HOUSTON and NEUQUEN CITY, Argentina, Nov. 10, 2015 (GLOBE NEWSWIRE) -- Eco-Stim Energy Solutions, Inc. (NASDAQ:ESES) ("EcoStim" or the "Company") announced its financial and operating results for the quarter ended September 30, 2015.
THIRD QUARTER 2015 HIGHLIGHTS
- Company successfully completed $29.3 million underwritten stock offering in July for expansion and to enhance liquidity
- YPF is now our largest customer and enhancing this relationship remains a priority
- Well stimulation revenues grew sequentially by 26% to $3.6 million
- Total revenues grew sequentially by 10% to $4.4 million
- Higher operating costs reflect additional personnel to prepare for capacity additions and equipment rental costs to increase the operational capabilities of our existing crew, while awaiting new equipment delivery.
- No lost time incidents (safety) or down-time related to labor disruptions
Argentina Overview
Since our operations are currently concentrated in Argentina, we believe a review of recent developments in the country is an important consideration in our business outlook. Notably, the country recently conducted a national election, which requires a runoff on November 22, 2015 to determine the next president. Based on their stated policy intentions during the election process, we believe both runoff candidates seem to be supportive of the removal of currency controls, the return of the country to the capital markets, and the continued quest to obtain energy independence. We further believe that a new administration may pursue policies that are designed to support the oil and gas industry, including maintaining commodity prices sufficient to provide economic returns, offer uniform concession terms, allow operators to sell up to 20% of their production in the international markets for dollars, and reduce import tariffs for certain drilling equipment. Both candidates appear to agree that Argentina needs to reduce its energy imports and preserve its remaining foreign currency reserves.
The Vaca Muerta shale formation remains the largest and most active shale formation in the world outside of North America. According to YPF public statements, unconventional oil and gas production is approximately 46,000 barrels of oil equivalent (BOE) per day. Furthermore, YPF announced that a recently drilled and completed horizontal well was brought on-production at 1,630 BOE/day. This initial production rate is comparable to some of the best wells in North America, despite the early stage of development.
As part of its overall energy policy initiatives, the Argentine government has established a reference price for any new natural gas production at $7.50 per MMBtu, which is substantially higher than the prices in North America. Because Argentina is currently importing a substantial portion of its daily energy needs and continues to deplete its foreign currency reserves, the price of natural gas is expected to remain appealing for the foreseeable future to encourage further development of unconventional and tight gas reserves. The price of oil is also regulated by the government and is currently set at $77.00 per barrel, and while this price is subject to change, the government in Argentina has publicly stated its strategic goal is to reduce imported oil and natural gas by developing its own reserves, thus reducing the flow of foreign currency outside the country. The Company believes these trends should benefit our expansion plans announced earlier this year.
Third Quarter Financial Results
For the third quarter of 2015, EcoStim reported a net loss of $2.7 million, or a loss of $0.21 per basic and diluted share as compared to a net loss of $3.5 million, or a loss of $0.52 per basic and diluted share, reported in the second quarter of 2015. The net loss for the third quarter of 2014 was $0.3 million, or a loss of $0.05 per basic and diluted share. Net loss for the third quarter of 2015 includes approximately $1.4 million of non-cash expenses consisting of depreciation, debt amortization and stock compensation. The Company also recognized a cash gain of approximately $1.5 million related to the transfer of cash to Argentina through the bond market. The proceeds from the sale of these bonds are being used to fund capital expenditures in Argentina. In addition, the majority of the Company's interest expense is paid once per year in May, but we accrue interest quarterly in accordance with GAAP. The net losses in 2014 and 2015 reflects the start-up nature of our business and the ongoing hiring of personnel needed for our planned capacity expansion.
The work undertaken by the Company in the first half of 2015 was largely related to trial programs and therefore each job was relatively small and limited in complexity. In the third quarter of 2015, the Company's operations team demonstrated their capabilities and successfully expanded the scope of work to include more complex and higher horsepower jobs. However, since the Company currently only operates one crew, our utilization is greatly impacted by the time required for mobilization and demobilization for each job and the downtime for transit between jobs. Currently we do not have the capacity to service more than one customer at a time, and largely for this reason, we elected to build and deploy additional equipment to serve our customers needs. Despite these logistical issues and capacity limitations, the Company was still able to grow its pressure pumping revenue by 26% sequentially.
