abandonment services. It also includes production handling arrangements and the production and sale of oil and gas.

 

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Summarized financial information for the Company’s segments for the three months ended March 31, 2013 and 2012 is shown in the following tables (in thousands):

Three Months Ended March 31, 2013

 

            Onshore                            
     Drilling      Completion             Subsea and              
     Products and      and Workover      Production      Technical           Consolidated  
     Services      Services      Services      Solutions     Unallocated     Total  

Revenues

   $ 193,979      $ 425,983      $ 367,397      $ 148,120     $  —       $ 1,135,479  

Cost of services (exclusive of items shown separately below)

     64,645        281,739        253,055        108,048       —          707,487  

Depreciation, depletion, amortization and accretion

     41,344        53,822        41,877        12,591       —          149,634  

General and administrative expenses

     31,393        40,714        44,118        33,939       —          150,164  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     56,597        49,708        28,347        (6,458     —          128,194  

Interest expense, net

     —           —           —           720       (28,260     (27,540

Other income

     —           —           —           —          500       500  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

   $ 56,597      $ 49,708      $ 28,347      $ (5,738   $ (27,760   $ 101,154  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Three Months Ended March 31, 2012

 

            Onshore                            
     Drilling      Completion             Subsea and              
     Products and      and Workover      Production      Technical           Consolidated  
     Services      Services      Services      Solutions     Unallocated     Total  

Revenues

   $ 189,357      $ 279,676      $ 354,041      $ 143,763     $  —       $ 966,837  

Cost of services (exclusive of items shown separately below)

     62,566        185,662        198,015        100,524       —          546,767  

Depreciation, depletion, amortization and accretion

     36,160        24,476        27,721        14,239       —          102,596  

General and administrative expenses

     33,402        57,147        54,543        30,929       —          176,021  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     57,229        12,391        73,762        (1,929     —          141,453  

Interest expense, net

     —           —           —           1,181       (31,675     (30,494

Other income

     —           —           —             401       401  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

   $ 57,229      $ 12,391      $ 73,762      $ (748   $ (31,274   $ 111,360  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Identifiable Assets

 

            Onshore                              
     Drilling      Completion             Subsea and                
     Products and      and Workover      Production      Technical             Consolidated  
     Services      Services      Services      Solutions      Unallocated      Total  

March 31, 2013

   $ 1,095,641       $ 3,097,610       $ 2,280,607       $ 1,315,526       $  —         $ 7,789,384   

December 31, 2012

   $ 1,086,804       $ 3,223,984       $ 2,185,779       $ 1,295,134       $  11,185       $ 7,802,886   

 

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Geographic Segments

The Company attributes revenue to various countries based on the location where services are performed or the destination of the drilling products or equipment sold or leased. Long-lived assets consist primarily of property, plant and equipment and are attributed to various countries based on the physical location of the asset at the end of a period. The Company’s revenue by geographic area for the three months ended March 31, 2013 and 2012, and long-lived assets by geographic area at March 31, 2013 and December 31, 2012 is as follows (in thousands):

 

     Revenues      Long-Lived Assets  
     2013      2012      2013      2012  

United States

   $ 940,829       $ 795,771       $ 2,663,916       $ 2,684,932   

Other Countries

     194,650         171,066         556,299         570,288   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,135,479       $ 966,837       $ 3,220,215       $ 3,255,220   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(11) Guarantee

In accordance with authoritative guidance related to guarantees, the Company has assigned an estimated value of $2.6 million at March 31, 2013 and December 31, 2012 related to decommissioning activities in connection with oil and gas properties acquired by SPN Resources, LLC (SPN Resources) prior to its sale to Dynamic Offshore in March 2008. The guarantee is reflected in other long-term liabilities. The Company believes that the likelihood of being required to perform these guarantees is remote. In the unlikely event of default on any remaining decommissioning liabilities, the total maximum potential obligation under these guarantees is estimated to be approximately $122.3 million, net of the contractual right to receive payments from third parties, which is approximately $24.6 million, as of March 31, 2013. The total maximum potential obligation will decrease over time as the underlying obligations are fulfilled.

 

(12) Fair Value Measurements

The Company follows the authoritative guidance for fair value measurements relating to financial and nonfinancial assets and liabilities, including presentation of required disclosures herein. This guidance establishes a fair value framework requiring the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets and liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:

 

  Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.

 

  Level 2: Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical assets or liabilities in inactive markets; or model-derived valuations or other inputs that can be corroborated by observable market data.

 

  Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

The following tables provide a summary of the financial assets and liabilities measured at fair value on a recurring basis at March 31, 2013 and December 31, 2012 (in thousands):

 

            Fair Value Measurements at Reporting Date Using  
     March 31, 2013      Level 1      Level 2      Level 3  

Inventory and other current assets

           

Available-for-sale securities

   $ 7,655       $ 7,655         —           —     

Intangible and other long-term assets, net

           

Non-qualified deferred compensation assets

   $ 11,734       $ 825       $ 10,909         —     

Interest rate swap

   $ 1,415         —         $ 1,415         —     

Accrued Expenses

           

Contingent consideration

   $ 9,048         —           —         $ 9,048   

Other long-term liabilities

           

Non-qualified deferred compensation liabilities

   $ 15,119         —         $ 15,119         —     

 

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     December 31,
2012
     Level 1      Level 2      Level 3  

Inventory and other current assets

           

Available-for-sale securities

   $ 9,224       $ 9,224         —           —     

Intangible and other long-term assets, net

           

Non-qualified deferred compensation assets

   $ 11,343       $ 825       $ 10,518         —     

Interest rate swap

   $ 1,286         —         $ 1,286         —     

Accounts payable

           

Non-qualified deferred compensation liabilities

   $ 125         —         $ 125         —     

Accrued expenses

           

Contingent consideration

   $ 9,890         —           —         $ 9,890   

Other long-term liabilities

           

Non-qualified deferred compensation liabilities

   $ 13,515         —         $ 13,515         —     

Available-for-sale securities is comprised of approximately 1.5 million shares of SandRidge common stock that the Company received as partial consideration for its 10% interest in Dynamic Offshore (see note 5). The securities are reported at fair value based on the stock’s closing price as reported on the New York Stock Exchange.

The Company’s non-qualified deferred compensation plans allow officers, certain highly compensated employees and non-employee directors to defer receipt of a portion of their compensation and contribute such amounts to one or more hypothetical investment funds. The Company entered into separate trust agreements, subject to general creditors, to segregate assets of each plan and reports the accounts of the trusts in its condensed consolidated financial statements. These investments are reported at fair value based on unadjusted quoted prices in active markets for identifiable assets and observable inputs for similar assets and liabilities, which represent Levels 1 and 2, respectively, in the fair value hierarchy.

In April 2012, the Company entered into an interest rate swap agreement related to its fixed rate debt maturing in 2021 for a notional amount of $100 million, whereby the Company is entitled to receive semi-annual interest payments at a fixed rate of 7 1/8% per annum and is obligated to make semi-annual interest payments at a floating rate, which is adjusted every 90 days, based on LIBOR plus a fixed margin. The swap agreement, scheduled to terminate on December 15, 2021, is designated as a fair value hedge of a portion of the Company’s 7 1/8% senior notes, as the derivative has been tested to be highly effective in offsetting changes in the fair value of the underlying note. As this derivative is classified as a fair value hedge, the changes in the fair value of the derivative are offset against the changes in the fair value of the underlying note in interest expense, net (see note 13). The Company previously had an interest rate swap agreement for a notional amount of $150 million related to its 6 7/8% senior notes that was designated as a fair value hedge. In February 2012, the Company sold this interest rate swap to the counterparty for approximately $1.2 million.

As of March 31, 2013, the Company’s maximum additional consideration payable as a result of prior acquisitions was approximately $10.0 million. The Company has recorded a current liability of approximately $9.0 million, which represents the Company’s estimate of the fair value of the maximum contingent consideration payable. The fair value of the contingent consideration was determined using a probability-weighted discounted cash flow approach at the acquisition and reporting date. The approach is based on significant inputs that are not observable in the market, which are referred to as Level 3 inputs. The fair value is based on the acquired companies reaching specific performance metrics.

In accordance with authoritative guidance, non-financial assets and non-financial liabilities are remeasured at fair value on a non-recurring basis. In determining estimated fair value of acquired goodwill, we use various sources and types of information, including, but not limited to, quoted market prices, replacement cost estimates, accepted valuation techniques such as discounted cash flows, and existing carrying value of acquired assets. As necessary, we utilize third-party appraisal firms to assist us in determining fair value of inventory, identifiable intangible assets, and any other significant assets or liabilities. During the measurement period and as necessary, we adjust the preliminary purchase price allocation if we obtain more information regarding asset valuations and liabilities assumed. During the three months ended March 31, 2013, the Company revised its fair value estimate of contingent consideration payable due to changes in certain performance metrics. The adjustment was recorded in general and administrative expense in the consolidated statement of income.

The fair value of the Company’s cash equivalents, accounts receivable and current maturities of long-term debt approximates their carrying amounts. The fair value of the Company’s long-term debt was approximately $1,994.6 million and $1,960.0 million at March 31, 2013 and December 31, 2012, respectively. The fair value of these debt instruments is determined by reference to the market value of the instrument as quoted in an over-the-counter market.

 

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(13) Derivative Financial Instruments

From time to time, the Company may employ interest rate swaps in an attempt to achieve a more balanced debt portfolio. The Company does not use derivative financial instruments for trading or speculative purposes.

In April 2012, the Company entered into an interest rate swap for a notional amount of $100 million related to its 7 1/8% senior notes maturing in December 2021. This transaction is designated as a fair value hedge since the swap hedges against the change in fair value of fixed rate debt resulting from changes in interest rates. The Company recorded a derivative asset of $1.4 million and $1.3 million within intangible and other long term assets in the consolidated balance sheet at March 31, 2013 and December 31, 2012, respectively. The change in fair value of the interest rate swap is included in the adjustments to reconcile net income to net cash provided by operating activities in the consolidated statement of cash flows.

