XML 25 R11.htm IDEA: XBRL DOCUMENT
v3.10.0.1

Acquisitions | 12 Months Ended
--- | ---
Dec. 31, 2018
Business Combinations [Abstract] |
Acquisitions | 2. Acquisitions 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. See Note 6 for additional information regarding goodwill. 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, motor rentals, 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 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. See Note 6 for additional information regarding goodwill. 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 consolidated statement 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 since the date of the acquisition accounts for substantially all of the Company’s directional drilling segment, as disclosed in Note 14. 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 year ended December 31, 2017 was adjusted to exclude the Company’s merger and integration-related costs of $74.5 million and SSE’s merger related costs of $36.7 million with a corresponding inclusion in the net loss for the year ended December 31, 2016 to give effect as if the acquisitions had occurred on January 1, 2016. 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 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 is 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):
| 2017 |  |  | 2016 |
| (Unaudited) |
Revenues | $ | 2,738,579 |  |  | $ | 1,567,141 |
Net income (loss) | $ | 29,584 |  |  | $ | (505,413 | )
Net income (loss) per share |  |  |  |  |  |  |
Basic | $ | 0.13 |  |  | $ | (2.30 | )
Diluted | $ | 0.13 |  |  | $ | (2.30 | )
Current Power Solutions, Inc. (“Current Power”) During October 2018, the Company acquired Current Power. Current Power is a provider of electrical controls and automation to the energy, marine and mining industries. This acquisition was not material to the Company’s consolidated financial statements. 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 and services used to improve the statistical accuracy of horizontal wellbore placement. Superior QC’s measurement-while-drilling (MWD) survey fault detection, isolation and recovery (FDIR) service is a data analytics technology to analyze MWD survey data in real-time and more accurately identify the position of a well. This acquisition was not material to the Company’s consolidated financial statements. Warrior Rig Ltd During September 2016, the Company acquired Warrior Rig Ltd. and certain related entities (“Warrior”). Based in Calgary, Warrior manufactures and sells pipe handling components and related technology for drilling contractors in North America and other select markets. This acquisition was not material to the Company’s consolidated financial statements.

X
- 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
Name: | us-gaap_BusinessCombinationDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration

X
- References No definition available. + Details
Name: | us-gaap_BusinessCombinationsAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration