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Acquisitions | 9 Months Ended
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Sep. 30, 2018
Business Combinations [Abstract] |
Acquisitions | 2. Acquisitions Seventy Seven Energy Inc. (“SSE”) On April 20, 2017, pursuant to the merger agreement, a subsidiary of the Company was merged with and into SSE, with SSE continuing as the surviving entity and one of the Company’s wholly owned subsidiaries (the “SSE merger”). Pursuant to the terms of the merger agreement, the Company acquired all of the issued and outstanding shares of common stock of SSE, in exchange for approximately 46.3 million shares of common stock of the Company. Concurrent with the closing of the merger, the Company repaid all of the outstanding debt of SSE totaling $472 million. Based on the closing price of the Company’s common stock on April 20, 2017, the total fair value of the consideration transferred to effect the acquisition of SSE was approximately $1.5 billion. On April 20, 2017, following the SSE merger, SSE was merged with and into a newly-formed subsidiary of the Company named Seventy Seven Energy LLC (“SSE LLC”), with SSE LLC continuing as the surviving entity and one of the Company’s wholly owned subsidiaries. Through the SSE merger, the Company acquired a fleet of 91 drilling rigs, 36 of which the Company considers to be APEX® rigs. Additionally, through the SSE merger, the Company acquired approximately 500,000 horsepower of fracturing equipment. The oilfield rentals business acquired through the SSE merger has a fleet of premium rental tools, and it provides specialized services for land-based oil and natural gas drilling, completion and workover activities. The merger has been accounted for as a business combination using the acquisition method. Under the acquisition method of accounting, the fair value of the consideration transferred is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values as of the acquisition date, with the remaining unallocated amount recorded as goodwill. The total fair value of the consideration transferred was determined as follows (in thousands, except stock price):
Shares of Company common stock issued to SSE shareholders |  | 46,298 |
Company common stock price on April 20, 2017 | $ | 22.45 |
Fair value of common stock issued | $ | 1,039,396 |
Plus SSE long-term debt repaid by Company |  | 472,000 |
Total fair value of consideration transferred | $ | 1,511,396 |
The following table represents the final allocation of the total purchase price of SSE to the assets acquired and the liabilities assumed based on the fair value at the merger date, with the excess of the purchase price over the estimated fair value of the identifiable net assets acquired recorded as goodwill (in thousands):
Identifiable assets acquired |  |  |
Cash and cash equivalents | $ | 37,806 |
Accounts receivable |  | 149,659 |
Inventory |  | 8,518 |
Other current assets |  | 19,038 |
Property and equipment |  | 984,433 |
Other long-term assets |  | 20,918 |
Intangible assets |  | 22,500 |
Total identifiable assets acquired |  | 1,242,872 |
Liabilities assumed |  |  |
Accounts payable and accrued liabilities |  | 133,415 |
Deferred income taxes |  | 32,881 |
Other long-term liabilities |  | 1,734 |
Total liabilities assumed |  | 168,030 |
Net identifiable assets acquired |  | 1,074,842 |
Goodwill |  | 436,554 |
Total net assets acquired | $ | 1,511,396 |
The acquired goodwill is not deductible for tax purposes. Among the factors that contributed to a purchase price resulting in the recognition of goodwill was SSE’s reputation as an experienced provider of high-quality contract drilling and pressure pumping services in a safe and efficient manner, access to new geographies, access to new product lines, increased scale of operations, supply chain and corporate efficiencies as well as infrastructure optimization. The acquired goodwill was attributable to three operating segments, with $309 million to contract drilling, $121 million to pressure pumping and $6.3 million to oilfield rentals. A portion of the fair value consideration transferred has been assigned to identifiable intangible assets as follows:
| Fair Value |  |  | Weighted Average Useful Life |
| (in thousands) |  |  | (in years) |
Assets |  |  |  |  |  |  |
Favorable drilling contracts | $ | 22,500 |  |  |  | 0.83 |
MS Directional On October 11, 2017, the Company acquired all of the issued and outstanding limited liability company interests of MS Directional. The aggregate consideration paid by the Company consisted of $69.8 million in cash and approximately 8.8 million shares of the Company’s common stock. The purchase price was subject to customary post-closing adjustments relating to cash, net working capital and indebtedness of MS Directional as of the closing. Based on the closing price of the Company’s common stock on the closing date of the transaction, the total fair value of the consideration transferred to effect the acquisition of MS Directional was approximately $257 million. MS Directional is a leading directional drilling services company in the United States, with operations in most major producing onshore oil and gas basins. MS Directional provides a comprehensive suite of directional drilling services, including directional drilling, downhole performance motors, directional surveying, measurement while drilling, and wireline steering tools. The acquisition has been accounted for as a business combination using the acquisition method. Under the acquisition method of accounting, the fair value of the consideration transferred is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values as of the acquisition date, with the remaining unallocated amount recorded as goodwill. The total fair value of the consideration transferred was determined as follows (in thousands, except stock price):
Shares of Company common stock issued to MS Directional shareholders |  | 8,798 |
Company common stock price on October 11, 2017 | $ | 21.31 |
