The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the accompanying unaudited
condensed consolidated financial statements and related notes included elsewhere
in this Quarterly Report on Form 10-Q and with the audited consolidated
financial statements for the year ended December 31, 2019 included in our Annual
Report on Form 10-K. Any forward-looking statements made by or on our behalf are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Readers are cautioned that such forward-looking statements
involve risks and uncertainties in that the actual results may differ materially
from those projected in the forward-looking statements. Important factors that
could cause actual results to differ include risks set forth in the Risk Factors
in our Annual Report on Form 10-K for the year ended December 31, 2019.
Overview
Forbes Energy Services Ltd., or FES Ltd., is an independent oilfield services
contractor that provides a wide range of well site services to oil and natural
gas drilling and producing companies to help develop and enhance the production
of oil and natural gas. These services include well maintenance, completion
services, workovers and recompletions, plugging and abandonment, tubing testing,
fluid hauling and fluid disposal. Our operations are concentrated in the major
onshore oil and natural gas producing regions of Texas, with an additional
location in Pennsylvania. We believe that our broad range of services, which
extends from initial drilling, through production, to eventual abandonment, is
fundamental to establishing and maintaining the flow of oil and natural gas
throughout the life cycle of our customers' wells. Our headquarters and
executive offices are located at 3000 South Business Highway 281, Alice, Texas
78332. We can be reached by phone at (361) 664-0549.
As used in this Quarterly Report on Form 10-Q, the "Company," "we," and "our"
mean FES Ltd. and its subsidiaries, except as otherwise indicated.
We provide a wide range of services to a diverse group of companies. For the
three months ended March 31, 2020, we provided services to 209 companies. John
E. Crisp, Steve Macek and our senior management team have cultivated deep and
ongoing relationships with these customers during their average experience of
over 35 years in the oilfield services industry.
We conduct our operations through the following three business segments:
•       Well Servicing. Our well servicing segment comprised 49.5% of our

consolidated revenues for the three months ended March 31, 2020. Our well

servicing segment utilizes our fleet of well servicing rigs, which at

March 31, 2020 was comprised of 125 workover rigs and 7 swabbing rigs and

other related assets and equipment. These assets are used to provide

(i) well maintenance, including remedial repairs and removal and

replacement of downhole production equipment, (ii) well workovers,

including significant downhole repairs, re-completions and

re-perforations, (iii) completion and swabbing activities, (iv) plugging

and abandonment services, and (v) pressure testing of oil and natural gas

production tubing and scanning tubing for pitting and wall thickness


        using tubing testing units.


•       Coiled Tubing. Our coiled tubing segment comprised 27.0% of our
        consolidated revenues for the three months ended March 31, 2020.  This
        segment utilizes our fleet of 14 coiled tubing units, of which 11 are

large diameter units (2 3/8" or larger). These units provide a range of

services accomplishing a wide variety of goals including horizontal

completions, well bore clean-outs and maintenance, nitrogen services,

thru-tubing services, formation stimulation using acid and other

chemicals, and other pre- and post-hydraulic fracturing well preparation


        services.


•       Fluid Logistics. Our fluid logistics segment comprised 23.5% of our
        consolidated revenues for the three months ended March 31, 2020. Our
        fluid logistics segment utilizes our fleet of owned or leased fluid
        transport trucks and related assets, including specialized vacuum,
        high-pressure pump and tank trucks, hot oil trucks, frac tanks, fluid
        mixing tanks, salt water disposal wells and facilities, and related
        equipment. These assets are used to provide, transport, store, and
        dispose of a variety of drilling and produced fluids used in, and

generated by, oil and natural gas production. These services are required


        in most workover and completion projects and are routinely used in daily
        operations of producing wells.


We believe that our three business segments are complementary and create
synergies in terms of selling opportunities. Our multiple lines of service are
designed to capitalize on our existing customer base to grow it within existing
markets, generate more business from existing customers, and increase our
operating performance. By offering our customers the ability to reduce the
number of vendors they use, we believe that we help improve our customers'
efficiency. Further, by having multiple service offerings that span the life
cycle of the well, we believe that we have a competitive advantage over smaller
competitors offering more limited services.
Recent Developments
On May 15, 2020, FES LLC obtained an unsecured $10 million loan (the "PPP Loan")
under the Paycheck Protection Program from Texas Champion Bank. The Paycheck
Protection Program was established under the recently congressionally-approved
Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and is
administered by the U.S. Small Business

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Administration. In accordance with the requirements of the CARES Act, the
Company intends to use the proceeds of the PPP Loan for payroll costs, rent or
utility costs.
The PPP Loan has a two year maturity and accrues interest at a rate of 1% per
annum. Payments under the PPP Loan are deferred for the first six months of its
term.
Under the terms of the CARES Act, loan recipients can apply for and be granted
forgiveness for all or a portion of loans granted under the Paycheck Protection
Program. Such forgiveness will be determined, subject to limitations, based on
the use of loan proceeds for payroll costs and mortgage, rent and utility costs.
No assurance is provided that the Company will apply for and obtain forgiveness
of the PPP Loan in whole or in part.
On May 15, 2020, the Company, FES LLC and certain of its subsidiaries entered
into the Fourth Amendment to Credit Agreement, with the Revolver Agent and the
lenders party thereto, which amended the Revolving Loan Agreement in order to
permit the incurrence of the PPP Loan, and to effect the other matters set forth
therein.
On May 15, 2020, the Company, FES LLC and certain of its subsidiaries entered
into Amendment No. 4 to Loan and Security Agreement, with the Term Loan Agent
and the lenders party thereto, which amended the Term Loan Agreement in order to
permit the incurrence of the PPP Loan, and to effect the other matters set forth
therein.
On June 26, 2020, the Company, FES LLC and certain of its subsidiaries, as
borrowers, entered into the Fifth Amendment and Waiver to Credit Agreement with
the lenders party thereto and the Revolver Agent as further described in Note 17
- Subsequent Events.
On June 29, 2020, the Company, FES LLC, as borrower, and certain of its
subsidiaries entered into Amendment No. 5 and Waiver to Loan and Security
Agreement, with the Term Loan Agent and the lenders party thereto, as further
described in Note 17 - Subsequent Events.
On June 29, 2020, the Company notified the PIK Note holders of a possible
default due to property tax penalties that have been accrued and are
outstanding, as further described in Note 17 - Subsequent Events.
Superior Energy Services, Inc. Merger
On December 23, 2019, we announced that we had entered into an Agreement and
Plan of Merger dated as of December 18, 2019 (as amended, supplemented, and
modified from time to time, the "Merger Agreement") with Superior Energy
Services, Inc., a Delaware corporation ("Superior"), New NAM, Inc., a Delaware
corporation and a newly formed, wholly owned subsidiary of Superior which, prior
to the completion of the Mergers (as defined below), would hold the Superior's
North American Business and its associated assets and liabilities ("NAM"), Arita
Energy, Inc. (formerly known as Spieth Newco, Inc.), a Delaware corporation and
newly formed, wholly owned subsidiary of the Company ("Arita"), Spieth Merger
Sub, Inc., a Delaware corporation and newly formed, wholly owned subsidiary of
Arita ("NAM Merger Sub"), and Fowler Merger Sub, Inc., a Delaware corporation
and newly formed, wholly owned subsidiary of Arita ("Forbes Merger Sub"),
pursuant to which, upon the terms and subject to the conditions set forth in the
Merger Agreement, NAM Merger Sub would merge with and into NAM (the "NAM
Merger") and Forbes Merger Sub would merge with and into the Company (the
"Forbes Merger," and together with the NAM Merger, the "Mergers"), with each of
NAM and the Company continuing as surviving entities and wholly owned
subsidiaries of Arita.
The Merger Agreement, and the transactions contemplated thereby, were approved
by the Company's board of directors, the special committee of the Company's
board of directors, and the Superior board of directors. Arita filed a
preliminary proxy statement/prospectus on February 13, 2020, as well as
amendments thereto on March 27, 2020 and April 13, 2020. In connection with the
Merger Agreement, certain stockholders of the Company, including Ascribe Capital
LLC and its affiliates (collectively, "Ascribe") and Solace Capital Partners,
L.P. ("Solace"), entered into voting and support agreements committing to vote
the shares of the Company's common stock they beneficially own in favor of the
adoption of the Merger Agreement and any other matters necessary for the
consummation of the transaction contemplated by the Merger Agreement. Effective
immediately prior to the record date for the special meeting of the Company's
stockholders, Ascribe and Solace exchanged a portion of the PIK Notes, including
all accrued interest thereon, then held by them in exchange for shares of the
Company's common stock (the "Forbes PIK Exchange"). Following the Forbes PIK
Exchange, Ascribe and Solace beneficially own approximately 51% of the
outstanding common stock of the Company as of the record date for the special
meeting of the Company's stockholders and therefore had the ability to approve
the Merger Agreement without the vote of any other stockholder.
Termination of the Mergers
On June 1, 2020, the Company received a written notice of termination from
Superior and NAM. As a result, the Merger Agreement has been terminated
effective as of June 1, 2020. Neither the Company, Superior nor NAM is obligated
to pay a termination fee in connection with the termination of the Merger
Agreement.
Factors Affecting Results of Operations

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Market Conditions
The oil and natural gas industry experienced a significant decline in oil
exploration and production activity that began in the fourth quarter of 2014 and
has resulted in continued volatility since that time. WTI prices fluctuated
between $51 and $64 per barrel during 2019. During the three months ended March
31, 2020 oil prices experienced significant declines with WTI prices declining
from $59.88 at December 31, 2019 to $20.48 at March 31, 2020. Oil prices further
declined in April 2020 to $18.84 per barrel on April 30, 2020 with a rebound in
May 2020 to $35.49 per barrel on May 29, 2020, and June 2020 to $38.72 per
barrel on June 25, 2020. The volatility and uncertainty of future oil and gas
prices have discouraged significant capital and production investment from oil
and gas companies, which have chosen instead to focus investment on sustaining
ongoing production sources. During the first quarter of 2020, driven by COVID-19
and an oil price war triggered by Russia and Saudi Arabia, the price of WTI
dropped precipitously to pricing in the lower twenty dollar per barrel range,
with prices remaining low and volatile during April and May 2020. As a result,
the trends are viewed as triggering events that required a test of the Company's
long-lived asset values which indicated the need to record impairment adjustment
of $43.9 million on our long lived assets during the three months ended March
31, 2020 which had a material adverse impact on the Company's financial position
and results of operations. See Note 4 - Impairment of Long-Lived Assets of our
Notes to Condensed Consolidated Financial Statements.
Although global outputs generally can be adjusted to support commodity pricing
levels and previous epidemic or pandemic diseases have not resulted in sustained
industry harm, we expect these factors to contribute to continued activity and
price volatility. We believe COVID-19 will negatively impact oilfield activity
for the majority of 2020 and possibly into 2021. Similarly, the oil price
decline, and continued uncertainty regarding its duration or repetition, will
continue to have a negative impact on oil and gas activities, generally. On
December 31, 2019, the price of WTI was approximately $59.88 per barrel and
during the three months ended March 31, 2020 experienced a precipitated decline
to approximately $20.48. In line with the declines in oil and gas prices the
U.S. drilling rig count decreased from 805 rigs at December 31, 2019 to 728 rigs
as of March 31, 2020.  During this same time period the Texas drilling rig count
decreased from 404 rigs as of December 31, 2019 to 368 rigs as of March 31,
2020. U.S Rig counts continued to decline in April, May, and June 2020 to 465
rigs, 301 rigs, and 266 rigs on April 29, 2020, May 29, 2020, and June 19, 2020,
respectively. In Texas a similar continued decline was noted in April, May, and
June 2020 to 231 rigs, 127 rigs, and 111 rigs on April 29, 2020, May 29, 2020,
and June 19, 2020, respectively. The Company continues to actively pursue
additional business in the two basins where we primarily operate, the Eagle Ford
and Permian, to provide the variety of services needed to oil and gas companies
in support of their ongoing reaction to price volatility; however the Company
expects significantly reduced activity due to current market conditions.
Below are three charts that provide total U.S. rig counts, total Texas rig
counts and WTI oil price trends for the twelve months ended March 31, 2020 and
2019.

