Annual report pursuant to Section 13 and 15(d)

Reportable Segments

v3.8.0.1
Reportable Segments
 12 Months Ended
Dec. 31, 2017
Segment Reporting [Abstract]  
Reportable Segments
Reportable Segments
Our business is comprised of two business lines: (1) Drilling Services and (2) Rental Tools Services. We report our Drilling Services business as two reportable segments: (1) U.S. (Lower 48) Drilling and (2) International & Alaska Drilling. We report our Rental Tools Services business as two reportable segments: (1) U.S. Rental Tools and (2) International Rental Tools.
Within the four reportable segments, we have aggregated our Arctic, Eastern Hemisphere and Latin America business units under International & Alaska Drilling, one business unit under U.S. (Lower 48) Drilling, one business unit under U.S. Rental Tools and one business unit under International Rental Tools, for a total of six business units. The Company has aggregated each of its business units in one of the four reporting segments based on the guidelines of the FASB ASC Topic No. 280, Segment Reporting. We eliminate inter-segment revenues and expenses. We disclose revenues under the four reportable segments based on the similarity of the use and markets for the groups of products and services within each segment.
Drilling Services Business
In our Drilling Services business, we drill oil, natural gas and geothermal wells for customers in both the U.S. and international markets. We provide this service with both Company-owned rigs and customer-owned rigs. We refer to the provision of drilling services with customer-owned rigs as our operations and management (“O&M”) service in which operators own their own drilling rigs but choose Parker Drilling to operate and manage the rigs for them. The nature and scope of activities involved in drilling an oil and natural gas well is similar whether it is drilled with a Company-owned rig (as part of a traditional drilling contract) or a customer-owned rig (as part of an O&M contract). In addition, we provide project-related services, such as engineering, procurement, project management and commissioning of customer-owned drilling rig projects. We have extensive experience and expertise in drilling geologically challenging wells and in managing the logistical and technological challenges of operating in remote, harsh and ecologically sensitive areas.
U.S. (Lower 48) Drilling
Our U.S. (Lower 48) Drilling segment provides drilling services with our Gulf of Mexico (“GOM”) barge drilling rig fleet, and markets our U.S. (Lower 48)-based O&M services. Our GOM barge drilling fleet operates barge rigs that drill for oil and natural gas in shallow waters in and along the inland waterways and coasts of Louisiana, Alabama and Texas. The majority of these wells are drilled in shallow water depths ranging from 6 to 12 feet. Our rigs are suitable for a variety of drilling programs, from inland coastal waters requiring shallow draft barges, to open water drilling on both state and federal water projects requiring more robust capabilities. The barge drilling industry in the GOM is characterized by cyclical activity where utilization and dayrates are typically driven by oil and natural gas prices and our customers’ access to project financing. Contract terms typically consist of well-to-well or multi-well programs, most commonly ranging from 20 to 180 days.
International & Alaska Drilling
Our International & Alaska Drilling segment provides drilling services, using both Company-owned rigs and O&M contracts, and project-related services. The drilling markets in which this segment operates have one or more of the following characteristics:
•
customers typically are major, independent, or national oil and natural gas companies or integrated service providers;
•
drilling programs in remote locations with little infrastructure, requiring a large inventory of spare parts and other ancillary equipment and self-supported service capabilities;
•
complex wells and/or harsh environments (such as high pressures, deep depths, hazardous or geologically challenging conditions and sensitive environments) requiring specialized equipment and considerable experience to drill; and
•
O&M contracts that generally cover periods of one year or more.
During the year ended December 31, 2017, we had rigs operating on Sakhalin Island, Russia and in Alaska, Kazakhstan, the Kurdistan Region of Iraq, and Guatemala. In addition, we had O&M and ongoing project-related services for customer-owned rigs in Kuwait, Canada and on Sakhalin Island, Russia.
Rental Tools Services Business
In our Rental Tools Services business, we provide premium rental equipment and services to exploration & production (“E&P”) companies, drilling contractors and service companies on land and offshore in the U.S. and select international markets. Tools we provide include standard and heavy-weight drill pipe, all of which are available with standard or high-torque connections, tubing, drill collars, pressure control equipment, including blowout preventers and more. We also provide well construction services, which include tubular running services and downhole tool rentals, well intervention services, which include whipstock, fishing and related services, and inspection and machine shop support. Rental tools are used during drilling and/or workover programs and are requested by the customer as needed, requiring us to keep a broad inventory of rental tools in stock. Rental tools are usually rented on a daily or monthly basis.

U.S. Rental Tools

Our U.S. Rental Tools segment is headquartered in New Iberia, Louisiana. We maintain an inventory of rental tools for deepwater, drilling, completion, workover, and production applications at facilities in Louisiana, Texas, Oklahoma, Wyoming, North Dakota and West Virginia. Our largest single market for rental tools is U.S. land drilling, a cyclical market driven primarily by oil and natural gas prices and our customers’ access to project financing. A portion of our U.S. rental tools business is supplying tubular goods and other equipment to offshore GOM customers.
International Rental Tools    
Our International Rental Tools segment is headquartered in Dubai, United Arab Emirates. We maintain an inventory of rental tools and provide well construction, well intervention, and surface and tubular services to our customers in the Middle East, Latin America, United Kingdom, Europe, and Asia-Pacific regions.
    
