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Seventy Seven Energy Inc. Announces First Quarter 2016 Operational and Financial Results

OKLAHOMA CITY, Apr 25, 2016 (BUSINESS WIRE) -- Seventy Seven Energy Inc. SSE, +0.04% today reported financial and operational results for the first quarter of 2016.

SSE reported total revenues of $155.4 million for the first quarter of 2016, a 19% decrease compared to revenues of $192.8 million for the fourth quarter of 2015, and a 64% decrease compared to revenues of $429.8 million for the first quarter of 2015. SSE’s adjusted EBITDA was $37.9 million for the first quarter of 2016, compared to adjusted EBITDA of $56.3 million for the fourth quarter of 2015 and adjusted EBITDA of $93.3 million for the first quarter of 2015.

Adjusted net loss for the first quarter of 2016 was $55.1 million, or $1.01 per fully diluted share compared to adjusted net loss of $32.2 million, or $0.64 per fully diluted share, for the fourth quarter of 2015 and adjusted net loss of $21.6 million, or $0.45 per fully diluted share, for the first quarter of 2015.

Net loss for the first quarter of 2016 was $59.6 million, or $1.09 per fully diluted share, compared to net loss of $60.6 million, or $1.18 per fully diluted share, for the fourth quarter of 2015 and net loss of $37.6 million, or $0.78 per fully diluted share, for the first quarter of 2015.

Adjusted revenues, adjusted EBITDA and adjusted net loss are non-GAAP financial measures. Reconciliations of these measures to comparable financial measures calculated in accordance with generally accepted accounting principles (GAAP) are provided on pages 8 - 12 of this release.

“Confronted with nearly insuperable market conditions, we were pleased with our operational execution for the quarter,” Chief Executive Officer Jerry Winchester said. “This will be the most challenging year the services industry has faced due to the historic decline in activity. Our focus is to tightly manage our costs throughout all areas of our business, while operating safely and efficiently for our customers. After last Tuesday’s restructuring announcement, we are more confident than ever that Seventy Seven Energy is positioned for long-term success and growth as conditions improve.”

Drilling

SSE’s drilling segment contributed revenues of $71.9 million and adjusted EBITDA of $46.0 million during the first quarter of 2016, compared to revenues of $89.6 million and adjusted EBITDA of $55.9 million for the fourth quarter of 2015 and revenues of $166.1 million and adjusted EBITDA of $73.2 million for the first quarter of 2015. The decrease in revenues for the first quarter of 2016 compared to the fourth quarter of 2015 was primarily due to a 30% decline in revenue days (which is the aggregate number of days each active rig generated revenue).

The percentage of revenues from non-CHK customers was 39% of total segment revenues for both the first quarter of 2016 and the fourth quarter of 2015. As of March 31, 2016, approximately 73% of SSE’s active rigs were contracted by non-CHK customers. SSE had a total drilling revenue backlog of $255.2 million with an average duration of 13 months as of March 31, 2016.

Operating costs were $27.2 million during the first quarter of 2016, compared to $34.9 million for the fourth quarter of 2015 and $98.1 million for the first quarter of 2015. Average operating costs per revenue day in the first quarter of 2016 decreased 13% from the fourth quarter of 2015, primarily driven by a 23% decrease in labor-related costs per revenue day. As a percentage of drilling revenues, drilling operating costs were 38% for the first quarter of 2016, 39% for the fourth quarter of 2015 and 59% for the first quarter of 2015. The decrease was primarily due to a higher proportion of idle-but-contracted rigs, which generate revenue with little associated cost. Restructuring charges were $0.1 million in the first quarter of 2016.

As of March 31, 2016, the Company’s marketed fleet of 92 all-electric rigs consisted of 35 Tier 1 rigs, including 24 PeakeRigs™, and 57 Tier 2 rigs. Additionally, SSE had two contracted PeakeRigs™ under construction, one of which has been delivered and one of which is scheduled to be delivered during the remainder of 2016. Approximately 79% of the Company’s marketed fleet are multi-well pad capable rigs.

Hydraulic Fracturing

SSE’s hydraulic fracturing segment contributed revenues of $76.3 million and adjusted EBITDA of $6.5 million during the first quarter of 2016, compared to revenues of $91.9 million and adjusted EBITDA of $14.2 million for the fourth quarter of 2015 and revenues of $202.0 million and adjusted EBITDA of $32.9 million for the first quarter of 2015. The decrease in revenues from the fourth quarter of 2015 to the first quarter of 2016 was primarily due to a 22% decrease in completed stages. Revenues from non-CHK customers as a percentage of total segment revenues increased from 19% in the fourth quarter of 2015 to 30% in the first quarter of 2016. As of March 31, 2016, SSE’s hydraulic fracturing revenue backlog was $164.2 million with an average duration of 10 months.

