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Fort Worth-based Basic Energy Services, Inc. (OTCQX: BASX) in late May announced the implementation of changes to the organizational structure of the company, reducing the number of operating regions from five to three.
Basic believes this internal consolidation will result in approximately $20 million in annual cost savings, in addition to the previously announced $17 million of expected annual cost synergies related to the acquisition of C&J Well Services and $20 million cost savings previously disclosed in response to market volatility related to the COVID-19 pandemic.
To further reduce costs, Basic announces the reorganization and consolidation of its current operating structure, which previously consisted of five regions: Permian Basin, Central, Rocky Mountains, California, and Agua Libre Midstream. The streamlined structure will result in three regions, which will operate on a hub-and-spoke model and will allow for the removal of a layer of general and administrative costs by removing yard-level P&Ls, increasing operating leverage and flexibility through the business cycle. The three new regions are as follows:
- Central, consisting of operations in the Permian Basin, Gulf Coast, Louisiana, North Texas and Oklahoma;
- Western, consisting of operations in California and the Rocky Mountains; and
- Agua Libre, which is unaffected by this reorganization.
To support this leaner organizational structure, Basic is appointing a Product Service Line lead for its most significant businesses, including well servicing, water logistics, plugging and abandonment/coiled tubing, and rental and fishing tools/snubbing.
In conjunction with the cost-cutting initiative, the company is making the following personnel changes:
- Adam Hurley, vice president and chief integration officer, is promoted to executive vice president, operations and will lead the three regions and four PSLs;
- Jim Newman, senior vice president, region operations, is named senior vice [resident, Agua Libre Midstream;
- Brandon McGuire, vice president, Permian, is named senior vice president, Central Region; and
- Jack Renshaw will remain senior vice president, Western Region, overseeing the same geography but with a reduced cost structure.
Keith Schilling, Basic’s president and CEO, stated, “We are pleased to announce that the synergies from our recent acquisition of C&J are achieving our previously announced target of $17 million and should be fully realized by June 30. In addition, our response to COVID-19, including furloughs and headcount reductions, should result in a reduction in expenses by an additional $20 million. Further, we expect the operational consolidation announced today to result in additional cost savings of approximately $20 million on an annual basis. Given the extraordinary challenges facing our industry, we continue to act quickly and decisively to improve our operational structure, with a goal of reducing G&A materially as a percent of revenue. We believe this right-sizing of our Company structure will afford Basic the benefits of scale and preservation of liquidity that will allow us to reinforce our commitment to our customers as a leading production services company in the U.S. and industry consolidator of choice.”