Superior Energy Services 10Q 2023 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


	FORM 10-Q

(Mark One)

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission File No. 001-34037

Commission Company Name: SUPERIOR ENERGY SERVICES, INC.

SUPERIOR ENERGY SERVICES, INC.

(Exact name of registrant as specified in its charter)



	Delaware		87-4613576
	(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

	1001 Louisiana Street, Suite 2900 Houston, TX (Address of principal executive offices)		77002 (Zip Code)

Registrant’s telephone number, including area code: (713) 654-2200

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol	Name of each exchange on which registered
None	N/A	None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☒		Smaller reporting company ☐
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes  No 

The number of shares of the registrant’s Class A common stock outstanding on July 31, 2023 was 19,998,695.

The number of shares of the registrant’s Class B common stock outstanding on July 31, 2023 was 152,030.

TABLE OF CONTENTS




		Page
	Information Regarding Forward-Looking Statements	3

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements
	Unaudited Condensed Consolidated Balance Sheets	4
	Unaudited Condensed Consolidated Statements of Operations	5
	Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity	6
	Unaudited Condensed Consolidated Statements of Cash Flows	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	23

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 6.	Exhibits	25

SIGNATURES		26

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023 (the “Form 10-Q”) and other documents filed by us with the Securities and Exchange Commission (the “SEC”) contain, and future oral or written statements or press releases by us and our management may contain, forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Generally, the words “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks” and “estimates,” variations of such words and similar expressions identify forward-looking statements. All statements, other than statements of historical fact, included in this Form 10-Q regarding our financial position, financial performance, liquidity, strategic alternatives, market outlook, future capital needs, capital allocation plans, business strategies and other plans and objectives of our management for future operations and activities are forward-looking statements. These statements are based on certain assumptions and analyses made by our management in light of their experience and prevailing circumstances on the date such statements are made. Such forward-looking statements, and the assumptions on which they are based, are inherently speculative and are subject to a number of risks and uncertainties that could cause our actual results to differ materially from such statements. Such risks and uncertainties include, but are not limited to:

•

risks and uncertainties regarding the continuing effects of residual bankruptcy proceedings on us and our various constituents; attendant risks associated with restrictions on our ability to pursue our business strategies;

•

the difficulty to predict our long-term liquidity requirements and the adequacy of our capital resources;

•

restrictive covenants in the Credit Facility (as defined below) could limit our growth and our ability to finance our operations, fund our capital needs, respond to changing conditions and engage in other business activities that may be in our best interests;

•

the conditions in the oil and gas industry;

•

U.S. and global market and economic conditions, including impacts relating to inflation and supply chain disruptions;

•

the effects of public health threats, pandemics and epidemics, and the adverse impact thereof on our growth, operating costs, supply chain, labor availability, logistical capabilities, customer demand and industry demand generally, margins, utilization, cash position, taxes, the price of our securities, and our ability to access capital markets;

•

the ability of the members of Organization of Petroleum Exporting Countries (“OPEC+”) to agree on and to maintain crude oil price and production controls;

•

operating hazards, including the significant possibility of accidents resulting in personal injury or death, or property damage for which we may have limited or no insurance coverage or indemnification rights;

•

the possibility of not being fully indemnified against losses incurred due to catastrophic events;

•

claims, litigation or other proceedings that require cash payments or could impair financial condition;

•

credit risk associated with our customer base;

•

the effect of regulatory programs and environmental matters on our operations or prospects;

•

the impact that unfavorable or unusual weather conditions could have on our operations;

•

the potential inability to retain key employees and skilled workers;

•

political, legal, economic and other uncertainties associated with our international operations could materially restrict our operations or expose us to additional risks;

•

potential changes in tax laws, adverse positions taken by tax authorities or tax audits impacting our operating results;

•

changes in competitive and technological factors affecting our operations;

•

risks associated with the uncertainty of macroeconomic and business conditions worldwide;

•

risks to our operations from potential cyber-attacks;

•

counterparty risks associated with reliance on key suppliers;

•

challenges with estimating our potential liabilities related to our oil and natural gas property;

•

risks associated with potential changes of Bureau of Ocean Energy Management (“BOEM”) security and bonding requirements for offshore platforms;

•

the likelihood that the interests of our significant stockholders may conflict with the interests of our other stockholders;

•

the risks associated with owning our Class A Common Stock, par value $0.01 per share (the “Class A Common Stock”), for which there is no public market; and

•

the likelihood that our stockholders agreement may prevent certain transactions that could otherwise be beneficial to our stockholders.

These risks and other uncertainties related to our business are described in detail in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “Form 10-K”). We undertake no obligation to update any of our forward-looking statements in the Form 10-Q. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except per share data)

(unaudited)


	June 30, 2023			December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	330,129		$	258,999
Accounts receivable, net		249,479			249,808
Income taxes receivable		4,541			6,665
Prepaid expenses		19,291			17,299
Inventory		82,897			65,587
Other current assets		6,104			6,276
Assets held for sale		1,369			11,978
Total current assets		693,810			616,612
Property, plant and equipment, net		298,567			282,376
Note receivable		71,581			69,679
Restricted cash		80,318			80,108
Deferred tax assets		73,362			97,492
Other assets, net		42,978			44,745
Total assets	$	1,260,616		$	1,191,012

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable		58,865		$	31,570
Accrued expenses		100,416			116,575
Income taxes payable		11,687			11,682
Decommissioning liability		26,329			9,770
Liabilities held for sale		3,090			3,349
Total current liabilities		200,387			172,946
Decommissioning liability		133,591			150,901
Other liabilities		45,186			84,281
Total liabilities		379,164			408,128

Stockholders’ equity:
Class A common stock $0.01 par value; 50,000 shares authorized; 19,999 shares issued and outstanding at June 30, 2023 and December 31, 2022		200			200
Class B common stock $0.01 par value; 2,000 shares authorized; 156 shares issued and 152 shares outstanding at June 30, 2023 and 84 shares issued and 80 shares outstanding at December 31, 2022		2			1
Class A Additional paid-in capital		902,486			902,486
Class B Additional paid-in capital		6,855			5,896
Accumulated deficit		(28,091	)		(125,699	)
Total stockholders’ equity		881,452			782,884
Total liabilities and stockholders’ equity	$	1,260,616		$	1,191,012

See accompanying notes to unaudited condensed consolidated financial statements

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)