The Company previously had an interest rate swap agreement for a notional amount of $150 million related to its 6 7/8% senior notes maturing in June 2014 that was designated as a fair value hedge. In February 2012, the Company sold this interest rate swap to the counterparty for approximately $1.2 million.

The location and effect of the derivative instrument on the condensed consolidated statement of operations for the three months ended March 31, 2013, presented on a pre-tax basis, is as follows (in thousands):

 

Interest rate swap

   Interest expense, net    $  1,063   

Hedged item - debt

   Interest expense, net      (1,191
     

 

 

 
      $ (128
     

 

 

 

For the three months ended March 31, 2013, approximately $0.1 million of interest income was related to the ineffectiveness associated with these fair value hedges. Hedge ineffectiveness represents the difference between the changes in fair value of the derivative instruments and the changes in fair value of the fixed rate debt attributable to changes in the benchmark interest rate.

 

(14) Income Taxes

The Company follows authoritative guidance surrounding accounting for uncertainty in income taxes. It is the Company’s policy to recognize interest and applicable penalties, if any, related to uncertain tax positions in income tax expense. The Company had approximately $26.4 million of unrecorded tax benefits at March 31, 2013 and December 31, 2012, all of which would impact the Company’s effective tax rate if recognized.

In addition to its U.S. federal tax return, the Company files income tax returns in various state and foreign jurisdictions. The number of years that are open under the statute of limitations and subject to audit varies depending on the tax jurisdiction. The Company remains subject to U.S. federal tax examinations for years after 2008.

 

(15) Commitments and Contingencies

The Company’s wholly owned subsidiary, Hallin Marine, is the lessee of a dynamically positioned subsea vessel under a capital lease expiring in 2019 with a two year renewal option. Hallin Marine owns a 5% equity interest in the entity that owns this leased asset. The lessor’s debt is non-recourse to the Company. The amount of the asset and liability under this capital lease is recorded at the present value of the lease payments. The vessel’s gross asset value under the capital lease was approximately $37.6 million at inception and accumulated depreciation through March 31, 2013 and December 31, 2012 was approximately $13.2 million and $12.2 million, respectively. As of March 31, 2013 and December 31, 2012, the Company had approximately $24.6 million and $25.6 million, respectively, included in other long-term liabilities, and approximately $4.0 million and $3.9 million, respectively, included in accounts payable related to the obligations under this capital lease. The future minimum lease payments under this capital lease are approximately $2.9 million, $4.2 million, $4.6 million, $5.0 million, $5.4 million and $5.9 million for the nine months ending December 31, 2013 and the years ending December 31, 2014, 2015, 2016, 2017 and 2018, respectively, exclusive of interest at an annual rate of 8.5%. For the three months ended March 31, 2013 and 2012, the Company recorded interest expense of approximately $0.6 million and $0.7 million, respectively, in connection with this capital lease.

Due to the nature of the Company’s business, the Company is involved, from time to time, in routine litigation or subject to disputes or claims regarding its business activities. Legal costs related to these matters are expensed as incurred. In management’s opinion, none of the pending litigation, disputes or claims is expected to have a material adverse effect on the Company’s financial condition, results of operations or liquidity.

 

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(16) Related Party Disclosures

The Company believes transactions with these related parties have terms and conditions no less favorable than transactions with unaffiliated parties. Subsequent to the acquisition of Complete, the Company purchases services, products and equipment from companies affiliated with an officer of one of its subsidiaries. For the three months ended March 31, 2013 and 2012, these purchases totaled approximately $45.4 million and $71.4 million, respectively. For the three months ended March 31, 2013, approximately $16.0 million was purchased from ORTEQ Energy Services, a heavy equipment construction company which also manufactures pressure pumping equipment, approximately $0.1 million was purchased from Ortowski Construction, primarily related to the manufacture of pressure pumping units, approximately $4.0 million was purchased from Resource Transport, LLC, approximately $19.8 million was purchased from Texas Specialty Sands, LLC primarily for the purchase of sand used for pressure pumping activities, approximately $5.3 million was purchased from ProFuel, LLC, and approximately $0.2 million was related to facilities leased from Timber Creek Real Estate Partners. From the date of acquisition of Complete through March 31, 2012, approximately $39.6 million was purchased from ORTEQ Energy Services, approximately $0.1 million was purchased from Ortowski Construction, approximately $1.9 million was purchased from Resource Transport, LLC, approximately $25.3 million was purchased from Texas Specialty Sands, LLC, and approximately $4.5 million was purchased from ProFuel, LLC. As of March 31, 2013, the Company’s trade accounts payable includes amounts due to these companies totaling approximately $12.1 million, of which approximately $3.3 million was due ORTEQ Energy Services, approximately $1.2 million was due Resource Transport, LLC, approximately $6.0 million was due Texas Specialty Sands, LLC, and approximately $1.6 million was due ProFuel, LLC. No amounts were due Ortowski Construction and Timber Creek Real Estate Partners. As of December 31, 2012, the Company’s trade accounts payable includes amounts due to these companies totaling approximately $23.2 million, of which approximately $13.4 million was due ORTEQ Energy Services, approximately $1.3 million was due Resource Transport, LLC, approximately $6.9 million was due Texas Specialty Sands, LLC, and approximately $1.6 million was due ProFuel, LLC. No amounts were due Ortowski Construction and Timber Creek Real Estate Partners.

