Liberty Energy Inc 8-K/A, filed Feb 5, 2021
Liberty Energy Inc. (LBRT)
About this 8-K/A
Liberty Energy Inc filed this 8-K/A on February 5, 2021, reporting on events of December 31, 2020.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d)
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:
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Introductory Note
As reported in a Current Report on Form 8-K filed with the Securities and Exchange Commission by Liberty Oilfield Services Inc., a Delaware corporation (the “Company”), on January 4, 2021 (the “Original Liberty Form 8-K”), on December 31, 2020, the Company, Liberty Oilfield Services New HoldCo LLC, a Delaware limited liability company, the managing member of which is the Company (“US Buyer”), and LOS Canada Operations Inc., a British Columbia corporation, and indirect, wholly-owned subsidiary of US Buyer (“Canadian Buyer”), completed the previously announced transactions contemplated by that certain Master Transaction Agreement, dated as of August 31, 2020, by and among the Company, US Buyer, Canadian Buyer, Schlumberger Technology Corporation, a Texas corporation (“Schlumberger US”), and Schlumberger Canada Limited, a corporation organized pursuant to the laws of the Province of Alberta (together with Schlumberger US, the “Schlumberger Parties”), pursuant to which US Buyer and Canadian Buyer acquired the Schlumberger Parties’ onshore hydraulic fracturing business (“OneStim”) in the United States and Canada, including its pressure pumping, pumpdown perforating, and Permian frac sand businesses (the “OneStim Acquisition”).
This Current Report on Form 8-K/A (this “Amendment”) amends and supplements the Original Liberty Form 8-K to provide the following:
| • | the unaudited and audited combined financial statements of OneStim (for the periods described in Item 9.01(a) below), the notes related thereto and the Report of Independent Auditors, as applicable; and |
| • | the unaudited pro forma condensed combined financial information described in Item 9.01(b) below. |
No other modifications to the Original Liberty Form 8-K are being made by this Amendment. This Amendment should be read in connection with the Original Liberty Form 8-K, which provides a more complete description of the OneStim Acquisition.
| Item 9.01 | Financial Statements and Exhibits. |
(a) Financial Statements of Businesses Acquired
| • | Unaudited combined financials statements of OneStim as of and for the nine months ended September 30, 2020 and September 30, 2019 and the related notes to the combined financial statements, attached hereto as Exhibit 99.1; and |
| • | Audited combined financial statements of OneStim as of and for the years ended December 31, 2019 and December 31, 2018 and the related notes to the combined financial statements, attached hereto as Exhibit 99.2. |
(b) Pro Forma Financial Information
The following unaudited pro forma condensed combined financial information of the Company, giving effect to the OneStim Acquisition, attached as Exhibit 99.3 hereto:
| • | Unaudited Pro Forma Condensed Combined Balance Sheet and Statements of Operations as of and for the nine months ended September 30, 2020 and for the year ended December 31, 2019; and |
| • | Notes to the Unaudited Pro Forma Condensed Combined Financial Statements. |
(d) Exhibits.
| Exhibit No. |
Description | |
| 23.1 | Consent of PricewaterhouseCoopers LLP | |
| 99.1 | Historical Unaudited Combined Financial Statements of OneStim for the Nine Months Ended September 30, 2020 and September 30, 2019 | |
| 99.2 | Historical Audited Combined Financial Statements of OneStim for the Years Ended December 31, 2019 and December 31, 2018 | |
| 99.3 | Unaudited Pro Forma Condensed Combined Financial Information | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | ||||||
| /s/ Michael Stock | ||||||
| Date: February 5, 2021 |
By: | Michael Stock | ||||
| Chief Financial Officer (Principal Financial Officer) | ||||||
| /s/ Ryan T. Gosney | ||||||
| Date: February 5, 2021 |
By: | Ryan T. Gosney | ||||
| Chief Accounting Officer (Principal Accounting Officer) | ||||||
EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-225948 and 333-222616 and Form S-3 No. 333-232580) of Liberty Oilfield Services Inc. of our report dated February 24, 2020 relating to the financial statements of the OneStim business of Schlumberger Limited, which appears in this Current Report on Form 8-K/A.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
February 5, 2021
Exhibit 99.1
ONESTIM
| NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019 COMBINED FINANCIAL STATEMENTS (UNAUDITED) |
||||
| Combined Statement of Operations for the Nine Months ended September 30, 2020 and 2019 |
F-2 | |||
| Combined Statement of Comprehensive Loss for the Nine Months ended September 30, 2020 and 2019 |
F-3 | |||
| Combined Balance Sheet for September 30, 2020 and December 31, 2019 |
F-4 | |||
| Combined Statement of Cash Flows for the Nine Months ended September 30, 2020 and 2019 |
F-5 | |||
| Combined Statement of Parent’s Net Investment for the Nine Months ended September 30, 2020 and 2019 |
F-6 | |||
| Notes to Combined Financial Statements |
F-7 |
ONESTIM
COMBINED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2020 and 2019
(Unaudited)
| Nine Months September 30, |
||||||||
| 2020 | 2019 | |||||||
| (Stated in millions) | ||||||||
| Revenue |
$ | 959 | $ | 2,621 | ||||
| Expenses |
||||||||
| Cost of revenue |
981 | 2,447 | ||||||
| Research & engineering |
4 | 15 | ||||||
| General & administrative |
97 | 133 | ||||||
| Impairments & other |
942 | 1,575 | ||||||
| Interest |
10 | 9 | ||||||
|
|
|
|
|
|||||
| Loss before taxes |
(1,075 | ) | (1,558 | ) | ||||
| Tax benefit |
(247 | ) | (341 | ) | ||||
|
|
|
|
|
|||||
| Net loss |
$ | (828 | ) | $ | (1,217 | ) | ||
|
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|
|
|
|||||
See the Notes to Combined Financial Statements
F-2
ONESTIM
COMBINED STATEMENT OF COMPREHENSIVE LOSS
For the Nine Months Ended September 30, 2020 and 2019
(Unaudited)
| Nine Months Ended September 30, |
||||||||
| 2020 | 2019 | |||||||
| (Stated in millions) | ||||||||
| Net loss |
$ | (828 | ) | $ | (1,217 | ) | ||
| Currency translation adjustments |
||||||||
| Net change arising during period |
(6 | ) | 2 | |||||
| Cash flow hedges |
||||||||
| Net loss on cash flow hedges |
(17 | ) | (17 | ) | ||||
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|
|||||
| Comprehensive loss |
$ | (851 | ) | $ | (1,232 | ) | ||
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|
|||||
See the Notes to Combined Financial Statements
F-3
ONESTIM
COMBINED BALANCE SHEET
As of September 30, 2020 and December 31, 2019
| Sept. 30, 2020 (Unaudited) |
Dec. 31, 2019 | |||||||
| (Stated in millions) | ||||||||
| ASSETS |
||||||||
| Current Assets |
||||||||
| Receivables less allowance for doubtful accounts (2020 - $5; 2019 - $1) |
$ | 119 | $ | 359 | ||||
| Inventories |
35 | 26 | ||||||
| Other current assets |
17 | 28 | ||||||
|
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|
|
|
|||||
| 171 | 413 | |||||||
| Fixed Assets less accumulated depreciation |
283 | 931 | ||||||
| Deferred Taxes |
264 | 189 | ||||||
| Operating Lease Right-of-use Assets |
19 | 45 | ||||||
| Other Assets |
1 | 88 | ||||||
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|
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|
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| $ | 738 | $ | 1,666 | |||||
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| LIABILITIES AND EQUITY |
||||||||
| Current Liabilities |
||||||||
| Accounts payable and accrued liabilities |
$ | 317 | $ | 517 | ||||
| Current portion of operating lease liabilities |
102 | 44 | ||||||
|
|
|
|
|
|||||
| 419 | 561 | |||||||
| Deferred taxes |
— | — | ||||||
| Noncurrent portion of Operating Lease Liabilities |
173 | 107 | ||||||
| Other Liabilities |
294 | 326 | ||||||
|
|
|
|
|
|||||
| 886 | 994 | |||||||
| Equity |
||||||||
| Parent’s net investment |
(148 | ) | 672 | |||||
|
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|
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|
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| $ | 738 | $ | 1,666 | |||||
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|||||
See the Notes to Combined Financial Statements
F-4
ONESTIM
COMBINED STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2020 and 2019
(Unaudited)
| Nine Months Ended September 30, |
||||||||
| 2020 | 2019 | |||||||
| (Stated in millions) | ||||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (828 | ) | $ | (1,217 | ) | ||
| Adjustments to reconcile net loss to cash provided by operating activities: |
||||||||
| Impairments and other charges |
942 | 1,575 | ||||||
| Depreciation and amortization |
65 | 240 | ||||||
| Stock-based compensation expense |
4 | 3 | ||||||
| Deferred taxes |
(75 | ) | (343 | ) | ||||
| Change in assets and liabilities: |
||||||||
| Decrease (increase) in receivables |
240 | (15 | ) | |||||
| Increase in inventories |
(9 | ) | (8 | ) | ||||
| (Increase) decrease in other current assets |
(11 | ) | 3 | |||||
| Increase in other assets |
(5 | ) | ||||||
| (Decrease) increase in accounts payable and accrued liabilities |
(255 | ) | 63 | |||||
| (Decrease) increase in other liabilities |
(26 | ) | 2 | |||||
| Other |
(40 | ) | 10 | |||||
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|
|||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES |
7 | 308 | ||||||
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|
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| Cash flows from investing activities: |
||||||||
| Capital expenditures |
(35 | ) | (127 | ) | ||||
| Other |
24 | — | ||||||
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|
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| NET CASH USED IN INVESTING ACTIVITIES |
(11 | ) | (127 | ) | ||||
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| Cash flows from financing activities: |
||||||||
| Net transfers from (to) Parent |
27 | (160 | ) | |||||
| Other |
(23 | ) | (21 | ) | ||||
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|
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| NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES |
4 | (181 | ) | |||||
|
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|
|||||
| Net change in cash |
— | — | ||||||
| Cash, beginning of period |
— | — | ||||||
|
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|
|||||
| Cash, end of period |
$ | — | $ | — | ||||
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See the Notes to Combined Financial Statements
F-5
ONESTIM
COMBINED STATEMENT OF PARENT’S NET INVESTMENT
(Unaudited)
| Parent’s Net Investment |
||||
| (Stated in millions) |
||||
| Balance, December 31, 2019 |
$ | 672 | ||
| Net loss |
(828 | ) | ||
| Stock-based compensation expense |
4 | |||
| Currency translation adjustments |
(6 | ) | ||
| Change in fair value of cash flow hedge |
(17 | ) | ||
| Net transfers from Parent |
27 | |||
|
|
|
|||
| Balance, September 30, 2020 |
$ | (148 | ) | |
|
|
|
|||
| Parent’s Net Investment |
||||
| (Stated in millions) |
||||
| Balance, December 31, 2018 |
$ | 2,232 | ||
| Net loss |
(1,217 | ) | ||
| Stock-based compensation expense |
3 | |||
| Currency translation adjustments |
2 | |||
| Change in fair value of cash flow hedge |
(17 | ) | ||
| Net transfers to Parent |
(160 | ) | ||
|
|
|
|||
| Balance, September 30, 2019 |
$ | 843 | ||
|
|
|
|||
See the Notes to Combined Financial Statements
F-6
Notes to Combined Financial Statements
1. Basis of Presentation and Summary of Accounting Policies
Basis of Presentation
These combined financial statements reflect the combined historical results of operations, financial position and cash flows of the OneStim business of Schlumberger Limited (“Schlumberger” or “Parent”). OneStim provides a low cost-to-service and highly competitive service delivery platform in North America’s unconventional plays. The services include hydraulic fracturing, perforating and a vertically integrated product and logistics organization.
