BASIC ENERGY SERVICES, INC. - Quarter Report: 2011 June (Form 10-Q)

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

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

Commission File Number 001-32693

Basic Energy Services, Inc.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		54-2091194 (I.R.S. Employer Identification No.)
500 W. Illinois, Suite 100 Midland, Texas (Address of principal executive offices)		79701 (Zip code)

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

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

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

     42,428,030 shares of the registrant’s Common Stock were outstanding as of July 20, 2011.

 

 

BASIC ENERGY SERVICES, INC.

Index to Form 10-Q

Part I. FINANCIAL INFORMATION			4
Item 1. Financial Statements			4
Consolidated Balance Sheets as of June 30, 2011 (Unaudited) and December 31, 2010			4
Consolidated Statements of Operations and Comprehensive Income for the three months and six months ended June 30, 2011 and 2010 (Unaudited)			5
Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2011 (Unaudited)			6
Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010 (Unaudited)			7
Notes to the Unaudited Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Management’s Overview			25
Segment Overview			26
Operating Cost Overview			29
Critical Accounting Policies and Estimates			29
Results of Operations			31
Liquidity and Capital Resources			33
Other Matters			39
Item 3. Quantitative and Qualitative Disclosures About Market Risk			39
Item 4. Controls and Procedures			39
Part II. OTHER INFORMATION			40
Item 1. Legal Proceedings			40
Item 1A. Risk Factors			40
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			40
Item 6. Exhibits			41
Signatures			43

CAUTIONARY STATEMENT

REGARDING FORWARD-LOOKING STATEMENTS

     This quarterly report contains certain statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including, among other things, the risk factors discussed in this quarterly report and in our most recent annual report on Form 10-K and other factors, most of which are beyond our control.

     The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “plan,” “expect,” “indicate” and similar expressions are intended to identify forward-looking statements. All statements other than statements of current or historical fact contained in this quarterly report are forward-looking statements. Although we believe that the forward-looking statements contained in this quarterly report are based upon reasonable assumptions, the forward-looking events and circumstances discussed in this quarterly report may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements.

     Important factors that may affect our expectations, estimates or projections include:

	•		a decline in, or substantial volatility of, oil and natural gas prices, and any related changes in expenditures by our customers;
	•		the effects of future acquisitions on our business;
	•		changes in customer requirements in markets or industries we serve;
	•		competition within our industry;
	•		general economic and market conditions;
	•		our access to current or future financing arrangements;
	•		our ability to replace or add workers at economic rates; and
	•		environmental and other governmental regulations.

     Our forward-looking statements speak only as of the date of this quarterly report. Unless otherwise required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

     This quarterly report includes market share and industry data and forecasts that we obtained from internal company surveys (including estimates based on our knowledge and experience in the industry in which we operate), market research, consultant surveys, publicly available information, and industry publications and surveys. Industry surveys and publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. Although we believe such information is accurate and reliable, we have not independently verified any of the data from third party sources cited or used for our management’s industry estimates, nor have we ascertained the underlying economic assumptions relied upon therein. For example, the number of onshore well servicing rigs in the U.S. could be lower than our estimate to the extent our two larger competitors have continued to report as stacked rigs equipment that is not actually complete or subject to refurbishment. Statements as to our position relative to our competitors or as to market share refer to the most recent available data.

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Basic Energy Services, Inc.
Consolidated Balance Sheets
(in thousands, except share data)

		June 30,				December 31,
		2011				2010
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	220,910			$	47,918
Trade accounts receivable, net of allowance of $1,997 and $3,078, respectively			200,092				150,364
Accounts receivable — related parties			44				42
Income tax receivable			78,195				79,480
Inventories			25,662				21,556
Prepaid expenses			6,334				5,425
Other current assets			6,632				18,193
Deferred tax assets			8,430				8,290
Total current assets			546,299				331,268
Property and equipment, net			693,891				625,702
Deferred debt costs, net of amortization			16,348				6,835
Goodwill			16,287				16,150
Other intangible assets, net of amortization			43,727				45,833
Other assets			12,555				4,025
Total assets		$	1,329,107			$	1,029,813
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	39,787			$	40,477
Accrued expenses			61,780				51,237
Current portion of long-term debt			27,816				24,231
Other current liabilities			166				3,309
Total current liabilities			129,549				119,254
Long-term debt, net of unamortized discount or premium on notes of $1,991 and $9,425, respectively			762,190				474,628
Deferred tax liabilities			117,636				123,393
Other long-term liabilities			11,369				10,615
Commitments and contingencies
Stockholders’ equity:
Preferred stock; $.01 par value; 5,000,000 shares authorized; none designated or issued at June 30, 2011 and December 31, 2010, respectively			—				—
Common stock; $.01 par value; 80,000,000 shares authorized; 42,432,309 shares issued, and 42,394,955 shares outstanding at June 30, 2011; 42,394,809 shares issued, and 41,310,447 shares outstanding at December 31, 2010.			424				424
Additional paid-in capital			343,385				335,927
Retained earnings (deficit)			(35,446	)			(27,544	)
Treasury stock, at cost, 37,354 and 1,084,362 shares at June 30, 2011 and December 31, 2010, respectively			—				(6,884	)
Total stockholders’ equity			308,363				301,923
Total liabilities and stockholders’ equity		$	1,329,107			$	1,029,813

See accompanying notes to consolidated financial statements.

Basic Energy Services, Inc.
Consolidated Statements of Cash Flows
(in thousands)

		Six Months Ended June 30,
		2011				2010
		(Unaudited)
Cash flows from operating activities:
Net loss		$	(1,943	)		$	(32,263	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			67,764				67,348
Gain on bargain purchase			—				(1,772	)
Accretion on asset retirement obligation			65				81
Change in allowance for doubtful accounts			(1,081	)			(953	)
Amortization of deferred financing costs			967				762
Amortization of discount on senior secured notes			6,484				937
Non-cash compensation			3,758				2,589
Loss on early extinguishment of debt (non-cash)			3,940				—
Premium on retirement of 11.625% senior secured notes			36,179				—
(Gain) loss on disposal of assets			(763	)			1,174
Deferred income taxes			(6,088	)			(3,311	)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable			(48,744	)			(30,886	)
Inventories			(4,106	)			(1,439	)
Prepaid expenses and other current assets			(1,102	)			3,747
Other assets			(8,531	)			(2,981	)
Accounts payable			(690	)			3,379
Excess tax expense (benefit) from exercise of employee stock options / vesting of restricted stock			(3,508	)			360
Income tax payable			4,793				(15,460	)
Other liabilities			(2,328	)			1,587
Accrued expenses			10,515				5,505
Net cash provided by (used in) operating activities			55,581				(1,596	)
Cash flows from investing activities:
Purchase of property and equipment			(114,873	)			(25,555	)
Proceeds from sale of assets			17,996				1,787
Change in restricted cash			—				(1,124	)
Payments for other long-term assets			(287	)			(350	)
Payments for businesses, net of cash acquired			(10	)			(10,312	)
Net cash used in investing activities			(97,174	)			(35,554	)
Cash flows from financing activities:
Proceeds from debt			498,850				—
Payments of debt			(238,291	)			(13,805	)
Premium on retirement of 11.625% senior secured notes			(36,179	)			—
Purchase of treasury stock			(1,761	)			(316	)
Excess tax (expense) benefit from exercise of employee stock options / vesting of restricted stock			3,508				(360	)
Tax withholding from exercise of stock options			(2,529	)			(8	)
Exercise of employee stock options			5,407				65
Deferred loan costs and other financing activities			(14,420	)			(8	)
Net cash provided by (used in) financing activities			214,585				(14,432	)
Net increase (decrease) in cash and equivalents			172,992				(51,582	)
Cash and cash equivalents — beginning of period			47,918				125,357
Cash and cash equivalents — end of period		$	220,910			$	73,775

See accompanying notes to consolidated financial statements.

BASIC ENERGY SERVICES, INC.

1. Basis of Presentation and Nature of Operations

Basis of Presentation

     The accompanying unaudited consolidated financial statements of Basic Energy Services, Inc. and subsidiaries (“Basic” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments which are of a normal recurring nature considered necessary for a fair presentation have been made in the accompanying unaudited financial statements.