                [[Image Removed: chart-dc24c7fecce05771a3c.jpg]]

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                [[Image Removed: chart-254b33f78a845db6a97.jpg]]

Source: Rig counts are per Baker Hughes, Inc. (www.bakerhughes.com). Rig counts are the averages of the weekly rig count activity.


                [[Image Removed: chart-0b18630db9295953a0a.jpg]]
Impact of the Current Environment
With the downward trend in oil prices that began in April 2019 and continued
steeply into 2020, drilling and completion activity experienced a decline,
resulting in continued downward pressure on revenues limiting further growth
which resulted in decreased earnings and lower EBITDA.
We continue to focus on meeting our customers' expectations and adjusting our
cost structure where possible. We are also maintaining our focus on maximizing
use of our active operating assets and maintaining cost controls.
Oil and Natural Gas Prices
Demand for well servicing, coiled tubing services and fluid logistics services
is generally a function of the willingness of oil and natural gas companies to
make operating and capital expenditures to explore for, develop, and produce oil
and natural gas, which in turn is affected by current and anticipated levels of
oil and natural gas prices. Exploration and production spending is

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generally categorized as either operating expenditures or capital expenditures.
Activities by oil and natural gas companies designed to add oil and natural gas
reserves are classified as capital expenditures, and those associated with
maintaining or accelerating production, such as workover and fluid logistics
services, are categorized as operating expenditures. Operating expenditures are
typically more stable than capital expenditures and may be less sensitive to oil
and natural gas price volatility. In contrast, capital expenditures for drilling
and completion are more directly influenced by current and expected oil and
natural gas prices and generally reflect the volatility of commodity prices.
Seasonality and Cyclical Trends
Our operations are impacted by seasonal factors. Historically, our business has
been negatively impacted during the winter months due to inclement weather,
fewer daylight hours, and holidays. We typically experience a significant
slowdown during the Thanksgiving and Christmas holiday seasons. Our well
servicing rigs and coiled tubing units are mobile, and we operate a significant
number of oilfield vehicles. During periods of heavy snow, ice or rain, we may
not be able to move our equipment between locations, thereby reducing our
ability to generate rig, coiled tubing or truck hours. In addition, the majority
of our well servicing rigs work only during daylight hours. In the winter
months, as daylight time becomes shorter, the amount of time that the well
servicing rigs work is shortened, having a negative impact on total hours
worked.
In addition, the oil and natural gas industry has traditionally been volatile
and is influenced by a combination of long-term, short-term and cyclical trends,
including the domestic and international supply and demand for oil and natural
gas, current and expected future prices for oil and natural gas and the
perceived stability and sustainability of those prices. Such cyclical trends
also include the resultant levels of cash flows generated and allocated by
exploration and production companies to their drilling, completion and workover
budget.

Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019



The following tables compare the operating results of our segments for the three
months ended March 31, 2020 and 2019 (in thousands, except percentages). Segment
profit excludes general and administrative expenses, impairment of property and
equipment and intangible assets, and depreciation and amortization.
Revenues
                                  Three Months Ended March 31,
                                       % of                              % of
                      2020            revenue             2019         revenue        $ change       % change
Well Servicing  $        15,089       49.5  %       $       24,750       42.4 %     $    (9,661 )      (39.0 )%
Coiled Tubing             8,222       27.0  %               20,010       34.3 %         (11,788 )      (58.9 )%
Fluid Logistics           7,152       23.5  %               13,628       23.3 %          (6,476 )      (47.5 )%
Total           $        30,463                     $       58,388

$ (27,925 ) (47.8 )%



Direct Operating Expenses(1)
                                  Three Months Ended March 31,
                                   % of segment                      % of segment
                      2020            revenue             2019         revenue        $ change       % change
Well Servicing  $        13,354       88.5  %       $       17,549       70.9 %     $    (4,195 )      (23.9 )%
Coiled Tubing             8,303      101.0  %               17,938       89.6 %          (9,635 )      (53.7 )%
Fluid Logistics           7,029       98.3  %               10,652       78.2 %          (3,623 )      (34.0 )%
Total           $        28,686                     $       46,139                  $   (17,453 )      (37.8 )%




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Segment Profit (1)
                               Three Months Ended March 31,
                                    Segment                          Segment
                    2020           profit %             2019         profit %      $ change       % change
Well
Servicing    $          1,735         11.5  %     $         7,201       29.1 %   $    (5,466 )      (75.9 )%
Coiled
Tubing                    (81 )       (1.0 )%               2,072       10.4 %        (2,153 )     (103.9 )%
Fluid
Logistics                 123          1.7  %               2,976       21.8 %        (2,853 )      (95.9 )%
Total        $          1,777          5.8  %     $        12,249       21.0 %   $   (10,472 )      (85.5 )%

(1) Excluding general and administrative expenses, depreciation and amortization and impairment.

