Overview
We are an integrated, growth-oriented energy service company serving companies engaged in the exploration and development of North American onshore unconventional oil and natural gas reserves and government-funded utilities, private utilities, public investor owned utilities, or IOUs, and co-operative utilities, or Co-Ops, through our energy infrastructure business. Our primary business objective is to grow our operations and create value for our stockholders through organic opportunities and accretive acquisitions. Our suite of services includes pressure pumping services, infrastructure services, natural sand proppant services, contract land and directional drilling services and other energy services. Our pressure pumping services division provides hydraulic fracturing services. Our infrastructure services division provides construction, upgrade, maintenance and repair services to the electrical infrastructure industry. Our natural sand proppant services division mines, processes and sells proppant for hydraulic fracturing. Our contract land and directional drilling services division provides drilling rigs and crews for operators as well as rental equipment, such as mud motors and operational tools, for both vertical and horizontal drilling. In addition to these service divisions, we also provide coil tubing services, pressure control services, flowback services, cementing services, equipment rentals and remote accommodations. We believe that the services we offer play a critical role in increasing the ultimate recovery and present value of production streams from unconventional resources as well as maintaining and improving electrical infrastructure. Our complementary suite of energy services provides us with the opportunity to cross-sell our services and expand our customer base and geographic positioning.
“Unconventional resources” references the different manner by which they are exploited as compared to the extraction of conventional resources. In unconventional drilling, the wellbore is generally drilled to specific objectives within narrow parameters, often across long, lateral intervals within narrow horizontal formations offering greater contact area with the producing formation. Typically, the well is then hydraulically fractured at multiple stages to optimize production.
Our facilities and service centers are strategically located in Ohio, Texas, Oklahoma, Wisconsin, Minnesota, West Virginia, Kentucky, Puerto Rico and Alberta, Canada primarily to serve the following areas:
Our operational division heads have an extensive track record in the oilfield and infrastructure service businesses with an average of over 35 years of oilfield services experience and over 25 years of infrastructure services experience. They bring valuable regional expertise and long-term customer relationships to our business. We provide our completion and production and contract land and directional drilling services to a diversified range of both public and private independent oil and natural gas producers and our infrastructure services to government-funded utilities, private utilities, public IOUs and Co-Ops. Our top five customers for the year ended December 31, 2017, representing 71% of our revenue, were Gulfport Energy Corporation, or Gulfport, the Puerto Rico Electric Power Authority, or PREPA, Newfield Exploration Company, or Newfield, Rice Energy, Inc., or Rice Energy, and Surge Operating LLC, or Surge Operating. For the year ended December 31, 2016, our top five customers, representing 80% of our revenue, were Gulfport, Japan Canada Oil Sands Limited, or Oil Sands Limited, Rice Energy, Surge Operating and Hilcorp Energy Corporation. For the year ended December 31, 2015, our top five customers, representing 71% of our revenue, were Gulfport, EQT Production Company, Oil Sands Limited, RSP Permian LLC and Bantrel Co.
Our Services
Our revenues, operating profits and identifiable assets are primarily attributable to four reportable segments: pressure pumping services, infrastructure services, natural sand proppant services and contract land and directional drilling services. For the year ended December 31, 2016, we identified five reportable segments consisting of pressure pumping services, well services, natural sand proppant services, contract land and directional drilling services and other energy services. We changed our reportable segment presentation in 2017, as we no longer consider well services, which included Redback Energy Services LLC, Redback Coil Tubing LLC and Mammoth Energy Partners LLC, and our other energy services, which included Great White Sand Tiger Lodging Ltd., to be significant to the understanding of our results. We now present the results of our well service and other energy service activities as "Other." Additionally, during 2017, we added a new reportable segment for our infrastructure services activities. For additional information, see Note 17 to our consolidated financial statements included elsewhere in this annual report.
Pressure Pumping Services
Pressure Pumping. We provide pressure pumping services, also known as hydraulic fracturing, to exploration and production companies. These services are intended to optimize hydrocarbon flow paths during the completion phase of horizontal shale wellbores. Currently, we provide pressure pumping services in the Utica Shale of Eastern Ohio, the mid-continent region in Oklahoma and the Permian Basin in Texas. Three of our fleets are currently providing services in the Utica Shale. Two of these fleets operate under a four-year contract expiring in September 2018. Additionally, we have two fleets operating in the mid-continent region and one fleet operating in the Permian Basin. Our pressure pumping services include the following:
The fracturing process consists of pumping a fracturing fluid into a well at sufficient pressure to fracture the formation. Materials known as proppants, in our case primarily sand or ceramic beads, are suspended in the fracturing fluid and are pumped into the fracture to prop it open. The fracturing fluid is designed to “break,” or loosen viscosity, and be forced out of the formation by its pressure, leaving the proppants suspended in the fractures created, thereby increasing the mobility of the hydrocarbons. As a result of the fracturing process, production rates are usually enhanced substantially, thus increasing the rate of return for the operator.