	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2023			2022			2023			2022
Revenues:
Services	$	106,130		$	100,066		$	199,420		$	191,505
Rentals		85,361			76,993			170,971			144,155
Product sales		52,982			47,581			94,219			86,910
Total revenues		244,473			224,640			464,610			422,570
Cost of revenues:
Services		58,940			73,530			124,019			133,698
Rentals		30,314			24,235			59,362			48,848
Product sales		31,500			23,203			55,094			50,802
Total cost of revenues (exclusive of depreciation, depletion, amortization and accretion)		120,754			120,968			238,475			233,348
Depreciation, depletion, amortization and accretion:
Services		7,704			8,292			14,999			21,958
Rentals		6,165			6,492			12,859			16,529
Product sales		6,752			8,562			12,902			18,944
Total depreciation, depletion, amortization and accretion		20,621			23,346			40,760			57,431
General and administrative expenses		31,177			30,231			62,167			62,249
Restructuring expenses		-			1,663			1,983			3,218
Other (gains) and losses, net		47			(18,013	)		(1,351	)		(16,866	)
Income from operations		71,874			66,445			122,576			83,190
Other income (expense):
Interest income, net		6,513			1,459			11,952			2,638
Other income (expense)		(1,836	)		(13,471	)		(3,988	)		476
Income from continuing operations before income taxes		76,551			54,433			130,540			86,304
Income tax expense		(9,147	)		(10,871	)		(33,212	)		(18,755	)
Net income from continuing operations		67,404			43,562			97,328			67,549
Income (loss) from discontinued operations, net of income tax		(9	)		(1,944	)		280			(205	)
Net income	$	67,395		$	41,618		$	97,608		$	67,344

Income (loss) per share - basic:
Net income from continuing operations	$	3.35		$	2.18		$	4.84		$	3.38
Income (loss) from discontinued operations, net of income tax		-			(0.10	)		0.01			(0.01	)
Net income	$	3.35		$	2.08		$	4.85		$	3.37

Income (loss) per share - diluted:
Net income from continuing operations	$	3.35		$	2.17		$	4.83		$	3.37
Income (loss) from discontinued operations, net of income tax		-			(0.10	)		0.02			(0.01	)
Net income	$	3.35		$	2.07		$	4.85		$	3.36

Weighted-average shares outstanding
Basic		20,126			20,024			20,116			20,011
Diluted		20,143			20,076			20,136			20,065

See accompanying notes to unaudited condensed consolidated financial statements

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders' Equity

(in thousands)

(unaudited)


										Additional
	Common Stock									paid-in
	Class A				Class B					capital					Accumulated
	Shares		Amount		Shares			Amount		Class A		Class B			deficit			Total

Balances, December 31, 2021		19,999	$	200		76		$	1	$	902,486	$	1,224		$	(162,178	)	$	741,733
Net income		-		-		-			-		-		-			286,465			286,465
Cash dividends ($12.45 per share)		-		-		-			-		-		-			(249,986	)		(249,986	)
Stock-based compensation expense, net		-		-		-			-		-		4,807			-			4,807
Restricted stock units vested		-		-		10			-		-		-			-			-
Share withheld and retired		-		-		(2	)		-		-		(135	)		-			(135	)
Shares placed in treasury		-		-		(4	)		-		-		-			-			-
Balances, December 31, 2022		19,999		200		80			1		902,486		5,896			(125,699	)		782,884
Net income		-		-		-			-		-		-			30,213			30,213
Restricted stock units vested		-		-		91			1		-		(1	)		-			-
Shares withheld and retired		-		-		(19	)		-		-		(1,116	)		-			(1,116	)
Stock-based compensation expense, net		-		-		-			-		-		1,052			-			1,052
Balances, March 31, 2023		19,999	$	200		152		$	2	$	902,486	$	5,831		$	(95,486	)	$	813,033
Net income		-		-		-			-		-		-			67,395			67,395
Stock-based compensation expense, net		-		-		-			-		-		1,024			-			1,024
Balances, June 30, 2023		19,999	$	200		152		$	2	$	902,486	$	6,855		$	(28,091	)	$	881,452

See accompanying notes to unaudited condensed consolidated financial statements

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	For the Six Months Ended
	June 30,
	2023				2022
Cash flows from operating activities:
Net income	$	97,608			$	67,344
Adjustments to reconcile net income to net cash from operating activities:
Depreciation, depletion, amortization and accretion		40,760				57,431
Deferred income taxes		23,795				1,687
Stock based compensation expense		2,076				1,543
Bad debt		668				(920	)
Gain on sale of equity securities		-				(3,611	)
Unrealized gain on investment in equity securities		-				(544	)
Other gains, net		(2,100	)			(23,296	)
Washington State Tax Settlement		(27,068	)			-
Decommissioning costs		(2,878	)			-
Other reconciling items, net		(1,648	)			2,783
Changes in operating assets and liabilities:
Accounts receivable		(506	)			(26,362	)
Prepaid expenses		(1,992	)			(2,652	)
Inventory and other current assets		(19,464	)			(5,358	)
Accounts payable		16,707				(1,986	)
Accrued expenses		(18,399	)			144
Income taxes		2,129				2,185
Other, net		(6,753	)			(144	)
Net cash from operating activities		102,935				68,244
Cash flows from investing activities:
Payments for capital expenditures		(45,626	)			(20,514	)
Proceeds from sales of assets		15,147				15,183
Proceeds from sales of equity securities		-				13,366
Net cash from investing activities		(30,479	)			8,035
Cash flows from financing activities:
Tax withholdings for vested restricted stock units		(1,116	)	-		-
Net cash from financing activities		(1,116	)			-
Net change in cash, cash equivalents, and restricted cash		71,340				76,279
Cash, cash equivalents, and restricted cash at beginning of period		339,107				394,535
Cash, cash equivalents, and restricted cash at end of period	$	410,447			$	470,814

See accompanying notes to unaudited condensed consolidated financial statements

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

(unless noted otherwise, amounts in thousands, except share data)

(1) Basis of Presentation

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”); however, management believes the disclosures are adequate such that the information presented is not misleading.

As used herein, the “Company,” “we,” “us” and similar terms refer to Superior Energy Services, Inc. and its consolidated subsidiaries, unless otherwise specifically stated.

These financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10-K.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting primarily of normal recurring adjustments, necessary for a fair statement of our financial position as of June 30, 2023, our results of operations for the three and six months ended June 30, 2023 and 2022, and our cash flows for the six months ended June 30, 2023 and 2022. The balance sheet as of December 31, 2022, was derived from our audited annual financial statements, but does not contain all of the footnote disclosures from the annual financial statements.

(2) Revenue and Accounts Receivable

Disaggregation of Revenue

The following table presents our revenues by segment disaggregated by geography:


	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
U.S. land
Rentals	$	44,730	$	43,791	$	89,863	$	77,753
Well Services		5,806		4,151		12,161		8,699
Total U.S. land		50,536		47,942		102,024		86,452

U.S. offshore
Rentals		37,516		36,331		73,186		69,084
Well Services		23,405		32,569		39,726		60,890
Total U.S. offshore		60,921		68,900		112,912		129,974

International
Rentals		30,165		23,607		58,183		45,648
Well Services		102,851		84,191		191,491		160,496
Total International		133,016		107,798		249,674		206,144
Total Revenues	$	244,473	$	224,640	$	464,610	$	422,570

The following table presents our revenues by segment disaggregated by type:


	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Services
Rentals	$	17,875	$	12,654	$	35,020	$	23,812
Well Services		88,255		87,412		164,400		167,693
Total Services		106,130		100,066		199,420		191,505

Rentals
Rentals		81,647		73,563		163,722		138,810
Well Services		3,714		3,430		7,249		5,345
Total Rentals		85,361		76,993		170,971		144,155

Product Sales
Rentals		12,889		17,512		22,490		29,863
Well Services		40,093		30,069		71,729		57,047
Total Product Sales		52,982		47,581		94,219		86,910
Total Revenues	$	244,473	$	224,640	$	464,610	$	422,570

Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount or the earned amount but not yet invoiced and do not bear interest. We maintain an allowance for credit losses based on our best estimate of probable uncollectible amounts in existing accounts receivable. Adjustments to the allowance for credit losses in future periods may be made based on changing customer conditions. Our allowance for credit losses as of June 30, 2023 and December 31, 2022 was approximately $6.5 million and $6.1 million, respectively.

(3) Inventory

Inventories are stated at the lower of cost or net realizable value. We apply net realizable value and obsolescence to the gross value of inventory. Cost is determined using the first-in, first-out or weighted-average cost methods for finished goods and work-in-process. Supplies and consumables consist principally of products used in the services provided to our customers. The components of inventory balances are as follows:


	June 30, 2023		December 31, 2022
Finished goods	$	45,319	$	36,136
Raw materials		7,898		8,351
Work-in-process		13,759		4,718
Supplies and consumables		15,921		16,382
Total	$	82,897	$	65,587

Finished goods inventory includes component parts awaiting assembly of approximately $22.2 million and $20.7 million as of June 30, 2023 and December 31, 2022, respectively.

(4) Decommissioning Liability

We account for our decommissioning liability under ASC 410 – Asset Retirement Obligations. Our decommissioning liability is associated with our oil and gas property and includes costs related to the plugging of wells, decommissioning of the related platform and equipment and site restoration. We review the adequacy of our decommissioning liability whenever indicators suggest that the estimated cash flows and/or relating timing needed to satisfy the liability have changed materially.

The following table presents our total decommissioning liability as of the periods indicated:


	June 30, 2023			December 31, 2022
Wells	$	93,564		$	96,171
Platform		66,356			64,500
Total decommissioning liability		159,920			160,671
Note receivable		(71,581	)		(69,679	)
Total decommissioning liability, net of note receivable	$	88,339		$	90,992

Accretion expense for the three and six months ended June 30, 2023 was $2.4 million and $4.7 million, respectively, and $2.7 million and $5.4 million for the three and six months ended June 30, 2022, respectively. Additionally, during the six months ended June 30, 2023, we incurred well decommissioning costs of $5.5 million.

(5) Note Receivable

Our note receivable consists of a commitment from the seller of oil and gas property for costs associated with abandonment. Pursuant to an agreement with the seller, we invoice the seller an agreed upon amount at the completion of certain decommissioning activities. The gross amount of the seller's obligation to us is $105.2 million and is recorded at its present value, which totaled $71.6 million as of June 30, 2023.

The discount on the note receivable is currently based on an effective interest rate of 5.6% and is amortized to interest income over the expected timing of the completion of the decommissioning activities, which are expected to be completed during the second quarter of 2031. Interest receivable is considered paid in kind and is compounded into the carrying amount of the note.

Non-cash interest income related to the note receivable for the three and six months ended June 30, 2023 was $0.9 million and $1.9 million, respectively. Non-cash interest income related to the note receivable for the three and six months ended June 30, 2022 was $1.0 million and $2.0 million, respectively. Interest income is included in other reconciling items, net in the Condensed Consolidated Statements of Cash Flows.

(6) Property, Plant and Equipment, Net

A summary of property, plant and equipment, net is as follows:


	June 30, 2023			December 31, 2022
Machinery and equipment	$	413,937		$	378,907
Buildings, improvements and leasehold improvements		70,394			70,816
Automobiles, trucks, tractors and trailers		6,546			6,376
Furniture and fixtures		19,384			19,373
Construction-in-progress		11,756			5,185
Land		26,698			26,695
Oil and gas producing assets		12,339			11,714
Total		561,054			519,066
Accumulated depreciation and depletion		(262,487	)		(236,690	)
Property, plant and equipment, net	$	298,567		$	282,376

Depreciation and depletion expense associated with our property, plant and equipment for the three and six months ended June 30, 2023 was $18.0 million and $35.6 million, respectively. For the three and six months ended June 30, 2022, depreciation and depletion expense associated with our property, plant and equipment was $20.4 million and $51.6 million, respectively.

(7) Debt

We have a Credit Agreement providing for a $120.0 million asset-based secured revolving Credit Facility, all of which is available for the issuance of letters of credit (the “Credit Facility”) which matures in December 2024. The issuance of letters of credit reduces availability under the Credit Facility on a dollar-for-dollar basis.

As of June 30, 2023, our borrowing base, as defined in the Credit Agreement, was approximately $120.0 million, and we had $34.7 million of letters of credit outstanding that reduced the borrowing availability. We had no outstanding borrowings under the Credit Facility as of June 30, 2023. We were in compliance with all required covenants as of June 30, 2023.

(8) Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date. Inputs used in determining fair value are characterized according to a hierarchy that prioritizes those inputs based on the degree to which they are observable. The three input levels of the fair value hierarchy are as follows:

Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.

Level 2: Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical assets or liabilities in inactive markets; or model-derived valuations or other inputs that can be corroborated by observable market data.

Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

The following tables provide a summary of the financial assets and liabilities measured at fair value on a recurring basis:


	June 30, 2023		December 31, 2022
Non-qualified deferred compensation assets and liabilities
Other long-term assets, net	$	16,637	$	16,299
Accrued expenses		1,758		1,831
Other long-term liabilities		14,927		15,855

Our non-qualified deferred compensation plans investments are reported at fair value based on unadjusted quoted prices in active markets for identifiable assets and observable inputs for similar assets and liabilities, which represent a Level 2 in the fair value hierarchy.