OneStim is indirectly 100% owned by Schlumberger. These combined financial statements were prepared on a stand-alone basis derived from the consolidated financial statements and accounting records of Schlumberger as if OneStim had been operating as a stand-alone company for all years presented.
The accompanying unaudited combined financial statements of OneStim have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of OneStim management, all adjustments considered necessary for a fair statement have been included in the accompanying unaudited financial statements. Operating results for the nine-month period ended September 30, 2020 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2020. The December 31, 2019 balance sheet information has been derived from the OneStim 2019 audited financial statements.
The assets and liabilities in the combined financial statements have been reflected on a historical cost basis, as included in the consolidated statements of position of Schlumberger. The Combined Statement of Operations include allocations of costs incurred by Schlumberger for functions such as corporate executive management, human resources, finance, information technology, facilities, and legal, among others. The total costs allocated to these combined financial statements were $59 million and $96 million for the first nine months of 2020 and 2019, respectively. These expenses, which are included in General & administrative in the Combined Statement of Operations, have been allocated to OneStim primarily on a proportional basis of revenue or other measures of the business or of Schlumberger.
Management believes that the assumptions underlying the combined financial statements, including assumptions regarding the allocation of general corporate expenses from Schlumberger, are reasonable. Nevertheless, the combined financial statements may not include all actual expenses that would have been incurred by OneStim and may not reflect the combined results of operations, financial position and cash flows had it operated as a stand-alone company during the years presented. Actual costs that would have been incurred if OneStim had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.
Principles of Combination
The combined financial statements include certain assets and liabilities that have historically been held at the Schlumberger level but are specifically identifiable or otherwise attributable to OneStim. All significant intercompany transactions and accounts within OneStim’s combined businesses have been eliminated. Transactions between OneStim and Schlumberger, including revenue from Schlumberger and expenses related to corporate allocations from Schlumberger, are considered to be effectively settled for cash at the time the transaction is recorded. The total net effect of the settlement of these transactions is reflected in the Combined Statement of Cash Flows as a financing activity and in the Combined Balance Sheet as Parent’s net investment.
F-7
Concentration of Credit Risk
OneStim’s assets that are exposed to concentrations of credit risk consist primarily of receivables from clients. OneStim performs ongoing credit evaluations of its customers’ financial condition. OneStim maintains an allowance for doubtful accounts in order to record receivables at their net realizable value. If the financial condition of its customers were to deteriorate resulting in an impairment of their ability to make payments, an adjustment to the allowance may be required. At September 30, 2020, two customers each accounted for more than 10% of Receivables. At December 31, 2019, no customer accounted for more than 10% of Receivables.
One customer accounted for 10% of Revenue during first nine months of 2020. No customer accounted for more than 10% of Revenue during the first nine months of 2019.
Cash Management
Cash is managed centrally by Schlumberger on behalf of OneStim. Accordingly, the cash held by Schlumberger at the corporate level was not attributed to OneStim for any of the periods presented. Transfers of cash, both to and from Schlumberger’s centralized cash management system, are reflected as a component of Parent’s net investment in the Combined Balance Sheet and as a financing activity on the accompanying Combined Statement of Cash Flows.
Due to OneStim’s participation in Schlumberger’s centralized cash management process, OneStim utilizes Schlumberger to fund its operations and meet its obligations. To ensure OneStim is able to continue its operations and meet its obligations, it has received a commitment from Schlumberger to provide financial support to enable it to continue its operations and fulfill its obligations through December 23, 2021. This commitment terminates upon a change of control of OneStim.
Inventories
Inventories, which are stated at the lower of average cost or net realizable value, consist primarily of materials, such as proppants, chemicals and other items, used in hydraulic fracturing.
Research and Engineering Costs
Research and engineering have been provided and managed by Schlumberger on a centralized basis. These expenses have been allocated to OneStim on the basis of estimated actual costs incurred.
Income Taxes
OneStim’s operations have, historically been included in the income tax filings of various subsidiaries of Schlumberger. The provision for income taxes in OneStim’s Combined Statement of Operations is based on a separate return methodology using the asset and liability approach of accounting for income taxes. Under this approach, the provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year calculated as if OneStim was a stand-alone tax payer filing hypothetical income tax returns, where applicable. Payments to tax authorities are made by Schlumberger and not by OneStim. OneStim does not maintain taxes payable to/from Schlumberger as the related amounts are deemed to be immediately settled with Schlumberger as a component of Parent’s net investment.
Subsequent Events
Subsequent events have been evaluated through December 22, 2020, which is the date the financial statements were available to be issued.
F-8
2. Charges
OneStim recorded the following charges and credits during the first nine months of 2020, all of which are classified as Impairments & other in the Combined Statement of Operations:
| Pretax | Tax | Net | ||||||||||
| (Stated in millions) | ||||||||||||
| First Quarter: |
||||||||||||
| Pressure pumping equipment and related assets |
$ | 587 | $ | 133 | $ | 454 | ||||||
| Workforce reductions |
1 | — | 1 | |||||||||
| Second Quarter: |
||||||||||||
| Right-of-use asset impairments |
209 | 48 | 161 | |||||||||
| Fixed asset impairments |
44 | 10 | 34 | |||||||||
| Supply contracts |
39 | 9 | 30 | |||||||||
| Workforce reductions |
35 | 8 | 27 | |||||||||
| Other |
21 | 5 | 16 | |||||||||
| Third Quarter: |
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| Workforce reductions |
6 | 1 | 5 | |||||||||
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| $ | 942 | $ | 214 | $ | 728 | |||||||
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First quarter 2020:
Geopolitical events that increased the supply of low-priced oil to the global market occurred at the same time that demand weakened due to the worldwide effects of the COVID-19 pandemic, leading to a collapse in oil prices during March 2020. As a result, Schlumberger’s market capitalization deteriorated significantly compared to the end of 2019.
The negative market indicators described above were triggering events that indicated that certain of OneStim’s long-lived assets may be impaired. Recoverability testing indicated that certain long-lived assets were impaired. The estimated fair value of these assets was determined to be below their carrying value. As a result, OneStim recorded $587 million of impairment charges relating to its pressure pumping equipment and related assets. OneStim also recorded a $1 million charge relating to workforce reductions.
Second quarter 2020:
As previously noted, late in the first quarter of 2020 geopolitical events that increased the supply of low-priced oil to the global market occurred at the same time as demand weakened due to the worldwide effects of the COVID-19 pandemic, which led to a collapse in oil prices. OneStim responded to these market conditions by taking actions to restructure its business and rationalize its asset base during the second quarter of 2020. These actions included reducing headcount and closing facilities. Additionally, due to the resulting activity decline, OneStim had assets that will no longer be utilized.
As a consequence of these circumstances and decisions, OneStim recorded the following restructuring and asset impairment charges:
| • | $209 million write-down of right-of-use assets under operating leases primarily associated with excess equipment and leased facilities Schlumberger is exiting. |
| • | $44 million of fixed asset impairments relating to facilities it is exiting. |
| • | $39 million relating to certain supply contracts. |
| • | $35 million of severance associated with workforce reductions. |
| • | $21 million of other restructuring costs. |
Third quarter 2020:
During the third quarter of 2020 OneStim recorded a $6 million charge related to workforce reductions.