Nature of Operations

     Basic provides a wide range of well site services to oil and natural gas drilling and producing companies, including completion and remedial services, fluid services and well site construction services, well servicing and contract drilling. These services are primarily provided using Basic’s fleet of equipment. Basic’s operations are concentrated in the major United States onshore oil and gas producing regions in Texas, New Mexico, Oklahoma, Arkansas, Kansas, Louisiana, Wyoming, North Dakota, Colorado, Utah, Montana, West Virginia, and Pennsylvania.

2. Summary of Significant Accounting Policies

Principles of Consolidation

     The accompanying consolidated financial statements include the accounts of Basic and its wholly-owned subsidiaries. Basic has no variable interest in any other organization, entity, partnership, or contract. All intercompany transactions and balances have been eliminated.

Estimates and Uncertainties

     Preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Areas where critical accounting estimates are made by management include:

•

Depreciation and amortization of property and equipment and intangible assets

•

Impairment of property and equipment, goodwill and intangible assets

•

Allowance for doubtful accounts

•

Litigation and self-insured risk reserves

•

Fair value of assets acquired and liabilities assumed

•

Future cash flows

•

Stock-based compensation

•

Income taxes

•

Asset retirement obligations

Revenue Recognition

     Completion and Remedial Services — Completion and remedial services consists primarily of pumping services, focused on cementing, acidizing and fracturing, nitrogen units, coiled tubing units, snubbing units, and rental and fishing tools. Basic recognizes revenue when services are performed, collection of the relevant receivables is probable, persuasive evidence of an arrangement exists and the price is fixed or determinable. Basic prices completion and remedial services by the hour, day, or project depending on the type of service performed. When Basic provides multiple services to a customer, revenue is allocated to the services performed based on the fair value of the services.

     Fluid Services — Fluid services consists primarily of the sale, transportation, storage and disposal of fluids used in drilling, production and maintenance of oil and natural gas wells, and well site construction and maintenance services. Basic recognizes revenue when services are performed, collection of the relevant receivables is probable, persuasive evidence of an arrangement exists and the price is fixed or determinable. Basic prices fluid services by the job, by the hour or by the quantities sold, disposed of or hauled.

     Well Servicing — Well servicing consists primarily of maintenance services, workover services, completion services, plugging and abandonment services and rig manufacturing and servicing. Basic recognizes revenue when services are performed, collection of the relevant receivables is probable, persuasive evidence of an arrangement exists and the price is fixed or determinable. Basic prices well servicing by the hour or by the day of service performed. Rig manufacturing revenue is recognized when the rig is accepted by the customer, based on the completed contract method by individual rig.

     Contract Drilling — Contract drilling consists primarily of drilling wells to a specified depth using drilling rigs. Basic recognizes revenues based on either a “daywork” contract, in which an agreed upon rate per day is charged to the customer, or a “footage” contract, in which an agreed upon rate is charged per the number of feet drilled.

     Taxes assessed on sales transactions are presented on a net basis and are not included in revenue.

Inventories

     For rental and fishing tools, inventories consisting mainly of grapples and drill bits are stated at the lower of cost or market, with cost being determined by the average cost method. Other inventories, consisting mainly of manufacturing raw materials, rig components, repair parts, drilling and completion materials and gravel, are held for use in the operations of Basic and are stated at the lower of cost or market, with cost being determined on the first-in, first-out (“FIFO”) method.

Property and Equipment

     Property and equipment are stated at cost or at estimated fair value at acquisition date if acquired in a business combination. Expenditures for repairs and maintenance are charged to expense as incurred and additions and improvements that significantly extend the lives of the assets are capitalized. Upon sale or other retirement of depreciable property, the cost and accumulated depreciation and amortization are removed from the related accounts and any gain or loss is reflected in operations. All property and equipment are depreciated or amortized (to the extent of estimated salvage values) on the straight-line method. The components of a well servicing rig generally require replacement or refurbishment during the well servicing rig’s life and are depreciated over their estimated useful lives, which range from 3 to 15 years. The costs of the original components of a purchased or acquired well servicing rig are not maintained separately from the base rig.

Impairments

     Long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment at least annually, or whenever, in management’s judgment, events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of such assets to estimated undiscounted future cash flows expected to be generated by the assets. Expected future cash flows and carrying values are aggregated at their lowest identifiable level. If the carrying amount of such assets exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of such assets exceeds the fair value of the assets. Assets to be disposed of would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities, if material, of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet. These assets are normally sold within a short period of time through a third party auctioneer.

     Basic’s goodwill and trade name intangibles are considered to have an indefinite useful economic life and are not amortized. Basic assesses impairment of its goodwill and trade name intangibles annually as of December 31 or on an interim basis if events or circumstances indicate that the fair value of the assets has decreased below the assets’ carrying value. A two-step process is required for testing impairment of goodwill. First, the fair value of each reporting unit is compared to its carrying value to determine whether an indication of impairment exists. If impairment is indicated, then the fair value of the reporting unit’s goodwill is determined by allocating the unit’s fair value to its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. The amount of impairment for goodwill is measured as the excess of its carrying value over its fair value.

Deferred Debt Costs

     Basic capitalizes certain costs in connection with obtaining its borrowings, such as lender’s fees and related attorney’s fees. These costs are amortized to interest expense using the effective interest method.

     Deferred debt costs were approximately $19.6 million net of accumulated amortization of $3.3 million and $10.7 million net of accumulated amortization of $3.9 million at June 30, 2011 and December 31, 2010, respectively. Amortization of deferred debt costs totaled approximately $535,000 and $380,000 for the three months ended June 30, 2011 and 2010, respectively. Amortization of deferred debt costs totaled approximately $967,000 and $762,000 for the six months ended June 30, 2011 and 2010, respectively.

     Basic recorded a charge of $3.9 million during the first quarter of 2011 related to the write-off of debt costs associated with its 11.625% Senior Secured Notes and $30.0 million revolving credit facility. On February 15, 2011, Basic terminated the revolving credit facility and completed the closing for an early tender for approximately $224.7 million of the Senior Secured Notes and delivered to the trustee amounts required to satisfy and discharge remaining obligations for the outstanding notes. Basic also incurred $2.9 million of deferred debt costs associated with the $165.0 million revolving credit facility entered into on February 15, 2011. Additionally, on June 13, 2011, Basic incurred $11.5 million of deferred debt costs associated with the issuance of additional 7.75% Senior Notes due 2019.

Goodwill and Other Intangible Assets

     Goodwill and other intangible assets not subject to amortization are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. Basic completes its assessment of goodwill and trade name intangible impairment December 31 of each year.

     Basic had trade names of $1.8 million as of June 30, 2011 and December 31, 2010. Trade names have an indefinite life and are tested for impairment annually.

     The changes in the carrying amount of goodwill for the six months ended June 30, 2011 are as follows (in thousands):

		Completion and
		Remedial				Fluid				Well				Contract
		Services				Services				Servicing				Drilling				Total
Balance as of December 31, 2010		$	10,771			$	488			$	4,891			$	—			$	16,150
Goodwill adjustments			(74	)			148				63				—				137
Balance as of June 30, 2011		$	10,697			$	636			$	4,954			$	—			$	16,287

     Basic’s intangible assets subject to amortization consist of customer relationships, non-compete agreements and rig engineering plans. The gross carrying amount of customer relationships subject to amortization was $48.0 million at both June 30, 2011 and December 31, 2010. The gross carrying amount of non-compete agreements subject to amortization totaled approximately $4.3 million and $4.9 million at June 30, 2011 and December 31, 2010, respectively. The gross carrying amount of rig engineering plans subject to amortization was $746,000 at both June 30, 2011 and December 31, 2010. Accumulated amortization related to these intangible assets totaled approximately $11.1 million and $9.6 million at June 30, 2011 and December 31, 2010, respectively. Amortization expense for the three months ended June 30, 2011 and 2010 was approximately $1.0 million and $844,000, respectively. Amortization expense for the six months ended June 30, 2011 and 2010 was approximately $2.1 million and $1.7 million, respectively. Other intangibles net of accumulated amortization allocated to reporting units as of June 30, 2011 were $30.0 million,

$2.5 million, $4.6 million and $4.8 million for completion and remedial services, fluid services, well servicing, and contract drilling, respectively. No adjustments were made to prior periods to reflect subsequent adjustments to acquisitions due to immateriality.