The carrying amount of cash equivalents, accounts receivable, accounts payable and accrued expenses, as reflected in the consolidated balance sheets, approximates fair value due to the short maturities.

(9) Other Income (Expense)

Other income (expense) primarily relates to re-measurement gains and losses associated with our foreign currencies and realized and unrealized gains and losses on our investment in equity securities.

Losses on foreign currencies were $1.7 million and $3.6 million for the three and six months ended June 30, 2023, respectively. For the three and six months ended June 30, 2022, losses on foreign currencies were $10.5 million and $4.9 million, respectively. Gains and losses on foreign currencies are primarily related to our operations in Brazil and Argentina.

During the three and six months ended June 30, 2022, we recognized unrealized losses of $5.9 million and unrealized gains of $0.5 million, respectively, from our investment in equity securities. During the three and six months ended June 30, 2022, proceeds from the disposal of equity securities totaled $6.0 million and $13.4 million, respectively. All investments in equity securities were disposed of prior to December 31, 2022.

(10) Other (Gains) and Losses

Other (gains) and losses, net include gains and losses on the disposal of assets as well as impairments, if any, related to long-lived assets. During the three months ended June 30, 2023, other losses were immaterial. During the six months ended June 30, 2023, we recognized net gains of $1.4 million. During the three and six months ended June 30, 2022, we recognized net gains of $18.0 million and $16.9 million, respectively.

During the second quarter of 2022, we undertook an initiative to alter our decommissioning program, whereby we intend to convert the platform into an artificial reef (“reef-in-place”). Converting to a reef-in-place program reduced the estimated costs associated with decommissioning the wells and platform, and also impacted the time required to complete the decommissioning activities.

The reduction in cost estimates resulted in a reduction in the carrying value of our decommissioning liability and related note receivable as well as impacted the carrying value of our oil and gas producing assets, such that as of June 30, 2022, our decommissioning liability was reduced by $53.0 million and the related note receivable was increased by $2.6 million. In accordance with ASC 410, the carrying value of our oil and gas producing assets was reduced by $38.2 million, which represented the net book value of our oil and gas assets at June 30, 2022. In connection with these changes, we recognized a gain of approximately $17.4 million, which is included in other (gains) and losses, net in our statement of operations.

(11) Segment Information

Our reportable segments are Rentals and Well Services.

The products and service offerings of Rentals are comprised of value-added engineering and design services, rental of premium drill strings, tubing, landing strings, completion tubulars and handling accessories, manufacturing and rental of bottom hole assemblies, and rentals of accommodation units.

The products and service offerings of Well Services are comprised of risk management, well control and training solutions, hydraulic workover and snubbing services, engineering and manufacturing of premium sand control tools, and onshore international production services. The Well Services segment also includes the operations of our offshore oil and gas property.

We evaluate the performance of our reportable segments based on income or loss from operations. The segment measure is calculated as segment revenues less segment operating expenses, including general and administrative expenses, depreciation, depletion, amortization and accretion expense and other (gains) and losses, net. We use this segment measure to evaluate our reportable segments as it is the measure that is most consistent with how we organize and manage our business operations. Corporate and other costs primarily include expenses related to support functions, including salaries and benefits for corporate employees.

Summarized financial information for our segments is as follows:


For the Three Months Ended June 30, 2023				Well			Corporate and			Consolidated
	Rentals			Services			Other			Total
Revenues	$	112,411		$	132,062		$	-		$	244,473
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion)		35,021			85,733			-			120,754
Depreciation, depletion, amortization and accretion		12,553			7,204			864			20,621
General and administrative expenses		6,993			11,391			12,793			31,177
Restructuring expenses		-			-			-			-
Other (gains) and losses, net		(262	)		309			-			47
Income (loss) from operations	$	58,106		$	27,425		$	(13,657	)	$	71,874

For the Three Months Ended June 30, 2022				Well			Corporate and			Consolidated
	Rentals			Services			Other			Total
Revenues	$	103,729		$	120,911		$	-		$	224,640
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion)		35,860			85,108			-			120,968
Depreciation, depletion, amortization and accretion		12,556			9,662			1,128			23,346
General and administrative expenses		6,559			11,202			12,470			30,231
Restructuring expenses		-			-			1,663			1,663
Other (gains) and losses, net		195			(18,208	)		-			(18,013	)
Income (loss) from operations	$	48,559		$	33,147		$	(15,261	)	$	66,445


For the Six Months Ended June 30, 2023				Well			Corporate and			Consolidated
	Rentals			Services			Other			Total
Revenues	$	221,232		$	243,378		$	-		$	464,610
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion)		71,489			166,986			-			238,475
Depreciation, depletion, amortization and accretion		24,721			14,281			1,758			40,760
General and administrative expenses		14,195			22,890			25,082			62,167
Restructuring expenses		-			-			1,983			1,983
Other gains, net		(293	)		(1,058	)		-			(1,351	)
Income (loss) from operations	$	111,120		$	40,279		$	(28,823	)	$	122,576

For the Six Months Ended June 30, 2022				Well			Corporate and			Consolidated
	Rentals			Services			Other			Total
Revenues	$	192,485		$	230,085		$	-		$	422,570
Cost of revenues (exclusive of depreciation, depletion, amortization and accretion)		67,612			165,736			-			233,348
Depreciation, depletion, amortization and accretion		33,545			21,390			2,496			57,431
General and administrative expenses		13,924			22,603			25,722			62,249
Restructuring expenses		-			-			3,218			3,218
Other (gains) and losses, net		60			(16,926	)		-			(16,866	)
Income (loss) from operations	$	77,344		$	37,282		$	(31,436	)	$	83,190

Identifiable Assets


			Well		Corporate		Consolidated
	Rentals		Services		and Other		Total
June 30, 2023	$	507,753	$	568,452	$	184,411	$	1,260,616
December 31, 2022		432,437		533,327		225,248		1,191,012

(12) Stock-Based Compensation Plans

We have a Management Incentive Plan (“MIP”), which provides the issuance of up to 1,999,869 shares of our Class B common stock, par value $0.01 per share (the “Class B Common Stock”) for the grant of share-based and cash-based awards.

To date, grants under the MIP have been in the form of shares of Class B common stock (“RSAs”), restricted stock units which will be settled in Class B common stock upon the satisfaction of time-based vesting conditions (“RSUs”) and performance stock units which will be settled in Class B common stock upon the satisfaction of time and performance-based vesting conditions (“PSUs”).