Fair value of common stock issued | $ | 187,494 |
Plus MS Directional long-term debt repaid by Company |  | 63,000 |
Plus cash to sellers |  | 6,781 |
Total fair value of consideration transferred | $ | 257,275 |
The following table represents the final allocation of the total purchase price of MS Directional to the assets acquired and the liabilities assumed based on the fair value at the merger date, with the excess of the purchase price over the estimated fair value of the identifiable net assets acquired recorded as goodwill (in thousands):
Identifiable assets acquired |  |  |
Cash and cash equivalents | $ | 2,021 |
Accounts receivable |  | 42,782 |
Inventory |  | 28,060 |
Other current assets |  | 155 |
Property and equipment |  | 63,998 |
Other long-term assets |  | 318 |
Intangible assets |  | 74,682 |
Total identifiable assets acquired |  | 212,016 |
Liabilities assumed |  |  |
Accounts payable and accrued liabilities |  | 44,099 |
Other long-term liabilities |  | 327 |
Total liabilities assumed |  | 44,426 |
Net identifiable assets acquired |  | 167,590 |
Goodwill |  | 89,685 |
Total net assets acquired | $ | 257,275 |
The goodwill reflected above has increased $1.0 million from the original preliminary purchase price allocation as a result of a measurement period adjustment that related to a valuation adjustment to accounts payable and accrued liabilities. The acquired goodwill is deductible for tax purposes. Among the factors that contributed to a purchase price resulting in the recognition of goodwill was MS Directional’s reputation as an experienced provider of high-quality directional drilling services in a safe and efficient manner, access to new product lines, favorable market trends underlying these new business lines, earnings and growth opportunities and future technology development possibilities. All of the goodwill acquired is attributable to the directional drilling operating segment. A portion of the fair value consideration transferred has been assigned to identifiable intangible assets as follows:
| Fair Value |  |  | Weighted Average Useful Life |
| (in thousands) |  |  | (in years) |
Assets |  |  |  |  |  |  |
Developed technology | $ | 48,000 |  |  |  | 10.00 |
Customer relationships |  | 26,200 |  |  |  | 3.00 |
Internal use software |  | 482 |  |  |  | 5.00 |
| $ | 74,682 |  |  |  | 7.51 |
Pro Forma The results of SSE’s operations since the SSE merger date of April 20, 2017 and the results of MS Directional since the acquisition date of October 11, 2017 are included in the Company’s condensed consolidated statements of operations. It is impractical to quantify the contribution of the SSE operations since the merger, as the contract drilling and pressure pumping businesses were fully integrated into the Company’s existing operations in 2017. The contribution of MS Directional for the three and nine months ended September 30, 2018 accounts for substantially all of the Company’s directional drilling segment. The following pro forma condensed combined financial information was derived from the historical financial statements of the Company, SSE and MS Directional and gives effect to the acquisitions as if they had occurred on January 1, 2016. The below information reflects pro forma adjustments based on available information and certain assumptions the Company believes are reasonable, including (i) adjustments related to the depreciation and amortization of the fair value of acquired intangibles and fixed assets, (ii) removal of the historical interest expense of the acquired entities, (iii) the tax benefit of the aforementioned pro forma adjustments, and (iv) adjustments related to the common shares outstanding to reflect the impact of the consideration exchanged in the acquisitions. Additionally, the pro forma loss for the three months ended September 30, 2017 was adjusted to exclude the Company’s merger and integration-related costs of $9.4 million. The pro forma loss for the nine months ended September 30, 2017 was adjusted to exclude the Company’s merger and integration related costs of $65.8 million and SSE’s merger-related costs of $36.7 million. The pro forma results of operations do not include any cost savings or other synergies that may result from the SSE merger or MS Directional acquisition. The pro forma results of operations also do not include any estimated costs that have been or will be incurred by the Company to integrate the SSE and MS Directional operations. The pro forma condensed combined financial information has been included for comparative purposes and are not necessarily indicative of the results that might have actually occurred had the SSE merger and MS Directional acquisition taken place on January 1, 2016; furthermore, the financial information is not intended to be a projection of future results. The following table summarizes selected financial information of the Company on a pro forma basis (in thousands, except per share data):
| Three Months Ended |  |  | Nine Months Ended |
| September 30, 2017 |  |  | September 30, 2017 |
Revenues | $ | 743,006 |  |  | $ | 1,951,245 |
Net loss |  | (25,041 | ) |  |  | (168,895 | )
Loss per share |  | (0.11 | ) |  |  | (0.77 | )
Superior QC, LLC (“Superior QC”) During February 2018, the Company acquired the business of Superior QC, including its assets and intellectual property. Superior QC is a provider of software used to improve the accuracy of horizontal wellbore placement. Superior QC’s measurement while drilling (MWD) survey fault detection, isolation and recovery (FDIR) service is a new data analytics technology to analyze MWD survey data in real-time and more accurately identify the position of the well. The results of operations for the acquired Superior QC business are reported under the Company’s directional drilling business segment. This acquisition was not material to the Company’s consolidated financial statements.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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