In May 2012, the Company’s President and Chief Executive Officer was appointed as an independent director of the board of Linn Energy, LLC (Linn), an independent oil and natural gas development company with focus areas in the mid-continent, including the Permian Basin, the Hugoton Basin, the Powder River Basin, the Williston Basin, Michigan, and California. The Company recorded revenues from Linn of approximately $6.8 million for the three months ended March 31, 2013. The Company had trade receivables from Linn of approximately $3.5 million and $3.3 million as of March 31, 2013 and December 31, 2012, respectively.

 

(17) Subsequent Events

In accordance with authoritative guidance, the Company has evaluated and disclosed all material subsequent events that occurred after the balance sheet date but before financial statements were issued.

 

(18) Recently Issued Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board issued ASU 2013-02, “Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (ASU 2013-02). ASU 2013-02 is an update to existing guidance on the presentation of comprehensive income. This update requires companies to report the effect of significant reclassifications out of accumulated other comprehensive income (AOCI) by component. For significant items reclassified out of AOCI to net income in their entirety during the reporting period, companies must report the effect on the line items in the statement where net income is presented. For significant items not reclassified to net income in their entirety during the period, companies must provide cross references in the notes to other disclosures that already provide information about those amounts. The Company adopted this update effective January 1, 2013, and it did not have a material impact on the condensed consolidated financial statements.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements which involve risks and uncertainties. All statements other than statements of historical fact included in this section regarding our financial position and liquidity, strategic alternatives, future capital needs, business strategies and other plans and objectives of our management for future operations and activities are forward-looking statements. These statements are based on certain assumptions and analyses made by our management in light of its experience and its perception of historical trends, current market and industry conditions, expected future developments and other factors it believes are appropriate under the circumstances. Such forward-looking statements are subject to uncertainties that could cause our actual results to differ materially from such statements. Such uncertainties include, but are not limited to: risks inherent in acquiring businesses, including the ability to successfully integrate Complete’s operations into our legacy operations and the costs incurred in doing so; the effect of regulatory programs and environmental matters on our performance, including the risk that future changes in the regulation of hydraulic fracturing could reduce or eliminate demand for our pressure pumping services; risks associated with business growth outpacing the capabilities of our infrastructure and workforce; risks associated with the uncertainty of macroeconomic and business conditions worldwide; the cyclical nature and volatility of the oil and gas industry, including the level of offshore exploration, production and development activity and the volatility of oil and gas prices; changes in competitive factors affecting our operations; political, economic and other risks and uncertainties associated with international operations; the lingering impact on exploration and production activities in the U.S. coastal waters following the Deepwater Horizon incident; the impact that unfavorable or unusual weather conditions could have on our operations; the potential shortage of skilled workers; our dependence on certain customers; the risks inherent in long-term fixed-price contracts; and, operating hazards, including the significant possibility of accidents resulting in personal injury or death, property damage or environmental damage. These risks and other uncertainties related to our business are described in detail in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Investors are cautioned that many of the assumptions on which our forward-looking statements are based are likely to change after our forward-looking statements are made, including for example the market prices of oil and natural gas and regulations affecting oil and gas operations, which we cannot control or anticipate. Further, we may make changes to our business plans that could or will affect our results. We undertake no obligation to update any of our forward-looking statements and we do not intend to update our forward-looking statements more frequently than quarterly, notwithstanding any changes in our assumptions, changes in our business plans, our actual experience, or other changes. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

Executive Summary

On February 7, 2012, we closed our acquisition of Complete Production Services, Inc. (Complete). Our results for the three months ended March 31, 2012 include only a partial quarter of contribution from the legacy Complete businesses. Given the substantial nature of this acquisition and its impact on our financial performance, comparisons between the three months ended March 31, 2013 and 2012 for our Onshore Completion and Workover Services and Production Services segments may not be meaningful.

For the three months ended March 31, 2013, revenue was $1,135.5 million, net income was $63.7 million and diluted earnings per share was $0.40.

First quarter 2013 revenue for the Drilling Products and Services segment was $194.0 million, as compared with $192.7 million in the fourth quarter of 2012, a 1% sequential increase. U.S. land revenue decreased sequentially to $73.9 million due to a decrease in demand for accommodations and premium drill pipe, partially offset by an increase in rentals of bottom hole assemblies. International revenue increased sequentially to approximately $50.1 million primarily due to rentals of accommodation units. Gulf of Mexico revenue increased 2% sequentially to approximately $70.0 million as the deepwater market remained strong.

Revenue for the three months ended March 31, 2013 in our Onshore Completion and Workover Services segment was $426.0 million, a 2% sequential increase. Virtually all of this segment’s revenue is derived from the U.S. land market area. Our pressure pumping and well services businesses experienced increases in revenue, which were partially offset by decreased fluid management revenue due to weather related declines in utilization.

