Eco-Stim Energy Solutions Reports Fourth Quarter and Full Year 2016 Results; Expanding into US Market While Maintaining Firm Position in Argentina
HOUSTON, TX and NEUQUEN CITY, ARGENTINA -- (Marketwired) -- 03/10/17 -- Eco-Stim Energy Solutions, Inc. (NASDAQ: ESES) ("EcoStim" or the "Company") announced its financial and operating results for the quarter and year ended December 31, 2016.
OPERATIONAL AND FINANCIAL HIGHLIGHTS
- Company recapitalized with goal of eliminating debt and positioning the Company for long term growth
- New contract in Oklahoma supports expansion into US market; operational start-up in Q2 2017
- Management team strengthened with industry veteran
- Company has now increased capacity to 100,000 HHP pending on-going upgrades
- Strong operational track record in Argentina with no lost time incidents (safety) or down-time related to labor disruptions
- Equipment capacity in Argentina expanded; now strongly positioned for tight gas and unconventional drilling expansion
- Turbine pump upgrade completed and successfully operated in Argentina
J. Chris Boswell, President and Chief Executive Officer stated, "We have just completed our second full year of operations in an emerging market which is considered to be one of the most promising shale developments outside of North America. Despite two difficult years during the global energy downturn, we have successfully positioned the Company in a challenging international market; imported equipment; established an operating base; hired a quality management and operational team; and established a flawless operational reputation while managing to secure meaningful work with many of the largest operators in the country. I am proud of that effort in this environment. Moreover, our shareholders and creditors have supported the Company with sufficient capital to expand our capacity and position the Company to compete in the conventional and tight gas markets in Argentina, and with the recent recapitalization and cash infusion, we are entering a growing market in Oklahoma. We welcome our newest shareholder and now sole creditor, Fir Tree Partners, and look forward to growing EcoStim into a market leader for environmentally friendly, cost efficient pressure pumping operations."
Boswell continued, "While it has been a challenging period, we have managed to increase our horsepower from 10,000 HHP at the beginning of 2015 to approximately 100,000 HHP as we head into the second quarter of 2017, a portion of which is expected to be deployed later in the year following some further investment. This gives us the flexibility and capacity to operate up to two crews in Argentina and one larger crew in Oklahoma beginning in Q2 2017. We have also engaged in preliminary discussions with other operators regarding additional long-term contracts that we intend to pursue throughout 2017."
Alexander Nickolatos, EcoStim's Chief Financial Officer stated, "We are excited by the recently announced financing transaction and the many growth opportunities that lie ahead for the Company. Although 2016 was a difficult year in many respects, there are many signs pointing to better conditions in both of our markets and I believe we are well positioned to capitalize on these improvements."
Year Ended December 31, 2016 Financial Results
For the year ended December 31, 2016, EcoStim reported a net loss of $ 17.9 million or a loss of $1.32 per basic and diluted share as compared to a net loss of $13.4 million, or a loss of $1.35 per basic and diluted share, reported for the year ended December 31, 2015. Net loss for the year ended 2016 includes approximately $5.6 million of non-cash expenses consisting of depreciation, debt discount and loan origination cost amortization and stock compensation. In 2015, the Company also recognized a cash gain of approximately $5.1 million related to the transfer of cash to Argentina through the bond market. The proceeds from the sale of these bonds were used primarily to fund capital expenditures in Argentina. No such gains or losses were realized in 2016.
Fourth Quarter Financial Results
For the fourth quarter of 2016, EcoStim reported a net loss of $4.6 million, or a loss of $0.34 per basic and diluted share as compared to a net loss of $4.8 million, or a loss of $0.35 per basic and diluted share, reported in the third quarter of 2016. The net loss for the fourth quarter of 2015 was $3.5 million, or a loss of $0.26 per basic and diluted share. Net loss for the fourth quarter of 2016 includes approximately $1.5 million of non-cash expenses consisting of depreciation, debt amortization and stock compensation.
Selling, general and administrative ("SG&A") expense in the fourth quarter of 2016 was approximately $1.3 million compared to $1.5 million for the prior quarter and $1.8 million for the fourth quarter of 2015. The SG&A expense is primarily related to the sales and administrative offices in Buenos Aires and Neuquén and the cost associated with being a public company, including our corporate office in Houston.
Research & development ("R&D") expense in the fourth quarter of 2016 was $0.1 million compared to $0.1 million for the prior quarter. The R&D expense in Q4 2015 was $0.2 million. R&D expense for Q4 2016 was primarily related to expenditures in connection with research and development efforts around the use of fiber optic diagnostic tools and turbine-powered well stimulation equipment.