Average operating costs per stage in the first quarter increased 16% from the fourth quarter of 2015. The increase in average operating costs per stage for the first quarter of 2016 compared to the fourth quarter of 2015 was primarily due to a 13% increase in product costs per stage. As a percentage of hydraulic fracturing revenues, hydraulic fracturing operating costs were 92% for the first quarter of 2016, 85% for the fourth quarter of 2015 and 85% for the first quarter of 2015. The increase was due to increased pricing pressure. Restructuring charges were $0.1 million in the first quarter of 2016.

As of March 31, 2016, SSE owned 13 hydraulic fracturing fleets with an aggregate of 500,000 horsepower operating in the Anadarko Basin and the Eagle Ford and Utica Shales.

Oilfield Rentals

SSE’s oilfield rentals segment contributed revenues of $7.1 million and adjusted EBITDA of ($1.7) million during the first quarter of 2016, compared to revenues of $11.3 million and adjusted EBITDA of $0.9 million for the fourth quarter of 2015 and revenues of $32.5 million and adjusted EBITDA of $9.7 million for the first quarter of 2015. Revenues from non-CHK customers as a percentage of total segment revenues increased from 71% in the fourth quarter of 2015 to 76% in the first quarter of 2016. Revenues during the quarter were negatively impacted by the continued reduction in drilling and completions activity by SSE’s customers.

Operating costs were $9.1 million during the first quarter of 2016, compared to $10.4 million for the fourth quarter of 2015 and $23.6 million for the first quarter of 2015. As a percentage of oilfield rental revenues, operating costs were 127% for the first quarter of 2016, 92% for the fourth quarter of 2015 and 73% for the first quarter of 2015. The increase in operating costs as a percentage of revenue was due to significant declines in fleet utilization and increased pricing pressure in the first quarter of 2016 compared to both prior periods.

General and Administrative Expenses

General and administrative expenses were $22.3 million in the first quarter of 2016, compared to $16.7 million in the fourth quarter of 2015 and $33.9 million in the first quarter of 2015. SSE incurred restructuring charges of $4.7 million in the first quarter of 2016. Additionally, general and administrative expenses include non-cash compensation of $4.5 million and $3.8 million and severance-related costs of $0.3 million and $0.4 million for the first quarter of 2016 and the fourth quarter of 2015, respectively.

Liquidity

As of March 31, 2016, the Company had cash of $74.7 million and working capital of $132.9 million. As of April 21, 2016, SSE had cash and short-term investments of $80.5 million and the Company’s revolving credit facility remained undrawn. As of March 31, 2016, SSE had $31.1 million of purchase commitments related to future capital expenditures that the Company expects to incur in 2016.

Capital expenditures totaled $54.2 million for the first quarter of 2016, which primarily consisted of investment in new PeakeRigs™ and the purchase of hydraulic fracturing equipment with an aggregate of 60,000 horsepower at auction. SSE currently expects its total year-end 2016 capital expenditures to be under $100.0 million.

On April 19, 2016, SSE announced that it had entered into a Restructuring Support Agreement (the “Agreement”) with certain lenders (the “Incremental Term Loan Lenders”) representing 92.0% of the outstanding principal amount under the Company’s Incremental Term Supplement (Tranche A) loan and certain noteholders (the “Consenting 2019 Noteholders”) collectively owning or controlling in excess of 57.7% of the aggregate outstanding principal amount of the Company’s 6.625% senior notes due 2019 (the “2019 Notes”). The terms of the Agreement provide for a substantial deleveraging of the Company’s balance sheet by converting approximately $1.1 billion of the Company’s bond debt into new common equity without interrupting the Company’s daily operations. The Agreement outlines an expected restructuring through a pre-packaged plan of reorganization (the “Plan”). The Company’s 8-K filing on April 19, 2016 outlines certain terms of the Plan. On April 22, 2016, SSE amended the Agreement to extend certain dates set forth in the original agreement, including extending the deadline to commence solicitation until April 29, 2016.

SSE expects the primary sources of liquidity will be from cash on hand and cash from operations. In addition, the Company intends to enter into a $100.0 million senior secured asset-based debtor-in-possession revolving credit facility (the “DIP Facility”) upon commencing a pre-packaged Chapter 11 proceeding upon concluding solicitation of votes on the Plan pursuant to the Agreement, and expects that the DIP Facility will convert to a $100.0 million senior secured asset-based revolving credit facility upon emerging from the Chapter 11 proceeding.

This press release is not intended to be, and should not in any way be construed as, a solicitation of votes of noteholders or other investors regarding the plan of reorganization.

Conference Call Information

SSE does not plan to host an earnings conference call to discuss first quarter 2016 operational and financial results.

About Seventy Seven Energy Inc.

Headquartered in Oklahoma City, SSE provides a wide range of wellsite services and equipment to U.S. land-based exploration and production customers. SSE’s services include drilling, hydraulic fracturing and oilfield rentals and its operations are geographically diversified across many of the most active oil and natural gas plays in the onshore U.S., including the Anadarko and Permian basins and the Eagle Ford, Haynesville, Marcellus, Niobrara and Utica shales. For additional information about SSE, please visit our website at www.77nrg.com, where we routinely post announcements, updates, events, investor...


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