As we have discussed in the past, the Company began field operations in December 2014 under an exclusive contract with Medanito, a privately owned oil and gas exploration and production company, to provide pressure pumping and coiled tubing services. The Company's previous revenue guidance was partially based on the premise that the Medanito contract would provide approximately $18-$20 million in revenue during 2015 based on Medantio's historical activity levels and plans for 2015. In addition, management expected to develop a good performance track record with the ambition of securing spot market work for the larger operators in the country, including YPF.
Due to certain market-related issues, Medanito substantially curtailed its activity levels for 2015. In response to this situation, management aggressively shifted its focus to YPF. After completing three quarters of operations, management is proud to confirm that YPF has become the Company's largest and most active customer. The relationship with YPF has been strengthened as a result of our decision to have quality equipment immediately available for their completion efforts, even in situations which are not optimal to the Company. We believe our efforts, combined with our operating track record, should lead to significant future opportunities for the Company. This commitment to support our largest customer has resulted in the loss of certain non-YPF revenues and for this reason, management believes its original estimates of revenue for 2015 should be revised down slightly as noted below.
J. Chris Boswell, EcoStim's President and Chief Executive Officer, stated, "Our third quarter results continue to build on the reputation our local organization has established in Argentina. Our well stimulation operation continues to perform larger and more complex jobs, with revenues increasing by another $0.7 million, or 26% sequentially. While our new pumping units being constructed in Argentina have been slightly delayed, we should receive three of those units before the end of the month and two additional units before year-end. This will give us the horsepower to execute larger jobs, including tight gas wells. Our coiled tubing (CT) unit has performed reliably for the past six months; however, in September we elected to honor a request from YPF to perform well cleanouts on several wells we were stimulating. This decision resulted in the loss of over $700,000 in work in Southern Argentina for the CT unit. The mobilization and demobilization for this work would have made our CT unit unavailable to support our largest customer. We feel strongly this was the right decision for the long term despite the near term revenue set back. We continue to believe it is important to be supportive of YPF when conflicts arise between customers."
"As we discussed last quarter, we are moving rapidly and expect to increase our working horsepower in country from 10,000 HHP to 52,000 HHP by the end of the first quarter of 2016. This will give us the flexibility and capacity to operate for the last three quarters of 2016 with three crews (as opposed to one currently) and to address the conventional, tight gas, and unconventional markets simultaneously. The natural gas turbine powered pumping units are currently undergoing a re-certification process and software upgrade in the U.S. and we intend to start the importation process for these units and the related support equipment in December 2015. The remaining horsepower is being built in Argentina per the plan and should allow the second crew to start operating early in Q1 2016."
Carlos Fernandez, the Company's Executive Vice President of Corporate Business Development and General Manager Latin America added, "We are very excited about what opportunities lie ahead for Argentina. Our local team remains at or near the top in terms of reliability, execution and safety and we continue to hear positive feedback from all of our customers. We believe there is a major opportunity to grow our business as activity picks up in the Vaca Muerta shale over the next few years, particularly in light of recent horizontal well results."
Bjarte Bruheim, EcoStim's Chairman stated, "Generating positive free cash flow and preserving liquidity will remain a priority for the Company as we continue to aggressively grow our revenue and operations in this key market. Management expects to achieve positive cash flow from operations over the next four to six months and plans to reach profitability as soon as the new capacity is fully deployed. We remain very excited about our position in this market and our team's proven ability to execute our business plan in one of the most promising shale oil and gas fields in the world."
G&A Expense
General and administrative ("G&A") expense in the third quarter of 2015 was approximately $1.7 million compared to $1.9 million for the prior quarter and $1.7 million for the third quarter of 2014. The G&A expense is primarily related to the sales and administrative offices in Buenos Aires and Neuquen and the cost associated with being a public company, including our corporate office in Houston.
R&D Expense
Research & development ("R&D") expense in the third quarter of 2015 was $0.3 million. There was no R&D expense in Q3 2014. R&D expense for Q3 2015 was primarily related to expenditures in connection with the technology development agreement signed in Q4 2014 with YTEC, the technology arm of YPF. These expenditures related to research and development efforts around the use of fiber optic diagnostic tools and turbine-powered well stimulation equipment and the evaluation of optimal completion tools, including sliding sleeves.
Cash and Total Liquidity
On September 30, 2015, EcoStim had cash and cash equivalents of approximately $21.3 million, compared to $7.0 million at December 31, 2014 and $7.7 million on September 30, 2014.