     Customer relationships are amortized over a 15-year life, non-compete agreements are amortized over a five-year life, and rig engineering plans are amortized over a 15-year life.

Stock-Based Compensation

     Basic’s stock-based awards consist of stock options and restricted stock. Stock options issued are valued on the grant date using the Black-Scholes-Merton option-pricing model, and restricted stock issued is valued based on the fair value of Basic’s common stock at the grant date. All stock-based awards are adjusted for an expected forfeiture rate and amortized over the vesting period.

Income Taxes

     Basic recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in the period that includes the statutory enactment date. A valuation allowance for deferred tax assets is recognized when it is more likely than not that the benefit of deferred tax assets will not be realized.

     Interest charges are recorded in interest expense and penalties are recorded in income tax expense.

Concentrations of Credit Risk

     Financial instruments, which potentially subject Basic to concentration of credit risk, consist primarily of temporary cash investments and trade receivables. Basic restricts investment of temporary cash investments to financial institutions with high credit standing. Basic’s customer base consists primarily of multi-national and independent oil and natural gas producers. Basic performs ongoing credit evaluations of its customers but generally does not require collateral on its trade receivables. Credit risk is considered by management to be limited due to the large number of customers comprising its customer base. Basic maintains an allowance for potential credit losses on its trade receivables, and such losses have been within management’s expectations.

     Basic did not have any one customer that represented 10% or more of consolidated revenue during the three months or six months ended June 30, 2011 or 2010.

Asset Retirement Obligations

     Basic records the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets and capitalizes an equal amount as a cost of the asset depreciating it over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation is adjusted at the end of each quarter to reflect the passage of time, changes in the estimated future cash flows underlying the obligation, acquisition or construction of assets, and settlements of obligations.

Environmental

     Basic is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require Basic to remove or mitigate the adverse environmental effects of disposal or release of petroleum, chemicals and other substances at various sites. Environmental expenditures are expensed or capitalized depending on the future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a non-capital nature are recorded when environmental assessment and/or remediation is probable and the costs can be reasonably estimated.

Litigation and Self-Insured Risk Reserves

     Basic estimates its reserves related to litigation and self-insured risks based on the facts and circumstances specific to the litigation and self-insured claims, its past experience with similar claims and the likelihood of the future event occurring. Basic maintains accruals on the consolidated balance sheets to cover self-insurance retentions (See note 6).

Recent Accounting Pronouncements

     In January 2010, the FASB issued ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements” (“ASU No. 2010-06”). ASU No. 2010-06 requires the disclosure of significant transfers in and out of Level 1 and Level 2 fair value measurements. It also requires that Level 3 fair value measurements present information about purchases, sales, issuances and settlements. Fair value disclosures should also disclose valuation techniques and inputs used to measure both recurring and nonrecurring fair value measurements. This update became effective for Basic on January 1, 2010 except for the disclosures about purchases, sales, issuances, and settlements in the roll forward in activity in Level 3 fair value measurements, which became effective on January 1, 2011. This update did not change the techniques Basic uses to measure fair value and has not had a material impact on its consolidated financial statements.

     In December 2010, the FASB issued ASU No. 2010-09, “Business Combinations: Disclosure of Supplementary Pro Forma Information for Business Combinations” (“ASU 2010-29”). ASU 2010-29 addresses diversity in the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations. If a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The Company adopted ASU 2010-29 on January 1, 2011. This update had no impact on the Company’s financial position, results of operations or cash flows.

3. Acquisitions

     In 2010, Basic acquired either substantially all of the assets or all of the outstanding capital stock of each of the following businesses, each of which was accounted for using the purchase method of accounting. The following table summarizes the provisional values at the date of acquisition (in thousands):

						Total Cash Paid (net of cash
		Closing Date				acquired)
Rocky Mountain Cementers, Inc.		March 1, 2010				$	687
New Tech Systems, Inc		April 20, 2010				$	900
Taylor Rig, LLC		May 3, 2010				$	8,734
Platinum Pressure Services, Inc. and Admiral Well Service, Inc.		December 16, 2010				$	39,942
Total 2010						$	50,263

     The operations of each of the acquisitions listed above are included in Basic’s statement of operations as of each respective closing date. Basic does not believe the pro forma effect of any of the acquisitions completed in 2010 is material, either individually or when aggregated, to the reported results of operations.

Contingent Earn-out Arrangements and Purchase Price Allocations

     Contingent earn-out arrangements are generally arrangements entered into on certain acquisitions to encourage the owner/manager to continue operating and building the business after the purchase transaction. The contingent earn-out arrangements of the related acquisitions are generally linked to certain financial measures and performance of the assets acquired in the various acquisitions. For acquisitions that occurred prior to January 1, 2009, all amounts paid or reasonably accrued for related to the contingent earn-out payments are reflected as increases to the goodwill associated with the acquisition or compensation expense depending on the terms and conditions of the earn-out arrangement. For any acquisition that occurred after December 31, 2008, the contingent earn-out is measured at fair value at the date of acquisition and any adjustments to that fair value are recorded through the statement of operations.

4. Property and Equipment

Property and equipment consisted of the following (in thousands):

		June 30,				December 31,
		2011				2010
Land		$	5,391			$	5,361
Buildings and improvements			35,310				32,047
Well service units and equipment			429,343				416,015
Fluid services equipment			159,073				148,989
Brine and fresh water stations			11,306				10,969
Frac/test tanks			183,611				151,379
Pressure pumping equipment			186,575				171,892
Construction equipment			28,571				27,799
Contract drilling equipment			76,281				44,181
Disposal facilities			70,129				66,388
Vehicles			44,645				39,844
Rental equipment			45,964				43,502
Aircraft			4,251				4,251
Software			22,248				22,296
Other			9,547				7,345
			1,312,245				1,192,258
Less accumulated depreciation and amortization			618,354				566,556
Property and equipment, net		$	693,891			$	625,702

     Basic is obligated under various capital leases for certain vehicles and equipment that expire at various dates during the next five years. The gross amount of property and equipment and related accumulated amortization recorded under capital leases and included above consisted of the following (in thousands):

		June 30,				December 31,
		2011				2010
Light vehicles		$	27,622			$	25,800
Well service units and equipment			1,536				1,791
Fluid services equipment			77,472				65,874
Pressure pumping equipment			22,352				18,293
Construction equipment			1,269				1,269
Software			15,548				15,548
Other			244				244
			146,043				128,819
Less accumulated amortization			58,793				56,087
		$	87,250			$	72,732

     Amortization of assets held under capital leases of approximately $5.2 million and $5.9 million for the three months ended June 30, 2011 and 2010, respectively, and $10.2 million and $10.9 million for the six months ended June 30, 2011 and 2010, respectively, is included in depreciation and amortization expense in the consolidated statements of operations.

5. Long-Term Debt

     Long-term debt consisted of the following (in thousands):

		June 30,				December 31,
		2011				2010
Credit Facilities:
Revolver		$	21,850			$	—
7.125% Senior Notes			225,000				225,000
11.625% Senior Secured Notes			—				225,000
7.75% Senior Notes			475,000				—
Unamortized (discount) premium			1,991				(9,425	)
Capital leases and other notes			66,165				58,284
			790,006				498,859
Less current portion			27,816				24,231
		$	762,190			$	474,628

7.125% Senior Notes due 2016

     On April 12, 2006, Basic issued $225.0 million of 7.125% Senior Notes due April 2016 (the “7.125% Senior Notes”) in a private placement. Proceeds from the sale of the 7.125% Senior Notes were used to retire the outstanding balance on Basic’s $90.0 million Term B Loan and to pay down approximately $96.0 million under Basic’s previous revolving credit facility. The 7.125% Senior Notes are unsecured. Under the terms of the sale of the 7.125% Senior Notes, Basic was required to take appropriate steps to offer to exchange other 7.125% Senior Notes with the same terms that have been registered with the Securities and Exchange Commission for the private placement 7.125% Senior Notes. Basic completed the exchange offer for all of the 7.125% Senior Notes on October 16, 2006.

     Basic issued the 7.125% Senior Notes pursuant to an indenture, dated as of April 12, 2006, by and among Basic, the guarantor parties thereto and The Bank of New York Trust Company, N.A., as trustee (the “7.125% Senior Notes Indenture”). Interest on the 7.125% Senior Notes accrues at a rate of 7.125% per year. Interest payments on the 7.125% Senior Notes are due semi-annually, on April 15 and October 15.