Revenues


Consolidated Revenues. Consolidated revenues decreased $27.9 million during the
three months ended March 31, 2020, as compared to the three months ended March
31, 2019. This decrease was the result of lower demand levels in the market
related to the effects of market uncertainty with the ongoing pandemic and sharp
declines in commodity prices.
Well Servicing. Revenues from our well servicing segment decreased $9.7 million
during the three months ended March 31, 2020, as compared to the three months
ended March 31, 2019, due to a decrease in well service rig hours related to the
aforementioned market demand declines.
Coiled Tubing.  Revenues from our coiled tubing segment decreased $11.8 million
during the three months ended March 31, 2020, as compared to the three months
ended March 31, 2019, due to a decrease in coiled tubing unit hours related to
the aforementioned market demand declines.
Fluid Logistics. Revenues from our fluid logistics segment decreased $6.5
million during the three months ended March 31, 2020, as compared to the three
months ended March 31, 2019, due to a decrease in our trucking hours related to
the aforementioned market demand declines.
Segment Profit
Well Servicing. Segment profit from our well servicing segment decreased $5.5
million during the three months ended March 31, 2020, as compared to the three
months ended March 31, 2019, due to a decrease in revenues, offset by decreased
costs, as the Company works to appropriately size the operations to expected
market demand.
Coiled Tubing.  Segment profit from our coiled tubing segment decreased $2.2
million during the three months ended March 31, 2020, as compared to the three
months ended March 31, 2019, due to a decrease in revenues, offset by decreased
costs, as the Company works to appropriately size the operations to expected
market demand.
Fluid Logistics. Segment profit from our fluid logistics segment decreased $2.9
million during the three months ended March 31, 2020, as compared to the three
months ended March 31, 2019, due to a decrease in revenues, offset by decreased
costs, as the Company works to appropriately size the operations to expected
market demand.
Operating Expenses
The following tables compares our operating expenses for the three months ended
March 31, 2020 and 2019 (in thousands):
                                  Three Months Ended March 31,
                                    2020                2019           $ change       % change
Well servicing direct
operating expenses            $        13,354     $       17,549     $   (4,195 )       (23.9 )%
Coiled tubing direct
operating expenses                      8,303             17,938         (9,635 )       (53.7 )%
Fluid logistics direct
operating expenses                      7,029             10,652         (3,623 )       (34.0 )%
General and administrative              5,911              6,825           (914 )       (13.4 )%
Impairment of property and
equipment                              40,030                  -         40,030         100.0  %
Impairment of intangible
assets                                  3,887                  -          3,887         100.0  %
Depreciation and amortization           6,119              9,439         (3,320 )       (35.2 )%
Total expenses                $        84,633     $       62,403     $   22,230          35.6  %



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Well Servicing Direct Operating Expenses. Direct operating expenses for our well
servicing segment decreased $4.2 million during the three months ended March 31,
2020, as compared to the three months ended March 31, 2019, due to decreases in
wages from headcount reductions, supplies and parts, fuel costs and out of town
travel, consistent with the trend of decreased revenues.
Coiled Tubing Direct Operating Expenses. Direct operating expenses for our
coiled tubing segment decreased $9.6 million during the three months ended March
31, 2020, as compared to three months ended March 31, 2019, due to decreases in
wages from headcount reductions, lower contractor expenses, supplies and parts,
fuel costs and out of town travel, consistent with the trend of decreased
revenues.
Fluid Logistics Direct Operating Expenses. Direct operating expenses for our
fluid logistics segment decreased $3.6 million during the three months ended
March 31, 2020, as compared to the three months ended March 31, 2019, due to
decreases in wages from headcount reductions, lower fuel costs, product costs,
repairs and maintenance, and travel, consistent with the trend of decreased
revenues.
General and Administrative Expenses. General and administrative expenses
decreased $0.9 million during the three months ended March 31, 2020, as compared
to three months ended March 31, 2019, due to decreases in wages from headcount
reductions, professional fees from reduced use of specialized accounting
contractors, less general office expenses in line with lower headcount and
operating activity, offset by an increase in merger costs.
Impairment of property and equipment and impairment of intangible assets. As a
result of triggering events that occurred in the three months ended March 31,
2020 the Company tested long-lived assets for recoverability. The carrying
values were in excess of fair values and impairment charges of $40.0 million and
$3.9 million were recorded on property and equipment and intangible assets,
respectively, during the quarter ended March 31, 2020. The resulting fair value
calculations determined impairment of tangible and intangible assets was
necessary.
Depreciation and Amortization. Depreciation and amortization expenses decreased
$3.3 million during the three months ended March 31, 2020, as compared to three
months ended March 31, 2019, due to a significant number of assets becoming
fully depreciated in 2020 coupled with the disposition of certain equipment
associated with fleet management.
Other Income (Expense)
The following table compares our other income (expense) for the three months
ended March 31, 2020 and 2019 (in thousands):
                               Three Months Ended March 31,
                                  2020               2019          $ change    % change
Interest income             $           5       $           3     $      2        66.7 %
Interest expense                   (5,753 )            (7,686 )     (1,933 )      25.1 %
Other income (expense), net $      (5,748 )     $      (7,683 )   $ (1,935 )      25.2 %

Income tax benefit          $        (102 )     $         (64 )   $    (38 )      59.4 %



Interest Expense. Interest expense decreased $1.9 million during the three
months ended March 31, 2020, as compared to the three months ended March 31,
2019, due to reduced financing leases and lower interest rates on outstanding
debt in 2020 and the write off of certain debt issuance costs in 2019.
Income Taxes. We recognized an income tax benefit of $102 thousand for the three
months ended March 31, 2020, compared to $64 thousand of income tax benefit for
the three months ended March 31, 2019. Our effective tax benefit rate was 0.2%
and 0.5% for the three months ended March 31, 2020 and 2019, respectively. The
income tax benefit for 2020 is the effect of impairments taken on long-lived
assets resulting in changes to the timing of deferred taxes. At March 31, 2020,
we estimate our gross NOL carryforwards are approximately $160.6 million
(representing $33.7 million of gross deferred tax asset and fully included in
our valuation allowance for deferred tax assets).

Adjusted EBITDA
"Adjusted EBITDA" is defined as income (loss) before interest, taxes,
depreciation, amortization, gain (loss) on early extinguishment of debt and
non-cash stock based compensation, excluding non-recurring items and items not
reflective of ongoing operations. Management does not include gain (loss) on
extinguishment of debt, non-cash stock based compensation, impairment of
long-lived assets such as goodwill, other intangibles and property, plant and
equipment, or other nonrecurring items in its calculations of Adjusted EBITDA
because it believes that such amounts are not representative of our core
operations. Further,

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management believes that most investors exclude gain (loss) on extinguishment of
debt, stock based compensation recorded under FASB ASC Topic 718 and other
nonrecurring items from customary Adjusted EBITDA calculations as those items
are often viewed as either non-recurring or not reflective of ongoing financial
performance or have no cash impact on operations.
Adjusted EBITDA is a non-GAAP financial measure that is used as a supplemental
financial measure by our management and directors and by our investors to assess
the financial performance of our assets without regard to financing methods,
capital structure or historical cost basis; the ability of our assets to
generate cash sufficient to pay interest on our indebtedness; and our operating
performance and return on invested capital as compared to those of other
companies in the well services industry, without regard to financing methods and
capital structure.
Adjusted EBITDA has limitations as an analytical tool and should not be
considered an alternative to net income, operating income, cash flow from
operating activities or any other measure of financial performance or liquidity
presented in accordance with GAAP. Adjusted EBITDA excludes some, but not all,
items that affect net income and operating income and these measures may vary
among other companies. Limitations to using Adjusted EBITDA as an analytical
tool include:
•       Adjusted EBITDA does not reflect our current or future requirements for
        capital expenditures or capital commitments;


•       Adjusted EBITDA does not reflect changes in, or cash requirements
        necessary to service interest or principal payments on our debt;

• Adjusted EBITDA does not reflect income taxes;

• Although depreciation and amortization are non-cash charges, the assets

being depreciated and amortized will have to be replaced in the future.

