OMNI ENERGY SERVICES CORP ITEM 1A RISK FACTORS You should carefully consider the following risk factors, in addition to the other information set forth or incorporated by reference herein |
Each of these risk factors could adversely affect our business, operating results and financial condition, and also adversely affect the value of an investment in our common stock |
INDUSTRY VOLATILITY MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS The demand for our services depends on the level of capital expenditures by oil and gas companies for developmental construction and these expenditures are critical to our operations |
The levels of such capital expenditures are influenced by the following factors: • oil and gas prices and industry perceptions of future price levels; • the cost of exploring for, producing and delivering oil and gas; • the ability of oil and gas companies to generate capital; • the sale and expiration dates of leases in the United States; • the availability of current geophysical data; • the discovery rate of new oil and gas reserves; and • local and international political and economic conditions |
The cyclical nature of the oil and gas industry has a significant effect on our revenues and profitability |
Historically, prices of oil and gas, as well as the level of exploration and developmental activity, have fluctuated substantially |
This has, in the past, and may, in the future, adversely affect our business |
We are unable to predict future oil and gas prices or the level of oil and gas industry activity |
A prolonged low level of activity in the oil and gas industry will likely depress development activity, adversely affecting the demand for our products and services and our financial condition and results of operations |
OUR GROWTH AND GROWTH STRATEGY INVOLVES RISKS We have grown over the last several years through internal growth and acquisitions of other companies |
It will be important for our future success to manage our rapid growth and this will demand increased responsibility for management personnel |
The following factors could present difficulties to us: • the lack of sufficient executive-level personnel; • the successful integration of the operations of Preheat including the integration of a management team with us; 15 ______________________________________________________________________ [49]Table of Contents [50]Index to Financial Statements • increased levels of debt and administrative burdens; and • increased logistical problems of large, expansive operations |
If we do not manage these potential difficulties successfully, they could have a material adverse effect on our financial condition and results of operations |
WE HAVE INCURRED NET LOSSES IN PREVIOUS YEARS For 2005, we had net income from our continuing operations |
However, our recent financial history, including the year ended December 31, 2005, reflects annual net losses, of which our current net loss is attributable mainly to discontinued operations |
We hope to continue generating increased revenues and profits from our continuing operations; however, any such increase may not be sustainable or indicative of future results of operations |
We do intend to continue investing in internal expansion, infrastructure, integration of acquired companies and into our operations and our marketing and sales efforts |
THE DANGERS INHERENT IN OUR OPERATIONS AND THE POTENTIAL LIMITS ON INSURANCE COVERAGE FOR CERTAIN RISKS COULD EXPOSE US TO POTENTIALLY SIGNIFICANT LIABILITY COSTS Our operations, and to a significant degree our seismic operations, are subject to risks or injury to personnel and loss of equipment |
Our crews often conduct operations in extreme weather, in difficult terrain that is not easily accessible, and under other hazardous conditions |
We maintain what we believe is prudent insurance protection |
However, we cannot assure that our insurance will be sufficient or effective under all circumstances |
A successful claim for which we are not fully insured may have a material adverse effect on our revenues and profitability |
Moreover, we do not carry business interruption insurance with respect to our operations |
WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY We compete with several other providers of seismic drilling, permitting, survey and environmental services |
Competition among seismic contractors historically has been, and will continue to be, intense |
Competitive factors have in recent years included price, crew experience, equipment availability, technological expertise and reputation for quality and dependability |
Our revenues and earnings may be affected by the following factors: • changes in competitive prices and availability of trained personnel; • fluctuations in the level of activity and major markets; • general economic conditions; and • governmental regulation |
Additionally, in certain geographical areas, some of our competitors operate more crews than we do and may have substantially greater financial and other resources |
These operators could enjoy an advantage over us if the competitive environment for contract awards shifts to one characterized principally by intense price competition |
SEASONALITY AND ADVERSE WEATHER CONDITIONS IN THE REGIONS IN WHICH WE OPERATE MAY ADVERSELY AFFECT OUR OPERATIONS Our operations are directly affected by the weather conditions in the Gulf of Mexico |
Due to seasonal differences in weather patterns, we may operate more days in the spring, summer and fall periods and less in the winter months |
The seasonality of oil and gas industry activity in the Gulf Coast region also affects our operations |
Due to exposure to weather, we generally experience higher drilling activity in the spring, summer 16 ______________________________________________________________________ [51]Table of Contents [52]Index to Financial Statements and fall months with the lowest activity in winter months, especially with respect to our operations in the mountainous regions of the western United States |
The rainy weather, hurricanes and other storms prevalent in the Gulf of Mexico and along the Gulf Coast throughout the year may also affect our operations |
As a result, full-year results are not likely to be a direct multiple of any particular quarter or combination of quarters |