F-9
2019
OneStim reordered the following charges and credits during the third quarter of 2019, all of which are classified as Impairments & other in the Combined Statement of Operations:
| Pretax | Tax | Net | ||||||||||
| (Stated in millions) | ||||||||||||
| Pressure pumping equipment and related assets |
$ | 1,324 | $ | 289 | $ | 1,035 | ||||||
| Supply Contracts |
121 | 27 | 94 | |||||||||
| Right-of-use asset impairments |
98 | 22 | 76 | |||||||||
| Inventory write-downs |
19 | 4 | 15 | |||||||||
| Workforce reductions |
13 | 2 | 11 | |||||||||
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| $ | 1,575 | $ | 344 | $ | 1,231 | |||||||
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Deteriorating market conditions in the United States during the third quarter of 2019, as well as the appointment of a new Chief Executive Officer of Schlumberger, were all triggering events that indicated that certain of OneStim’s long-lived assets may be impaired.
Recoverability testing indicated that certain long-lived assets were impaired. The estimated fair value of these assets were determined to be below their carrying value. As a result, OneStim recorded $1.575 billion of impairment and related charges which consisted of:
| • | $1.324 billion pressure pumping equipment and related assets. |
| • | $98 million of right-of-use assets under operating leases. |
| • | $121 million relating to a supply contract, which remains unpaid and included in Accounts payable and accrued liabilities. |
| • | $19 million of inventory. |
| • | $13 million of severance. |
The fair value of certain of the impaired long-lived assets was estimated based on the present value of projected future cash flows that the underlying assets are expected to generate. Such estimates included unobservable inputs that required significant judgment.
There were no charges recorded during the first six months of 2019.
3. Fixed Assets
A summary of fixed assets follows:
| Sept. 30, 2020 |
Dec. 31, 2019 |
|||||||
| (Stated in millions) | ||||||||
| Property, plant & equipment |
$ | 1,404 | $ | 2,229 | ||||
| Less: Accumulated depreciation |
1,121 | 1,298 | ||||||
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| $ | 283 | $ | 931 | |||||
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Depreciation expense relating to fixed assets was $65 million and $240 million for the first nine months of 2020 and 2019, respectively.
4. Contingencies
OneStim is party to various legal proceedings from time to time. A liability is accrued when a loss is both probable and can be reasonably estimated. Management believes that the probability of a material loss with respect to any currently pending legal proceeding is remote. However, litigation is inherently uncertain and it is not possible to predict the ultimate disposition of any of these proceedings.
F-10
Exhibit 99.2
ONESTIM
| DECEMBER 31, 2019 and 2018 COMBINED FINANCIAL STATEMENTS |
||||
| Report of Independent Auditors |
F-2 | |||
| Combined Statement of Operations for the Year ended December 31, 2019 and 2018 |
F-3 | |||
| Combined Statement of Comprehensive Income (Loss) for the Year ended December 31, 2019 and 2018 |
F-4 | |||
| Combined Balance Sheet for December 31, 2019 and 2018 |
F-5 | |||
| Combined Statement of Cash Flows for the Year ended December 31, 2019 and 2018 |
F-6 | |||
| Combined Statement of Parent’s Net Investment |
F-7 | |||
| Notes to Combined Financial Statements |
F-8 |
Report of Independent Auditors
To Management of the OneStim business of Schlumberger Limited
We have audited the accompanying combined financial statements of the OneStim business (“OneStim”) of Schlumberger Limited (“Schlumberger” or “Parent”), which comprise the combined balance sheet as of December 31, 2019 and 2018, and the related combined statements of operations, of comprehensive income (loss), of cash flows, and of Parent’s net investment for each of the two years in the period ended December 31, 2019.
Management’s Responsibility for the Combined Financial Statements
Management is responsible for the preparation and fair presentation of the combined financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on the combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to OneStim’s preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of OneStim’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of OneStim as of December 31, 2019 and 2018 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019 in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As discussed in Note 1 to the combined financial statements, OneStim has significant transactions with Schlumberger and its affiliates, including certain expense allocations, and participates in Schlumberger’s centralized treasury management function. As a result, OneStim utilizes Schlumberger to fund its operations and meet its obligations. Our opinion is not modified with respect to this matter.
| /s/ PricewaterhouseCoopers LLP
Houston, Texas
February 24, 2020 |
F-2
ONESTIM
COMBINED STATEMENT OF OPERATIONS
| Year Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| (Stated in millions) | ||||||||
| Revenue |
$ | 3,212 | $ | 4,320 | ||||
| Expenses |
||||||||
| Cost of revenue |
3,020 | 3,903 | ||||||
| Research & engineering |
20 | 22 | ||||||
| General & administrative |
176 | 177 | ||||||
| Impairments & other |
1,588 | 94 | ||||||
| Interest |
13 | 2 | ||||||
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| (Loss) income before taxes |
(1,605 | ) | 122 | |||||
| Tax (benefit) expense |
(353 | ) | 29 | |||||
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| Net (loss) income |
$ | (1,252 | ) | $ | 93 | |||
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See the Notes to Combined Financial Statements
F-3
ONESTIM
COMBINED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
| Year Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| (Stated in millions) | ||||||||
| Net (loss) income |
$ | (1,252 | ) | $ | 93 | |||
| Currency translation adjustments |
||||||||
| Net change arising during period |
4 | (6 | ) | |||||
| Cash flow hedges |
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| Net (loss) gain on cash flow hedges |
(13 | ) | 4 | |||||
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| Comprehensive (loss) income |
$ | (1,261 | ) | $ | 91 | |||
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See the Notes to Combined Financial Statements
F-4
ONESTIM
COMBINED BALANCE SHEET
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| (Stated in millions) | ||||||||
| ASSETS |
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| Current Assets |
||||||||
| Receivables less allowance for doubtful accounts (2019 - $1; 2018 - $-) |
$ | 359 | $ | 533 | ||||
| Inventories |
26 | 49 | ||||||
| Other current assets |
28 | 32 | ||||||
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| 413 | 614 | |||||||
| Fixed Assets less accumulated depreciation |
931 | 2,405 | ||||||
| Deferred Taxes |
189 | — | ||||||
| Operating Lease Right-of-use Assets |
45 | 179 | ||||||
| Other Assets |
88 | 83 | ||||||
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| $ | 1,666 | $ | 3,281 | |||||
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| LIABILITIES AND EQUITY |
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| Current Liabilities |
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| Accounts payable and accrued liabilities |
$ | 517 | $ | 409 | ||||
| Current portion of operating lease liabilities |
44 | 41 | ||||||
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| 561 | 450 | |||||||
| Deferred Taxes |
— | 142 | ||||||
| Operating Lease Liabilities |
107 | 138 | ||||||
| Other Liabilities |
326 | 339 | ||||||
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| 994 | 1,069 | |||||||
| Equity |
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| Parent’s net investment |
672 | 2,212 | ||||||
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| $ | 1,666 | $ | 3,281 | |||||
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See the Notes to Combined Financial Statements
F-5
ONESTIM
COMBINED STATEMENT OF CASH FLOWS
| Year Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| (Stated in millions) | ||||||||
| Cash flows from operating activities: |
||||||||
| Net (loss) income |
$ | (1,252 | ) | $ | 93 | |||
| Adjustments to reconcile net loss to cash provided by operating activities: |
||||||||
| Impairments and other charges |
1,588 | 94 | ||||||
| Depreciation and amortization |
281 | 274 | ||||||
| Stock-based compensation expense |
6 | 5 | ||||||
| Deferred taxes |
(331 | ) | 3 | |||||
| Change in assets and liabilities: |
||||||||
| Decrease (increase) in receivables |
174 | 127 | ||||||
| Decrease (increase) in inventories |
3 | 22 | ||||||
| Decrease (increase) in other current assets |
5 | 18 | ||||||
| (Increase) decrease in other assets |
(9 | ) | (20 | ) | ||||
| (Decrease) increase in accounts payable and accrued liabilities |
(33 | ) | (120 | ) | ||||
| Increase in other liabilities |
9 | — | ||||||
| Other |
27 | (5 | ) | |||||
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| NET CASH PROVIDED BY OPERATING ACTIVITIES |
468 | 491 | ||||||
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| Cash flows from investing activities: |
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| Capital expenditures |
(154 | ) | (456 | ) | ||||
| Business acquisitions, net of cash acquired |
— | (235 | ) | |||||
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| NET CASH USED IN INVESTING ACTIVITIES |
(154 | ) | (691 | ) | ||||
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| Cash flows from financing activities: |
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| Net transfers (to) from Parent |
(285 | ) | 200 | |||||
| Other |
(29 | ) | — | |||||
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| NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES |
(314 | ) | 200 | |||||
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| Net increase in cash |
— | — | ||||||
| Cash, beginning of period |
— | — | ||||||
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| Cash, end of period |
$ | — | $ | — | ||||
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See the Notes to Combined Financial Statements
F-6
ONESTIM
COMBINED STATEMENT OF PARENT’S NET INVESTMENT
| Parent’s Net Investment |
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| (Stated in millions) |
||||
| Balance, December 31, 2017 |
1,916 | |||
| Net income |
93 | |||
| Stock-based compensation expense |
5 | |||
| Currency translation adjustments |
(6 | ) | ||
| Change in fair value of cash flow hedge |
4 | |||
| Net transfers from Parent |
200 | |||
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| Balance, December 31, 2018 |
2,212 | |||
| Net loss |
(1,252 | ) | ||
| Stock-based compensation expense |
6 | |||
| Currency translation adjustments |
4 | |||
| Change in fair value of cash flow hedge |
(13 | ) | ||
| Net transfers to Parent |
(285 | ) | ||
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| Balance, December 31, 2019 |
$ | 672 | ||
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See the Notes to Combined Financial Statements
F-7
Notes to Combined Financial Statements
1. Basis of Presentation and Summary of Accounting Policies
Basis of Presentation
These combined financial statements reflect the combined historical results of operations, financial position and cash flows of the OneStim business of Schlumberger Limited (“Schlumberger” or “Parent”). OneStim provides a low cost-to-service and highly competitive service delivery platform in North America’s unconventional plays. The services include hydraulic fracturing, perforating and a vertically integrated product and logistics organization.