On July 15, 2015, EcoStim completed an underwritten public stock offering resulting in the sale of 6,164,690 shares of common stock at $4.75 per share with gross proceeds of $29.3 million. We have dedicated the majority of the proceeds from this offering to fund the acquisition of additional equipment currently being fabricated in Argentina and the deployment of a significant portion of the turbine powered stimulation equipment we purchased late in 2014.
Capital Expenditures
Total capital expenditures during the third quarter of 2015 were approximately $5 million compared to $0.3 million in the second quarter of 2015 and $5.4 million in the third quarter of 2014, comprised mainly of additional pressure pumping equipment for the Company's second fleet, anticipated to be delivered during the fourth quarter of 2015 or early in the first quarter of 2016.
Forward Guidance
The Company has a limited operating history and 2015 is essentially our initial year of operations and therefore we have not provided earnings guidance for this year. In assessing the preliminary October results and the outlook for November and December, we now estimate that 2015 revenue should come in between $16 million and $17 million; however it could be slightly above or slightly below depending on any potential impact related to the Argentina election runoff set for November 22, 2015. Although there is some uncertainty relating to government policies pending election outcomes and final 2016 customer spending plans, we are expecting to materially increase our capacity and a corresponding increase in 2016 revenues.
Conference Call
The Company will host a conference call on November 10, 2015 for 4:00 PM EST, 3:00 PM CST that day. The conference call will be webcast and include a slide presentation, which can be accessed through the following link: http://ecostim-es.equisolvewebcast.com/q3-2015. For those unable to attend the webcast, 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 November 30, 2015, 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 proprietary field management technologies and well stimulation and completion services to oil and gas producers drilling internationally. EcoStim's proprietary methodology and technology offers the potential 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, surface footprint and water usage. EcoStim seeks to deliver well completion services with better technology, better ecology and significantly improved economics for unconventional oil and gas producers worldwide.
Forward-Looking Statements:
Certain statements and information in this press release concerning results for the fiscal period ended September 30, 2015 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.
Financial Statements
| ECO-STIM ENERGY SOLUTIONS, INC. | ||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||
| September 30, 2015 | December 31, 2014 | |
| (Unaudited) | ||
| Assets | ||
| Current assets: | ||
| Cash and cash equivalents | $ 21,264,770 | $ 7,013,556 |
| Accounts receivable | 7,020,991 | 264,192 |
| Marketable securities | -- | 1,360,767 |
| Inventory | 1,254,315 | 1,619,778 |
| Prepaids | 3,693,253 | 2,496,805 |
| Other assets | 186,662 | 409,388 |
| Total current assets | 33,419,991 | 13,164,486 |
| Property, plant and equipment, net | 31,831,059 | 27,949,347 |
| Other non-current assets | 797,570 | 936,592 |
| Total assets | $ 66,048,620 | $ 42,050,425 |
| Liabilities and stockholders' equity | ||
| Current liabilities: | ||
| Accounts payable | $ 1,594,586 | $ 1,947,371 |
| Accrued expenses | 2,972,927 | 3,164,250 |
| Short-term notes payable | -- | 158,036 |
| Current portion of long-term notes payable | 3,118,440 | 475,000 |
| Current portion of capital lease payable | 663,142 | 597,406 |
| Total current liabilities | 8,349,095 | 6,342,063 |
| Non-current liabilities: | ||
| Long-term notes payable | 22,000,000 | 25,625,000 |
| Long-term capital lease payable | 1,648,861 | 2,102,143 |
| Total non-current liabilities | 23,648,861 | 27,727,143 |
| Stockholders' equity | ||
| Common stock | 13,543 | 5,709 |
| Additional paid-in capital | 57,062,386 | 21,116,100 |
| Accumulated deficit | (23,025,265) | (13,140,590) |
