Quarterly report pursuant to Section 13 or 15(d)

Reportable Segments

v3.5.0.2
Reportable Segments
 9 Months Ended
Sep. 30, 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. Effective July 1, 2016, we report our Rental Tools Services business as two reportable segments: (1) U.S. Rental Tools and (2) International Rental Tools. We have revised our business segment reporting to reflect our current management approach and recast prior periods to conform to the current business segment presentation.
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 Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic No. 280, Segment Reporting (ASC 280). 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 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 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 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.
Rental Tools Services Business
In our Rental Tools Services business, our U.S. Rental Tools and International Rental Tools segments 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, 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. Rental tools are used during well drilling programs and are usually rented on a daily or monthly basis.
The following table represents the results of operations by reportable segment:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
Dollars in thousands
2016
 
2015
 
2016
 
2015
Revenues: (1)
 
 
 
 
 
 
 
Drilling Services:
 
 
 
 
 
 
 
U.S. (Lower 48) Drilling
$
1,431

 
$
5,961

 
$
4,581

 
$
26,906

International & Alaska Drilling
65,307

 
110,661

 
225,854

 
339,551

Total Drilling Services
66,738

 
116,622

 
230,435

 
366,457

Rental Tools Services:
 
 
 
 
 
 
 
U.S. Rental Tools
14,967

 
31,905

 
55,483

 
113,155

International Rental Tools
15,484

 
24,891

 
47,061

 
83,823

Total Rental Tools Services
30,451

 
56,796

 
102,544

 
196,978

Total revenues
97,189

 
173,418

 
332,979

 
563,435

Operating gross margin: (2)
 
 
 
 
 
 
 
Drilling Services:
 
 
 
 
 
 
 
U.S. (Lower 48) Drilling
(8,686
)
 
(7,397
)
 
(26,257
)
 
(20,673
)
International & Alaska Drilling
71

 
13,212

 
8,347

 
37,428

Total Drilling Services
(8,615
)
 
5,815

 
(17,910
)
 
16,755

Rental Tools Services:
 
 
 
 
 
 
 
U.S. Rental Tools
(6,645
)
 
2,976

 
(16,069
)
 
16,033

International Rental Tools
(6,705
)
 
(3,920
)
 
(21,639
)
 
371

Total Rental Tools Services
(13,350
)

(944
)
 
(37,708
)
 
16,404

Total operating gross margin
(21,965
)
 
4,871

 
(55,618
)
 
33,159

General and administrative expense
(7,424
)
 
(8,895
)
 
(25,200
)
 
(29,243
)
Provision for reduction in carrying value of certain assets
—

 
(906
)
 
—

 
(3,222
)
Gain (loss) on disposition of assets, net
(187
)
 
383

 
(249
)
 
2,686

Total operating income (loss)
(29,576
)
 
(4,547
)
 
(81,067
)
 
3,380

Interest expense
(11,015
)
 
(11,293
)
 
(34,764
)
 
(33,767
)
Interest income
9

 
7

 
48

 
209

Other income (loss)
(351
)
 
(719
)
 
1,776

 
(3,628
)
Loss from continuing operations before income taxes
$
(40,933
)
 
$
(16,552
)
 
$
(114,007
)
 
$
(33,806
)
 
(1)For the nine months ended September 30, 2016, our largest customer, ENL, constituted approximately 39.6 percent of our total consolidated revenues and approximately 58.4 percent of our International & Alaska Drilling segment revenues. Excluding reimbursable revenues of $54.3 million, ENL constituted approximately 28.0 percent of our total consolidated revenues and approximately 45.6 percent of our International & Alaska Drilling segment revenues. Our second largest customer, BP, constituted 11.9 percent of our total consolidated revenues and approximately 17.3 percent of our International & Alaska Drilling segment revenues.
For the nine months ended September 30, 2015, our largest customer, ENL, constituted approximately 27.0 percent of our total consolidated revenues and approximately 44.7 percent of our International & Alaska Drilling segment revenues. Excluding reimbursable revenues of $58.1 million, ENL constituted approximately 19.1 percent of our total consolidated revenues and approximately 34.7 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.