We own and operate fleets of mobile hydraulic fracturing units and other auxiliary heavy equipment to perform fracturing services. Our hydraulic fracturing units consist primarily of a high pressure hydraulic pump, a diesel engine, a transmission and various hoses, valves, tanks and other supporting equipment that are typically mounted to a flat-bed trailer. As of December 31, 2017, we had grown our pressure pumping business to six high pressure fleets consisting of an aggregate 117 high pressure fracturing units with pump nameplate capacity of 291,750 horsepower.
We refer to the group of fracturing units, other equipment and vehicles necessary to perform a typical fracturing job as a “fleet” and the personnel assigned to each fleet as a “crew.” We operate on a 24-hour-per-day basis and we typically
staff three crews per fleet. All of our fracturing units and high pressure pumps are manufactured to our specifications to enhance the performance and durability of our equipment and meet our customers’ needs.
Each hydraulic fracturing fleet includes a mobile, on-site control center that monitors pressures, rates and volumes, as applicable. From there, our field-level managers supervise the job-site by radio. Each control center is equipped with high bandwidth satellite hardware that provides continuous upload and download of job telemetry data. The data is delivered on a real-time basis to on-site job personnel, the operator and personnel at our headquarters for display in both digital and graphical form.
An important element of fracturing services is determining the proper fracturing fluid, proppants and injection program to maximize results. In virtually all of our hydraulic fracturing jobs, our customers specify the composition of the fracturing fluid to be used. The fracturing fluid may contain hazardous substances, such as hydrochloric acid and certain petrochemicals. Our customers are responsible for the disposal of the fracturing fluid that flows back out of the well as waste water. The customers remove the water from the well using a controlled flow-back process, and we are generally not involved in that process or in the disposal of the fluid.
Master Services Agreements. We contract with most of our pressure pumping customers under master service agreements, or MSAs. Generally, our MSAs, including those relating to our hydraulic fracturing services, specify payment terms, audit rights and insurance requirements and allocate certain operational risks through indemnity and similar provision.
Infrastructure Services
Our infrastructure services business provides restoration, repair, transmission and distribution, or T&D, and commercial services. We offer a broad range of services on electric transmission and distribution networks and substation facilities, which include construction, upgrade, maintenance and repair services. Our T&D services include the construction, upgrade, maintenance and repair of high voltage transmission lines, substations and lower voltage overhead and underground distribution systems. We also provide storm repair and restoration services in response to storms and other disasters, including hurricanes Harvey, Irma and Maria. In addition, we provide infrastructure services in the northeast, southwest and midwest portions of the United States. Our commercial services include the installation, maintenance and repair of commercial wiring.
We currently have agreements in place with government-funded utilities, private utilities, public IOUs and Co-Ops. In particular, on October 19, 2017, one of our subsidiaries, Cobra Acquisitions LLC, or Cobra, entered into an emergency master services agreement with PREPA (such agreement, as subsequently amended through December 21, 2017, is hereinafter referred to as the initial PREPA contract). The initial PREPA contract has a one-year term and provided for up to $200.0 million of services which was initially expected to be fully utilized within a 120-day period. The scope of the work provided for in the initial PREPA contract included labor, supervision, tools and equipment to perform storm repairs at various locations in Puerto Rico. The initial PREPA contract was fully applied to services performed by Cobra as of January 3, 2018. Due to the continuing need for Cobra’s services, on January 28, 2018, Cobra and PREPA amended the initial PREPA contract to increase the total contract amount by an additional $245.4 million up to a total of $445.4 million. Under the terms of this amendment, the number of workers requested by PREPA and provided by Cobra increased to at least 882, up from 434 in the initial PREPA contract, and the billable daily rate for those workers was decreased. On February 27, 2017, Cobra and PREPA again amended the PREPA contract to further increase the contract amount by $500.0 million up to a total of $945.4 million. In addition to continuing its repair and restoration work, under the terms of this amendment Cobra will be able to source construction materials needed to rebuild the electrical infrastructure in Puerto Rico on a pass-through basis. To support its efforts, Cobra has two berthing barges with accommodations for approximately 550 people mobilized to Puerto Rico. In addition to its employees, Cobra also subcontracts additional resources where needed to assist in its repair efforts, including helicopters and pilots to erect towers and pull wire for reconnection, steel workers to fix transmission poles and rework steel damaged in the storm, road equipment and operators to carve access to work sites, tree services to clear brush and trees and security teams. Based on the current level of services provided, Cobra anticipates the additional amounts specified in the amendments will fund its activities in Puerto Rico through mid-2018.
Natural Sand Proppant Services
In our natural sand proppant business, we mine, process and sell sand. We also buy processed sand from suppliers on the spot market and resell that sand. Natural sand proppant, also known as frac sand, is the most widely used type of proppant due to its broad applicability in unconventional oil and natural gas wells and its cost advantage relative to other proppants. Natural frac sand may be used as proppant in all but the highest pressure and temperature environments and is being employed in nearly all major U.S. unconventional oil and natural gas producing basins, including those in which we operate.