Cash and Total Liquidity
On December 31, 2016, EcoStim had cash and cash equivalents of approximately $1.7 million, compared to $11.7 million at December 31, 2015 and $1.6 million on September 30, 2016.
During 2016, EcoStim sold 796,573 shares of common stock under it's "at the market" program at an average price of $2.16 per share with gross proceeds of $1.7 million. The Company also secured a $2 million shareholder loan in November 2016 to increase the Company's liquidity position. This entire loan was repaid in March 2017 in the transaction described below.
On March 3, 2017, the Company entered into a transaction with an affiliate of Fir Tree Partners ("FTP") pursuant to which FTP purchased from Albright Capital Management LLC ("ACM") $22 million aggregate principal amount of the Company's outstanding convertible notes, which were due in 2018. This transaction was part of a comprehensive recapitalization designed to create a path to a potential equitization of substantially all of the Company's debt, subject to shareholder approval. As part of the transaction, the Company issued to FTP an additional $19 million aggregate principal amount of convertible notes. After giving effect to these transactions, the Company now has approximately $41 million of outstanding convertible notes. FTP has agreed to convert all of the outstanding convertible notes into common stock at a conversion price of $1.40 per share, subject to receipt of shareholder approval and satisfaction of certain other conditions. Assuming all of the outstanding convertible notes are converted into common stock, on a pro-forma basis, the Company would issue approximately 29 million shares to FTP and would then have approximately 44 million shares outstanding and no outstanding debt.
Total capital expenditures during the fourth quarter of 2016 were approximately $0.6 million compared to $1.2 million in the third quarter of 2016 and $6.1 million in the fourth quarter of 2015.
The Company has a limited operating history and only two years of operational history in a difficult market environment. While the market in the U.S. is showing signs of recovery and the pricing environment is improving, market conditions remain unpredictable and therefore the Company does not plan to provide any official guidance for 2017. As the Company's capacity additions are progressing and the execution of contracts takes hold, management may provide such guidance assuming the visibility in the market improves. Factors influencing our outlook and performance include the timing for operational readiness in Oklahoma, utilization of the assets in both the US and Argentina markets, the size of each job and the service and product components of each job.
The Company will host a conference call on March 10, 2017 at 10:00 AM EST, 9:00 AM CST. To participate in the call please dial 877-900-9524 from the United States and Canada, and 412-902-0029 internationally. Participants should dial in five to ten minutes before the scheduled time and must be on a touchtone telephone to ask questions. A replay of the call will be available through March 30, 2017 by dialing 877-660-6853 from the U.S. and Canada, and 201-612-7415 internationally. The replay passcode is 13597819.
About the Company
Eco-Stim Energy Solutions is an environmentally focused oilfield service and technology Company providing well stimulation and completion services and proprietary field management technologies to oil and gas producers. EcoStim's proprietary methodology and technology offers the potential in high cost regions to decrease the number of stages stimulated in shale plays through a unique process that predicts high probability production zones while confirming those production zones using the latest generation down-hole diagnostic tools. In addition, EcoStim offers its clients completion techniques that can dramatically reduce horsepower requirements, emissions and surface footprint. EcoStim seeks to deliver well completion services with better technology, better ecology and significantly improved economics for unconventional oil and gas producers worldwide.
Certain statements and information in this press release concerning results for the fiscal periods ended December 31, 2016 may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The words "believe," "expect," "anticipate," "plan," "intend," "foresee," "should," "would," "could" or other similar expressions are intended to identify forward-looking statements, which are generally not historical in nature. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions made by the Company based on management's experience, expectations and perception of historical trends, current conditions, anticipated future developments and other factors believed to be appropriate. Forward-looking statements are not guarantees of performance. Although the Company believes the expectations reflected in its forward-looking statements are reasonable and are based on reasonable assumptions, no assurance can be given that these assumptions are accurate or that any of these expectations will be achieved (in full or at all) or will prove to have been correct. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections.
For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.