     The 7.125% Senior Notes are redeemable at the option of Basic on or after April 15, 2011 at the specified redemption price as described in the 7.125% Senior Notes Indenture.

     Following a change of control, as defined in the 7.125% Senior Notes Indenture, Basic will be required to make an offer to repurchase all or any portion of the 7.125% Senior Notes at a purchase price of 101% of the principal amount, plus accrued and unpaid interest to the date of repurchase.

     The 7.125% Senior Notes Indenture contains covenants that, among other things, limit the ability of Basic and its restricted subsidiaries to incur additional indebtedness; pay dividends or repurchase or redeem capital stock; make certain investments; incur liens; enter into certain types of transactions with affiliates; limit dividends or other payments by restricted subsidiaries; and sell assets or consolidate or merge with or into other companies. These limitations are subject to a number of important qualifications and exceptions set forth in the 7.125% Senior Notes Indenture. At June 30, 2011, Basic was in compliance with the restrictive covenants under the 7.125% Senior Notes Indenture.

     As part of the issuance of the above-mentioned 7.125% Senior Notes, Basic incurred debt issuance costs of approximately $4.6 million, which are being amortized to interest expense using the effective interest method over the term of the 7.125% Senior Notes.

     The 7.125% Senior Notes are jointly and severally, and unconditionally, guaranteed on a senior unsecured basis by all of Basic’s current subsidiaries, other than three immaterial subsidiaries. As of June 30, 2011, these three subsidiaries held no assets and performed no operations. Basic Energy Services, Inc., the ultimate parent company, does not have any independent operating assets or operations.

7.75% Senior Notes due 2019

     On February 15, 2011, Basic successfully completed the issuance and sale of $275.0 million and on June 13, 2011, Basic successfully completed the issuance and sale of an additional $200.0 million, for an aggregate principal amount of $475.0 million of 7.75% Senior Notes due 2019 (the “7.75% Senior Notes”). The 7.75% Senior Notes are jointly and severally, and unconditionally,

guaranteed on a senior unsecured basis by all of Basic’s current subsidiaries, other than three immaterial subsidiaries. The 7.75% Senior Notes and the guarantees rank (i) equally in right of payment with any of Basic’s and the subsidiary guarantors’ existing and future senior indebtedness, including Basic’s existing 7.125% Senior Notes and the related guarantees, and (ii) effectively junior to all existing or future liabilities of Basic’s subsidiaries that do not guarantee the 7.75% Senior Notes and to Basic’s and the subsidiary guarantors’ existing or future secured indebtedness to the extent of the value of the collateral therefore.

     The 7.75% Senior Notes were offered and sold in private transactions in accordance with Rule 144A and Regulation S under the Securities Act of 1933, as amended (the “Securities Act”).

     The purchase price for the $275.0 million of 7.75% Senior Notes issued on February 15, 2011 was 100.000% of their principal amount and the purchase price for the $200.0 million of 7.75% Senior Notes issued on June 13, 2011 was 101.000%, plus accrued interest from February 15, 2011. Basic received net proceeds from the issuance of the 7.75% Senior Notes of approximately $465.5 million after premiums and offering expenses. Basic used a portion of the net proceeds from the February 2011 offering to fund its tender offer and consent solicitation for its 11.625% Senior Secured Notes and to redeem any of the Senior Secured Notes not purchased in the tender offer. Basic also intends to use a portion of the net proceeds from the June 2011 offering to fund the $180.0 million purchase price for the Maverick companies acquisition completed in July 2011 and for general corporate purposes.

     The 7.75% Senior Notes were issued pursuant to an indenture dated as of February 15, 2011 (the “7.75% Senior Notes Indenture”), by and among Basic, the guarantors party thereto and Wells Fargo Bank, N.A., as trustee . Interest on the 7.75% Senior Notes accrues from and including February 15, 2011 at a rate of 7.75% per year. Interest on the 7.75% Senior Notes is payable semi-annually in arrears on February 15 and August 15 of each year, commencing on August 15, 2011. The 7.75% Senior Notes mature on February 15, 2019.

     The 7.75% Senior Notes Indenture contains covenants that, among other things, limit Basic’s ability and the ability of certain of its subsidiaries to: incur additional indebtedness; pay dividends or repurchase or redeem capital stock; make certain investments; incur liens; enter into certain types of transactions with its affiliates; limit dividends or other payments by Basic’s restricted subsidiaries to Basic; and sell assets or consolidate or merge with or into other companies. These and other covenants that are contained in the 7.75% Senior Notes Indenture are subject to important exceptions and qualifications set forth in the 7.75% Senior Notes Indenture. At June 30, 2011, Basic was in compliance with the restrictive covenants under the 7.75% Senior Notes Indenture.

     Basic may, at its option, redeem all or part of the 7.75% Senior Notes, at any time on or after February 15, 2015, at a redemption price equal to 100% of the principal amount thereof, plus a premium declining ratably to par and accrued and unpaid interest to the date of redemption.

     At any time before February 15, 2014, Basic, at its option, may redeem up to 35% of the aggregate principal amount of the 7.75% Senior Notes issued under the 7.75% Senior Notes Indenture with the net cash proceeds of one or more qualified equity offerings at a redemption price of 107.750% of the principal amount of the 7.75% Senior Notes to be redeemed, plus accrued and unpaid interest to the date of redemption, as long as:

•

at least 65% of the aggregate principal amount of the 7.75% Senior Notes issued under the 7.75% Senior Notes Indenture remains outstanding immediately after the occurrence of such redemption; and

•

such redemption occurs within 90 days of the date of the closing of any such qualified equity offering.

     In addition, at any time before February 15, 2015, Basic may redeem some or all of the 7.75% Senior Notes at a redemption price equal to 100% of the principal amount of the 7.75% Senior Notes, plus an applicable premium and accrued and unpaid interest to the date of redemption.

     Following a change of control, as defined in the 7.75% Senior Notes Indenture, Basic will be required to make an offer to repurchase all or a portion of the Notes at 101% of their principal amount, plus accrued and unpaid interest to the date of repurchase.

Revolving Credit Facility

     On February 15, 2011, in connection with the 7.75% Senior Notes offering, Basic entered into a new $165.0 million revolving credit facility (the “Credit Agreement”) with Merrill Lynch, Pierce, Fenner & Smith Incorporated and Capital One, National Association, as joint lead arrangers and joint book managers, the lenders party thereto and Bank of America, N.A., as administrative agent. The Credit Agreement includes an accordion feature whereby the total credit available to Basic can be increased by up to $100.0 million under certain circumstances, subject to additional lender commitments. The obligations under the Credit Agreement are guaranteed on a joint and several basis by each of Basic’s current subsidiaries, other than three immaterial subsidiaries, and are secured by substantially all assets of Basic and the guarantors as collateral under a related Security Agreement (the “Security Agreement”). As of June 30, 2011, the non-guarantor subsidiaries held no assets and performed no operations.

     Borrowings under the Credit Agreement mature on January 15, 2016, and Basic has the ability at any time to prepay the Credit Agreement without premium or penalty. At Basic’s option, advances under the Credit Agreement may be comprised of (i) alternate base rate loans, at a variable base interest rate plus a margin ranging from 1.50% to 2.25% based on Basic’s leverage ratio or (ii) Eurodollar loans, at a variable base interest rate plus a margin ranging from 2.50% to 3.25% based on Basic’s leverage ratio. Basic will pay a commitment fee equal to 0.50% on the daily unused amount of the commitments under the Credit Agreement.

     The Credit Agreement contains various covenants that, subject to agreed upon exceptions, limit Basic’s ability and the ability of certain of Basic’s subsidiaries to:

•

incur indebtedness;

•

grant liens;

•

enter into sale and leaseback transactions;

•

make loans, capital expenditures, acquisitions and investments;

•

change the nature of business;

•

acquire or sell assets or consolidate or merge with or into other companies;

•

declare or pay dividends;

•

enter into transactions with affiliates;

•

enter into burdensome agreements;

•

prepay, redeem or modify or terminate other indebtedness;

•

change accounting policies and reporting practices; and

•

amend organizational documents.