Adjusted EBITDA does not reflect cash requirements for such replacements;

and

• Other companies in our industry may calculate Adjusted EBITDA differently


        than we do, limiting its usefulness as a comparative measure.


          Reconciliation of Net Income (Loss) to Adjusted EBITDA
                               (Unaudited)

                                         Three months ended March 31,
                                           2020                 2019
(in thousands)
Net loss                             $      (59,816 )     $      (11,634 )
  Interest income                                (5 )                 (3 )
  Interest expense                            5,753                7,686
  Income tax (benefit) expense                 (102 )                (64 )
Impairment of property and equipment         40,030                    -
Impairment of intangible assets               3,887                    -
  Depreciation and amortization               6,119                9,439
  Share-based compensation                      230                  253
Acquisition/merger related costs              1,318                1,060
Gain on disposal of assets                     (297 )             (1,117 )
Adjusted EBITDA                      $       (2,883 )     $        5,620



Liquidity and Capital Resources
Historically, we have funded our operations, including capital expenditures,
through the credit facilities, vendor financings, and cash flow from operations,
the issuance of senior notes and the proceeds from our public and private equity
offerings. More recently, we have funded our operations through our Term Loan
Agreement, PIK Notes, Revolving Loan Agreement and other financing activities.
As of March 31, 2020, we had $8.1 million in cash and cash equivalents and
$137.9 million in contractual debt, net of debt discount.

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The $137.9 million in contractual debt was comprised of $59.6 million under the
Term Loan Agreement, $61.8 million under the PIK Notes, $4.0 million under the
Revolving Loan Agreement, $9.6 million in finance leases and $2.8 million in
insurance notes related to our general liability, workers compensation and other
insurance. Of our total debt, $73.7 million was classified as current, and $64.1
million was classified as long-term.
Going Concern
The Company is required to evaluate whether there is a substantial doubt about
its ability to continue as a going concern each reporting period. In evaluating
the Company's ability to continue as a going concern, management has considered
conditions and events that could raise substantial doubt about the Company's
ability to continue as a going concern for one year following the date the
Company's financial statements are issued. These conditions and evaluations
included the Company's current financial condition and liquidity sources,
including current cash and cash equivalents balances, forecasted cash flows, the
Company's obligations due within twelve months of the date these financial
statements were issued, including the Company's obligations described in Note 7
- Long-Term Debt, and the other conditions and events described below.
The Company has incurred substantial net losses and losses from operations for
the quarter ended March 31, 2020 and for the year ended December 31, 2019. As of
March 31, 2020, the Company had cash and cash equivalents of approximately $8.1
million. The Company has access to a working capital facility under the
Revolving Loan Agreement (as described below) that is based on the Company's
accounts receivable; however, as of March 31, 2020, the Company did not have
funds available to borrow under the Revolving Loan Agreement. Loans under the
Revolving Loan Agreement mature in January 2021 and loans under the Term Loan
Agreement mature in April 2021, in each case within the 12-month going concern
evaluation period. In March 2020, a limited waiver was obtained under the
Revolving Loan Agreement, providing relief extending through June 30, 2020, from
the requirement to provide an unqualified opinion on the Company's consolidated
financial statements for the fiscal year ended December 31, 2019. There can be
no assurance that the Company will be able to negotiate an extension of the
Revolving Loan, obtain future waivers, or have sufficient funds to repay its
obligations under the Revolving Loan Agreement when they come due. As of March
31, 2020, the Company had $4.0 million of loans outstanding under the Revolving
Loan Agreement, which is recorded as a current liability. In addition, the PIK
Notes became mandatorily convertible into common stock upon maturity on June 30,
2020, provided, however, each of Ascribe Capital LLC and Solace Capital Partners
LP, on behalf of each of their funds that is a holder of PIK Notes issued under
the Indenture which in the aggregate hold $48.9 million of face value of the PIK
Notes, agreed to extend the maturity date under the Indenture to November 30,
2020 of the Excess PIK Notes (as defined below). The Company does not currently
have sufficient authorized common shares to fully convert, nor the liquidity to
repay, the $61.8 million accrued amount of PIK Notes upon their maturity,
requiring shareholder approval to authorize additional shares, which has not
occurred as of the date of these financial statements. There is also uncertainty
as to whether the Company will have sufficient liquidity to repay the loans
under the Term Loan Agreement totaling $59.6 million when they mature on April
13, 2021. In addition, the Company may not have access to other sources of
external capital on reasonable terms, or at all. The Company also expects to
continue to experience volatility in market demand, which creates normal oil and
gas price fluctuations, as well as external market pressures due to effects of
global health concerns, such as COVID-19, and the oil price war triggered by
Russia and Saudi Arabia that are not within our control.
Management's plans to alleviate this substantial doubt include: (i) continuing
to discuss amendments with the Company's lenders in order to extend the term of
the Revolving Loan Agreement and the Term Loan Agreement; (ii) negotiate with
the holders of the mandatorily convertible PIK Notes as to the terms of the
conversion and/or complete a shareholder vote to authorize more common shares
available for issuance;(iii) continuing to manage operating costs by actively
pursuing cost cutting measures to maximize liquidity in line with current
industry economic expectations; and/or (iv) pursuing additional financings with
existing and new lenders. Based on the uncertainty of achieving these goals and
the significance of the factors described, there is substantial doubt as to the
Company's ability to continue as a going concern for a period of one year after
the date these financial statements are issued.
Impairment of Long-Lived Assets
The oil and gas industry experienced a significant disruption during the first
quarter of 2020 as a result of the oil price war initiated by Saudi Arabia and
Russia in February 2020 and the substantial decline in global demand for oil
caused by the COVID-19 pandemic. These events resulted in a steep decline in
prices, with physical markets showing signs of distress as spot prices were also
negatively impacted by the lack of available storage capacity. Demand for our
services declined in the face of depressed crude oil pricing.
These market conditions have significantly impacted the Company's business and
outlook with material adverse impacts to operations anticipated to continue in
the near-term. Customers continue to revise their capital budgets in order to
adjust spending levels in response to the lower commodity prices, and the
Company has experienced, and continues to experience, significant customer
activity reductions and pricing pressure for products and services. The Company
has determined these recent events constituted a triggering event that required
a review of the recoverability of long-lived assets and performed an interim
impairment assessment of property and equipment and intangibles as of March 31,
2020.