First quarter 2013 revenue in our Production Services segment decreased 1% sequentially to $367.4 million. U.S. land revenue decreased 3% to $216.7 million primarily due to declines in hydraulic workover and snubbing and remedial pumping revenue. Revenue in the Gulf of Mexico market area decreased 5% to $53.9 million as seasonal factors lead to declines in coiled tubing and wireline activity. Revenue from international market areas increased 7% to $96.8 million primarily due to increased production testing activity in Argentina, remedial pumping in Brazil and cementing activity from our recent acquisition in Colombia.

First quarter 2013 revenue in our Subsea and Technical Solutions segment decreased to $148.1 million, which represents a 25% sequential decline. This segment was greatly impacted by seasonality, both in the Gulf of Mexico and in the Asia Pacific market areas. U.S. land revenue increased 8% to $16.2 million. Gulf of Mexico revenue declined 4% to $84.1 million due to seasonal factors

 

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that resulted in lower utilization in our well control and platform decommissioning services. Revenue from international market areas decreased 50% to $47.8 million primarily due to decreases in subsea construction work in the Asia Pacific market area, and to well control projects that did not repeat.

Comparison of the Results of Operations for the Three Months Ended March 31, 2013 and 2012

For the three months ended March 31, 2013, our revenues were $1,135.5 million, resulting in net income of $63.7 million, or $0.40 diluted earnings per share. For the three months ended March 31, 2012, revenues were $996.8 million and net income from continuing operations was $70.2 million, or $0.55 diluted earnings per share from continuing operations. Revenues and costs of service for the three months ended March 31, 2012 include only a partial quarter of contribution from the businesses acquired from Complete in February 2012. The businesses acquired from Complete are reported within the Onshore Completion and Workover Services and Production Services segments.

The following table compares our operating results for the three months ended March 31, 2013 and 2012 (in thousands, except percentages). Cost of services excludes depreciation, depletion, amortization and accretion.

 

     Revenue      Cost of Services  
     2013      2012      Change      2013      %     2012      %     Change  

Drilling Products and Services

   $ 193,979       $ 189,357       $ 4,622       $ 64,645         33   $ 62,566         33   $ 2,079   

Onshore Completion and Workover Services

     425,983         279,676         146,307         281,739         66     185,662         66     96,077   

Production Services

     367,397         354,041         13,356         253,055         69     198,015         56     55,040   

Subsea and Technical Solutions

     148,120         143,763         4,357         108,048         73     100,524         70     7,524   
  

 

 

    

 

 

    

 

 

    

 

 

      

 

 

      

 

 

 

Total

   $ 1,135,479       $ 966,837       $ 168,642       $ 707,487         62   $ 546,767         57   $ 160,720   
  

 

 

    

 

 

    

 

 

    

 

 

      

 

 

      

 

 

 

The following provides a discussion of our results on a segment basis:

Drilling Products and Services Segment

Revenue from our Drilling Products and Services segment for the three months ended March 31, 2013 was $194.0 million, as compared to $189.4 million for the same period in 2012. Cost of rentals and sales as a percentage of revenue remained constant at 33% of segment revenue for the three months ended March 31, 2013 as compared to the same period in 2012. Revenue derived from the U.S. land market area decreased approximately 19% for the three months ended March 31, 2013 over the same period in 2012 primarily due to decreased demand for premium drill pipe and accommodations. Revenue generated in our international market areas increased 5% during the quarter ended March 31, 2013 over the same period in 2012 primarily due to increases in rentals of premium drill pipe. Revenue from our Gulf of Mexico market area increased approximately 38% due to increases in most of our product lines within this segment, particularly premium drill pipe.

Onshore Completion and Workover Services Segment

Revenue from our Onshore Completion and Workover Services segment was $426.0 million for the first quarter of 2013, as compared to $279.7 million for the same period in 2012. Virtually all of this segment’s revenue is derived from the U. S. land market area. The substantial year over year increase is primarily related to the fact that this segment is comprised of businesses acquired from Complete in February 2012. Cost of services as a percentage of revenue remained constant at 66% for the three months ended March 31, 2013 and 2012.

Production Services Segment

Revenue from our Production Services segment for the three months ended March 31, 2013 was $367.4 million, as compared to $354.0 million for the same period in 2012. Cost of services as a percentage of revenue increased to 69% from 56% in the first quarter of 2012. The slight increase in revenue and the increase in cost of services as a percentage of revenue despite having a full quarter of contributions from the businesses acquired from Complete is largely due to lower pricing and utilization in our coiled tubing business in the U.S. land market area. Revenue from the U.S. land market area decreased 15% as we experienced declines in coiled tubing, wireline and hydraulic workover and snubbing activity. Revenue derived from the Gulf of Mexico market area increased 59% due to increased demand for pressure control, hydraulic workover and snubbing and wireline services. Revenue from international market areas increased 49% primarily due to our acquisition of a well testing and wireline company in Argentina in late 2012 and to increased demand for coiled tubing services in Mexico.

