Pioneer Energy Services Unsecureds

Today’s post repeats many of the themes from our last.  A company in the energy sector?  Check.  Plenty of unsecured debt outstanding?  Check.  Unsecured trading substantially below par?  Check.  Revenues down nearly 50% YoY?  Check.  No signs of relief on the horizon… check.

“Pioneer Energy Services Corp. provides drilling services and production services to a diverse group of independent and large oil and gas exploration and production companies throughout much of the onshore oil and gas producing regions of the United States and internationally in Colombia. We also provide two of our services (coiled tubing and wireline services) offshore in the Gulf of Mexico.” (latest 10-Q)

Pioneer has a secured $350 million Revolving Credit Facility with Wells Fargo at present, with $110 million outstanding as of 7/30/15 and $21.3 million in committed letters of credit.  Borrowing availability as of July 30th was $218.7 million, and Pioneer was in compliance with all the covenants under the facility, which matures in Sept 2019.

Pioneer also has $300 million of senior notes outstanding which bear a coupon of 6.25% that mature in March 2022.  These notes Mr. Market currently values at roughly 60 cents on the dollar.  Similar to Cloud Peak, the market value placed on Pioneer’s unsecured debt is less than the availability on their credit line.

On the equity side, Pioneer had 65.5 million shares outstanding as of July 15, 2015.  After talking a $71 million pre-tax impairment charge in Q215, the company has a book value of $406 million at 6/30/15.  At today’s $3 per share price, Mr. Market values the equity a bit below $200 million.  (For those so inclined, it would appear there is no cost to borrow.)

Pioneer does have some capex commitments for the remainder of the year, roughly $65-75 million, to acquire “five new-build drilling rigs, nine well servicing rigs, eight wireline units, routine capital expenditures and certain drilling equipment which was ordered in 2014 but requires a long lead-time for delivery.” (30)  Pioneer did show $63 million in cash on the balance sheet at 6/30/15, and they are actively marketing some idle rigs for sale.

In the recent Q215 results conference call, management candidly described the challenges for Pioneer in this low energy price environment:

“…it is a soft market and there is not a lot of demand, there is not a lot of demand in drilling. And I think that it’s building for a definite recovery probably beginning in 2016 if not at the end of the year, but it’s probably going to be slow and we have got to manage our business as if it’s going to be slow and lower for longer and keep our cost structure tight and that’s what we intend to do.  So, I think we are anticipating a little bit more pain in the third quarter…”

Not exactly a ringing endorsement.  As Dr. Michael Burry might say… ick.

Disclosure: I own some of Pioneer’s 6.25% 2022 unsecureds.


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