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The fair value of long-lived assets was determined based on a discounted cash
flow analysis. These analyses included significant judgment, including
management's short-term and long-term forecast of operating performance,
discount rates based on weighted average cost of capital, revenue growth rates,
profitability margins, capital expenditures, the timing of future cash flows
based on an eventual recovery of the oil and gas industry, and in the case of
long-lived assets, the remaining useful life and service potential of the
assets. These impairment assessments incorporate inherent uncertainties,
including projected commodity pricing, supply and demand for services and future
market conditions, which are difficult to predict in volatile economic
environments and could result in impairment charges in future periods if actual
results materially differ from the estimated assumptions utilized in forecasts.
Based upon the Company's impairment assessments, it was determined the carrying
amount of certain of the Company's long-lived assets exceeded their respective
fair values. Therefore, impairments to property and equipment and intangible
assets totaled $43.9 million during the three months ended March 31, 2020 as
described in Note 4. The Company will continue to evaluate its long-lived assets
in future quarters and could be required to record additional impairments in
future reporting periods in the event market conditions continue to deteriorate.
Term Loan Agreement
On April 13, 2017, FES LLC, as borrower, and the Company and certain of its
subsidiaries, as guarantors, entered into the Loan and Security Agreement (the
"Term Loan Agreement") with the lenders party thereto and Wilmington Trust,
National Association, as agent (the "Term Loan Agent"). The Term Loan Agreement,
as amended, provided for a term loan of $60.0 million, excluding paid-in-kind
interest. Subject to certain exceptions and permitted encumbrances, the
obligations under the Term Loan Agreement are secured by a first priority
security interest in substantially all the assets of the Company other than
accounts receivable, cash and related assets, which constitute priority
collateral under the Revolving Loan Agreement (described below). The Term Loan
Agreement has a stated maturity date of April 13, 2021.
Borrowings under the Term Loan Agreement bear interest at a rate equal to five
percent (5%) per annum payable quarterly in cash, or the Cash Interest Rate,
plus (ii) an initial paid-in-kind interest rate of seven percent (7%) commencing
April 13, 2017 to be capitalized and added to the principal amount of the term
loan or, at the election of the Borrower, paid in cash. The paid-in-kind
interest increases by two percent (2%) twelve months after April 13, 2017 and
every twelve months thereafter until maturity. Upon and after the occurrence of
an event of default, the Cash Interest Rate will increase by two percentage
points per annum. During the three months ended March 31, 2020, $1.7 million of
interest was paid-in-kind. At March 31, 2020, the paid-in-kind interest rate was
11%.
The Company is permitted under the Term Loan Agreement to voluntarily repay the
outstanding term loans at any time without premium or penalty. The Company is
required to use the net proceeds from certain events, including but not limited
to, the disposition of assets, certain judgments, indemnity payments, tax
refunds, pension plan refunds, insurance awards and certain incurrences of
indebtedness to repay outstanding loans under the Term Loan Agreement. The
Company may also be required to use cash in excess of $20.0 million to repay
outstanding loans under the Term Loan Agreement.
The Term Loan Agreement includes customary negative covenants for an asset-based
term loan, including covenants limiting the ability of the Company to, among
other things, (i) effect mergers and consolidations, (ii) sell assets, (iii)
create or suffer to exist any lien, (iv) make certain investments, (v) incur
debt and (vi) transact with affiliates. In addition, the Term Loan Agreement
includes customary affirmative covenants for an asset-based term loan, including
covenants regarding the delivery of financial statements, reports and notices to
the Agent. The Term Loan Agreement also contains customary representations and
warranties and event of default provisions for a secured term loan.
On May 15, 2020, the Company entered into a further amendment to the Term Loan
Agreement, as described below in Item 5 of Part II - Other Information.
Revolving Loan Agreement
On November 16, 2018, the Company and certain of its subsidiaries, as borrowers,
entered into a Credit Agreement (the "Revolving Loan Agreement") with the
lenders party thereto and Regions Bank, as administrative agent and collateral
agent (the "Revolver Agent"). The Revolving Loan Agreement, as amended, provides
for $9.0 million of letter of credit commitments, subject to a borrowing base
comprised of 85% of eligible accounts receivable, 90% of eligible investment
grade accounts receivable (in each case, less allowance for doubtful accounts)
and 100% of eligible cash, less reserves. The letter of credit commitments under
the Revolving Loan Agreement expire in December 2020, and letters of credit
issued under the Revolving Loan Agreement accrue fees at 4.25%, per annum.
The Revolving Loan Agreement is secured on a first lien basis by substantially
all assets of the Company and its subsidiaries, subject to an intercreditor
agreement between the Revolver Agent and the Term Loan Agent which provides that
the priority collateral for the Revolving Loan Agreement consists of accounts
receivable, cash and related assets, and that the other assets of the Company
and its subsidiaries constitute priority collateral for the Term Loan Agreement.
At March 31, 2020, the Company had $4.0 million of borrowings outstanding and
$6.9 million in letters of credit outstanding. At June 30, 2020, the Company had