 

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Subsea and Technical Solutions Segment

Revenue from our Subsea and Technical Solutions segment for the three months ended March 31, 2013 was $148.1 million, as compared to $143.8 million for the same period in 2012. Cost of sales increased to 73% of segment revenue for the three month period ended March 31, 2013 from 70% in the same period in 2012. Revenue in our Gulf of Mexico market area increased 24% year over year primarily due to an increase in well control work and sand control and stimulation services. These increases were partially offset by decreases in oil and gas sales and end of life services. Revenue in our international market areas decreased 18% as a result of lower utilization of our subsea construction vessels in the Asia Pacific market area. Revenue in our U.S. land market area decreased 5% as a result of decreased demand for sand control and stimulation services.

Depreciation, Depletion, Amortization and Accretion

Depreciation, depletion, amortization and accretion increased to $149.6 million in the three months ended March 31, 2013 from $102.6 million for the same period in 2012. Depreciation and amortization expense increased within our Drilling Products and Services segment by $5.2 million, or 14%, from the same period in 2012 due to 2012 and 2013 capital expenditures. Depreciation and amortization expense in our Onshore Completion and Workover Services segment increased by $29.3 million, or 120%, as the product offerings comprising this segment were acquired in the Complete acquisition. Depreciation and amortization expense within our Production Services segment increased by $14.2 million, or 51%, partly because a portion of the product offerings comprising this segment were acquired in the Complete acquisition; the remainder of the increase is attributable to 2012 and 2013 capital expenditures. Depreciation, depletion, amortization and accretion expense related to our Subsea and Technical Solutions segment for the three months ended March 31, 2013 decreased by approximately $1.7 million from the same period in 2012. Increases related to 2012 and 2013 capital expenditures were offset by decreased depreciation of our subsea intervention vessels as a result of lower utilization.

General and Administrative Expenses

General and administrative expenses were $150.2 million for the three months ended March 31, 2013 compared to $176.0 million for the same period in 2012. The three months ended March 31, 2012 included only a partial quarter’s contribution from the legacy Complete businesses. However, there were approximately $28.7 million of acquisition related expenses recorded during the same period. Excluding those two factors results in a year over year decrease in general and administrative expenses due in part to decreases in insurance expense, compensation related expenses, and gain (loss) on foreign currency translation.

Liquidity and Capital Resources

In the three months ended March 31, 2013, we generated net cash from operating activities of $136.7 million, as compared to $94.1 million in the same period of 2012. Our primary liquidity needs are for working capital and to fund capital expenditures, debt service and acquisitions. Our primary sources of liquidity are cash flows from operations and available borrowings under the revolving portion of our credit facility. We had cash and cash equivalents of $77.1 million at March 31, 2013 compared to $91.2 million at December 31, 2012. At March 31, 2013, approximately $58.0 million of our cash balance was held outside the U.S. Cash balances held in foreign jurisdictions can be repatriated to the U.S.; however, they would be subject to federal income taxes, less applicable foreign tax credits. The Company has not provided U.S. income tax expense on earnings of its foreign subsidiaries, other than foreign subsidiaries acquired in the Complete acquisition, because it expects to reinvest the undistributed earnings indefinitely.

We spent $157.7 million of cash on capital additions during the three months ended March 31, 2013, a portion of which related to 2012 capital additions. Approximately $30.2 million, $44.5 million and $29.7 million was used to expand and maintain the asset bases of our Onshore Completion and Workover Services, Production Services and Subsea and Technical Solutions segments, respectively, and approximately $53.3 million was used to expand and maintain our Drilling Products and Services equipment inventory.

We have a $1.0 billion bank credit facility which is comprised of a revolving portion of $600 million and a $400 million term loan. The principal balance of the term loan is payable in installments of $5.0 million on the last day of each fiscal quarter, which began on June 30, 2012. Any amounts outstanding on the bank revolving credit facility and the term loan are due on February 7, 2017. At March 31, 2013, we had $35.0 million outstanding under the revolving portion of our credit facility with a weighted average interest rate of 4.25% per annum. The average amount outstanding under the revolving portion of our credit facility during first quarter was approximately $45.9 million with a weighted average interest rate of 3.27% per annum. The maximum amount outstanding under the revolving portion of our credit facility during the first quarter was $110.0 million, primarily related to a $123.0 million income tax payment made during the quarter. As of April 26, 2013, we had $40.0 million outstanding under the revolving portion of our credit facility, along with $56.5 million of letters of credit outstanding, which reduce our borrowing capacity under this credit facility. Borrowings under the credit facility bear interest at LIBOR plus margins that depend on our leverage ratio. Indebtedness under the credit facility is secured by substantially all of our assets, including the pledge of the stock of our principal domestic subsidiaries. The credit facility contains customary events of default and requires that we satisfy various financial covenants. It also limits our ability to pay dividends or make other distributions, make acquisitions, create liens or incur additional indebtedness. At March 31, 2013, we were in compliance with all such covenants.

 

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We have outstanding $150 million of 6 7/8% unsecured senior notes due 2014. The indenture governing the senior notes requires semi-annual interest payments on June 1st and December 1st of each year through the maturity date of June 1, 2014. The indenture contains certain covenants that, among other things, limit us from incurring additional debt, repurchasing capital stock, paying dividends or making other distributions, incurring liens, selling assets or entering into certain mergers or acquisitions. At March 31, 2013, we were in compliance with all such covenants. We anticipate redeeming these notes during the second quarter of 2013 using cash generated from operations and borrowings under the revolving portion of our credit facility.