The RSAs vest over a period of three years, subject to earlier vesting and forfeiture on terms and conditions set forth in the applicable award agreement. RSUs granted in 2022 generally vest in three equal annual installments over the three-year period, subject generally to continued employment and the other terms and conditions set forth in the forms of the RSU award agreements. RSUs granted in 2021 vested in full during the current quarter. PSUs may be earned between 25% and 100% of the target award based on achievement of share price goals set forth in the forms of the PSU award agreements and will vest to the extent that share price goals are achieved based on the terms and conditions set forth in the forms of the PSU award agreements.

The following sets forth issuances under the MIP for the six months ended June 30, 2023 and 2022:


	Grants of Share-Based Awards
				July/
	June			August			March			July
	2021			2021			2022			2022			Total
Awards outstanding, December 31, 2022		29,976			37,947			72,050			88,215			228,188
Vested		(14,988	)		(37,947	)		(24,017	)		(29,405	)		(106,357	)
Awards outstanding, June 30, 2023		14,988			-			48,033			58,810			121,831

Estimated grant date fair value	$	39.53		$	39.53		$	58.80		$	58.80

Unamortized grant date fair value, December 31, 2022 (in millions)	$	0.9		$	-		$	3.1		$	4.2		$	8.2
Unamortized grant date fair value, June 30, 2023 (in millions)	$	0.5		$	-		$	2.4		$	3.2		$	6.1


	Grants of Share-Based Awards
				July/
	June			August		March
	2021			2021		2022		Total
Awards outstanding, December 31, 2021		76,269			50,596		-		126,865
Granted		-			-		72,050		72,050
Vested		(25,423	)		-		-		(25,423	)
Awards outstanding, June 30, 2022		50,846			50,596		72,050		173,492

Estimated grant date fair value	$	39.53		$	39.53	$	58.80

Unamortized grant date fair value, December 31, 2021 (in millions)	$	2.4		$	1.4	$	-	$	3.8
Unamortized grant date fair value, June 30, 2022 (in millions)	$	1.8		$	0.6	$	3.9	$	6.3

During the three and six months ended June 30, 2023, we recognized $1.0 million and $2.1 million, respectively, in compensation expense associated with grants of RSAs and RSUs. During the three and six months ended June 30, 2022, we recognized $1.0 million and $1.5 million, respectively, in compensation expense associated with grants of RSAs and RSUs. We are currently not amortizing our PSUs as we have not concluded that it is probable that the performance condition will be achieved.

(13) Income Taxes

The effective tax rate on income from continuing operations for the three and six months ended June 30, 2023 was 11.9% and 25.4%, respectively, and was 20.0% and 21.7% for the three and six months ended June 30, 2022, respectively. The U.S federal statutory rate for all periods was 21%. The effective tax rates for all periods were unfavorably impacted by our current and ongoing operations in foreign jurisdictions which have tax rates significantly in excess of the U.S. federal statutory rate.

The effective tax rate for the three months ended June 30, 2023 was also favorably impacted by approximately $14.9 million in income tax benefits from reversals of uncertain tax positions in foreign jurisdictions and adjustments to valuation allowances on foreign operations.

The effective tax rate for the six months ended June 30, 2023 was also unfavorably impacted by the identification of an error in the tax provision for the year ended December 31, 2022 pertaining to certain net operating loss carryforwards that should have been eliminated as part of a worthless stock deduction taken in the fourth quarter of 2022. As such, we recognized an additional income tax expense of $7.6 million during the three months ended March 31, 2023 with a corresponding decrease to deferred tax assets to correct this immaterial misstatement. Management has determined that this misstatement was not material to any of its previously issued financial statements.

The effective tax rate for the three and six months ended June 30, 2022 was also impacted from non-deductible items, the release of valuation allowances in certain jurisdictions and foreign losses for which no tax benefit was recorded.

We had $4.3 million of unrecognized tax benefits as of June 30, 2023, all of which would impact our effective tax rate if recognized. It is reasonably possible $1.0 million of unrecognized tax benefits could be settled in the next twelve months due to the conclusion of tax audits or statutes of limitations expiration. It is our policy to recognize interest and applicable penalties, if any, related to uncertain tax positions in income tax expense. Unrecognized tax benefits as of December 31, 2022 were $14.0 million and were impacted by the reversals of uncertain tax positions during the six months ended June 30, 2023.

On August 16, 2022, the Inflation Reduction Act (the IRA) was signed into law in the U.S. Among other changes, the IRA introduced a corporate minimum tax on certain corporations with average adjusted financial statement income over a three-tax year period in excess of $1.0 billion and an excise tax on certain stock repurchases by certain covered corporations for taxable years beginning after December 31, 2022 and several tax incentives to promote clean energy. Based on our current analysis and pending future guidance to be issued by Treasury, we do not believe these provisions will have a material impact on our consolidated financial statements.

(14) Earnings per Share

Our common equity consists of Class A Common Stock and Class B Common Stock (the “Common Stock”).

Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of shares of Common Stock outstanding during the period. Diluted earnings per share is computed using the weighted average number of Common Stock outstanding during the period plus any potentially dilutive Common Stock, such as restricted stock awards, restricted stock units, and performance-based units calculated using the treasury stock method.

The following table presents the reconciliation between the weighted average number of shares for basic and diluted earnings per share.


	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Weighted-average shares outstanding - basic		20,126		20,024		20,116		20,011
Potentially dilutive stock awards and units		17		52		20		54
Weighted-average shares outstanding - diluted		20,143		20,076		20,136		20,065

(15) Contingencies

Due to the nature of our business, we are involved, from time to time, in various routine litigation or subject to disputes or claims or actions, including those commercial in nature, regarding our business activities in the ordinary course of business. Legal costs related to these matters are expensed as incurred. Management is of the opinion that none of the claims and actions will have a material adverse impact on our financial position, results of operations or cash flows.

As previously reported in the Form 10-K and Form 10-Q for the quarter ended March 31, 2023, we are currently involved in legal proceedings with the Washington State Department of Revenue in relation to a dispute arising in April 2019 pertaining to a use tax assessment from 2016 as a result of the construction of a vessel by one of our subsidiaries. The matter was appealed to the Washington State Board of Tax Appeals, which affirmed the assessment on May 22, 2023. On June 20, 2023, we appealed this decision to Whatcom County Superior Court where it is currently pending review. In order to appeal the assessment to Whatcom County Superior Court, we paid the full $27.1 million assessment on May 31, 2023.

