Annual report pursuant to Section 13 and 15(d)

Reportable Segments

v3.6.0.2
Reportable Segments
 12 Months Ended
Dec. 31, 2016
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 and natural gas 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 O&M service in which operators own their own drilling rigs but choose Parker Drilling to operate and maintain 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 facility projects. We have extensive experience and expertise in drilling geologically difficult 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 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 120 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 that 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
•
drilling and O&M contracts that generally cover periods of one year or more.
Rental Tools Services Business
In our Rental Tools Services business, we provide premium rental equipment and services to 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, pressure control equipment, including BOPs, drill collars and more. We also provide well construction services, which include tubular running services and downhole tools, and well intervention services, which include whipstock, fishing and related services, as well as inspection and machine shop support. Rental tools are used during drilling programs and are requested by the customer when they are 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
2016
 
2015
 
2014
Revenues: (1)
 
 
 
 
 
Drilling Services:
 
 
 
 
 
U.S. (Lower 48) Drilling
$
5,429

 
$
30,358

 
$
158,405

International & Alaska Drilling
287,332

 
435,096

 
462,513

Total Drilling Services
292,761

 
465,454

 
620,918

Rental Tools Services:
 
 
 
 
 
U.S. Rental Tools
71,613

 
141,889

 
223,545

International Rental Tools
62,630

 
104,840

 
124,221

Total Rental Tools Services
134,243

 
246,729

 
347,766

Total revenues
427,004

 
712,183

 
968,684

Operating gross margin: (2)
 
 
 
 
 
Drilling Services:
 
 
 
 
 
U.S. (Lower 48) Drilling
(34,353
)
 
(28,309
)
 
46,831

International & Alaska Drilling
9,272

 
45,211

 
34,405

Total Drilling Services
(25,081
)
 
16,902

 
81,236

Rental Tools Services:
 
 
 
 
 
U.S. Rental Tools
(22,372
)
 
17,380

 
71,790

International Rental Tools
(27,859
)
 
(4,583
)
 
1,156

Total Rental Tools Services
(50,231
)
 
12,797

 
72,946

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

 
154,182

General and administrative expense
(34,332
)
 
(36,190
)
 
(35,016
)
Provision for reduction in carrying value of certain assets
—

 
(12,490
)
 
—

Gain (loss) on disposition of assets, net
(1,613
)
 
1,643

 
1,054

Total operating income (loss)
(111,257
)
 
(17,338
)
 
120,220

Interest expense
(45,812
)
 
(45,155
)
 
(44,265
)
Interest income
58

 
269

 
195

Loss on extinguishment of debt
—

 
—

 
(30,152
)
Other income (loss)
367

 
(9,747
)
 
2,539

Income (loss) from continuing operations before income taxes
$
(156,644
)
 
$
(71,971
)
 
$
48,537

(1)
For the years ended December 31, 2016, 2015, and 2014, our largest customer, ENL, constituted approximately 38.7 percent, 27.9 percent, and 18.7 percent, respectively, of our total consolidated revenues and approximately 57.5 percent, 45.6 percent, and 39.2 percent, respectively, of our International & Alaska Drilling segment revenues for the years ended December 31, 2016, 2015, and 2014.
Excluding reimbursable revenues of $67.0 million, $75.8 million, and $60.4 million, ENL constituted approximately 27.5 percent, 19.7 percent, and 15.3 percent, respectively, of our total consolidated revenues and approximately 45.0 percent, 35.3 percent, and 34.9 percent, respectively of our International & Alaska Drilling segment revenues.
For the year ended December 31, 2016, our second largest customer, BP, constituted 12.0 percent, of our total consolidated revenues and approximately 17.6 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
2016
 
2015
 
2014
Capital expenditures:
 
 
 
 
 
U.S. (Lower 48) Drilling
$
264

 
$
2,731

 
$
43,120

International & Alaska Drilling
5,258

 
13,458

 
26,761

U.S. Rental Tools
10,848

 
47,673

 
65,101

International Rental Tools
9,725

 
19,516

 
30,239

Corporate
2,859

 
4,819

 
14,292

Total capital expenditures
$
28,954

 
$
88,197

 
$
179,513

Depreciation and amortization: (1)
 
 
 
 
 
U.S. (Lower 48) Drilling
$
20,049

 
$
22,420

 
$
21,260

International & Alaska Drilling
55,236

 
64,539

 
59,684

U.S. Rental Tools
43,769

 
47,453

 
46,402

International Rental Tools
20,741

 
21,782

 
17,775

Total depreciation and amortization
$
139,795

 
$
156,194

 
$
145,121

(1)
For presentation purposes, depreciation for corporate assets of $8.3 million, $7.5 million, and $5.0 million for the years then ended December 31, 2016, 2015 and 2014, 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
2016
 
2015
Identifiable assets:
 
 
 
U.S. (Lower 48) Drilling
$
77,628

 
$
102,121

International & Alaska Drilling
591,120

 
629,784

U.S. Rental Tools
126,289

 
233,085

International Rental Tools
170,431

 
196,196

Total identifiable assets
965,468

 
1,161,186

Corporate
138,083

 
205,516

Total assets
$
1,103,551

 
$
1,366,702




The following table represents selected geographic information:
 
Year Ended December 31,
Dollars in Thousands
 
 
 
 
 
Revenues by geographic area:
2016
 
2015
 
2014
Russia
$
142,538

 
$
165,193

 
$
154,817

Other CIS
33,659

 
61,145

 
59,881

EMEA & Asia
79,870

 
148,015

 
183,460

Latin America
12,952

 
69,989

 
86,651

United States
127,596

 
231,779

 
440,642

Other(1)
30,389

 
36,062

 
43,233

Total revenues
$
427,004

 
$
712,183

 
$
968,684

 
 
 
 
 
 
Long-lived assets by geographic area:(2)
 
 
 
 
 
Russia
$
21,395

 
$
22,607

 
 
Other CIS
35,914

 
44,675

 
 
EMEA & Asia
116,857

 
130,434

 
 
Latin America
48,528

 
63,919

 
 
United States
470,745

 
544,206

 
 
Other(1)
—

 
—

 
 
Total long-lived assets
$
693,439

 
$
805,841

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