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no revolving loans outstanding or available borrowings and $6.9 million in
letters of credit outstanding, with $2.1 million in available commitments.
Amendments and Waivers to Revolving Loan Agreement and Term Loan Agreement
On February 3, 2020 the Company and certain of its subsidiaries, as borrowers,
entered into Second Amendment to Credit Agreement, effective December 31, 2019,
(the "February 2020 Revolving Loan Amendment"), with the lenders party thereto
and the Revolver Agent. Among other things, the February 2020 Revolving Loan
Amendment reinstated a minimum excess line availability covenant for the monthly
periods from December 2019 through July 2020 and removed the requirement to test
for the purpose of a financial covenant, the fixed charge coverage ratio for the
monthly periods from December 2019 through June 2020.
On March 20, 2020, the Company and certain of its subsidiaries, as borrowers,
entered into the Third Amendment and Temporary Limited Waiver to Credit
Agreement (the "March 2020 Revolving Loan Amendment") with the lenders party
thereto and the Revolver Agent. Pursuant to the March 2020 Revolving Loan
Amendment, the requirement for the Company to deliver an unqualified audit
opinion for the fiscal year ended December 31, 2019 was waived until June 30,
2020 (the "Revolving Loan Agreement Temporary Waiver"). In addition, the
commitments under the Revolving Loan Agreement were reduced from $35.0 million
to $27.5 million, and interest under the Revolving Loan Agreement was increased
from a range of LIBOR plus 2.50% to 3.25% or base rate plus 1.50% to 2.25% based
on the fixed charge coverage ratio from time to time, to LIBOR plus 4.25% or
base rate plus 3.25%.
On March 20, 2020, the Company, as a guarantor, FES LLC, as borrower, and
certain of their subsidiaries, as guarantors, obtained a corresponding waiver
under the Term Loan Agreement for the requirement to deliver an unqualified
audit opinion for the fiscal year ended December 31, 2019.
On March 23, 2020, the Company, as a guarantor, FES LLC, as borrower, and
certain of their subsidiaries, as guarantors, entered into Amendment No. 3 to
Loan and Security Agreement (the "March 2020 Term Loan Amendment") with the
lenders party thereto and the Term Loan Agent. Pursuant to the March 2020 Term
Loan Amendment, there will be no cross-default to the Revolving Loan Agreement
resulting from the expiration of the Revolving Loan Agreement Temporary Waiver.
On May 15, 2020, the Company entered into further amendments to the Revolving
Loan Agreement and the Term Loan Agreement, as described above in Note 17 -
Subsequent Events.
On June 26, 2020, the Company entered into further amendments to the Revolving
Loan Agreement, as described above in Note 17 - Subsequent Events.
On June 29, 2020, the Company entered into further amendments to the Term Loan
Agreement, as described above in Note 17 - Subsequent Events.
5% Subordinated Convertible PIK Notes
On March 4, 2019, the Company issued $51.8 million aggregate original principal
amount of 5.00% Subordinated Convertible PIK Notes due June 30, 2020 (the "PIK
Notes"). On March 4, 2019, the Company, as Issuer, and Wilmington Trust,
National Association, as Trustee, entered into an Indenture governing the terms
of the PIK Notes.
The PIK Notes bear interest at a rate of 5.00% per annum. Interest on the PIK
Notes will be accrued and payable, or capitalized to principal if not permitted
to be paid in cash, semi-annually in arrears on June 30 and December 31 of each
year, commencing on June 30, 2019. The Company capitalized PIK Note interest
totaling $0.09 million on July 1, 2019 and $1.3 million on January 1, 2020,
which corresponds to the date the interest was determined to be paid.
The PIK Notes are the unsecured general subordinated obligations of the Company
and are subordinated in right of payment to any existing and future secured or
unsecured senior debt of the Company, including debt incurred under the Term
Loan Agreement and the Revolving Loan Agreement. The payment of the principal
of, premium, if any, and interest on the PIK Notes will be subordinated to the
prior payment in full of all of the Company's existing and future senior
indebtedness, including debt incurred under the Term Loan Agreement and the
Revolving Loan Agreement. In the event of a liquidation, dissolution,
reorganization or any similar proceeding, obligations on the PIK Notes will be
paid only after senior indebtedness has been paid in full. Pursuant to the
Indenture, the Company is not permitted to (1) make cash payments to pay
principal of, premium, if any, and interest on or any other amounts owing in
respect of the PIK Notes, or (2) purchase, redeem or otherwise retire the PIK
Notes for cash, if any senior indebtedness is not paid when due or any other
default on senior indebtedness occurs and the maturity of such indebtedness is
accelerated in accordance with its terms unless, in any case, the default has
been cured or waived, and the acceleration has been rescinded or the senior
indebtedness has been repaid in full.
The Indenture also provides that upon a default by the Company in the payment
when due of principal of, or premium, if any, or interest on, indebtedness in
the aggregate principal amount then outstanding of $5.0 million or more, or
acceleration of the Company's indebtedness so that it becomes due and payable
before the date on which it would otherwise have become due and payable, and if
such default is not cured or waived within 30 days after notice to the Company
by the trustee or by holders of at

