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Seventy Seven Energy Inc. Announces

The following excerpt is from the company's SEC filing.

First Quarter 2016 Operational and Financial Results

OKLAHOMA CITY, OKLAHOMA,

April 25, 2016

- Seventy Seven Energy Inc. (NYSE: SSE) today reported financial and operational results for the

quarter of

SSE reported total revenues of

$155.4 million

decrease compared to revenues of

$192.8 million

fourth

, and a

$429.8 million

. SSE’s adjusted EBITDA was

$37.9 million

, compared to adjusted EBITDA of

$56.3 million

and adjusted EBITDA of

$93.3 million

Adjusted net loss for the
< br>$55.1 million

per fully diluted share compared to adjusted net loss of

$32.2 million

per fully diluted share, for the

and adjusted net loss of

$21.6 million

Net loss for the

$59.6 million

per fully diluted share, compared to net loss of

$60.6 million

and net loss of

$37.6 million

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

$46.0 million

during the

, compared to revenues of

$89.6 million

$55.9 million

and revenues of

$166.1 million

$73.2 million

. The decrease in revenues for the

compared to the

was primarily due to a

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

of total segment revenues for both the

and the

. As of

March 31, 2016

, approximately

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

months as of

Operating costs were

$27.2 million

$34.9 million

$98.1 million

. Average operating costs per revenue day in the

decreased

, primarily driven by a

decrease in labor-related costs per revenue day. As a percentage of drilling revenues, drilling operating costs were

. 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

, the Company’s marketed fleet of

all-electric rigs consisted of

Tier 1 rigs, including

PeakeRigs

Tier 2 rigs. Additionally, SSE had

contracted PeakeRigs™ under construction,

of which has been delivered and

of which is scheduled to be delivered during the remainder of 2016. Approximately

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

$6.5 million

$91.9 million

$14.2 million

$202.0 million

$32.9 million

. The decrease in revenues from the

decrease in completed stages. Revenues from non-CHK customers as a percentage of total segment revenues increased from

, SSE’s hydraulic fracturing revenue backlog was

$164.2 million

months.

Average operating costs per stage in the

quarter increased

. The increase in average operating costs per stage for the

increase in product costs per stage. As a percentage of hydraulic fracturing revenues, hydraulic fracturing operating costs were

. The increase was due to increased pricing pressure. Restructuring charges were

, SSE owned

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

($1.7) million

$11.3 million

$0.9 million

$32.5 million

$9.7 million

. Revenues during the quarter were negatively impacted by the continued reduction in drilling and completions activity by SSE’s customers.

$9.1 million

$10.4 million

$23.6 million

. As a percentage of oilfield rental revenues, operating costs were

. 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

$16.7 million

$33.9 million

. SSE incurred restructuring charges of

$4.7 million

. Additionally, general and administrative expenses include non-cash compensation of

$4.5 million

$3.8 million

and severance-related costs of

$0.3 million

$0.4 million

, respectively.

Liquidity

, 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

$31.1 million

of purchase commitments related to future capital expenditures that the Company expects to incur in

Capital expenditures totaled

$54.2 million

, 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 information and presentations and recent news releases.

Forward-Looking Statements and Cautionary Statements

This news release (and any oral statements made regarding the subjects of this release, including on the conference call announced herein) contains certain statements and information that may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. The words “anticipate,” “believe,” “ensure,” “expect,” “if,” “intend,” “plan,” “estimate,” “project,” “forecasts,” “predict,” “outlook,” “aim,” “will,” “could,” “should,” “potential,” “would,” “may,” “probable,” “likely,” and similar expressions, and the negative thereof, are intended to identify forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in this press release specifically include statements, estimates and projections regarding the Plan, the DIP Facility and related matters, as well as, the Company's business outlook and plans, future financial position and flexibility, capital structure, liquidity and capital resources, acquisitions, returns, capital expenditure budgets and other guidance regarding future developments. Forward-looking statements are not assurances of future performance. These forward-looking statements are based on management’s current expectations and beliefs, forecasts for its existing operations, experience, and perception of historical trends, current conditions, anticipated future developments and its effect on the Company, and other factors believed to be appropriate. Although management believes that the expectations and assumptions reflected in these forward-looking statements are reasonable as and when made, no assurance can be given that these assumptions are accurate or that any of these expectations will be achieved (in full or at all). Moreover, the Company's forward-looking statements are subject to significant risks and uncertainties, many of which are beyond its control, which may cause actual results to differ materially from its historical experience and its present expectations or projections which are