We have outstanding $500 million of 6 3/8% unsecured senior notes due 2019. The indenture governing the senior notes requires semi-annual interest payments on May 1st and November 1st of each year through the maturity date of May 1, 2019. The indenture contains certain covenants that, among other things, limit us from incurring additional debt, repurchasing capital stock, paying dividends or making other distributions, incurring liens, selling assets or entering into certain mergers or acquisitions. At March 31, 2013, we were in compliance with all such covenants.

We also have outstanding $800 million of 7 1/8% unsecured senior notes due 2021. The indenture governing the 7 1/8% senior notes requires semi-annual interest payments on June 15th and December 15th of each year through the maturity date of December 15, 2021. The indenture contains certain covenants that, among other things, limit us from incurring additional debt, repurchasing capital stock, paying dividends or making other distributions, incurring liens, selling assets or entering into certain mergers or acquisitions. At March 31, 2013, we were in compliance with all such covenants.

Our current long-term issuer credit rating is BBB- by Standard and Poor’s and Ba1 by Moody’s. Moody’s upgraded our corporate credit rating from Ba2 to Ba1 with a stable outlook on October 10, 2012.

We currently believe that we will spend approximately $450 million to $550 million on capital expenditures, excluding acquisitions, during the remaining nine months of 2013. We believe that our current working capital, cash generated from our operations and availability under the revolving portion of our credit facility will provide sufficient funds for our identified capital projects.

We intend to continue implementing our growth strategy of increasing our scope of services through both internal growth and strategic acquisitions. We expect to continue to make the capital expenditures required to implement our growth strategy in amounts consistent with the amount of cash generated from operating activities, the availability of additional financing and under our credit facility. Depending on the size of any future acquisitions, we may require additional equity or debt financing in excess of our current working capital and amounts available under our credit facility.

Off-Balance Sheet Financing Arrangements

We have no off-balance sheet financing arrangements other than a guarantee on the performance of certain decommissioning liabilities. We do not have any other financing arrangements that are not required under generally accepted accounting principles to be reflected in our financial statements.

In accordance with authoritative guidance related to guarantees, we have assigned an estimated value of $2.6 million at March 31, 2013 and December 31, 2012, which is reflected in other long-term liabilities, related to decommissioning activities in connection with oil and gas properties acquired by SPN Resources prior to its sale to Dynamic Offshore. The Company believes that the likelihood of being required to perform these guarantees is remote. In the unlikely event of default on any remaining decommissioning liabilities, the total maximum potential obligation under these guarantees is estimated to be approximately $122.3 million, net of the contractual right to receive payments from third parties, which is approximately $24.6 million, as of March 31, 2013. The total maximum potential obligation will decrease over time as the underlying obligations are fulfilled.

Hedging Activities

In April 2012, we entered into an interest rate swap related to our 7 1/8% senior notes maturing in December 2021 for a notional amount of $100 million, whereby we are entitled to receive semi-annual interest payments at a fixed rate of 7 1/8% per annum and are obligated to make semi-annual interest payments at a variable rate. The variable interest rate, which is adjusted every 90 days, is based on LIBOR plus a fixed margin and is scheduled to terminate on December 15, 2021.

Recently Issued Accounting Pronouncements

See Part I, Item 1, “Financial Statements – Note 18 – Recently Issued Accounting Pronouncements.”

 

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks associated with foreign currency fluctuations and changes in interest rates. A discussion of our market risk exposure in financial instruments follows.

Foreign Currency Exchange Rates

Because we operate in a number of countries throughout the world, we conduct a portion of our business in currencies other than the U.S. dollar. The functional currency for our international operations, other than certain operations in Canada, the United Kingdom and Europe, is the U.S. dollar, but a portion of the revenues from our foreign operations is paid in foreign currencies. The effects of foreign currency fluctuations are partly mitigated because local expenses of such foreign operations are also generally denominated in the same currency. We continually monitor the currency exchange risks associated with all contracts not denominated in the U.S. dollar.

Assets and liabilities of certain subsidiaries in Canada, the United Kingdom and Europe are translated at end of period exchange rates, while income and expenses are translated at average rates for the period. Translation gains and losses are reported as the foreign currency translation component of accumulated other comprehensive loss in stockholders’ equity.

We do not hold derivatives for trading purposes or use derivatives with complex features. When we believe prudent, we enter into forward foreign exchange contracts to hedge the impact of foreign currency fluctuations. The forward foreign exchange contracts we enter into generally have maturities ranging from one to eighteen months. We do not enter into forward foreign exchange contracts for trading purposes. As of March 31, 2013, we had no outstanding foreign currency forward contracts.