OneStim is indirectly 100% owned by Schlumberger. These combined financial statements were prepared on a stand-alone basis derived from the consolidated financial statements and accounting records of Schlumberger as if OneStim had been operating as a stand-alone company for all years presented. These combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
The assets and liabilities in the combined financial statements have been reflected on a historical cost basis, as included in the consolidated statements of position of Schlumberger. The Combined Statement of Operations include allocations of costs incurred by Schlumberger for functions such as corporate executive management, human resources, finance, information technology, facilities, and legal, among others. The total costs allocated to these combined financial statements are $125 million and $127 million for the years 2019 and 2018 respectively. These expenses, which are included in General & administrative in the Combined Statement of Operations, have been allocated to OneStim primarily on a proportional basis of revenue or other measures of the business or of Schlumberger.
Management believes that the assumptions underlying the combined financial statements, including assumptions regarding the allocation of general corporate expenses from Schlumberger, are reasonable. Nevertheless, the combined financial statements may not include all actual expenses that would have been incurred by OneStim and may not reflect the combined results of operations, financial position and cash flows had it operated as a stand-alone company during the years presented. Actual costs that would have been incurred if OneStim had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.
Principles of Combination
The combined financial statements include certain assets and liabilities that have historically been held at the Schlumberger level but are specifically identifiable or otherwise attributable to OneStim. All significant intercompany transactions and accounts within OneStim’s combined businesses have been eliminated. Transactions between OneStim and Schlumberger, including revenue from Schlumberger and expenses related to corporate allocations from Schlumberger, are considered to be effectively settled for cash at the time the transaction is recorded. The total net effect of the settlement of these transactions is reflected in the Combined Statement of Cash Flows as a financing activity and in the Combined Balance Sheet as Parent’s net investment.
Use of Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, OneStim evaluates its estimates, including those related to collectibility of accounts receivable; recoverability of fixed assets; income taxes and contingencies. OneStim bases its estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
F-8
Revenue Recognition
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers. This ASU amended the existing accounting standards for revenue recognition and requires companies to recognize revenue when control of the promised goods or services is transferred to a customer at an amount that reflects the consideration a company expects to receive in exchange for those goods or services. OneStim adopted this ASU on January 1, 2018 using the modified retrospective transition method applied to those contracts which were not completed as of January 1, 2018. Prior period amounts have not been adjusted and continue to be reflected in accordance with OneStim’s historical accounting. The adoption of this ASU did not have a material impact on OneStim’s Combined Financial Statements.
OneStim recognizes revenue upon the transfer of control of promised products or services to customers at an amount that reflects the consideration it expects to receive in exchange for these products or services. The vast majority of OneStim’s services and product offerings are short-term in nature. The time between invoicing and when payment is due under these arrangements is generally between 30 to 60 days.
Concentration of Credit Risk
OneStim’s assets that are exposed to concentrations of credit risk consist primarily of receivables from clients. OneStim performs ongoing credit evaluations of its customers’ financial condition. OneStim maintains an allowance for doubtful accounts in order to record receivables at their net realizable value. If the financial condition of its customers were to deteriorate resulting in an impairment of their ability to make payments, an adjustment to the allowance may be required. At December 31, 2019, no customer accounted for more than 10% of Receivables. At December 31, 2018, one customer accounted for 12% of Receivables.
One customer accounted for 10% of Revenue in each of 2019 and 2018.
Cash Management
Cash is managed centrally by Schlumberger on behalf of OneStim. Accordingly, the cash held by Schlumberger at the corporate level was not attributed to OneStim for any of the periods presented. Transfers of cash, both to and from Schlumberger’s centralized cash management system, are reflected as a component of Parent’s net investment in the Combined Balance Sheet and as a financing activity on the accompanying Combined Statement of Cash Flows.
Due to OneStim’s participation in Schlumberger’s centralized cash management process, OneStim utilizes Schlumberger to fund its operations and meet its obligations. To ensure OneStim is able to continue its operations and meet its obligations, it has received a commitment from Schlumberger to provide financial support to enable it to continue its operations and fulfill its obligations through February 25, 2021. This commitment terminates upon a change of control of OneStim.
Inventories
Inventories, which are stated at the lower of average cost or net realizable value, consist primarily of materials, such as proppants, chemicals and other items, used in hydraulic fracturing.
Research and Engineering Costs
Research and engineering have been provided and managed by Schlumberger on a centralized basis. These expenses have been allocated to OneStim on the basis of estimated actual costs incurred.
Income Taxes
OneStim’s operations have, historically been included in the income tax filings of various subsidiaries of Schlumberger. The provision for income taxes in OneStim’s Combined Statement of Operations is based on a separate return methodology using the asset and liability approach of accounting for income taxes. Under this approach, the provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year calculated as if OneStim was a stand-alone tax payer filing hypothetical income tax returns, where applicable. Payments to tax authorities are made by Schlumberger and not by OneStim. OneStim does not maintain taxes payable to/from Schlumberger as the related amounts are deemed to be immediately settled with Schlumberger as a component of Parent’s net investment.
F-9
Pension and Other Postretirement Benefits
Certain OneStim employees in the US and Canada participate in defined benefit pension and other postretirement benefit plans sponsored by subsidiaries of Schlumberger. For purposes of these Combined Financial Statements, OneStim accounts for these plans as multiemployer plans. Accordingly, OneStim does not record an asset or liability to recognize the funded status of these plans. However, a proportionate share of the cost ($0 in 2019 and $5 million in 2018) is reflected in the Combined Financial Statements.
In addition to providing defined pension benefits and postretirement benefit plans, OneStim has other deferred benefit programs, primarily profit sharing and defined contribution pension plans. The expense for these programs, was $26 million in both 2019 and 2018.
Subsequent Events
Subsequent events have been evaluated through February 24, 2020, which is the date the financial statements were available to be issued.
2. Charges
OneStim recorded the following charges and credits during 2019 and 2018:
2019
OneStim recorded the following charges and credits during 2019, all of which are classified as Impairments & other in the Combined Statement of Operations:
| Pretax | Tax | Net | ||||||||||
| (Stated in millions) | ||||||||||||
| Fourth quarter of 2019 |
||||||||||||
| Right-of-use asset impairments |
$ | 8 | $ | 3 | $ | 5 | ||||||
| Severance and other |
5 | 1 | 4 | |||||||||
| Third quarter of 2019 |
||||||||||||
| Pressure pumping equipment and related assets |
1,324 | 289 | 1,035 | |||||||||
| Supply contract |
121 | 27 | 94 | |||||||||
| Right-of-use asset impairments |
98 | 22 | 76 | |||||||||
| Inventory write-downs |
19 | 4 | 15 | |||||||||
| Workforce reductions |
13 | 2 | 11 | |||||||||
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| $ | 1,588 | $ | 348 | $ | 1,240 | |||||||
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During the fourth quarter of 2019 OneStim recorded the following restructuring charges:
| • | $8 million of right-of-use assets under operating leases. |
| • | $5 million of severance and other. |
Deteriorating market conditions in the United States during the third quarter of 2019, as well as the appointment of a new Chief Executive Officer of Schlumberger (as described below), were all triggering events that indicated that certain of OneStim’s long-lived assets may be impaired.
Recoverability testing indicated that certain long-lived assets were impaired. The estimated fair value of these assets were determined to be below their carrying value. As a result, OneStim recorded $1.575 billion of impairment and related charges which consisted of:
| • | $1.324 billion of pressure pumping equipment and related assets. |
F-10
| • | $98 million of right-of-use assets under operating leases. |
| • | $121 million relating to a supply contract, which remains unpaid and included in Accounts payable and accrued liabilities. |
| • | $19 million of inventory. |
| • | $13 million of severance. |
The fair value of certain of the impaired long-lived assets was estimated based on the present value of projected future cash flows that the underlying assets are expected to generate. Such estimates included unobservable inputs that required significant judgment.
Substantially all of the charges recorded during 2019 will not result in any future cash outflows.
During the third quarter of 2019, Schlumberger’s Board of Directors announced the appointment of a new Chief Executive Officer. As the new Chief Executive Officer further develops and implements his strategy, it may result in additional restructuring charges in future periods. Furthermore, OneStim may be required to record additional impairment charges if industry conditions deteriorate.
2018
| • | During 2018, OneStim recorded a $71 million charge to fully impair an intangible asset. This amount is classified in Impairments & other in the Combined Statement of Operations. |
| • | During 2018, OneStim recorded a $23 million charge associated with workforce reductions, primarily to further streamline its support cost structure. This charge is classified in Impairments & other in the Combined Statement of Operations. |
The following is a summary of these charges and credits:
| Pretax | Tax | Net | ||||||||||
| (Stated in millions) | ||||||||||||
| Workforce reductions |
$ | 23 | $ | 5 | $ | 18 | ||||||
| Intangible asset impairment |
71 | 16 | 55 | |||||||||
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| $ | 94 | $ | 21 | $ | 73 | |||||||
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3. Acquisitions
OneStim made acquisitions for cash payments, net of cash acquired, of $235 million during 2018. Substantially all of the purchase price in connection with these transactions was allocated to Fixed Assets less accumulated depreciation in the Combined Balance Sheet.
4. Fixed Assets
A summary of fixed assets follows:
| 2019 | 2018 | |||||||
| (Stated in millions) | ||||||||
| Land |
$ | 72 | $ | 72 | ||||
| Buildings & improvements |
341 | 469 | ||||||
| Sand production facilities |
376 | 837 | ||||||
| Machinery & equipment |
1,440 | 3,303 | ||||||
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| 2,229 | 4,681 | |||||||
| Less: Accumulated depreciation |
1,298 | 2,276 | ||||||
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| $ | 931 | $ | 2,405 | |||||
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The estimated useful lives of Buildings & improvements are primarily 25 to 30 years. The estimated useful lives of Sand production facilities are primarily 20 years. The estimated useful lives of Machinery & equipment are primarily 5 to 10 years.