implied or expressed by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, risks relating to general economic and industry conditions; our ability to consummate the restructuring Plan; the terms and availability of any new debt; our customers’ drilling and completion expenditures; delays in or failure of delivery of current or future orders of specialized equipment; the loss of or interruption in operations of one or more key suppliers or customers; the effects of government regulation, permitting and other legal requirements, including new legislation or regulation of hydraulic fracturing; operating risks; the adequacy of our capital resources and liquidity; weather; litigation; competition in the onshore oil and natural gas services industry; and costs and availability of resources.

In addition, SSE calculates its contract drilling backlog by multiplying the day rate under its contracts by the number of days remaining under the contract. The Company calculates its hydraulic fracturing backlog by multiplying the (i) rate per stage, which varies by operating region and is, therefore, estimated based on current customer activity levels by region and current contract pricing, by (ii) the number of stages remaining under the contract, which it estimates based on current and anticipated utilization of its crews. With respect to its hydraulic fracturing backlog, the Company's contracts provide for periodic adjustments of the rates it may charge for its services, which will be negotiated based on then-prevailing market pricing and in the future may be higher or lower than the current rates it charges and utilizes in calculating its backlog. The drilling backlog calculation does not include any reduction in revenues related to mobilization or demobilization, nor does it include potential reductions in rates for unscheduled standby or during periods in which the rig is moving, on standby or incurring maintenance and repair time in excess of what is permitted under the drilling contract. The Company computes average duration for its contract drilling backlog and hydraulic fracturing backlog as the average number of months remaining for its drilling rigs under contract and its remaining hydraulic fracturing fleets under contract, respectively.

For additional information regarding known material factors that could cause the Company's actual results to differ from its present expectations and projected results, please see its filings with the U.S. Securities and Exchange Commission (“SEC”), including its Current Reports on Form 8-K that it files from time to time, Quarterly Reports on Form 10-Q, and Annual Report on Form 10-K.

Readers are cautioned not to place undue reliance on any forward-looking statement which speaks only as of the date on which such statement is made. The Company undertakes no obligation to correct, revise or update any forward-looking statement after the date such statement is made, whether as a result of new information, future events or otherwise, except as required by applicable law.

All references in this release to “Chesapeake” or “CHK” are to Chesapeake Energy Corporation (NYSE: CHK), SSE's former parent company.

SEVENTY SEVEN ENERGY INC.

Condensed Consolidated Statements of Operations

(Unaudited)

Three Months Ended

March 31,

December 31,

(In thousands, except per share data)

Revenues:

155,361

429,787

192,788

Operating Expenses:

106,960

331,611

124,243

Depreciation and amortization

69,645

84,975

68,642

22,262

33,912

16,705

Loss on sale of a business

(Gains) losses on sales of property and equipment, net

Impairment of goodwill

27,434

Impairments and other

Total Operating Expenses

198,722

460,980

238,606

Operating Loss

(43,361

(31,193

(45,818

Other (Expense) Income:

Interest expense

(25,279

(23,516

(25,303

Income (loss and impairment) from equity investee

(8,806

Other income (expense)

Total Other Expense

(24,276

(22,640

(32,945

Loss Before Income Taxes

(67,637

(53,833

(78,763

Income Tax Benefit

(8,074

(16,232

(18,173

Net Loss

(59,563

(37,601

(60,590

Loss Per Common Share

Diluted

Weighted Average Common Shares Outstanding

54,492

48,275

51,472

Condensed Consolidated Balance Sheets

December 31,

(In thousands, except share amounts)

Assets:

Current Assets:

Cash and cash equivalents

74,671

130,648

Short-term investments

Accounts receivable, net of allowance of $4,160 and $3,680 at March 31, 2016 and December 31, 2015, respectively

127,714

164,721

Inventory

18,903

18,553

Deferred income tax asset

Prepaid expenses and other

14,224

17,141

Total Current Assets

243,198

332,562

Property and Equipment:

Property and equipment, at cost

2,691,060

2,646,446

Less: accumulated depreciation

(1,180,554

(1,116,026

Total Property and Equipment, Net

1,510,506

1,530,420

Other Assets:

Deferred financing costs

Other long-term assets

39,014

38,398

Total Other Assets

40,164

39,636

Total Assets

1,793,868

1,902,618

Liabilities and Stockholders’ Equity:

Current Liabilities:

Accounts payable

28,440

53,767

Current portion of long-term debt

Other current liabilities

76,831

98,318

Total Current Liabilities

110,271

157,085

Long-Term Liabilities:

Deferred income tax liabilities

52,502

60,623

Long-term debt, excluding current maturities

1,564,494

1,564,592

Other long-term liabilities

Total Long-Term Liabilities

1,618,916

1,626,693

Commitments and Contingencies

Common stock, $0.01 par value: authorized 250,000,000 shares; issued and outstanding 59,041,492 and 59,397,831 shares at March 31, 2016 and December 31, 2015, respectively

Paid-in capital

356,178

350,770

Accumulated deficit

(292,087

(232,524

Total Stockholders’ Equity

64,681

118,840

Total Liabilities and Stockholders’ Equity

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31,

(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

NET LOSS

ADJUSTMENTS TO RECONCILE NET LOSS TO CASH PROVIDED BY OPERATING ACTIVITIES:

Amortization of deferred financing costs

Income from equity investee

Provision for doubtful accounts

Non-cash compensation

18,355

Deferred income tax benefit

(8,066

Changes in operating assets and liabilities

(6,174

(35,102

Net cash provided by operating activities

27,513

CASH FLOWS FROM INVESTING ACTIVITIES:

Additions to property and equipment

(54,207

(40,607

Purchases of short-term investments

(6,242

Proceeds from sales of assets

Additions to investments

Net cash used in investing activities

(58,270

(38,693

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings from revolving credit facility

109,300

Payments on revolving credit facility

(94,500

Payments on term loan

(1,250

Net cash (used in) provided by financing activities

(1,582

14,263

Net (decrease) increase in cash

(55,977

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

SUPPLEMENTAL DISCLOSURE OF SIGNIFICANT NON-CASH INVESTING AND FINANCING ACTIVITIES:

Decrease in other current liabilities related to purchases of property and equipment

(2,458

(8,405

SUPPLEMENTAL DISCLOSURE OF CASH PAYMENTS:

Interest paid, net of amount capitalized

20,816

21,744

Reconciliation of Non-GAAP Financial Measures

Adjusted EBITDA, Adjusted Revenues and Adjusted Net Loss

During the second quarter of

, SSE sold Hodges Trucking Company, L.L.C., which provided drilling rig relocation and logistics services, to a wholly-owned subsidiary of Aveda Transportation and Energy Services Inc. and sold its water hauling assets to various third parties. SSE’s adjusted revenues assume these transactions occurred on January 1, 2015.

“Adjusted EBITDA”, “adjusted revenues” and “adjusted net loss” are non-GAAP financial measures. Adjusted EBITDA, adjusted revenues and adjusted net loss, as used and defined by us, may not be comparable to similarly titled measures employed by other companies and are not measures of performance or liquidity as calculated in accordance with generally accepted accounting principles (“GAAP”).

Adjusted EBITDA should not be considered in isolation or as a substitute for operating income, net income or loss, cash flows provided by operating, investing and financing activities, or other income or cash flow statement data prepared in accordance with GAAP. However, our management uses Adjusted EBITDA to evaluate our performance and liquidity and believes Adjusted EBITDA may be useful to an investor in evaluating our operating performance and liquidity because this measure:

is widely used by investors in the oilfield services industry to measure a company’s operating performance without regard to items excluded from the calculation of such measure, which can vary substantially from company to company depending upon accounting methods, book value of assets, capital structure and the method by which assets were acquired, among other factors;

is a financial measurement that is used by rating agencies, lenders and other parties to evaluate our creditworthiness; and

is used by our management for various purposes, including as a measure of segment performance and as a basis for strategic planning and forecasting.

There are significant limitations to using Adjusted EBITDA as a measure of performance, including the inability to analyze the effect of certain recurring and non-recurring items that materially affect our net income or loss. Additionally, because Adjusted EBITDA excludes some, but not all, items that affect net income and is defined differently by different companies in our industry, our definition of Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

Adjusted revenues should not be considered in isolation or as a substitute for revenues prepared in accordance with GAAP. However, our management uses adjusted revenues to evaluate our period-over-period operating performance because our management believes this measure improves the comparability of our continuing businesses and may be useful to an investor in evaluating our operating performance.