(16) Discontinued Operations

The following table summarizes the components of discontinued operations, net of tax:


	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2023			2022			2023			2022
General and administrative expenses	$	(72	)	$	1,711		$	389		$	5,453
Other (gains) and losses, net		79			750			(748	)		(5,193	)
Income (loss) from discontinued operations before tax		(7	)		(2,461	)		359			(260	)
Income tax benefit (expense)		(2	)		517			(79	)		55
Income (loss) from discontinued operations, net of income tax	$	(9	)	$	(1,944	)	$	280		$	(205	)

The following summarizes the assets and liabilities related to discontinued operations:


	June 30, 2023		December 31, 2022
Assets:
Accounts receivable, net	$	-	$	350
Property, plant and equipment, net		1,355		11,468
Other assets		14		160
Total assets held for sale	$	1,369	$	11,978

Liabilities:
Accounts payable	$	-	$	86
Accrued expenses		3,090		3,192
Other liabilities		-		71
Total liabilities held for sale	$	3,090	$	3,349

Significant operating non-cash items and cash flows from investing activities for our discontinued operations were as follows:


	For the Six Months Ended
	June 30,
	2023			2022
Cash flows from discontinued operating activities:
Other gains, net	$	(748	)	$	(5,193	)
Cash flows from discontinued investing activities:
Proceeds from sales of assets	$	11,308		$	13,861

(17) Supplemental Cash Flow Information

The table below is a reconciliation of cash, cash equivalents and restricted cash for the beginning and the end of the periods presented:


	June 30,
	2023		2022
Cash and cash equivalents	$	258,999	$	314,974
Restricted cash-non-current		80,108		79,561
Cash, cash equivalents, and restricted cash, beginning of period	$	339,107	$	394,535

Cash and cash equivalents	$	330,129	$	391,219
Restricted cash-non-current		80,318		79,595
Cash, cash equivalents, and restricted cash, end of period	$	410,447	$	470,814

(18) New Accounting Pronouncements

Recently Issued Accounting Standards

On January 1, 2023, we adopted Financial Accounting Standards Board (FASB) ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements, which replaces the incurred loss impairment methodology from previous U.S. GAAP with the Current Expected Credit losses model (CECL). The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses on financial instruments at the time the asset is originated or acquired. We estimate expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This updated guidance applies to (i) loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, and (ii) loan commitments and other off-balance sheet credit exposures. The adoption of this standard update did not have a material impact on our Condensed Consolidated Financial Statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. In addition, the following discussion and analysis and information contains forward-looking statements about our business, operations and financial performance based on our current expectations that involve risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated by these forward-looking statements as a result of many factors. including, but not limited to, those identified below and any discussed in the sections titled “Risk Factors” and under the heading “Information Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q.

Executive Summary

General

We serve major, national and independent oil and natural gas exploration and production companies around the world and offer products and services with respect to the various phases of a well’s economic life cycle.

Historically, we provided a wide variety of services and products to many markets within the energy industry. Our core businesses focus on products and services that we believe meet the criteria of:

•

being critical to our customers’ oil and gas operations;

•

limiting competition from the three largest global oilfield service companies;

•

requiring deep technical expertise through the design or use of our products or services, such as premium drill pipe and drilling bottom hole assembly accessory rentals;

•

unlikely to become a commoditized product or service to our customers; and

•

providing strong cash flow generation capacity and opportunities.

The result of this approach is a portfolio of business lines grounded in our core mission of providing high quality products and services while maintaining the trust and serving the needs of our customers, with an emphasis on free cash flow generation and capital efficiency.

Industry Trends

The oil and gas industry is both cyclical and seasonal. The level of spending by oil and gas companies is highly influenced by current and expected demand and future prices of oil and natural gas. Changes in spending result in an increased or decreased demand for our services and products. Rig count is an indicator of the level of spending by oil and gas companies.

Our financial performance is significantly affected by the rig count in the U.S. land and offshore market areas as well as oil and natural gas prices and worldwide rig activity, which are summarized in the tables below:


	For the Three Months Ended					For the Six Months Ended
	June 30,		March 31,			June 30,		June 30,
	2023		2023		% Change	2023		2022		% Change
Worldwide Rig Count (1)
U.S.:
Land		722		744	(3.0%)		699		663	5.4%
Offshore		18		16	12.5%		20		15	33.3%
Total		740		760	(2.6%)		719		678	6.0%
International (2)		960		915	4.9%		938		819	14.5%
Worldwide Total		1,700		1,675	1.5%		1,657		1,497	10.7%

Commodity Prices (average)
Crude Oil (West Texas Intermediate)	$	73.54	$	72.43	1.5%	$	72.97	$	102.01	(28.5%)
Natural Gas (Henry Hub)	$	2.16	$	2.65	(18.4%)	$	2.41	$	6.07	(60.3%)

(1)

Estimate of drilling activity as measure by the average active drilling rigs based on Baker Hughes Co. rig count information

(2)

Excludes Canadian rig count

Comparison of the Results of Operations for the Three Months Ended June 30, 2023 and March 31, 2023

We reported net income from continuing operations for the three months ended June 30, 2023 (the “Current Quarter”) of $67.4 million on revenue of $244.5 million. This compares to a net income from continuing operations for the three months ended March 31, 2023 (the “Prior Quarter”) of $29.9 million on revenues of $220.1 million.


	For the Three Months Ended						Change
	June 30,			March 31,
	2023			2023			$			%
Revenues
Rentals	$	112,411		$	108,821		$	3,590		3.3%
Well Services		132,062			111,316			20,746		18.6%
Total revenues		244,473			220,137			24,336
Cost of revenues
Rentals		35,021			36,468			(1,447	)	(4.0%)
Well Services		85,733			81,253			4,480		5.5%
Total cost of revenues (exclusive of depreciation, depletion, amortization and accretion)		120,754			117,721			3,033
Depreciation, depletion, amortization and accretion		20,621			20,139			482		**
General and administrative expenses		31,177			30,990			187		**
Restructuring expenses		-			1,983			(1,983	)	**
Other (gains) and losses, net		47			(1,398	)		1,445		(103.4%)
Income from operations		71,874			50,702			21,172
Other income (expense):
Interest income, net		6,513			5,439			1,074		19.7%
Other expense		(1,836	)		(2,152	)		316		**
Income from continuing operations before income taxes		76,551			53,989			22,562
Income tax expense		(9,147	)		(24,065	)		14,918		(62.0%)
Net income from continuing operations		67,404			29,924			37,480
Income (loss) from discontinued operations, net of income tax		(9	)		289			(298	)	(103.1%)
Net income	$	67,395		$	30,213		$	37,182

** Not a meaningful percentage

Revenues and Cost of Revenues

Revenues from our Rentals segment increased by $3.6 million, or 3.3%, in the Current Quarter as compared to the Prior Quarter primarily due to increased International market activity for our premium drill pipe product lines and accommodation rentals in our U.S. offshore market. These increases resulted in an increased gross margin of 68.8% for the Current Quarter as compared to 66.5% in the Prior Quarter.