|ECO-STIM ENERGY SOLUTIONS, INC.|
|CONDENSED CONSOLIDATED BALANCE SHEETS|
|December 31, 2016||December 31, 2015|
|Cash and cash equivalents||$||1,731,364||$||11,742,489|
|Total current assets||8,594,773||24,821,129|
|Property, plant and equipment, net||38,382,391||37,142,578|
|Other non-current assets||325,756||488,633|
|Liabilities and stockholders' equity|
|Short-term notes payable||2,000,000||-|
|Current portion of long-term notes payable||-||2,825,428|
|Current portion of capital lease payable||789,166||686,624|
|Total current liabilities||9,745,897||8,468,361|
|Long-term notes payable||21,737,404||21,737,403|
|Long-term capital lease payable||766,687||1,485,686|
|Total non-current liabilities||22,504,091||23,223,089|
|Additional paid-in capital||59,556,505||57,302,953|
|Total stockholders' equity||15,052,932||30,760,890|
|Total liabilities and stockholders' equity||$||47,302,920||$||62,452,340|
|ECO-STIM ENERGY SOLUTIONS, INC.|
|CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS|
|Three Months Ended
|Operating cost and expenses:|
|Cost of services||2,865,514||3,013,518||10,630,233||14,527,201|
|Selling, general, and administrative||1,279,298||1,751,938||5,892,235||7,011,765|
|Research and development||82,300||217,329||486,128||979,893|
|Depreciation and amortization expense||1,313,237||877,927||4,667,797||3,414,452|
|Total operating costs and expenses||5,540,349||5,860,712||21,676,393||25,933,311|
|Other income (expense):|
|Gain on sale of trading securities||-||2,675,780||-||5,091,387|
|Total other income (expense)||(1,026,147||)||198,293||(4,295,771||)||(872,266||)|
|Provision for income taxes||(88,610||)||(344,314||)||(305,320||)||(344,314||)|
|Basic and diluted loss per share||$||(0.34||)||$||(0.26||)||$||(1.32||)||$||(1.35||)|
|Weighted average number of common shares outstanding-basic and diluted||
|ECO-STIM ENERGY SOLUTIONS, INC.|
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS|
|Depreciation and amortization||4,667,797||3,414,452|
|Amortization of debt discount and loan origination cost||255,530||255,535|
|Stock based compensation||695,910||1,480,435|
|Gain on the sale of trading securities||-||(5,091,387||)|
|Changes in operating assets and liabilities:|
|Prepaids and other assets||1,468,076||(860,538||)|
|Accounts payable and accrued expenses||772,223||3,656,899|
|Net cash used in operating activities||(5,276,855||)||(18,615,159||)|
|Purchase of equipment||(4,591,080||)||(13,472,236||)|
|Proceeds from sale of trading securities||-||19,435,956|
|Purchase of trading securities||-||(12,983,801||)|
|Net cash used in investing activities||(4,591,080||)||(7,020,081||)|
|Proceeds from sale of common stock||1,722,596||35,329,038|
|Sale of common stock issuance cost||(164,041||)||(3,099,919||)|
|Proceeds from notes payable||2,194,611||400,000|
|Payments on notes payable||(3,293,732||)||(1,647,246||)|
|Payments on capital lease||(565,449||)||(597,406||)|
|Purchase of treasury stock||(37,175||)||(20,294||)|
|Net cash provided by (used in) financing activities||(143,190||)||30,364,173|
|Net increase (decrease) in cash and cash equivalents||(10,011,125||)||4,728,933|
|Cash and cash equivalents, beginning of year||11,742,489||7,013,556|
|Cash and cash equivalents, end of year||$||1,731,364||$||11,742,489|
|Supplemental Disclosure of Cash Flow Information|
|Cash paid during the year for interest||$||3,448,408||$||3,104,129|
|Cash paid during the year for income taxes||$||140,341||$||252,725|
|Fixed asset additions in accrued expenses||$||1,327,927||$||139,607|
|Interest converted to common stock||$||-||$||2,485,162|
Non-GAAP Financial Information:
EBITDA and adjusted EBITDA, a non-GAAP term, are used by management to evaluate, assess and benchmark our operational results, we use adjusted EBITDA as a supplement measure to review and should not be considered an alternative to net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. EBITDA and adjusted EBITDA exclude some, but not all items that affect net income and operating income. Limitations to using EBITDA as an analytical tool include:
EBITDA is defined as net loss with adjustments for depreciation and amortization, gain on sale of trading securities, interest expense, Income tax provision, and other expense.
Adjusted EBITDA used by the Company is defined as EBITDA plus adjustments for other income (expense)-net, and non-cash stock-based compensation expense.
The following table presents a reconciliation of net loss to adjusted EBITDA, which is the most comparable GAAP performance measure, for each of the periods indicated:
|ECO-STIM ENERGY SOLUTIONS, INC.|
|RECONCILIATION NET LOSS TO EBITDA AND ADJUSTED EBITDA|
|Three Months Ended December 31,||Year Ended December 31,|
|Depreciation and amortization||1,313,237||877,927||4,667,797||3,414,452|
|Gain on sale of trading securities||-||(2,675,780||)||-||(5,091,387||)|
|Provision for income taxes||88,610||344,314||305,320||344,314|
|Stock based compensation||129,089||252,711||695,910||1,480,435|
Source: Eco-Stim Energy Solutions, Inc.
Released March 10, 2017