     The Credit Agreement also contains covenants that, among other things, limit the amount of capital contributions Basic may make and require Basic to maintain specified ratios or conditions as follows:

•

a minimum consolidated interest coverage ratio of not less than 2.50:1.00;

•

a maximum consolidated leverage ratio not to exceed:

•

4.25:1.00 for the quarter ending March 31, 2011; and

•

4.00:1.00 after March 31, 2011; and

•

a maximum consolidated senior secured leverage ratio of 2.00:1.00.

     If an event of default occurs under the Credit Agreement, then the lenders may (i) terminate their commitments under the Credit Agreement, (ii) declare any outstanding loans under the Credit Agreement to be immediately due and payable after applicable grace periods and (iii) foreclose on the collateral secured by the Security Agreement.

     Basic had $21.9 million outstanding under the Credit Agreement as of June 30, 2011. At June 30, 2011, Basic was in compliance with its covenants under the Credit Agreement.

Other Debt

     Basic has a variety of other capital leases and notes payable outstanding that are generally customary in its business. None of these debt instruments are individually material. Basic’s leases with Banc of America Leasing & Capital, LLC require us to maintain a minimum debt service coverage ratio of 1.05 to 1.00. At June 30, 2011, Basic was in compliance with this covenant.

     Basic’s interest expense consisted of the following (in thousands):

		Six Months Ended June 30,
		2011				2010
Cash payments for interest		$	18,630			$	21,802
Commitment and other fees paid			438				9
Amortization of debt issuance costs and discount or premium on notes			1,213				1,699
Change in accrued interest			2,871				(73	)
Other			32				5
		$	23,184			$	23,442

Losses on Extinguishment of Debt

     In February 2011, upon the retirement of the 11.625% Senior Secured Notes and the termination of Basic’s $30.0 million revolving credit facility, Basic wrote off unamortized debt issuance costs of approximately $3.9 million and unamortized discount of $9.2 million. Basic also paid a premium of $36.2 million to the holders of the 11.625% Senior Secured Notes for the early termination of the notes.

6. Commitments and Contingencies

Environmental

     Basic is subject to various federal, state and local environmental laws and regulations that establish standards and requirements for protection of the environment. Basic cannot predict the future impact of such standards and requirements which are subject to change and can have retroactive effectiveness. Basic continues to monitor the status of these laws and regulations. Management believes that the likelihood of any of these items resulting in a material adverse impact to Basic’s financial position, liquidity, capital resources or future results of operations is remote.

     Currently, Basic has not been fined, cited or notified of any environmental violations that would have a material adverse effect upon its financial position, liquidity or capital resources. However, management does recognize that by the very nature of its business, material costs could be incurred in the near term to bring Basic into total compliance. The amount of such future expenditures is not determinable due to several factors, including the unknown magnitude of possible contamination, the unknown timing and extent of

the corrective actions which may be required, the determination of Basic’s liability in proportion to other responsible parties and the extent to which such expenditures are recoverable from insurance or indemnification.

     During April 2011, Basic and certain officers received notice from the Travis County District Attorney of a pending investigation of a potential felony criminal case referred by Texas Parks & Wildlife and the Texas Environmental Enforcement Task Force, to be presented to a Travis County grand jury. The potential matter relates to a land farm owned by Basic located in Jefferson County, Texas. While Basic is currently responding to additional inquiries regarding the investigation and believes the investigation may also relate to alleged unlawful discharges, Basic has not been informed of any specific potential charges at this time. Basic does not believe it is probable or reasonably possible that this matter will result in any material adverse effect on its financial condition, results of operations or liquidity; however, there can be no assurance as to the ultimate outcome of this matter.

Litigation

     From time to time, Basic is a party to litigation or other legal proceedings that Basic considers to be a part of the ordinary course of business. Basic is not currently involved in any legal proceedings that it considers probable or reasonably possible, individually or in the aggregate, to result in a material adverse effect on its financial condition, results of operations or liquidity.

Self-Insured Risk Accruals

     Basic is self-insured up to retention limits as it relates to workers’ compensation, general liability claims, and medical and dental coverage of its employees. Basic generally maintains no physical property damage coverage on its workover rig fleet, with the exception of certain of its 24-hour workover rigs and newly manufactured rigs. Basic has deductibles per occurrence for workers’ compensation, general liability claims, and medical and dental coverage of $500,000, $500,000, and $250,000, respectively. Basic has lower deductibles per occurrence for automobile liability. Basic maintains accruals in the accompanying consolidated balance sheets related to self-insurance retentions by using third-party data and claims history.

     At June 30, 2011 and December 31, 2010, self-insured risk accruals totaled approximately $16.8 million net of a $8,000 receivable for medical and dental coverage and $16.6 million net of a $164,000 receivable for medical and dental coverage, respectively.

7. Stockholders’ Equity

Common Stock

     At June 30, 2011 and December 31, 2010, Basic had 80,000,000 shares of common stock, par value $.01 per share, authorized.

     During the year ended 2010, Basic issued 53,975 shares of common stock from treasury stock upon the exercise of stock options.

     In March 2010, Basic granted various employees 588,600 restricted shares of common stock which vest over a five-year period.

     In March 2010, the Compensation Committee of Basic’s Board of Directors approved grants of performance-based stock awards to certain members of management. In February 2011, it was determined that 285,281 shares, or 150% of the target number of shares, were earned based on Basic’s achievement of total stockholder return over the performance period from January 1, 2010 through December 31, 2010, as compared to other members of a defined peer group. These restricted shares remain subject to vesting over a three-year period, with the first shares vesting on March 15, 2012.

     In March 2011, Basic granted various employees 510,399 restricted shares of common stock that vest over a three-year period.

     During the six months ended June 30, 2011, Basic issued 390,750 shares of common stock from treasury stock for the exercise of stock options and 37,500 shares of newly-issued common stock for the exercise of stock options.

Treasury Stock

     Basic has acquired treasury shares through net share settlements for payment of payroll taxes upon the vesting of restricted stock. Basic acquired a total of 40,381 shares through net share settlements during 2010 and 76,077 shares through net share settlements during the first six months of 2011.

Preferred Stock

     At June 30, 2011 and December 31, 2010, Basic had 5,000,000 shares of preferred stock, par value $.01 per share, authorized, of which none was designated, issued or outstanding.

8. Incentive Plan

     In May 2003, Basic’s board of directors and stockholders approved the Basic Energy Services, Inc. 2003 Incentive Plan (as amended effective May 24, 2011) (the “Plan”), which provides for granting of incentive awards in the form of stock options, restricted stock, performance awards, bonus shares, phantom shares, cash awards and other stock-based awards to officers, employees, directors and consultants of Basic. The Plan assumed awards of the plans of Basic’s predecessors that were awarded and remained outstanding prior to adoption of the Plan. The Plan provides for the issuance of 8,350,000 shares. The Plan is administered by the Plan committee, and in the absence of a Plan committee, by the Board of Directors, which determines the awards and the associated terms of the awards and interprets its provisions and adopts policies for implementing the Plan. The number of shares authorized under the Plan and the number of shares subject to an award under the Plan will be adjusted for stock splits, stock dividends, recapitalizations, mergers and other changes affecting the capital stock of Basic.

     During the three months ended June 30, 2011 and 2010, compensation expense related to share-based arrangements was approximately $2.1 million and $1.4 million, respectively. For compensation expense recognized during the three months ended June 30, 2011 and 2010, Basic recognized a tax benefit of approximately $930,000 and $577,000, respectively. During the six months ended June 30, 2011 and 2010, compensation expense related to share-based arrangements was approximately $3.8 million and $2.6 million, respectively. For compensation expense recognized during the six months ended June 30, 2011 and 2010, Basic recognized a tax benefit of approximately $1.5 million and $962,000, respectively.

     As of June 30, 2011, there was approximately $20.0 million of total unrecognized compensation related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 2.86 years. The total fair value of share-based awards vested during the six months ended June 30, 2011 and 2010 was approximately $8.6 million and $3.8 million, respectively. The actual tax benefit realized for the tax deduction from vested share-based awards was $2.8 million and $578,000 for the six months ended June 30, 2011 and 2010, respectively.

Stock Option Awards

     The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option-pricing model. Basic is required to estimate the expected forfeiture rate and only recognize expense for those options expected to vest. Options granted under the Plan expire 10 years from the date they are granted, and generally vest over a three- to five-year service period.