Interest Rate Risk

At March 31, 2013, our debt was comprised of the following (in thousands):

 

     Fixed
Rate Debt
     Variable
Rate Debt
 

Credit facility term loan due 2017

   $  —         $ 380,000   

Revolving credit facility due 2017

        35,000   

6 7/8 % Senior notes due 2014

     150,000         —     

6 3/8 % Senior notes due 2019

     500,000         —     

7 1/8 % Senior notes due 2021

     700,000         100,000   
  

 

 

    

 

 

 

Total Debt

   $ 1,350,000       $ 515,000   
  

 

 

    

 

 

 

Based on the amount of this debt outstanding at March 31, 2013, a 10% increase in the variable interest rate would increase our interest expense for the three months ended March 31, 2013 by approximately $0.4 million, while a 10% decrease would decrease our interest expense by approximately $0.4 million.

Commodity Price Risk

Our revenues, profitability and future rate of growth significantly depend upon the market prices of oil and natural gas. Lower prices may also reduce the amount of oil and natural gas that can economically be produced.

For additional discussion, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in Part I, Item 2.

 

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Item 4. Controls and Procedures

 

  a. Evaluation of disclosure controls and procedures. As of the end of the period covered by this quarterly report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation, that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) are effective for ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.  

 

  b. Changes in internal control. There has been no change in our internal control over financial reporting that occurred during the three months ended March 31, 2013, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

 

Period

   Total Number
of Shares
Purchased (1)
     Average Price Paid per Share  

January 1 - 31, 2013

     103,489       $ 23.38   

February 1 - 28, 2013

     4,193       $ 26.02   

March 1 - 31, 2013

     4,786       $ 26.02   
  

 

 

    

 

 

 

Total

     112,468       $ 23.59   
  

 

 

    

 

 

 

 

(1) 

Through our stock incentive plans, 112,468 shares were delivered to us by our employees to satisfy their tax withholding requirements upon vesting of restricted stock.

 

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Item 6. Exhibits

 

  (a) The following exhibits are filed with this Form 10-Q:

 

      2.1 Agreement and Plan of Merger Agreement and Plan of Merger, dated October 9, 2011, by and among Superior Energy Services, Inc., SPN Fairway Acquisition, Inc. and Complete Production Services, Inc. (incorporated herein by reference to the Company’s Current Report on Form 8-K filed October 12, 2011).

 

      3.1 Composite Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company’s Form 10-K filed on February 28, 2012).

 

      3.2 Amended and Restated Bylaws of the Company (as amended through March 7, 2012) (incorporated herein by reference to Exhibit 3.1 to the Company’s Form 8-K filed on March 12, 2012).

 

    31.1* Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

    31.2* Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

    32.1* Officer’s certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

    32.2* Officer’s certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

  101.INS* XBRL Instance Document

 

  101.SCH* XBRL Taxonomy Extension Schema Document

 

  101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document

 

  101.LAB* XBRL Taxonomy Extension Label Linkbase Document

 

  101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document

 

  101.DEF* XBRL Taxonomy Extension Definition Linkbase Document

 

* Filed with this Form 10-Q

 

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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.

 

        SUPERIOR ENERGY SERVICES, INC.
Date: May 3, 2013     By:  

/s/ Robert S. Taylor

      Robert S. Taylor
      Executive Vice President, Treasurer and
      Chief Financial Officer
      (Principal Financial and Accounting Officer)

 

21

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, David D. Dunlap, President and Chief Executive Officer of Superior Energy Services, Inc., certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Superior Energy Services, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 3, 2013

 

  /s/ David. D. Dunlap
 

David D. Dunlap

President and Chief Executive Officer

Superior Energy Services, Inc.

 

 

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, Robert S. Taylor, Executive Vice President, Treasurer and Chief Financial Officer of Superior Energy Services, Inc., certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Superior Energy Services, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 3, 2013

 

  /s/ Robert S. Taylor
 

Robert S. Taylor

Executive Vice President, Treasurer and Chief Financial Officer

Superior Energy Services, Inc.

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

SECTION 1350 OF TITLE 18 OF THE U.S. CODE

I, David D. Dunlap, President and Chief Executive Officer of Superior Energy Services, Inc. (the “Company”), certify, pursuant to Section 1350 of Title 18 of the U.S. Code, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), that:

 

1. the quarterly report on Form 10-Q of the Company for the quarter ended March 31, 2013 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

This certificate is being furnished solely for purposes of Section 906 and is not being filed as part of the Report or as a separate disclosure document.

Date: May 3, 2013

 

  /s/ David. D. Dunlap
 

David D. Dunlap

President and Chief Executive Officer

Superior Energy Services, Inc.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

SECTION 1350 OF TITLE 18 OF THE U.S. CODE

I, Robert S. Taylor, Executive Vice President, Treasurer and Chief Financial Officer of Superior Energy Services, Inc. (the “Company”), certify, pursuant to Section 1350 of Title 18 of the U.S. Code, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), that:

 

1. the quarterly report on Form 10-Q of the Company for the year ended March 31, 2013 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

This certificate is being furnished solely for purposes of Section 906 and is not being filed as part of the Report or as a separate disclosure document.

Date: May 3, 2013

 

  /s/ Robert S. Taylor
 

Robert S. Taylor

Executive Vice President, Treasurer and Chief Financial Officer

Superior Energy Services, Inc.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.