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least 25% in aggregate principal amount of the PIK Notes then outstanding, the
principal of, (and premium, if any) and accrued and unpaid interest on, the PIK
Notes may be declared immediately due and payable.
The PIK Notes are redeemable in whole or from time to time in part at the
Company's option at a redemption price equal to the sum of (i) 100.0% of the
principal amount of the PIK Notes to be redeemed and (ii) accrued and unpaid
interest thereon to, but excluding, the redemption date, which amounts may be
payable in cash or in shares of the Company's common stock, (subject to
limitations, if any, in the documentation governing the Company's senior
indebtedness). If redeemed for the Company's common stock the holder will
receive a number of shares of the Company's common stock calculated based on the
Fair Market Value of a share of the Company's common stock at such time, in each
case less a 15% discount per share. The 15% discount represents an implied
conversion premium at issuance which will be settled in common stock at the date
of conversion.  As such, the face value of the PIK Notes will be accreted to the
settlement amount at June 30, 2020. For the three months ended March 31, 2020
and 2019, the Company recorded $1.8 million and $0.6 million, respectively, in
interest expense related to the accretion of the conversion premium.
The Indenture contains provisions permitting the Company and the trustee in
certain circumstances, without the consent of the holders of the PIK Notes, and
in certain other circumstances, with the consent of the holders of not less than
a majority in aggregate principal amount of the PIK Notes at the time
outstanding to execute supplemental indentures modifying the terms of the
Indenture and the PIK Notes as described. It is also provided in the Indenture
that, subject to certain exceptions, the holders of a majority in aggregate
principal amount of the PIK Notes at the time outstanding may on behalf of the
holders of all the PIK Notes waive any past default or event of default under
the Indenture and its consequences.
The Indenture provides for mandatory conversion of the PIK Notes at maturity (or
such earlier date as the Company shall elect to redeem the PIK Notes), or upon a
marketed public offering of the Company's common stock or a Change of Control,
in each case as defined in the Indenture, at a conversion rate per $100
principal amount of PIK Notes into a number of shares of the Company's common
stock calculated based on the Fair Market Value of a share of the Company's
common stock at such time, in each case less a 15% discount per share.
Fair Market Value means fair market value as determined by (A) in the case of a
marketed public offering, the offering price per share paid by public investors
in such marketed public offering, (B) in the case of a Change of Control, the
value of the consideration paid per share by the acquirer in the Change of
Control transaction, or (C) in the case of mandatory conversion at the Maturity
Date (or such earlier date as the Company shall elect to redeem the PIK Notes),
such value as shall be determined by a nationally recognized investment banking
firm engaged by the Board of Directors of the Company.
Effective November 14, 2019, each of Ascribe Capital LLC and Solace Capital
Partners LP, on behalf of each of their funds that is a holder of PIK Notes
issued under the Indenture which in the aggregate hold $48.9 million of face
value of the PIK Notes, agreed to extend the maturity date under the Indenture
to November 30, 2020 of those PIK Notes (the "Excess PIK Notes"), for which
there are not at June 30, 2020 sufficient authorized shares of common stock of
the Company to effect the mandatory conversion of the Excess PIK Notes, after
giving effect to the conversion of PIK Notes held by other holders of PIK Notes
who have not agreed to a maturity date extension or conversion deferral. Each
also agreed to defer the mandatory conversion feature under the Indenture for
such Excess PIK Notes until after the Company's stockholders have authorized
sufficient additional shares of the Company's common stock to permit such
conversion.
On April 16, 2020, the Company, Ascribe, and Solace consummated the Forbes PIK
Exchange, pursuant to which Ascribe exchanged approximately $0.13 million
aggregate principal amount of PIK Notes in exchange for 963,116 shares of the
Company's common stock, and Solace exchanged approximately $0.09 million
aggregate principal amount of PIK Notes in exchange for 709,253 shares of the
Company's common stock. Following the Forbes PIK Exchange, Ascribe and its
affiliates and Solace and its affiliates collectively beneficially own an
aggregate amount of the Company's common stock representing 51% of the voting
power of the outstanding shares of the Company's common stock.
On June 29 the Company notified the PIK Note holders of a possible default due
to property tax penalties that have been accrued and are outstanding, as further
described in Note 17 - Subsequent Events.
Cash Flows
Our cash flows depend, to a large degree, on the level of spending by oil and
gas companies' development and production activities. The prices of oil and
natural gas have declined significantly during the last half of 2019 and the
first quarter of 2020 due to demand/supply imbalances, COVID-19 and the oil
price war triggered by Russia and Saudi Arabia. These lower levels of activities
will materially affect our future cash flows.

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                                                       Three months ended March 31,
                                                        2020                   2019
Net cash provided by (used in) operating
activities                                       $          4,613       $         (4,341 )
Net cash used in investing activities                        (471 )                 (373 )
Net cash used in financing activities                      (1,246 )               (1,168 )
Net increase (decrease) in cash, cash
equivalents and cash - restricted                           2,896                 (5,882 )
Cash, cash equivalents and cash - restricted
Beginning of period                                         5,297                  8,156
End of period                                    $          8,193       $          2,274



Cash flows from operating activities for the three months ended March 31, 2020
increased as compared to the three months ended March 31, 2019. The increase
resulted from working capital changes related to accounts receivable, prepaids,
accounts payable and accrued liabilities.
Cash flows used in investing activities for the three months ended March 31,
2020 increased as compared to the three months ended March 31, 2019. The
increase is related to less in proceeds from sale of equipment, offset by fewer
purchases of property and equipment.
Cash flows used in financing activities were $1.2 million for each of the three
months ended March 31, 2020 and 2019. During the three months ended March 31,
2020 we made $1.2 million in principal payments on our finance leases.
Our current and future liquidity is greatly dependent upon our operating
results. Our ability to continue to meet our liquidity needs is subject to and
will be affected by cash utilized in operations, the economic or business
environment in which we operate, weakness in oil and natural gas industry
conditions, the financial condition of our customers and vendors, and other
factors. Furthermore, as a result of the challenging market conditions we
continue to face, for the short term, we anticipate continuing to use net cash
in operating activities.
Capital Expenditures
Capital expenditures for the three months ended March 31, 2020 and 2019 were
additions of $1.8 million and $5.1 million, respectively. Additions to our fluid
logistics segment were primarily purchases of vacuum trucks and light trucks,
offset by the sale of certain unused equipment. Additions to our well servicing
segment were for well service equipment and light trucks. Additions to our
coiled tubing segment were for light trucks, and pumping and support equipment.
Off-Balance Sheet Arrangements
We are often party to certain transactions that require off-balance sheet
arrangements such as performance bonds, guarantees, operating leases for
equipment, and bank guarantees that are not reflected in our condensed
consolidated balance sheets. These arrangements are made in our normal course of
business and they are not reasonably likely to have a current or future material
adverse effect on our financial condition, results of operations, liquidity, or
cash flows. See Note 8 - Commitments and Contingencies.
Critical Accounting Policies and Estimates
The preparation of our condensed consolidated financial statements in accordance
with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities as of the dates of the financial statements and the
reported amounts of revenue and expenses during the applicable reporting
periods. On an ongoing basis, management reviews its estimates, particularly
those related to depreciation and amortization methods and useful lives and
impairment of long-lived assets, using currently available information. Changes
in facts and circumstances may result in revised estimates, and actual results
could differ from those estimates. There have been no material changes to the
critical accounting policies and estimates set forth in Item 7 in our Annual
Report on Form 10-K for the year ended December 31, 2019.

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