F-11
Depreciation expense, which is recorded on a straight-line basis, was $281 million and $270 million in 2019 and 2018, respectively.
5. Stock-based Compensation
Schlumberger Limited has three types of stock-based compensation programs: (i) stock options, (ii) a restricted stock unit program and (iii) a discounted stock purchase plan (“DSPP”).
Stock Options
Key employees are granted stock options under Schlumberger Limited stock option plans. For all of the stock options granted, the exercise price of each option equals the average of the high and low sales prices of Schlumberger Limited stock on the date of grant; an option’s maximum term is generally ten years, and options generally vest in increments over five years.
The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions and resulting weighted-average fair value per share:
| 2019 | 2018 | |||||||
| Dividend yield |
4.9 | % | 2.6 | % | ||||
| Expected volatility |
25 | % | 26 | % | ||||
| Risk-free interest rate |
2.7 | % | 2.6 | % | ||||
| Expected option life in years |
7.0 | 7.0 | ||||||
| Weighted-average fair value per share |
$ | 6.20 | $ | 16.93 | ||||
Employees of OneStim were granted stock options of approximately 100,000 and 50,000 of Schlumberger Limited stock in 2019 and 2018, respectively.
Restricted Stock
Schlumberger Limited grants restricted stock awards to certain employees of OneStim. The restricted stock awards generally vest at the end of three years. Restricted stock awards do not pay dividends or have voting rights prior to vesting. Accordingly, the fair value of a restricted stock award is the quoted market price of Schlumberger Limited’s stock on the date of grant less the present value of the expected dividends not received prior to vesting.
During 2019 and 2018, Schlumberger Limited granted the following shares of restricted stock to employees of OneStim:
| 2019 | 2018 | |||||||
| (Shares stated in thousands) |
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| Shares |
102 | 46 | ||||||
| Weighted-average fair market value per share |
$ | 35.25 | $ | 65.34 | ||||
Discounted Stock Purchase Plan
Under the terms of the DSPP, employees can choose to have a portion of their earnings withheld, subject to certain restrictions, to purchase Schlumberger Limited common stock. The purchase price of the stock is 92.5% of the lower of the stock price at the beginning or end of the plan period at six-month intervals. Under the plan, Schlumberger Limited sold approximately 380,000 and 230,000 shares to employees of OneStim in 2019 and 2018, respectively.
The fair value of the employees’ purchase rights under the DSPP was estimated using the Black-Scholes model with the following assumptions and resulting weighted average fair value per share:
| 2019 | 2018 | |||||||
| Dividend yield |
5.2 | % | 2.9 | % | ||||
| Expected volatility |
31 | % | 22 | % | ||||
| Risk-free interest rate |
2.3 | % | 1.6 | % | ||||
| Weighted-average fair value per share |
$ | 5.92 | $ | 8.96 | ||||
F-12
Total Stock–based Compensation Expense
The following summarizes stock-based compensation expense recognized in income:
| 2019 | 2018 | |||||||
| (Stated in millions) | ||||||||
| Stock options |
$ | 1 | $ | 1 | ||||
| Restricted stock |
3 | 2 | ||||||
| DSPP |
2 | 2 | ||||||
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| $ | 6 | $ | 5 | |||||
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At December 31, 2019, there was $6 million of total unrecognized compensation cost related to nonvested stock-based compensation arrangements, of which $3 million is expected to be recognized in 2020, $2 million in 2021, $1 million in 2022.
6. Income Taxes
(Loss) income before taxes subject to United States and non-United States income taxes were as follows:
| 2019 | 2018 | |||||||
| (Stated in millions) | ||||||||
| United States |
$ | (1,557 | ) | $ | 99 | |||
| Outside United States |
(48 | ) | 23 | |||||
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| $ | (1,605 | ) | $ | 122 | ||||
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The components of net deferred tax assets (liabilities) were as follows:
| 2019 | 2018 | |||||||
| (Stated in millions) | ||||||||
| Fixed assets, net |
$ | 111 | $ | (167 | ) | |||
| Intangible assets |
12 | 13 | ||||||
| Accruals |
39 | 11 | ||||||
| Other |
27 | 1 | ||||||
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| $ | 189 | $ | (142 | ) | ||||
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The components of Tax (benefit) expense were as follows:
| 2019 | 2018 | |||||||
| (Stated in millions) | ||||||||
| Current: |
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| United States-Federal |
$ | (18 | ) | $ | 18 | |||
| United States-State |
(2 | ) | 2 | |||||
| Outside United States |
(2 | ) | 6 | |||||
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| (22 | ) | 26 | ||||||
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| Deferred: |
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| United States-Federal |
$ | (297 | ) | $ | 3 | |||
| United States-State |
(22 | ) | — | |||||
| Outside United States |
(12 | ) | — | |||||
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| (331 | ) | 3 | ||||||
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| (353 | ) | 29 | ||||||
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OneStim’s effective tax rate of 22% in 2019 and 24% in 2018 differs from the US statutory federal tax rates of 21% during 2019 and 2018, primarily due to the effects of permanent items that are not deductible for income tax purposes and the effect during 2017 of the US tax reform legislation.
F-13
OneStim classifies interest and penalties relating to uncertain tax positions within Tax (benefit) expense in the Combined Statement of Operations.
Schlumberger’s United States federal tax returns for the years from 2017 to 2019 and Schlumberger’s Canadian tax returns for the years from 2012 to 2019 are either currently under audit or remain open and subject to examination by the tax authorities.
Tax liabilities are recorded based on estimates of additional taxes which will be due upon the conclusion of audits. Estimates of these tax liabilities are made based upon prior experience and are updated in light of changes in facts and circumstances. However, due to the complex application of tax regulations, it is possible that the ultimate resolution of audits may result in liabilities which could be materially different from these estimates. In such an event, OneStim will record additional tax expense or tax benefit in the period in which such resolution occurs.
7. Leases and Lease Commitments
During the fourth quarter of 2018, OneStim adopted ASU No. 2016-02 Leases, effective January 1, 2018. This ASU requires lessees to recognize an operating lease asset and a lease liability on the balance sheet with the exception of short-term leases.
Under the transition method selected by OneStim leases existing at, or entered into after, January 1, 2018 were required to be recognized and measured. Prior period amounts have not been adjusted and continue to be reflected in accordance with OneStim’s historical accounting. The adoption of this standard had no impact on OneStim’s Combined Statement of Parent’s Net Investment or Combined Statement of Operations. Short-term leases have not been recorded on the balance sheet.
OneStim elected the package of practical expedients permitted under the transition guidance within the new standard which, among other things, allows companies to carry forward their historical lease classification.
OneStim’s leasing activities primarily consist of operating leases for administrative offices, service centers, sales offices and certain equipment. Total operating lease expense, which approximates cash paid and includes short-term leases, was $167 million in 2019 and $179 million in 2018.
Maturities of operating lease liabilities as of December 31, 2019 were as follows:
| (Stated in millions) |
||||
| 2020 |
$ | 45 | ||
| 2021 |
39 | |||
| 2022 |
23 | |||
| 2023 |
19 | |||
| 2024 |
15 | |||
| Thereafter |
26 | |||
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| Total lease payments |
$ | 167 | ||
| Less: Interest |
(16 | ) | ||
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| $ | 151 | |||
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The weighted-average remaining lease term as of December 31, 2019 was 5 years. used to determine the operating lease liability as of December 31, 2019 was 3.2%.
During 2018, in connection with OneStim’s construction of certain facilities, it entered into two finance leases, each with a 10 year term. Payments due under these arrangements, inclusive of interest, as of December 31, 2019 are $33 million per year from 2020 to 2024 and $155 million thereafter. Finance lease liabilities were $320 million at December 31, 2019, of which $30 million was included in Accounts payable and accrued liabilities and $291 million in Other Liabilities in the Combined Balance Sheet. Finance lease liabilities were $350 million at December 31, 2018, of which $29 million was included in Accounts payable and accrued liabilities and $321 million in Other Liabilities in the Combined Balance Sheet.
F-14
In connection with the finance leases, OneStim entered into interest rate swaps of the same duration. These interest rate swaps effectively converted the variable rate finance leases to a fixed interest rate of 2.35%. At December 31, 2019 OneStim recognized a cumulative net $9 million loss in Net parent’s investment in the Combined Balance Sheet.
8. Contingencies
OneStim is party to various legal proceedings from time to time. A liability is accrued when a loss is both probable and can be reasonably estimated. Management believes that the probability of a material loss with respect to any currently pending legal proceeding is remote. However, litigation is inherently uncertain and it is not possible to predict the ultimate disposition of any of these proceedings.
F-15
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On December 31, 2020, Liberty Oilfield Services Inc. (the “Company”), Liberty Oilfield Services New HoldCo LLC (“US Buyer”), and LOS Canada Operations Inc (“Canadian Buyer”), acquired the onshore hydraulic fracturing business (including the pressure pumping, pumpdown perforating, and Permian frac sand businesses (“OneStim”)) of Schlumberger Technology Corporation (“Schlumberger US”) and Schlumberger Canada Limited (“Schlumberger Canada” and, together with Schlumberger US, the “Schlumberger Parties”) (the “OneStim Acquisition”).
The following unaudited pro forma statements combine the historical financial statements of the Company and OneStim after giving effect to (a) pre-closing restructuring and other related matters in connection with the OneStim Acquisition, and (b) the OneStim Acquisition using the acquisition method of accounting for business combinations and incorporating preliminary estimates, assumptions and pro forma adjustments as described in the accompanying notes to the unaudited pro forma condensed combined financial statements.