     The following table reflects the summary of stock options outstanding at June 30, 2011 and the changes during the six months then ended:

										Weighted
						Weighted				Average				Aggregate
		Number of				Average				Remaining				Instrinsic
		Options				Exercise				Contractual				Value
		Granted				Price				Term (Years)				(000’s)
Non-statutory stock options:
Outstanding, beginning of period			1,414,450			$	11.44
Options granted			—
Options forfeited			(5,000	)		$	6.98
Options exercised			(428,250	)		$	6.71
Options expired			(3,000	)		$	26.84
Outstanding, end of period			978,200			$	13.49				3.67			$	17,592
Exercisable, end of period			955,200			$	13.27				3.62			$	17,389
Vested or expected to vest, end of period			973,600			$	13.44				3.66			$	17,551

     The total intrinsic value of share options exercised during the six months ended June 30, 2011 and 2010 was approximately $8.3 million and $24,000, respectively.

     Cash received from share option exercises under the Plan was approximately $2.9 million and $58,000 for the six months ended June 30, 2011 and 2010, respectively. The actual tax benefit realized for the tax deductions from options exercised was $3.0 million and $9,000 for the six months ended June 30, 2011 and 2010, respectively.

     Basic has a history of issuing treasury and newly-issued shares to satisfy share option exercises.

Restricted Stock Awards

     On March 10, 2011, the Compensation Committee of Basic’s Board of Directors approved grants of performance-based stock awards to certain members of management. The performance-based awards are tied to Basic’s achievement of total stockholder return over the performance period from January 1, 2011 through December 31, 2011, as compared to other members of a defined peer group. The number of shares to be issued will range from 0% to 150% of the 148,683 target number of shares depending on the performance noted above. Any shares earned at the end of the performance period will then remain subject to vesting over a three-year period, with the first shares vesting March 15, 2013. As of June 30, 2011, Basic estimated that 129.2% of the target number of performance-based awards will be earned.

     A summary of the status of Basic’s non-vested share grants at June 30, 2011 and changes during the six months ended June 30, 2011 is presented in the following table:

						Weighted Average
		Number of				Grant Date Fair
Nonvested Shares		Shares				Value Per Share
Nonvested at beginning of period			1,802,573			$	11.06
Granted during period			702,931				19.49
Vested during period			(329,018	)			13.45
Forfeited during period			(74,023	)			12.65
Nonvested at end of period			2,102,463			$	13.44

9. Related Party Transactions

     Basic had receivables from employees of approximately $44,000 and $42,000 as of June 30, 2011 and December 31, 2010, respectively. During 2006, Basic entered into a lease agreement with Darle Vuelta Cattle Co., LLC, an affiliate of the Chief Executive Officer, for approximately $69,000. The term of the lease is five years and will continue on a year-to-year basis unless terminated by either party. In December 2010, Basic entered into a lease agreement with Darle Vuelta Cattle Co., LLC, for the right to operate a salt water disposal well, brine well and fresh water well. The term of the lease is two years and will continue until the salt water disposal well and brine well are plugged and no fresh water is being sold. The lease payments are the greater of the sum of $0.10 per barrel of disposed oil and gas waste and $0.05 per barrel of brine or fresh water sold, or $5,000 per month.

10. Earnings Per Share

     Basic’s basic earnings per common share are determined by dividing net earnings applicable to common stock by the weighted average number of common shares actually outstanding during the period. Diluted earnings per common share is based on the increased number of shares that would be outstanding assuming conversion of dilutive outstanding securities using the “as if converted” method. The following table sets forth the computation of basic and diluted earnings per share (in thousands, except share data):

		Three Months Ended June 30,								Six Months Ended June 30,
		2011				2010				2011				2010
		(Unaudited)								(Unaudited)
Numerator (both basic and diluted):
Net income (loss)		$	16,550			$	(10,672	)		$	(1,943	)		$	(32,263	)
Denominator:
Denominator for basic earnings (loss) per share			40,356,049				39,724,030				40,135,143				39,672,891
Stock options			422,110				—				—				—
Unvested restricted stock			557,505				—				—				—
Denominator for diluted earnings (loss) per share			41,335,664				39,724,030				40,135,143				39,672,891
Basic earnings (loss) per common share:		$	0.41			$	(0.27	)		$	(0.05	)		$	(0.81	)
Diluted earnings (loss) per common share:		$	0.40			$	(0.27	)		$	(0.05	)		$	(0.81	)

     Stock options and unvested shares of restricted stock of approximately 524,000 were excluded in the computation of diluted earnings per share for the three months ended June 30, 2010, as the effect would have been anti-dilutive due to the net loss in the period. Stock options and unvested shares of restricted stock of approximately 1,222,000 and 859,000, respectively, were excluded in the computation of diluted earnings per share for the six months ended June 30, 2011 and 2010, respectively, as the effect would have been anti-dilutive due to the net loss in each of these periods.

11. Business Segment Information

     Basic’s reportable business segments are Completion and Remedial Services, Fluid Services, Well Servicing, and Contract Drilling. The following is a description of the segments:

     Completion and Remedial Services: This segment utilizes a fleet of pressure pumping units, air compressor packages specially configured for underbalanced drilling operations, cased-hole wireline units, an array of specialized rental equipment and fishing tools, and snubbing units. The largest portion of this business consists of pumping services focused on cementing, acidizing and fracturing services in niche markets.

     Fluid Services: This segment utilizes a fleet of trucks and related assets, including specialized tank trucks, storage tanks, water wells, disposal facilities, construction and other related equipment. Basic employs these assets to provide, transport, store and dispose of a variety of fluids, as well as provide well site construction and maintenance services. These services are required in most workover, completion and remedial projects and are routinely used in daily producing well operations.

     Well Servicing: This business segment encompasses a full range of services performed with a mobile well servicing rig, including the installation and removal of downhole equipment and elimination of obstructions in the well bore to facilitate the flow of oil and natural gas. These services are performed to establish, maintain and improve production throughout the productive life of an oil and natural gas well and to plug and abandon a well at the end of its productive life. Well servicing equipment and capabilities such as Basic’s are essential to facilitate most other services performed on a well. This segment also includes the manufacturing, refurbishment and servicing of mobile well servicing rigs and associated equipment.

     Contract Drilling: This segment utilizes drilling rigs and associated equipment for drilling wells to a specified depth for customers on a contract basis.

     Basic’s management evaluates the performance of its operating segments based on operating revenues and segment profits. Corporate expenses include general corporate expenses associated with managing all reportable operating segments. Corporate assets consist principally of working capital and debt financing costs.

     The following table sets forth certain financial information with respect to Basic’s reportable segments (in thousands):

		Completion
		and Remedial				Fluid				Well				Contract				Corporate
		Services				Services				Servicing				Drilling				and Other				Total
Three Months Ended June 30, 2011 (Unaudited)
Operating revenues		$	121,807			$	81,415			$	83,881			$	9,752			$	—			$	296,855
Direct operating costs			(68,827	)			(51,688	)			(57,409	)			(7,393	)			—			$	(185,317	)
Segment profits		$	52,980			$	29,727			$	26,472			$	2,359			$	—			$	111,538
Depreciation and amortization		$	9,841			$	10,359			$	10,398			$	2,326			$	1,860			$	34,784
Capital expenditures, (excluding acquisitions)		$	12,638			$	12,847			$	11,633			$	2,986			$	2,327			$	42,431
Three Months Ended June 30, 2010 (Unaudited)
Operating revenues		$	61,533			$	58,801			$	49,529			$	5,269			$	—			$	175,132
Direct operating costs			(37,660	)			(43,425	)			(36,734	)			(3,725	)			—				(121,544	)
Segment profits		$	23,873			$	15,376			$	12,795			$	1,544			$	—			$	53,588
Depreciation and amortization		$	8,121			$	9,478			$	12,562			$	1,882			$	2,207			$	34,250
Capital expenditures, (excluding acquisitions)		$	3,429			$	4,013			$	5,305			$	795			$	921			$	14,463
Six Months Ended June 30, 2011 (Unaudited)
Operating revenues		$	219,314			$	153,760			$	153,028			$	16,807			$	—			$	542,909
Direct operating costs			(123,760	)			(99,916	)			(105,849	)			(11,878	)			—			$	(341,403	)
Segment profits		$	95,554			$	53,844			$	47,179			$	4,929			$	—			$	201,506
Depreciation and amortization		$	17,909			$	19,764			$	22,351			$	4,233			$	3,507			$	67,764
Capital expenditures, (excluding acquisitions)		$	30,359			$	33,503			$	37,889			$	7,176			$	5,946			$	114,873
Identifiable assets		$	231,977			$	195,403			$	247,077			$	70,245			$	584,405			$	1,329,107
Six Months Ended June 30, 2010 (Unaudited)
Operating revenues		$	106,767			$	110,948			$	91,325			$	9,058			$	—			$	318,098
Direct operating costs			(67,383	)			(84,365	)			(68,834	)			(6,995	)			—			$	(227,577	)
Segment profits		$	39,384			$	26,583			$	22,491			$	2,063			$	—			$	90,521
Depreciation and amortization		$	15,952			$	18,895			$	24,703			$	3,716			$	4,082			$	67,348
Capital expenditures, (excluding acquisitions)		$	6,053			$	7,170			$	9,373			$	1,410			$	1,549			$	25,555
Identifiable assets		$	185,854			$	183,971			$	245,041			$	39,624			$	357,235			$	1,011,725

