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Case studies

Predicting the oilfield services recovery

Case profile

Deloitte CRG was retained by a lender syndicate to assess the operations and liquidity for a publicly-traded oilfield services company (the Company) during the summer of 2016. In the previous 12 months, the Company’s quarterly revenues had dropped by over 60 percent, its share price was hovering in the low single digits, and was out of cash despite idling facilities and laying off employees. To save the company, an oil distribution subsidiary needed to be quickly sold to generate liquidity and pay-down debt.

Assessing turnaround plan brings successful outcome

The Deloitte CRG team rapidly assessed the Company’s liquidity situation and management’s turnaround initiatives to cut costs and generate cash. Working with management, Deloitte CRG was able to demonstrate to the lenders that the business had enough liquidity to make it through to the closing of the sale of its oil distribution subsidiary.

After assisting the lending syndicate to understand the near-term cash crunch, Deloitte CRG vetted the Company’s turnaround business plan for the next 12 months which—at the time—surprisingly predicted an upturn in its specific segment of the oilfield services market.

To develop an understanding of the longer-term picture of the business, Deloitte CRG visited Company facilities and conducted a deep-dive into the North American process cost accounting to determine at what specific market price the company may likely break-even. A key component of the turnaround was the launch of a new product/service offering which would generate better margins than the Company’s base commodity business.

To assist in the vetting of the business plan during the summer of 2016, Deloitte CRG conducted thorough industry and market research. The team discovered that most oilfield services prognosticators were actually predicting a modest recovery of the Company’s products and services in 2017, and an accelerated recovery in 2018. Backstopping the market research was the fact that the horizontal rig count was just beginning to increase and return to life. Deloitte CRG’s assessment of the 2017 business plan ultimately helped the lenders to grant a cash runway to the business.

Shortly after Deloitte CRG’s engagement and culmination of the asset sale in late 2016, the Company launched two equity offerings to provide working capital in support of the uptick the Company was experiencing. By year end, the Company’s fourth quarter 2016 sales were up 40 percent over second quarter sales. Its share price has more than tripled from last summer, and most importantly, the Company still remains one of the leading players in its segment of the oilfield services industry.

Deloitte CRG’s third-party guidance allowed the lending syndicate to help provide a successful outcome for the lenders, the Company, and its shareholders.

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