Quarterly report pursuant to Section 13 or 15(d)

Reportable Segments

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Reportable Segments
 3 Months Ended
Mar. 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 Rental Tools Services business as one reportable segment (Rental Tools) and report our Drilling Services business as two reportable segments: (1) U.S. (Lower 48) Drilling and (2) International & Alaska Drilling. Within the three reportable segments, we have aggregated our U.S. and international rental tools business units under Rental Tools, one business unit under U.S. (Lower 48) Drilling, and our Arctic, Eastern Hemisphere and Latin America business units under International & Alaska Drilling for a total of six business units. The Company has aggregated each of its business units in one of the three reporting segments based on the guidelines of ASC Topic 280, “Segment Reporting” (“ASC Topic 280”). We eliminate inter-segment revenues and expenses. We disclose revenues under the three reportable segments based on the similarity of the use and markets for the groups of products and services within each segment.
Drilling Services Business Line
In our Drilling Services business, we drill oil and 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 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 through 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 hull depth capabilities. The barge drilling industry in the GOM is characterized by cyclical activity where utilization and dayrates are typically driven by oil and gas prices and our customers’ access to project financing. Contract terms tend to be well-to-well or multi-well programs, most commonly ranging from 45 to 150 days.
International & Alaska Drilling
Our International & Alaska Drilling segment provides drilling services, with Company-owned rigs as well as through 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.
Our Rental Tools Services Business
Our Rental Tools segment provides 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, 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 products and related services, as well as inspection and machine shop support. Our largest single market for rental tools is U.S. land drilling. Generally, rental tools are used for only a portion of a well drilling program and are usually rented on a daily or monthly basis.
The following table represents the results of operations by reportable segment:
 
Three Months Ended March 31,
Dollars in thousands
2016
 
2015
Revenues: (1)
 
 
 
Drilling Services:
 
 
 
U.S. (Lower 48) Drilling
$
2,085

 
$
14,097

International & Alaska Drilling
88,619

 
113,921

Total Drilling Services
90,704

 
128,018

Rental Tools
39,799

 
76,058

Total revenues
130,503

 
204,076

Operating gross margin: (2)
 
 
 
Drilling Services:
 
 
 
U.S. (Lower 48) Drilling
(8,558
)
 
(5,717
)
International & Alaska Drilling
5,077

 
17,354

Total Drilling Services
(3,481
)
 
11,637

Rental Tools
(9,947
)
 
12,630

Total operating gross margin
(13,428
)
 
24,267

General and administrative expense
(9,781
)
 
(10,837
)
Gain (loss) on disposition of assets, net
(60
)
 
2,441

Total operating income (loss)
(23,269
)
 
15,871

Interest expense
(11,562
)
 
(11,078
)
Interest income
7

 
183

Other income (loss)
2,485

 
(1,380
)
Income (loss) from continuing operations before income taxes
$
(32,339
)
 
$
3,596

 
(1)For the three months ended March 31, 2016, our largest customer, ENL, constituted approximately 39.2 percent of our total consolidated revenues and approximately 57.8 percent of our International & Alaska Drilling segment revenues. Excluding reimbursable revenues of $18.3 million, our largest customer, ENL, constituted approximately 29.5 percent of our total consolidated revenues, net of reimbursables, and approximately 47.2 percent of our International & Alaska Drilling segment revenues.
Our second largest customer, BP, constituted 11.5 percent of our total consolidated revenues and approximately 16.5 percent of our International & Alaska Drilling segment revenues. Excluding reimbursable revenues of $92 thousand, our second largest customer constituted approximately 13.3 percent of our total consolidated revenues, net of reimbursables, and approximately 20.9 percent of our International & Alaska Drilling segment revenues.
For the three months ended March 31, 2015, our largest customer, ENL, constituted approximately 22.9 percent of our total consolidated revenues and approximately 41.0 percent of our International & Alaska Drilling segment revenues. Excluding reimbursable revenues of $16.0 million, our largest customer, ENL, constituted approximately 16.7 percent of our total consolidated revenues, net of reimbursables, and approximately 32.3 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.