The unaudited pro forma condensed combined balance sheet gives effect to the OneStim Acquisition as if it had occurred on September 30, 2020. The unaudited pro forma condensed combined statements of operations give effect to the OneStim Acquisition as if it had occurred on January 1, 2019.
The unaudited pro forma condensed combined financial statements were prepared using: (a) the Company’s consolidated financial statements as of and for the year ended December 31, 2019, as included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 27, 2020; (b) the historical combined financial statements of OneStim as of and for the year ended December 31, 2019, as included in this Current Report on Form 8-K/A; (c) the Company’s unaudited consolidated financial statements as of and for the nine months ended September 30, 2020, as included in the Company’s Quarterly Report on Form 10-Q filed with the SEC on October 30, 2020; and (d) the unaudited historical combined financial statements of OneStim as of and for the nine months ended September 30, 2020, as included in this Current Report on Form 8-K/A.
The unaudited pro forma condensed combined financial statements are presented to reflect the OneStim Acquisition and do not represent what the Company’s results of operations or financial position would actually have been had the OneStim Acquisition occurred on the dates noted above, or project the Company’s results of operations or financial position for any future periods. The unaudited pro forma condensed combined financial statements are intended to provide information about the continuing impact of the OneStim Acquisition as if it had been consummated earlier. The pro forma adjustments are based on available information and certain assumptions that management believes are factually supportable and are expected to have a continuing impact on the Company’s results of operations. In the opinion of management, all adjustments necessary to present fairly the unaudited pro forma condensed combined financial statements have been made. Certain of OneStim’s historical amounts have been reclassified to conform to the financial statement presentation of the Company.
The pro forma adjustments reflect various elements of the OneStim Acquisition and pre-closing restructuring transactions associated therewith. Additionally, these adjustments reflect the removal of certain of the assets and liabilities of the Schlumberger Parties are to be retained by the Schlumberger Parties at the closing of the OneStim Acquisition, including those related to certain sand mines and related facilities, leases of certain facilities, equipment and other assets and certain supply contracts. Certain expenses reflected in the historical combined financial statements of OneStim are an allocation of corporate expenses from other Schlumberger Limited (“Schlumberger”) affiliates. These expenses include, but are not limited to, centralized Schlumberger support functions such as corporate executive management, human resources, finance, information technology, facilities, and legal, among others. The actual costs that may have been incurred if OneStim had operated as a standalone company would be dependent on a number of factors and the Company has made certain adjustments to such costs as described below. As such, the historical combined financial statements of OneStim do not necessarily reflect the financial position and results of operations that would have resulted if it had operated as a standalone company during the periods presented.
The Company is developing a plan to integrate the operations of the Company and OneStim after the OneStim Acquisition. In connection with that plan, management anticipates that certain non-recurring charges, such as operational relocation expenses, employee severance costs, field equipment upgrading and standardization, product rebranding and consulting expenses, will be incurred in connection with this integration. Management cannot identify the timing, nature and amount of such charges as of the date of this filing. However, any such charge could
1
affect the future results of the post-acquisition company in the period in which such charges are incurred. The unaudited pro forma condensed combined financial statements do not include the effects of the costs associated with any restructuring or other integration activities resulting from the OneStim Acquisition. The unaudited pro forma condensed combined financial statements do not include the realization of any cost savings from operating efficiencies, synergies or other restructuring activities might result from the OneStim Acquisition, however, management’s estimates of certain cost savings to be realized following closing of the OneStim Acquisition are presented in note 5 to the unaudited pro forma condensed combined financial statements.
The unaudited pro forma condensed combined financial statements should be read in conjunction with the accompanying notes, which describe the assumptions and estimates underlying the adjustments set forth therein. Those assumptions, estimates, and related adjustments are based on information available at the time of this filing and, accordingly, the actual financial condition or performance of the Company following the OneStim Acquisition in periods subsequent to the OneStim Acquisition may differ materially from that which is reflected in the unaudited pro forma condensed combined financial statements.
2
Liberty Oilfield Services Inc.
Pro Forma Condensed Combined Balance Sheet
As of September 30, 2020
(Unaudited)
| Historical | Pro Forma | |||||||||||||||||||
| Company | OneStim Combined |
Transferred Business Adjustments |
Transaction Accounting Adjustments |
Pro Forma | ||||||||||||||||
| (a) | (b) | (c) | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Current assets: |
||||||||||||||||||||
| Cash and cash equivalents |
$ | 84,819 | $ | — | $ | — | $ | — | $ | 84,819 | ||||||||||
| Accounts and notes receivable |
106,311 | 119,000 | (2,000 | ) | — | 223,311 | ||||||||||||||
| Unbilled revenue |
38,094 | — | — | — | 38,094 | |||||||||||||||
| Inventory |
76,989 | 35,000 | (3,000 | ) | 1,274 | (d) | 110,263 | |||||||||||||
| Prepaid and other current assets |
31,431 | 17,000 | (8,000 | ) | 59,283 | (e) | 99,714 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total current assets |
337,644 | 171,000 | (13,000 | ) | 60,557 | 556,201 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Property and equipment, net |
582,865 | 283,000 | (12,000 | ) | 288,715 | (f) | 1,142,580 | |||||||||||||
| Other assets |
29,188 | 1,000 | (1,000 | ) | 54,000 | (g) | 83,188 | |||||||||||||
| Finance lease right-of-use assets |
31,292 | — | — | — | 31,292 | |||||||||||||||
| Operating lease right-of-use assets |
77,758 | 19,000 | (19,000 | ) | — | 77,758 | ||||||||||||||
| Deferred taxes |
— | 264,000 | — | (264,000 | )(h) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total assets |
$ | 1,058,747 | $ | 738,000 | $ | (45,000 | ) | $ | 139,272 | $ | 1,891,019 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Current liabilities: |
||||||||||||||||||||
| Accounts payable |
$ | 70,009 | $ | 137,000 | $ | 1,200 | $ | — | $ | 208,209 | ||||||||||
| Accrued liabilities |
54,027 | 180,000 | (172,600 | ) | 2,850 | (i) | 64,277 | |||||||||||||
| Current portion of long-term debt, net of discount |
358 | — | — | — | 358 | |||||||||||||||
| Current portion of finance lease liabilities |
20,133 | — | — | — | 20,133 | |||||||||||||||
| Current portion of operating lease liabilities |
21,488 | 102,000 | (102,000 | ) | — | 21,488 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total current liabilities |
166,015 | 419,000 | (273,400 | ) | 2,850 | 314,465 | ||||||||||||||
| Long-term liabilities: |
||||||||||||||||||||
| Long-term debt, net of discount, less current portion |
105,504 | — | — | — | 105,504 | |||||||||||||||
| Deferred tax liability |
2,673 | — | — | — | 2,673 | |||||||||||||||
| Payable pursuant to tax receivable agreements, including payables to related parties |
47,512 | — | — | — | 47,512 | |||||||||||||||
| Noncurrent portion of finance lease liabilities |
6,501 | — | — | — | 6,501 | |||||||||||||||
| Noncurrent portion of operating lease liabilities |
54,247 | 173,000 | (173,000 | ) | — | 54,247 | ||||||||||||||
| Other liabilities |
— | 294,000 | (294,000 | ) | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total liabilities |
382,452 | 886,000 | (740,400 | ) | 2,850 | 530,902 | ||||||||||||||
| Commitments & contingencies |
||||||||||||||||||||
| Equity: |
||||||||||||||||||||
| Parent’s net investment |
— | (148,000 | ) | 695,400 | (547,400 | )(j) | — | |||||||||||||
| Class A common stock |
859 | — | — | 663 | (k) | 1,522 | ||||||||||||||
| Class B common stock |
271 | — | — | — | 271 | |||||||||||||||
| Additional paid in capital |
446,155 | — | — | 643,323 | (k),(l) | 1,089,478 | ||||||||||||||
| Retained earnings |
60,317 | — | — | — | 60,317 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total stockholders’ equity |
507,602 | (148,000 | ) | 695,400 | 96,586 | 1,151,588 | ||||||||||||||
| Non-controlling interest |
168,693 | — | — | 39,836 | (l) | 208,529 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total equity |
676,295 | (148,000 | ) | 695,400 | 136,422 | 1,360,117 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total liabilities and equity |
$ | 1,058,747 | $ | 738,000 | $ | (45,000 | ) | $ | 139,272 | $ | 1,891,019 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
3
Liberty Oilfield Services Inc.