Adjusted net loss should not be considered in isolation or as a substitute for net loss prepared in accordance with GAAP. Adjusted net loss excludes impairments, gains or losses on sales of property and equipment, severance-related costs, gain or loss on sale of a business and exit costs, restructuring charges and a non-recurring charge due to a change in depreciation estimate.

Consolidated Adjusted EBITDA

Income tax benefit

Loss (gain) on sale of a business and exit costs

(1,326

Impairment of equity method investment

Severance-related costs

Interest income

Drilling rig relocation and logistics Adjusted EBITDA

(3,859

Water hauling Adjusted EBITDA

(4,586

37,874

93,344

56,296

Drilling Adjusted EBITDA

Net income (loss)

(15,547

Income tax expense (benefit)

(4,663

38,304

49,539

37,442

Losses on sales of property and equipment, net

Corporate overhead allocation

46,028

73,193

55,907

Prior to the Current Quarter, the information that was regularly reviewed by our chief operating decision maker included general and administrative expenses that were allocated to each of our reportable segments for corporate overhead functions provided by the Other Operations segment, on behalf of our reportable segments. Effective in the Current Quarter, we no longer allocate general and administrative expenses to our reportable segments from the Other

Operations segment in the information that is reviewed by our chief operating decision maker. Accordingly, this change has been reflected through retroactive revision of the prior period segment information.

Hydraulic Fracturing Adjusted EBITDA

Net (loss) income

(12,143

(15,222

Income tax (benefit) expense

(1,646

(4,565

19,741

16,277

18,691

Losses (gains) on sales of property and equipment, net

32,912

14,155

Prior to the Current Quarter, the information that was regularly reviewed by our chief operating decision maker included general and administrative expenses that were allocated to each of our reportable segments for corporate overhead functions provided by the Other Operations segment, on behalf of our reportable segments. Effective in the Current Quarter, we no longer allocate general and administrative expenses to our reportable segments from the Other Operations segment in the information that is reviewed by our chief operating decision maker. Accordingly, this change has been reflected through retroactive revision of the prior period segment information.

Oilfield Rentals Adjusted EBITDA

(8,624

(3,509

(7,852

(1,169

(1,515

(2,355

12,172

Gains on sales of property and equipment, net

(1,003

(1,747

Segment Statistics

71,908

166,054

89,558

Operating Costs

27,156

98,140

34,869

Gross Margin

44,752

67,914

54,689

76,308

202,017

91,930

70,439

171,305

78,083

30,712

13,847

32,488

11,290

23,619

10,437

(1,933

Consolidated Adjusted Revenue

Drilling rig relocation and logistics revenues

23,830

Water hauling revenues

400,559

“Adjusted Revenue” is a non-GAAP financial measure of revenues that excludes revenues associated with our rig relocation and logistics business and water hauling assets that were sold in the second quarter of 2015.

Adjusted Net Loss and Adjusted Diluted Earnings per Share

(in thousands, except per share amounts)

Adjusted Net Loss:

Non-recurring charge due to change in depreciation estimate, net of tax

Impairments, net of tax

Impairment of goodwill, net of tax

21,124

(Gains) losses on sales of property and equipment, net, net of tax

Severance-related costs, net of tax

Impairment of equity investment, net of tax

Restructuring charges, net of tax

Loss (gain) on sale of a business and exit costs, net of tax

(1,021

(55,086

(21,625

(32,202

Adjusted Diluted Earnings per Share:

Diluted earnings per share

Diluted earnings per share from non-recurring change in depreciation estimate

Diluted earnings per share from impairments

Diluted earnings per share from impairment of goodwill

Diluted earnings per share from (gains) losses on sales of property and equipment

Diluted earnings per share from severance-related costs

Diluted earnings per share from impairment of equity method investment

Diluted earnings per share from restructuring charges

Diluted earnings per share from (gain) loss on sale of a business and exit costs

Adjusted Diluted Earnings Per Share

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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Other recent filings from the company include the following:

Seventy Seven Energy Inc. Enters Into Restructuring Support Agreement - April 19, 2016