Revenues from our Well Services segment in the Current Quarter increased $20.7 million, or 18.6%, from the Prior Quarter. The increase in revenue is driven by our International markets which experienced continued improvements in both production and well control services. Additionally, our U.S. offshore market was impacted by stronger performance from our completion services business unit. Cost of revenues increased $4.5 million, or 5.5%, in the Current Quarter as compared to the Prior Quarter as a result of the increases in revenue discussed above. Gross margin for the Current Quarter also increased to 35.1% as compared to 27.0% for the Prior Quarter.

Other (gains) and losses, net

Other losses were immaterial in the Current Quarter compared to other gains of $1.4 million for the Prior Quarter. Other (gains) and losses, net include gains and losses on the disposal of assets, as well as impairments, if any, related to long-lived assets.

Interest Income, net

Interest income, net was $6.5 million compared to $5.4 million for the Prior Quarter. The increase in interest income was driven by interest derived on overnight money market accounts primarily in Argentina and the U.S.

Income Taxes

The effective tax rate on income from continuing operations for the Current Quarter and Prior Quarter was 11.9% and 44.6%, respectively. The U.S federal statutory rate for both periods was 21%. The effective tax rates for both periods were unfavorably impacted by our current and ongoing operations in foreign jurisdictions which have tax rates significantly in excess of the U.S. federal statutory rate.

The effective tax rate in the Current Quarter was also favorably impacted by approximately $14.9 million in income tax benefits from reversals of uncertain tax positions in foreign jurisdictions and adjustments to valuation allowances on foreign operations.

The effective tax rate for the Prior Quarter was also unfavorably impacted by recognition of a $7.6 million immaterial misstatement arising from certain net operating loss carryforwards that should have been eliminated as part of a worthless stock deduction taken in the fourth quarter of 2022.

We had $4.3 million of unrecognized tax benefits as of June 30, 2023, all of which would impact our effective tax rate if recognized. It is reasonably possible $1.0 million of unrecognized tax benefits could be settled in the next twelve months due to the conclusion of tax audits or statute of limitations expirations. It is our policy to recognize interest and applicable penalties, if any, related to uncertain tax positions in income tax expense.

Comparison of the Results of Operations for the Six Months Ended June 30, 2023 and 2022

We reported net income from continuing operations for the six months ended June 30, 2023 (the “Current Period”) of $97.3 million on revenue of $464.6 million. This compares to a net income from continuing operations for the six months ended June 30, 2022 (the “Prior Year Period") of $67.5 million on revenues of $422.6 million.


	For the Six Months Ended
	June 30,						Change
	2023			2022			$			%
Revenues:
Rentals	$	221,232		$	192,485		$	28,747		14.9%
Well Services		243,378			230,085		$	13,293		5.8%
Total revenues		464,610			422,570			42,040
Cost of revenues:
Rentals		71,489			67,612			3,877		5.7%
Well Services		166,986			165,736			1,250		0.8%
Total cost of revenues (exclusive of depreciation, depletion, amortization and accretion)		238,475			233,348			5,127
Depreciation, depletion, amortization and accretion		40,760			57,431			(16,671	)	(29.0%)
General and administrative expenses		62,167			62,249			(82	)	**
Restructuring expenses		1,983			3,218			(1,235	)	(38.4%)
Other gains, net		(1,351	)		(16,866	)		15,515		(92.0%)
Income from operations		122,576			83,190			39,386
Other income (expense):
Interest income, net		11,952			2,638			9,314		353.1%
Other income (expense)		(3,988	)		476			(4,464	)	(937.8%)
Income from continuing operations before income taxes		130,540			86,304			44,236
Income tax expense		(33,212	)		(18,755	)		(14,457	)	77.1%
Net income from continuing operations		97,328			67,549			29,779
Income (loss) from discontinued operations, net of income tax		280			(205	)		485		(236.6%)
Net income	$	97,608		$	67,344		$	30,264

** Not a meaningful percentage

Revenues and Cost of Revenues

Revenues from our Rentals segment increased $28.7 million, or 14.9%, in the Current Period as compared to the Prior Year Period. Cost of revenues increased $3.9 million, or 5.7%, in the Current Period as compared to the Prior Year Period. This increase was due to an increase in both average rig count and commodity prices when compared to the Prior Year Period. During the Current Period, we experienced increased revenue from both premium drill pipe in all our markets and bottom hole assembly accessories in our onshore U.S market, which contributed to an increase in gross margin which was 67.7% for the Current Period as compared to 64.9% in the Prior Year Period.

Revenues from our Well Services segment increased $13.3 million, or 5.8%, in the Current Period as compared to the Prior Year Period, primarily as a result of improvements in our production and well control services in our International markets. Cost of revenues increased $1.3 million, or 0.8%, in the Current Period as compared to the Prior Year Period. The increase in cost of revenues was driven by the increase in overall segment revenues and gross margin for the Current Period increased to 31.4% as compared to 28.0% for the Prior Year Period.

Depreciation, Depletion, Amortization and Accretion

Depreciation, depletion, amortization and accretion expense for the Current Period decreased $16.7 million, or 29.0%, as compared to the Prior Year Period. Depreciation expense for the Prior Year Period was impacted by the valuation process under fresh start accounting, where certain fully depreciated assets were assigned a new estimated fair value and a new remaining useful life of less than 36 months.

Restructuring Expenses

Restructuring expenses relate to charges recorded as part of our strategic efforts to reconfigure our organization both operationally and financially. Current Period restructuring expenses decreased $1.2 million, or 38.4%, as compared to the Prior Year Period.

Other (gains) and losses, net

Other gains declined by $15.5 million due to inclusion of a $17.4 million gain from revisions in estimates related to our decommissioning liability in the Prior Year Period.

Interest Income (Expense), net

Interest income, net increased by $9.3 million, primarily from an increase in interest income from operations in our Corporate and Argentina offices.

Other Income (Expense), net

Losses on foreign currencies during the Current Period and Prior Year Period were $3.6 million and $4.9 million, respectively. Losses on foreign currencies during the Prior Year Period also include an expense of $2.7 million which represents a correction of an immaterial error relating to a period prior to our emergence from bankruptcy. Realized and unrealized losses, net on our investment in equity securities for the Prior Year Period were $4.2 million. During the Prior Year Period, we disposed of 1.7 million shares for $13.4 million. All investments in equity securities were disposed of prior to December 31, 2022.