Pro Forma Condensed Combined Statement of Operations
For the Nine Months Ended September 30, 2020
(Unaudited)
| Historical | Pro Forma | |||||||||||||||||||
| Company | OneStim Combined |
Transferred Business Adjustments |
Transaction Accounting Adjustments |
Pro Forma | ||||||||||||||||
| (a) | (b) | (c) | ||||||||||||||||||
| (in thousands, except per share data) | ||||||||||||||||||||
| Revenue: |
||||||||||||||||||||
| Revenue |
$ | 708,201 | $ | 959,000 | $ | (7,000 | ) | $ | — | $ | 1,660,201 | |||||||||
| Operating costs and expenses: |
||||||||||||||||||||
| Cost of services (exclusive of depreciation and amortization shown separately below) |
621,471 | 933,366 | (9,000 | ) | — | 1,545,837 | ||||||||||||||
| General and administrative |
65,484 | 97,000 | — | — | 162,484 | |||||||||||||||
| Severance and related costs |
10,166 | — | — | — | 10,166 | |||||||||||||||
| Depreciation and amortization |
134,258 | 67,634 | — | (1,398 | )(d) | 200,494 | ||||||||||||||
| Loss (gain) on disposal of assets |
(520 | ) | (20,000 | ) | — | — | (20,520 | ) | ||||||||||||
| Research and engineering |
— | 4,000 | — | — | 4,000 | |||||||||||||||
| Impairments and other |
— | 942,000 | — | — | 942,000 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total operating costs and expenses |
830,859 | 2,024,000 | (9,000 | ) | (1,398 | ) | 2,844,461 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Operating (loss) income |
(122,658 | ) | (1,065,000 | ) | 2,000 | 1,398 | (1,184,260 | ) | ||||||||||||
| Other (income) and expense: |
||||||||||||||||||||
| Interest expense, net |
10,859 | 10,000 | (10,000 | ) | — | 10,859 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net (loss) income before income taxes |
(133,517 | ) | (1,075,000 | ) | 12,000 | 1,398 | (1,195,119 | ) | ||||||||||||
| Income tax expense (benefit) |
(21,074 | ) | (247,000 | ) | — | 36,025 | (e) | (232,049 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net (loss) income |
(112,443 | ) | (828,000 | ) | 12,000 | (34,627 | ) | (963,070 | ) | |||||||||||
| Less: Net (loss) income attributable to non-controlling interests |
(33,890 | ) | — | — | (159,379 | )(f) | (193,269 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net (loss) income attributable to Liberty Oilfield Services Inc. stockholders |
$ | (78,553 | ) | $ | (828,000 | ) | $ | 12,000 | $ | 124,752 | $ | (769,801 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net income (loss) attributable to Liberty Oilfield Services Inc. stockholders per common share: |
||||||||||||||||||||
| Basic |
$ | (0.94 | ) | $ | (5.14 | )(g) | ||||||||||||||
| Diluted |
$ | (0.94 | ) | $ | (5.14 | )(g) | ||||||||||||||
| Weighted average common shares outstanding: |
||||||||||||||||||||
| Basic |
83,299 | 66,326 | (g) | 149,625 | ||||||||||||||||
| Diluted |
83,299 | 66,326 | (g) | 149,625 | ||||||||||||||||
4
Liberty Oilfield Services Inc.
Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2019
(Unaudited)
| Historical | Pro Forma | |||||||||||||||||||
| Company | OneStim Combined |
Transferred Business Adjustments |
Transaction Accounting Adjustments |
Pro Forma | ||||||||||||||||
| (a) | (b) | (c) | ||||||||||||||||||
| (in thousands, except per share data) | ||||||||||||||||||||
| Revenue: |
||||||||||||||||||||
| Revenue |
$ | 1,990,346 | $ | 3,212,000 | $ | (28,000 | ) | $ | — | $ | 5,174,346 | |||||||||
| Operating costs and expenses: |
||||||||||||||||||||
| Cost of services (exclusive of depreciation and amortization shown separately below) |
1,621,180 | 2,754,000 | (27,000 | ) | — | 4,348,180 | ||||||||||||||
| General and administrative |
97,589 | 176,000 | — | — | 273,589 | |||||||||||||||
| Depreciation and amortization |
165,379 | 281,000 | — | (192,685 | )(d) | 253,694 | ||||||||||||||
| Loss (gain) on disposal of assets |
2,601 | (15,000 | ) | — | — | (12,399 | ) | |||||||||||||
| Research and engineering |
— | 20,000 | — | — | 20,000 | |||||||||||||||
| Impairments and other |
— | 1,588,000 | — | — | 1,588,000 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total operating costs and expenses |
1,886,749 | 4,804,000 | (27,000 | ) | (192,685 | ) | 6,471,064 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Operating income (loss) |
103,597 | (1,592,000 | ) | (1,000 | ) | 192,685 | (1,296,718 | ) | ||||||||||||
| Other (income) and expense: |
||||||||||||||||||||
| Interest expense, net |
14,681 | 13,000 | (13,000 | ) | — | 14,681 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net income (loss) before income taxes |
88,916 | (1,605,000 | ) | 12,000 | 192,685 | (1,311,399 | ) | |||||||||||||
| Income tax expense (benefit) |
14,052 | (353,000 | ) | — | 101,323 | (e) | (237,625 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net income (loss) |
74,864 | (1,252,000 | ) | 12,000 | 91,362 | (1,073,774 | ) | |||||||||||||
| Less: Net income (loss) attributable to non-controlling interests |
35,861 | — | — | (320,783 | )(f) | (284,922 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net income (loss) attributable to Liberty Oilfield Services Inc. stockholders |
$ | 39,003 | $ | (1,252,000 | ) | $ | 12,000 | $ | 412,145 | $ | (788,852 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net income (loss) attributable to Liberty Oilfield Services Inc. stockholders per common share: |
||||||||||||||||||||
| Basic |
$ | 0.54 | $ | (5.69 | )(g) | |||||||||||||||
| Diluted |
$ | 0.53 | $ | (5.69 | )(g) | |||||||||||||||
| Weighted average common shares outstanding: |
||||||||||||||||||||
| Basic |
72,334 | 66,326 | (g) | 138,660 | ||||||||||||||||
| Diluted |
105,256 | 33,404 | (g) | 138,660 | ||||||||||||||||
5
Liberty Oilfield Services Inc.
Notes to Pro Forma Condensed Combined Financial Statements
(Unaudited)
1. Description of the Acquisition
On August 31, 2020, the Company, US Buyer, Canadian Buyer and the Schlumberger Parties entered into that certain Transaction Agreement (the “Transaction Agreement”), pursuant to which the Company agreed to acquire OneStim in exchange for the 57,377,232 shares (the “Schlumberger US Consideration”) of Class A common stock, par value $0.01 per share, of the Company (“Class A Common Stock”) and an unsecured, non-interest bearing demand promissory note (the “Canadian Buyer Note”). On December 31, 2020, the Company and the Schlumberger Parties completed the OneStim Acquisition. The Canadian Buyer Note was satisfied in 8,948,902 shares of Class A Common Stock, and the Schlumberger Parties collectively own 37.0% of the Company as of August 31, 2020, on a pro forma basis.
2. Basis of Presentation
The unaudited pro forma condensed combined financial statements have been derived from the historical consolidated financial statements of the Company and the historical combined financial statements of OneStim. Certain OneStim historical amounts have been reclassified to conform to the Company’s financial statement presentation. The unaudited pro forma condensed combined balance sheet as of September 30, 2020 gives effect to the OneStim Acquisition as if it had been completed on September 30, 2020. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2019 and the nine months ended September 30, 2020 give effect to the OneStim Acquisition as if it had been completed on January 1, 2019.
The pro forma condensed combined financial statements have been prepared in accordance with Article 11 of Regulation S-X. In addition, the acquisition method of accounting for business combinations was used in accordance with ASC 805, Business Combinations, with the Company treated as the acquirer. Under the acquisition method of accounting, the fair value of the purchase consideration, consisting of the Schlumberger US Consideration and the Canadian Buyer Note, is determined as of December 31, 2020. The purchase price was allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair values, with any excess purchase price allocated to goodwill. The pro forma purchase price allocation was based on the fair value of the Schlumberger US Consideration and, the Canadian Buyer Note, in each case, as of December 31, 2020, and estimates of the fair values of the tangible and intangible assets and liabilities related to OneStim. In arriving at the estimated fair values, the Company has considered the estimates of independent valuation professionals, which were based on preliminary and limited reviews of the assets related to the OneStim business. Differences between these preliminary estimates and the final acquisition accounting may have a material impact on the accompanying pro forma financial statements and the post-acquisition company’s future results of operations and financial position.
The pro forma condensed combined financial statements do not purport to represent what the actual consolidated results of operations or the consolidated financial position of the Company would have been had the OneStim Acquisition occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations or consolidated financial position.
3. Preliminary Purchase Price Allocation
The following is a preliminary estimate of the purchase price for the OneStim Acquisition (in thousands):
| 66,326,134 Company Class A common shares issued to the Schlumberger Parties, representing a 37.0% ownership interest subsequent to the closing of the OneStim Acquisition, valued using the closing market price per share on December 31, 2020 of $10.31 per share |
$ | 683,822 | ||
| Working capital adjustment |
|
(51,283 |
) | |
| True-Up Closing Payment |
(8,000 | ) | ||
|
|
|
|||
| Total estimated purchase price |
$ | 624,539 | ||
|
|
|
6
Liberty Oilfield Services Inc.
Notes to Pro Forma Condensed Combined Financial Statements (continued)
(Unaudited)
The following is a preliminary estimate of the purchase price allocation (in thousands):
| Current assets |
$ | 159,274 | ||
| Property and equipment |
559,715 | |||
| Other long-term assets |
54,000 | |||
| Current liabilities |
(148,450 | ) | ||
| Other long-term liabilities |
— | |||
|
|
|
|||
| Total estimated purchase price |
$ | 624,539 | ||
|
|
|
The preliminary purchase price allocation is based on a preliminary assessment of the fair values of the assets acquired and liabilities assumed as of September 30, 2020.