The following table represents the results of operations by reportable segment:
 
Year Ended December 31,
Dollars in thousands
2017
 
2016
 
2015
Revenues: (1)
 
 
 
 
 
Drilling Services:
 
 
 
 
 
U.S. (Lower 48) Drilling
$
12,389

 
$
5,429

 
$
30,358

International & Alaska Drilling
247,254

 
287,332

 
435,096

Total Drilling Services
259,643

 
292,761

 
465,454

Rental Tools Services:
 
 
 
 
 
U.S. Rental Tools
121,937

 
71,613

 
141,889

International Rental Tools
60,940

 
62,630

 
104,840

Total Rental Tools Services
182,877

 
134,243

 
246,729

Total revenues
442,520

 
427,004

 
712,183

Operating gross margin: (2)
 
 
 
 
 
Drilling Services:
 
 
 
 
 
U.S. (Lower 48) Drilling
(20,656
)
 
(34,353
)
 
(28,309
)
International & Alaska Drilling
(6,248
)
 
9,272

 
45,211

Total Drilling Services
(26,904
)
 
(25,081
)
 
16,902

Rental Tools Services:
 
 
 
 
 
U.S. Rental Tools
15,651

 
(22,372
)
 
17,380

International Rental Tools
(24,087
)
 
(27,859
)
 
(4,583
)
Total Rental Tools Services
(8,436
)
 
(50,231
)
 
12,797

Total operating gross margin
(35,340
)
 
(75,312
)
 
29,699

General and administrative expense
(25,676
)
 
(34,332
)
 
(36,190
)
Provision for reduction in carrying value of certain assets
(1,938
)
 
—

 
(12,490
)
Gain (loss) on disposition of assets, net
(2,851
)
 
(1,613
)
 
1,643

Total operating income (loss)
(65,805
)
 
(111,257
)
 
(17,338
)
Interest expense
(44,226
)
 
(45,812
)
 
(45,155
)
Interest income
244

 
58

 
269

Other income (loss)
126

 
367

 
(9,747
)
Income (loss) from continuing operations before income taxes
$
(109,661
)
 
$
(156,644
)
 
$
(71,971
)
(1)
For the years ended December 31, 2017, 2016, and 2015, our largest customer, ENL, constituted approximately 31.3 percent, 38.7 percent, and 27.9 percent, respectively, of our total consolidated revenues and approximately 55.9 percent, 57.5 percent, and 45.6 percent, respectively, of our International & Alaska Drilling segment revenues.
Excluding reimbursable revenues of $50.8 million, $67.0 million, and $75.8 million, ENL constituted approximately 22.7 percent, 27.5 percent, and 19.7 percent, respectively, of our total consolidated revenues and approximately 46.1 percent, 45.0 percent, and 35.3 percent, respectively of our International & Alaska Drilling segment revenues.
For the year ended December 31, 2017, our second largest customer, BP, constituted 9.7 percent, of our total consolidated revenues and approximately 17.4 percent of our International & Alaska Drilling segment revenues.
(2)
Operating gross margin is calculated as revenues less direct operating expenses, including depreciation and amortization expense.
The following table represents capital expenditures and depreciation and amortization by reportable segment:
 
Year Ended December 31,
Dollars in thousands
2017
 
2016
 
2015
Capital expenditures:
 
 
 
 
 
U.S. (Lower 48) Drilling
$
230

 
$
264

 
$
2,731

International & Alaska Drilling
3,673

 
5,258

 
13,458

U.S. Rental Tools
39,948

 
10,848

 
47,673

International Rental Tools
8,584

 
9,725

 
19,516

Corporate
2,098

 
2,859

 
4,819

Total capital expenditures
$
54,533

 
$
28,954

 
$
88,197

Depreciation and amortization: (1)
 
 
 
 
 
U.S. (Lower 48) Drilling
$
13,521

 
$
20,049

 
$
22,420

International & Alaska Drilling
46,950

 
55,236

 
64,539

U.S. Rental Tools
43,489

 
43,769

 
47,453

International Rental Tools
18,413

 
20,741

 
21,782

Total depreciation and amortization
$
122,373

 
$
139,795

 
$
156,194

(1)
For presentation purposes, for the years then ended December 31, 2017, 2016 and 2015 depreciation for corporate assets of $8.7 million, $8.3 million, and $7.5 million, respectively, has been allocated to the corresponding reportable segments.
The following table represents identifiable assets by reportable segment:
 
Year Ended December 31,
  Dollars in Thousands
2017
 
2016
Identifiable assets:
 
 
 
U.S. (Lower 48) Drilling
$
62,980

 
$
77,628

International & Alaska Drilling
421,753

 
591,120

U.S. Rental Tools
198,664

 
126,289

International Rental Tools
168,511

 
170,431

Total identifiable assets
851,908

 
965,468

Corporate
138,371

 
138,083

Total assets
$
990,279

 
$
1,103,551





The following table represents selected geographic information:
 
Year Ended December 31,
Dollars in Thousands
2017
 
2016
 
2015
Revenues by geographic area:
 
 
 
 
 
Russia
$
139,144

 
$
142,538

 
$
165,193

Other CIS
23,768

 
33,659

 
61,145

EMEA & Asia
64,572

 
79,870

 
148,015

Latin America
11,594

 
12,952

 
69,989

United States
177,630

 
127,596

 
231,779

Other(1)
25,812

 
30,389

 
36,062

Total revenues
$
442,520

 
$
427,004

 
$
712,183

 
 
 
 
 
 
Long-lived assets by geographic area:(2)
 
 
 
 
 
Russia
$
19,415

 
$
21,395

 
 
Other CIS
29,402

 
35,914

 
 
EMEA & Asia
108,621

 
116,857

 
 
Latin America
38,959

 
48,528

 
 
United States
429,374

 
470,745

 
 
Other(1)
—

 
—

 
 
Total long-lived assets
$
625,771

 
$
693,439

 
 
(1)
This category includes our Canada O&M operations and our project services activities. Revenues generated by our project service activities benefit our various geographic locations.
(2)
Long-lived assets consist of property, plant and equipment, net.