Income Taxes

The effective tax rate on income from continuing operations for the Current Period and Prior Year Period was 25.4% and 21.7%, respectively. The U.S federal statutory rate for both periods was 21%. The effective tax rates for both periods were unfavorably impacted by our current and ongoing operations in foreign jurisdictions which have tax rates significantly in excess of the U.S. federal statutory rate.

The effective tax rate for the Current Period was also unfavorably impacted by a $7.6 million immaterial misstatement recognized in the first quarter of 2023 arising from certain net operating loss carryforwards that should have been eliminated as part of a worthless stock deduction taken in the fourth quarter of 2022, partially offset by favorable impacts of approximately $14.9 million from income tax benefits related to reversals of uncertain tax positions in foreign jurisdictions and adjustments to valuation allowances on foreign operations.

Liquidity and Capital Resources

Cash flows depend, to a large degree, on the level of spending by oil and gas companies for exploration, development and production activities. Certain sources and uses of cash, such as our level of discretionary capital expenditures and divestitures of non-core assets, are within our control and are adjusted as necessary based on market conditions.

Financial Condition and Liquidity

Our primary sources of liquidity have been cash and cash equivalents, cash generated from our operations and from asset sales, and availability under our Credit Facility. As of June 30, 2023, we had cash, cash equivalents and restricted cash of $410.4 million. During the six months ended June 30, 2023 net cash provided by operating activities was $102.9 million, and we received $15.1 million in cash proceeds from the sale of assets. The primary uses of liquidity are to provide support for operating activities and capital expenditures. We spent $45.6 million of cash on capital expenditures during the six months ended June 30, 2023.

The energy industry faces growing negative sentiment in the market which may affect our ability to access capital on terms favorable to us. While we have confidence in the level of support from our lenders, this negative sentiment in the energy industry has not only impacted our customers in North America, but also affected the availability and pricing for most credit lines extended to participants in the energy industry. From time to time, we may enter into transactions to dispose of businesses or capital assets that no longer fit our long-term strategy.

Debt Instruments

We have a Credit Agreement providing for a $120.0 million asset-based secured revolving Credit Facility, all of which is available for the issuance of letters of credit (the “Credit Facility”), which matures in December 2024. The issuance of letters of credit reduces availability under the Credit Facility on a dollar-for-dollar basis.

As of June 30, 2023, our borrowing base, as defined in the Credit Agreement, was approximately $120.0 million and we had $34.7 million of letters of credit outstanding that reduced the borrowing availability. We had no outstanding borrowings under the Credit Facility as of June 30, 2023. We were in compliance with all required covenants as of June 30, 2023.

Other Matters

New Accounting Pronouncements

See Part 1, Item 1, “Unaudited Condensed Consolidated Financial Statements and Notes” – Note 18 – “New Accounting Pronouncements.”

Critical Accounting Policies and Estimates

There have been no changes to the critical accounting policies reported in our Annual Report on Form 10-K for the period ended December 31, 2022 (the “Form 10-K”) that affect our significant judgments and estimates used in the preparation of our Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. Please refer to the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in the Form 10-K.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks associated with foreign currency fluctuations and changes in commodity prices.

Foreign Currency Exchange Rates Risk

We do not hold derivatives for trading purposes or use derivatives with complex features. When we believe it is prudent, we may enter into forward foreign exchange contracts to hedge the impact of foreign currency fluctuations. As of June 30, 2023, we did not have any outstanding foreign currency forward contracts.

Commodity Price Risk

Our revenues, profitability and future rate of growth significantly depend upon the market prices of oil and natural gas. Lower prices may also reduce the amount of oil and gas that can economically be produced.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. In addition, the disclosure controls and procedures provide reasonable assurance that such information is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. An evaluation was carried out, under the supervision and with the participation of our management, including our CEO and CFO, regarding the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures as of June 30, 2023 were not effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure as a result of the material weakness in our internal control over financial reporting described below.

Material Weakness in Internal Control Over Financial Reporting

A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Management identified a material weakness in our internal control over financial reporting as we did not design and maintain effective controls to review the reasonableness of assumptions determined by, and accuracy of calculations performed by, our external tax service providers. This material weakness resulted in an adjustment to deferred tax benefit and income tax benefit that was recorded in the consolidated financial statements as of and for the year ended December 31, 2022. Additionally, this material weakness could result in misstatements of income tax related balances that would result in a material misstatement to the annual or interim consolidated financial statements which would not be prevented or detected.

Remediation Plan for Material Weakness

In order to address the material weakness described above, management has implemented a remediation plan that includes implementing enhancements to our controls around reviewing the reasonableness of assumptions determined by, and the accuracy of calculations performed by, our external tax service providers. As we continue to evaluate and work to improve our internal control over financial reporting, we may determine to take additional measures to address the material weakness.

Based on its evaluation, the controls described above have not had sufficient time for management to conclude that the controls are operating effectively. Therefore, the material weakness described above existed at June 30, 2023, and will continue to exist until the controls described above have had sufficient time for management to conclude that they are effective.

Changes in Internal Control Over Financial Reporting

Other than the changes related to the remediation plan above, there were no changes in internal control over financial reporting during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are involved in various legal actions incidental to our business. However, based on current circumstances, we do not believe that the ultimate resolution of these proceedings after considering available defenses and any insurance coverage or indemnification rights will have a material adverse effect on our financial position, results of operations or cash flows.

Item 1A. Risk Factors

As of June 30, 2023, there have been no material changes in risk factors previously disclosed in our Form 10-K.

Item 6. Exhibits


Exhibit No.	Description
3.1	Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed on February 3, 2021(File No. 001-34037)).
3.2	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed on February 3, 2021(File No. 001-34037)).
3.3	Certificate of Amendment of Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to Superior Energy Services, Inc.’s Current Report on Form 8-K filed on February 3, 2021(File No. 001-34037)).
31.1*	Officer’s certification pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.
31.2*	Officer’s certification pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.
32.1*	Officer’s certification pursuant to Section 1350 of Title 18 of the U.S. Code.
32.2*	Officer’s certification pursuant to Section 1350 of Title 18 of the U.S. Code.
101.INS*	Inline XBRL Instance Document
101.SCH*	Inline XBRL Taxonomy Extension Schema Document
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
104*	Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SUPERIOR ENERGY SERVICES, INC.

(Registrant)


Date:	August 2, 2023	By:	/s/ Brian K. Moore
			Brian K. Moore
			President and Chief Executive Officer
			(Principal Executive Officer)

		By:	/s/ James W. Spexarth
			James W. Spexarth
			Executive Vice President and Chief Financial Officer
			(Principal Financial Officer)

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Superior Energy Services 10-Q2023 Q2 Quarterly report

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