4. Pro Forma Adjustments and Assumptions
The adjustments are based on currently available information, which is directly attributable, factually supportable and, with respect to the statements of operations, has a continuing impact; as well as certain assumptions the Company believes are reasonable. The actual effects of the OneStim Acquisition may differ from the pro forma adjustments. A general description of the adjustments is provided as follows:
Pro Forma Adjustments to the Condensed Combined Balance Sheet as of September 30, 2020:
| a. | Represents the Company’s historical consolidated balance sheet as of September 30, 2020. |
| b. | Represents OneStim’s historical combined balance sheet as of September 30, 2020. |
| c. | Represents adjustments to OneStim’s historical balance sheet to remove assets not acquired and liabilities not assumed by the Company in the OneStim Acquisition in accordance with the Transaction Agreement. The Company did not acquire certain OneStim proppant mines and equipment and certain facilities used by Schlumberger. Additionally, the Company will not assume certain supply contract agreements and related liabilities. |
| d. | Represents adjustments to reflect inventory at estimated fair value in conformity with the Company’s accounting policies. |
| e. | Represents the cash payment payable to the Company to the extent the net working capital, as defined in the Transaction Agreement, of OneStim at closing is less than $54.6 million, as well as the True-Up Closing Payment related to the estimated costs to bring certain assets to Green Tag status of $8.0 million. Since the final determination of the working capital settlement has not yet been determined, it is included in other current assets on the pro forma condensed combined balance sheet. |
| f. | Represents the $288.7 million increase in the property and equipment acquired to adjust the historical book values to the preliminary fair value of $559.7 million. The final purchase price allocations may materially differ from the preliminary estimates presented therein. |
| g. | Represents the identifiable intangible assets preliminary fair value of $54.0 million. The intangible assets are comprised of patents which are expected to have weighted average useful life of 5 years. |
| h. | Eliminates the historical OneStim deferred tax asset, recognized based on the difference between the carrying amounts of OneStim’s assets and liabilities under GAAP and their respective tax bases. |
| i. | Represents a $2.9 million obligation for the Company to reimburse Schlumberger for a portion of certain costs incurred by Schlumberger in connection with the transaction in accordance with an Employee Matters Agreement. |
| j. | Represents the elimination of OneStim’s historical equity balances in accordance with the acquisition method of accounting. |
7
Liberty Oilfield Services Inc.
Notes to Pro Forma Condensed Combined Financial Statements (continued)
(Unaudited)
| k. | Represents the issuance of 66,326,134 shares of Class A Common Stock at a price of $10.31 per share, par value of $0.01 (the “Share Consideration”), to the Schlumberger Parties in consideration for the OneStim Acquisition. |
| l. | Represents the adjustment to non-controlling interest and additional paid in capital to give effect to the dilution of the non-controlling interest ownership in the historical equity of US Buyer and recognition of the non-controlling interest share of the new equity value in US Buyer as a result of the OneStim Acquisition. |
Pro Forma Adjustments to the Condensed Combined Statement of Operations for the nine months ended September 30, 2020:
| a. | Represents the Company’s historical consolidated statement of operations for the nine months ended September 30, 2020. |
| b. | Represents OneStim’s historical combined statement of operations for the nine months ended September 30, 2020. |
| c. | Represents adjustments to OneStim’s historical combined statement of operations to remove the effects of assets not acquired and liabilities not assumed by the Company in the OneStim Acquisition. |
| d. | Represents the depreciation and amortization expense based on the estimated fair values of the OneStim property and equipment and identifiable intangibles acquired, offset by the elimination of OneStim’s historical depreciation and amortization expense (in thousands). |
| Depreciation expense related to the fair value of OneStim property and equipment acquired with estimated useful lives ranging from 4 to 30 years |
$ | 58,136 | ||
| Amortization expense related to the fair value adjustment of OneStim intangible assets acquired with an estimated weighted average useful life of 5 years |
8,100 | |||
| Elimination of OneStim historical depreciation and amortization expense |
(67,634 | ) | ||
|
|
|
|||
| Pro forma adjustment to depreciation and amortization |
$ | (1,398 | ) | |
|
|
|
| e. | Represents the income tax effect of pro forma adjustments presented. The pro forma income tax adjustments were estimated using a combined U.S. federal and state statutory rate of 23.0%, before the effect of non-controlling interests, and 24% for Canada for the nine months ended September 30, 2020. The effective rate of the post-acquisition company could be significantly different (either higher or lower) depending on post-merger activities. |
| f. | Represents the impact of the issuance of the Share Consideration to the Schlumberger Parties on the allocation of pro forma net loss between non-controlling interests and Liberty Oilfield Services Inc. stockholders. |
| g. | Represents the issuance of the Share Consideration to the Schlumberger Parties, and the resulting basic and diluted loss per share based on the pro forma net loss and the weighted average shares of Class A Common Stock outstanding. |
Pro Forma Adjustments to the Condensed Combined Statement of Operations for the year ended December 31, 2019:
| a. | Represents Liberty’s historical consolidated statement of operations for the year ended December 31, 2019. |
| b. | Represents OneStim’s historical combined statement of operations for the year ended December 31, 2019. |
| c. | Represents adjustments to OneStim’s historical combined statement of operations to remove the effects of assets not acquired and liabilities not assumed by the Company in the OneStim Acquisition. |
8
Liberty Oilfield Services Inc.
Notes to Pro Forma Condensed Combined Financial Statements (continued)
(Unaudited)
| d. | Represents the depreciation and amortization expense based on the estimated fair values of the OneStim property and equipment and identifiable intangibles acquired offset by the elimination of OneStim’s historical depreciation and amortization expense (in thousands). |
| Depreciation expense related to the fair value of OneStim property and equipment acquired with estimated weighted average useful lives ranging from 4 to 30 years |
$ | 77,515 | ||
| Amortization expense related to the fair value adjustment of OneStim intangible assets acquired with an estimated useful life of 5 years |
10,800 | |||
| Elimination of OneStim historical depreciation and amortization expense |
(281,000 | ) | ||
|
|
|
|||
| Pro forma adjustment to depreciation and amortization |
$ | (192,685 | ) | |
|
|
|
| e. | Represents the income tax effect of pro forma adjustments presented. The pro forma income tax adjustments were estimated using a combined U.S. federal and state statutory rate of 23.0%, before the effect of non-controlling interests, and 24.5% for Canada for the year ended December 31, 2019. The effective rate of the post-acquisition company could be significantly different (either higher or lower) depending on post-merger activities. |
| f. | Represents the impact of the issuance of the Share Consideration to the Schlumberger Parties on the allocation of pro forma net loss between non-controlling interests and Liberty Oilfield Services Inc. stockholders. |
| g. | Represents the issuance of the Share Consideration to the Schlumberger Parties, and the resulting basic and diluted loss per share based on the pro forma net loss and the weighted average shares of Class A Common Stock outstanding. The net change in weighted average common shares outstanding for the diluted loss per share calculation reflects the Share Consideration, partially offset by the elimination of potential common stock due to the movement from net income to net loss resulting from the effects of the pro forma adjustments. |
9
Liberty Oilfield Services Inc.
Notes to Pro Forma Condensed Combined Financial Statements (continued)
(Unaudited)
5. Management’s Adjustments
Management expects that, following completion of the OneStim Acquisition, the post-acquisition company will realize certain cost savings as compared to the historical combined costs of the Company and OneStim operating independently. Such cost savings, which result from the elimination of duplicate costs and the manner in which the post-acquisition company will be integrated and managed prospectively are not reflected in the unaudited pro forma condensed combined statements of operations. Management estimates that, had the OneStim Acquisition been completed as of January 1, 2019, corporate level expenses of approximately $125.0 million for the year ended December 31, 2019 and $59.5 million for the nine months ended September 30, 2020 reflected in the historical combined financial statements of OneStim would not have been incurred. These expenses primarily relate to certain centralized IT, finance, management and other services. The following tables present the estimated effects on the pro forma condensed combined statements of operations from elimination of the identified corporate level expenses:
| Nine Months Ended September 30, 2020 | ||||||||||||
| Amounts presented on statement of operations |
Management Adjustments |
As Adjusted | ||||||||||
| General and administrative |
$ | 162,484 | $ | (59,500 | ) | $ | 102,984 | |||||
| Net income (loss) before income taxes |
$ | (1,195,119 | ) | $ | 59,500 | $ | (1,135,619 | ) | ||||
| Net income (loss) |
$ | (963,070 | ) | $ | 48,049 | $ | (915,021 | ) | ||||
| Net income (loss) attributable to Liberty Oilfield Services Inc. stockholders |
$ | (769,801 | ) | $ | 38,331 | $ | (731,470 | ) | ||||
| Net income (loss) attributable to Liberty Oilfield Services Inc. stockholders per common share: |
||||||||||||
| Basic |
$ | (5.14 | ) | $ | 0.25 | $ | (4.89 | ) | ||||
| Diluted |
$ | (5.14 | ) | $ | 0.25 | $ | (4.89 | ) | ||||
| Year Ended December 31, 2019 | ||||||||||||
| Amounts presented on statement of operations |
Management Adjustments |
As Adjusted | ||||||||||
| General and administrative |
$ | 273,589 | $ | (125,000 | ) | $ | 148,589 | |||||
| Net income (loss) before income taxes |
$ | (1,311,399 | ) | $ | 125,000 | $ | (1,186,399 | ) | ||||
| Net income (loss) |
$ | (1,073,774 | ) | $ | 102,630 | $ | (971,144 | ) | ||||
| Net income (loss) attributable to Liberty Oilfield Services Inc. stockholders |
$ | (788,852 | ) | $ | 74,888 | $ | (713,964 | ) | ||||
| Net income (loss) attributable to Liberty Oilfield Services Inc. stockholders per common share: |
||||||||||||
| Basic |
$ | (5.69 | ) | $ | 0.54 | $ | (5.15 | ) | ||||
| Diluted |
$ | (5.69 | ) | $ | 0.54 | $ | (5.15 | ) | ||||
The Company and OneStim have both historically incurred certain field level general and administrative expenses and management does not expect an increase in the level of those expenses following completion of the OneStim Acquisition as compared to the historical combined costs of the Company and OneStim operating independently, as reflected in the unaudited pro forma condensed combined statements of operations.
Management believes there will be opportunity to reduce field level operating and administrative expenses as compared to the historical combined expenses of the Company and OneStim operating independently; however, the timing, nature and amount of such expenses continue to be evaluated.
10