     The following table reconciles the segment profits reported above to the operating income as reported in the consolidated statements of operations (in thousands):

		Three Months Ended June 30,								Six Months Ended June 30,
		2011				2010				2011				2010
Segment profits		$	111,538			$	53,588			$	201,506			$	90,521
General and administrative expenses			(34,138	)			(26,820	)			(65,479	)			(51,897	)
Depreciation and amortization			(34,784	)			(34,250	)			(67,764	)			(67,348	)
Gain (loss) on disposal of assets			(942	)			(463	)			763				(1,174	)
Operating income (loss)		$	41,674			$	(7,945	)		$	69,026			$	(29,898	)

12. Supplemental Schedule of Cash Flow Information

     The following table reflects non-cash financing and investing activity during the following periods:

		Six Months Ended June 30,
		2011				2010
		(In thousands)
Capital leases issued for equipment		$	24,104			$	6,691
Asset retirement obligation additions		$	11			$	12

     Basic paid no income taxes during the six months ended June 30, 2011 or for the same period in 2010. Basic paid interest of approximately $18.6 million and $21.8 million during the six months ended June 30, 2011 and 2010, respectively.

13. Fair Value Measurements

     Fair value is the price that would be received to sell an asset or the amount paid to transfer a liability in an orderly transaction between market participants (an exit price) at the measurement date. Fair value is a market based measurement considered from the perspective of a market participant. Basic uses market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation. These inputs can be readily observable, market corroborated, or unobservable. If observable prices or inputs are not available, unobservable prices or inputs are used to estimate the current fair value, often using an internal valuation model. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the item being valued. Basic primarily applies a market approach for recurring fair value measurements using the best available information while utilizing valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

     There is a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). Basic classifies fair value balances based on the observability of those inputs. The three levels of the fair value hierarchy are as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities that Basic has the ability to access. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2—Inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable. These inputs are either directly observable in the marketplace or indirectly observable through corroboration with market data for substantially the full contractual term of the asset or liability being measured.

Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

     In valuing certain assets and liabilities, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. For disclosure purposes, assets and liabilities are classified in their entirety in the fair value hierarchy level based on the lowest level of input that is significant to the overall fair value measurement. Basic’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy levels.

     Basic’s asset retirement obligation related to its salt water disposal sites, brine water wells, gravel pits and land farm sites, each of which is subject to rules and regulations regarding usage and eventual closure, is measured using primarily Level 3 inputs. The significant unobservable inputs to this fair value measurement include estimates of plugging, abandonment and remediation costs, inflation rate and well life. The inputs are calculated based on historical data as well as current estimated costs. The fair value is calculated by taking the present value of the expected cash flow at the time of the closure of the site. The following table reflects the changes in the fair value of the liability during the six months ended June 30, 2011 (in thousands):

		Asset
		Retirement
		Obligation
Balance, December 31, 2010		$	1,983
Additional asset retirement obligation			11
Accretion expense			65
Settlements			(57	)
Balance, June 30, 2011		$	2,002

14. Subsequent Events

     On July 7, 2011, Basic completed the acquisition of substantially all of the operating assets of Lone Star Anchor Trucking, Inc. for total cash consideration of $10.1 million. This acquisition will operate in Basic’s fluid services segment.

     On July 8, 2011, Basic completed the acquisition of the outstanding equity interests of the Maverick companies (“Maverick”) for total cash consideration of $180.0 million, net of working capital acquired. Maverick provides stimulation, coil tubing and thru-tubing services and will operate in Basic’s completion and remedial services segment.

     On July 15, 2011, Basic amended its existing revolving credit facility, increasing the available credit from $165.0 million to $225.0 million. No changes were made to the collateral, interest rates, or guarantors as part of this amendment.

     During July 2011, Basic received aggregate federal income tax refunds of approximately $80.1 million relating to Basic’s 2009 and 2010 tax returns.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Overview

     We provide a wide range of well site services to oil and natural gas drilling and producing companies, including completion and remedial services, fluid services and well site construction services, well servicing and contract drilling. Our results of operations reflect the impact of our acquisition strategy as a leading consolidator in the domestic land-based well services industry. Our acquisitions have increased our breadth of service offerings at the well site and expanded our market presence. In implementing our acquisition strategy, we purchased businesses and assets in four separate acquisitions from January 1, 2010 to June 30, 2011. Our weighted average number of fluid service trucks increased from 791 in the first quarter of 2010 to 837 in the second quarter of 2011. Our weighted average number of well servicing rigs increased from 405 in the first quarter of 2010 to 412 in the second quarter of 2011. These acquisitions make our revenues, expenses and income not directly comparable between periods.

     Our operating revenues from each of our segments, and their relative percentages of our total revenues, consisted of the following (dollars in millions):

Revenues:

		Six Months Ended June 30,
		2011								2010
Revenues:
Completion and remedial services		$	219.3				41	%		$	106.8				33	%
Fluid services			153.8				28	%			110.9				35	%
Well servicing			153.0				28	%			91.3				29	%
Contract drilling			16.8				3	%			9.1				3	%
Total revenues		$	542.9				100	%		$	318.1				100	%

     Our core businesses depend on our customers’ willingness to make expenditures to produce, develop and explore for oil and natural gas in the United States. Industry conditions are influenced by numerous factors, such as the supply of and demand for oil and natural gas, domestic and worldwide economic conditions, political instability in oil producing countries and merger and divestiture activity among oil and natural gas producers. The volatility of the oil and natural gas industry, and the consequent impact on exploration and production activity, has adversely impacted, and could continue to adversely impact, the level of drilling and workover activity by some of our customers. This volatility affects the demand for our services and the price of our services.

     In the first half of 2009, utilization and pricing for our services declined due to low oil and natural gas prices. In the third quarter of 2009, oil prices began to increase and remained relatively stable through 2010. In the first half of 2011, oil prices have increased, primarily due to political instability in several oil producing countries. This trend in oil prices has caused utilization and pricing for our services to increase in our oil-based operating areas. Utilization and pricing for our services in our natural gas-based operating areas throughout 2010 and in the first half of 2011 have remained depressed due to low natural gas prices.

     We expect that our utilization levels across all of our business segments should show further improvements through the remainder of 2011 as demand continues to rise based on strong pricing, particularly in our established oil-oriented market areas. Despite current lower natural gas prices, discussions with customers indicate that demand in our natural gas-oriented market areas should remain flat with current levels.

     We derive a significant portion of our revenues from services supporting production from existing oil and natural gas operations. Demand for these production-related services, including well servicing and fluid services, tends to remain relatively stable, even in moderate oil and natural gas price environments, as ongoing maintenance spending is required to sustain production. As oil and natural gas prices fluctuate, demand for all of our services changes correspondingly as our customers must balance maintenance and capital expenditures against their available cash flows. Because our services are required to support drilling and workover activities, we are also subject to changes in capital spending by our customers as oil and natural gas prices increase or decrease.

     We believe that the most important performance measures for our lines of business are as follows:

•

Completion and Remedial Services — segment profits as a percent of revenues;

	•		Fluid Services — trucking hours, revenue per truck, segment profits per truck and segment profits as a percent of revenues;
	•		Well Servicing — rig hours, rig utilization rate, revenue per rig hour, profits per rig hour and segment profits as a percent of revenues; and
	•		Contract Drilling — rig operating days, revenue per drilling day, profits per drilling day and segment profits as a percent of revenues.