| Total stockholders' equity | 34,050,664 | 7,981,219 |
| Total liabilities and stockholders' equity | $ 66,048,620 | $ 42,050,425 |
| ECO-STIM ENERGY SOLUTIONS, INC. | ||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||
| (Unaudited) | ||||
| Three Months Ended | Nine Months Ended | |||
| September 30, | September 30, | |||
| 2015 | 2014 | 2015 | 2014 | |
| Revenues | $ 4,381,371 | $ 88,106 | $ 11,258,483 | $ 645,402 |
| Operating cost and expenses: | ||||
| Cost of services | 4,514,801 | 984,861 | 11,513,683 | 2,207,326 |
| Selling, general, and administrative | 1,749,880 | 1,677,637 | 5,259,827 | 4,294,761 |
| Research and development | 269,202 | -- | 762,564 | -- |
| Depreciation and amortization expense | 889,396 | 88,008 | 2,536,525 | 175,778 |
| Total operating costs and expenses | 7,423,279 | 2,750,506 | 20,072,599 | 6,677,865 |
| Operating loss | (3,041,908) | (2,662,400) | (8,814,116) | (6,032,463) |
| Other income (expense): | ||||
| Gain on sale of trading securities | 1,542,687 | 2,926,073 | 2,415,607 | 2,926,073 |
| Interest expense | (1,010,878) | (604,731) | (3,013,554) | (1,090,117) |
| Other income (expenses) | (171,685) | 82,151 | (472,612) | 103,220 |
| Total other income (expense) | 360,124 | 2,403,493 | (1,070,559) | 1,939,176 |
| Provision for income taxes | -- | -- | -- | -- |
| Net loss | $ (2,681,784) | $ (258,907) | $ (9,884,675) | $ (4,093,287) |
| Basic and diluted loss per share | $ (0.21) | $ (0.05) | $ (1.14) | $ (0.91) |
| Weighted average number of common shares outstanding-basic and diluted | 12,881,952 | 5,537,799 | 8,652,260 | 4,512,360 |
| ECO-STIM ENERGY SOLUTIONS, INC. | ||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| (Unaudited) | ||
| Nine Months Ended | ||
| September 30, | ||
| 2015 | 2014 | |
| Operating Activities | ||
| Net loss | $ (9,884,675) | $ (4,093,287) |
| Depreciation and amortization | 2,536,525 | 175,778 |
| Amortization of debt discount | 52,628 | 85,236 |
| Amortization of loan origination costs | 139,022 | 61,787 |
| Stock based compensation | 1,229,073 | 866,106 |
| Gain on the sale of trading securities | (2,415,607) | (2,926,073) |
| Changes in operating assets and liabilities: | ||
| Accounts receivable | (6,756,799) | (81,961) |
| Inventory | 440,883 | (241,770) |
| Prepaids | (1,196,448) | 66,340 |
| Accounts payable | 664,776 | (291,344) |
| Accrued expenses | 2,359,927 | 1,778,877 |
| Other operating activities | 17,018 | (1,125,449) |
| Net cash used in operating activities | (12,813,677) | (5,725,760) |
| Investing Activities | ||
| Purchase of equipment | (7,371,601) | (11,771,206) |
| Deposits paid for fixed asset purchases | -- | (2,688,416) |
| Proceeds from sale of trading securities | 10,775,501 | 7,925,655 |
| Purchase of trading securities | (6,999,127) | (4,999,582) |
| Net cash used in investing activities | (3,595,227) | (11,533,549) |
| Financing Activities | ||
| Proceeds from sale of common stock | 35,327,690 | 10,302,400 |
| Sale of common stock issuance cost | (3,087,805) | (471,531) |
| Proceeds from convertible debt | -- | 11,863,885 |
| Convertible debt cost | -- | (732,476) |
| Proceeds from exercise of stock options | -- | 315 |
| Proceeds from notes payable | 400,000 | 15,015 |
| Payments on notes payable | (1,539,596) | (168,354) |
| Payments on capital lease | (440,171) | (132,126) |
| Net cash provided by financing activities | 30,660,118 | 20,677,128 |
| Net decrease in cash and cash equivalents | 14,251,214 | 3,417,819 |
| Cash and cash equivalents, beginning of period | 7,013,556 | 4,292,122 |
| Cash and cash equivalents, end of period | $ 21,264,770 | $ 7,709,941 |
| Supplemental Disclosure of Cash Flow Information | ||
| Cash paid during the year for interest | $ 2,948,086 | $ 649,748 |
| Cash paid during the year for income taxes | $ -- | $ -- |
| Non-cash transactions | ||
| Fixed asset additions in accrued expenses | $ 379,111 | $ -- |
| Interest on debt conversion | $ 2,485,163 | $ -- |
| Prepaid balance withheld from sale lease-back | $ -- | $ 5,522 |
| Debt issuance cost | $ -- | $ 8,973 |
| Prepaids amortized to settle capital lease obligations | $ -- | $ 250,850 |