     Segment profits are computed as segment operating revenues less direct operating costs. These measurements provide important information to us about the activity and profitability of our lines of business. For a detailed analysis of these indicators for our company, see below in “Segment Overview.”

     We will continue to evaluate opportunities to expand our business through selective acquisitions and internal growth initiatives. In July of 2011 we acquired substantially all of the operating assets of Lone Star Anchor Trucking, Inc. and all of the outstanding equity interests of the Maverick companies. Our capital investment decisions are determined by an analysis of the projected return on capital employed for each of those alternatives, which is substantially driven by the cost to acquire existing assets from a third party, the capital required to build new equipment and the point in the oil and natural gas commodity price cycle. Based on these factors, we make capital investment decisions that we believe will support our long-term growth strategy. While we believe our costs of integration for prior acquisitions have been reflected in our historical results of operations, integration of acquisitions may result in unforeseen operational difficulties or require a disproportionate amount of our management’s attention.

Selected Acquisitions

     During 2010, we made four acquisitions that complemented our existing business segments. These included, among others:

     Taylor Rig, LLC

     On May 3, 2010, we acquired all the assets of Taylor Rig, LLC for total consideration of $8.7 million in cash. This acquisition has been included in our well servicing segment.

     Platinum Pressure Services, Inc. and Admiral Well Service, Inc.

     On December 16, 2010, we acquired all of the outstanding stock of Platinum Pressure Services, Inc. (“Platinum”) and Admiral Well Service, Inc., a wholly owned subsidiary of Platinum, for total cash consideration of $39.9 million including working capital. This acquisition operates in our completion and remedial services and well servicing segments.

     During the first six months of 2011, we did not complete any material acquisitions.

Segment Overview

Completion and Remedial Services

     During the first six months of 2011, our completion and remedial services segment represented 41% of our revenues. Revenues from our completion and remedial services segment are generally derived from a variety of services designed to complete and stimulate new oil and natural gas production or place cement slurry within the wellbores. Our completion and remedial services segment includes pumping services, rental and fishing tool operations, cased-hole wireline services, snubbing and underbalanced drilling.

     Our pumping services concentrate on providing single truck, lower-horsepower cementing, acidizing and fracturing services in selected markets. Our total hydraulic horsepower capacity for our pressure pumping operations was 176,000 and 142,000 at June 30, 2011 and June 30, 2010, respectively.

     In this segment, we generally derive our revenues on a project-by-project basis in a competitive bidding process. Our bids are generally based on the amount and type of equipment and personnel required, with the materials consumed billed separately. During periods of decreased spending by oil and gas companies, we may be required to discount our rates to remain competitive, which would cause lower segment profits.

     The following is an analysis of our completion and remedial services segment for each of the quarters in 2010, the full year ended December 31, 2010 and the quarters ended March 31, 2011 and June 30, 2011 (dollars in thousands):

						Segment
		Revenues				Profits%
2010:
First Quarter		$	45,234				34	%
Second Quarter		$	61,533				39	%
Third Quarter		$	73,725				41	%
Fourth Quarter		$	80,944				43	%
Full Year		$	261,436				40	%
2011:
First Quarter		$	97,507				44	%
Second Quarter		$	121,807				44	%

     We gauge the performance of our completion and remedial services segment based on the segment’s operating revenues and segment profits as a percent of revenues.

     The increase in completion and remedial services revenue to $121.8 million in the second quarter of 2011 from $97.5 million in the first quarter of 2011 as a result of improved pricing and expansion of our fleets. Segment profit percentage remained flat at 44% for both the second quarter of 2011 and the first quarter of 2011.

Fluid Services

     During the first six months of 2011, our fluid services segment represented 28% of our revenues. Revenues in our fluid services segment are earned from the sale, transportation, storage and disposal of fluids used in the drilling, production and maintenance of oil and natural gas wells. Revenues also include well site construction and maintenance services. The fluid services segment has a base level of business consisting of transporting and disposing of salt water produced as a by-product of the production of oil and natural gas. These services are necessary for our customers and generally have a stable demand but typically produce lower relative segment profits than other parts of our fluid services segment. Fluid services for completion and workover projects typically require fresh or brine water for making drilling mud, circulating fluids or frac fluids used during a job, and all of these fluids require storage tanks and hauling and disposal. Because we can provide a full complement of fluid sales, trucking, storage and disposal required on most drilling and workover projects, the add-on services associated with drilling and workover activity enable us to generate higher segment profits. The higher segment profits are due to the relatively small incremental labor costs associated with providing these services in addition to our base fluid services segment. Revenues from our well site construction services are derived primarily from preparing and maintaining access roads and well locations, installing small diameter gathering lines and pipelines, constructing foundations to support drilling rigs and providing maintenance services for oil and natural gas facilities. We typically price fluid services by the job, by the hour or by the quantities sold, disposed of or hauled.

     The following is an analysis of our fluid services operations for each of the quarters in 2010, the full year ended December 31, 2010 and the quarters ended March 31, 2011 and June 30, 2011 (dollars in thousands):

		Weighted												Segment Profits
		Average Number of								Revenue Per				Per Fluid
		Fluid Service				Trucking				Fluid Service				Service				Segment
		Trucks				Hours				Truck				Truck				Profits%
2010:
First Quarter			791				431,700			$	66			$	14				22	%
Second Quarter			797				468,600			$	74			$	19				26	%
Third Quarter			789				475,200			$	80			$	20				25	%
Fourth Quarter			782				476,100			$	85			$	27				31	%
Full Year			790				1,851,600			$	305			$	80				26	%
2011:
First Quarter			820				494,700			$	88			$	29				33	%
Second Quarter			837				525,700			$	97			$	36				37	%

     We gauge activity levels in our fluid services segment based on trucking hours, revenue and segment profits per fluid service truck, and segment profits as a percent of revenues.

     Revenue per fluid service truck increased by 10% to $97,000 in the second quarter of 2011 compared to $88,000 in the first quarter of 2011, primarily due to the increasing rates being charged to customers and higher utilization for trucking and frac tank rentals. Segment profit percentage increased to 37% in the second quarter of 2011 from 33% in the first quarter of 2011.

Well Servicing

     During the first six months of 2011, our well servicing segment represented 28% of our revenues. Revenue in our well servicing segment is derived from maintenance, workover, completion, manufacturing and plugging and abandonment services. We provide maintenance-related services as part of the normal, periodic upkeep of producing oil and natural gas wells. Maintenance-related services represent a relatively consistent component of our business. Workover and completion services generate more revenue per hour than maintenance work, due to the use of auxiliary equipment, but demand for workover and completion services fluctuates more with the overall activity level in the industry. We also have a rig manufacturing and servicing facility that builds new workover rigs, performs large-scale refurbishments of used workover rigs and provides maintenance services on previously manufactured rigs.

     We typically charge our customers for services on an hourly basis at rates that are determined by the type of service and equipment required, market conditions in the region in which the rig operates, the ancillary equipment provided on the rig and the necessary personnel. Depending on the type of job, we may also charge by the project or by the day. We measure our activity levels by the total number of hours worked by all of the rigs in our fleet. We monitor our fleet utilization levels, with full utilization deemed to be 55 hours per week per rig. Our fleet increased from a weighted average number of 405 rigs in the first quarter of 2010 to 412 in the second quarter of 2011.

     The following is an analysis of our well servicing operations for each of the quarters in 2010, the full year ended December 31, 2010 and the quarters ended March 31, 2011 and June 30, 2011:

		Weighted
		Average								Rig								Profits
		Number of				Rig				Utilization				Revenue Per				Per Rig				Segment
		Rigs				Hours				Rate				Rig Hour				Hour				Profits%
2010:
First Quarter			405				135,700				46.9	%		$	308			$	71				23	%
Second Quarter			404				153,900				53.3	%		$	316			$	83				26	%
Third Quarter			404				159,400				55.2	%		$	319			$	74				21	%
Fourth Quarter			407				164,400				56.5	%		$	331			$	90				24	%
Full Year			405				613,400				53.0	%		$	319			$	81				23	%
2011:
First Quarter			412				184,700				62.7	%		$	356			$	105				30	%
Second Quarter			412				205,700				69.8	%		$	376			$	122				32	%