WE ARE DEPENDENT ON KEY PERSONNEL Our success depends on, among other things, the continued active participation of our executive officers and certain of our other key operating personnel |
Our officers and personnel have extensive experience in the domestic and international oilfield services industry |
The loss of the services of any one of these persons could impact adversely our ability to implement our expansion strategy |
WE MAY INCUR ADDITIONAL EXPENDITURES TO COMPLY WITH GOVERNMENTAL REGULATIONS Our seismic and environmental operations are subject to extensive governmental regulation, violations of which may result in civil and criminal penalties, injunctions and cease and desist orders |
These laws and regulations govern, among other things, operations in wetlands, the handling of explosives and hazardous and non-hazardous waste |
Although our cost of compliance with such laws has to date been immaterial, such laws are changed frequently |
Accordingly, it is impossible to predict the cost or impact of such laws on our future operations |
We are also required by various governmental agencies to obtain certain permits, licenses and certificates |
To date, we believe that we possess all permits, licenses and certificates material to the operation of our business |
The loss by us of any of the licenses required for our operation could have a material adverse effect on our operations |
We depend on demand for our services from the oil and gas industry, and this demand may be affected by changing tax laws and oil and gas regulations |
As a result, the adoption of laws that curtail oil and gas production in our areas of operation may adversely affect us |
We cannot determine to what extent our operations may be affected by any new regulations or changes in existing regulations |
ONE STOCKHOLDER HAS SUBSTANTIAL CONTROL OVER OUR AFFAIRS Dennis R Sciotto beneficially owns approximately 35prca of our outstanding common stock |
Sciotto represents and controls The Dennis R Sciotto Family Trust and was appointed to the Board of Directors by the holders of the Series C Preferred Stock on June 13, 2005 pursuant to the Securities Purchase Agreement dated May 17, 2005 |
Sciotto has the ability to substantially influence our management and affairs and all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger, consolidation or sale of substantially all of our assets |
This may have the effect of delaying, deferring or preventing a change in control, or impeding a merger or consolidation |
FUTURE TECHNOLOGICAL ADVANCES COULD IMPAIR OPERATING ASSETS OR REQUIRE SUBSTANTIAL UNBUDGETED CAPITAL EXPENDITURES We compete in providing services in a capital intensive business |
The development of seismic data acquisition and processing equipment has been characterized by rapid technological advancements in recent years, and this trend may continue |
Manufacturers of seismic equipment may develop new systems that have competitive advantages over systems now in use that could render our current equipment obsolete or require us to make significant unplanned capital expenditures to maintain our competitive position |
Under such circumstances, there can be no assurance that we would be able to obtain necessary financing on favorable terms |
OUR SEISMIC DRILLING OPERATIONS DEPEND ON A FEW SIGNIFICANT CUSTOMERS We derive a significant amount of our revenue from a small number of geophysical companies |
Our inability to continue to perform services for a number of our large existing customers, if not offset by sales to new or other existing customers could have a material adverse effect on our business and operations |
For example, our largest customers (those which individually accounted for more than 10prca of revenue in a given 17 ______________________________________________________________________ [53]Table of Contents [54]Index to Financial Statements year, listed alphabetically) collectively accounted for 71prca (Quantum Geophysical, Seismic Exchange, and Veritas DGC), 50prca (PGS, Quantum Geophysical, Seismic Exchange, and Veritas DGC), and 38prca (Quantum Geophysical and Veritas DGC) of revenue for fiscal 2003, 2004 and 2005, respectively |
WE ARE NOT ABLE TO GUARANTEE THAT OUR BACKLOG WILL BE TIMELY CONVERTED INTO REVENUE IN ANY PARTICULAR FISCAL PERIOD Our backlog represents those seismic drilling and survey projects for which a customer has hired us and has scheduled a start date for the project |
Backlog levels vary during the year depending on the timing of the completion of certain contracts and when we are awarded new contracts |
Projects currently included in our backlog are subject to termination or delay without penalty at the option of the customer, which could substantially reduce the amount of backlog currently reported, and consequently, the conversion of that backlog into revenue |
UNFAVORABLE RESULTS OF LITIGATION COULD HAVE A MATERIAL ADVERSE IMPACT ON OUR FINANCIAL STATEMENTS As discussed in Note 8 to the Consolidated Financial Statements, we are subject to a variety of claims and lawsuits |
Adverse outcomes in some or all of the pending cases may result in significant monetary damages or injunctive relief against us |
We are also subject to a variety of other claims and suits that arise from time to time in the ordinary course of our business |
Management currently believes that resolving all of these matters, individually or in the aggregate, will not have a material adverse impact on our financial position or results of operations |
The litigation and other claims are subject to inherent uncertainties and management’s view of these matters may change in the future |
There exists the possibility of a material adverse impact on our financial position and the results of operations for the period in which the effect of an unfavorable final outcome becomes probable and reasonably estimable |
IF WE BREACH ANY OF THE MATERIAL FINANCIAL COVENANTS UNDER OUR VARIOUS INDEBTEDNESS, OR IF AN EVENT OF DEFAULT IS DECLARED WITH RESPECT TO ANY SUCH INDEBTEDNESS, OUR DEBT SERVICE OBLIGATIONS COULD BE ACCELERATED If we breach any of the material financial covenants under our various indebtedness, or if an event of default is declared with respect to any such indebtedness, our substantial debt service obligations could be accelerated |
In the event of any such simultaneous acceleration, we would not be able to repay all of the indebtedness |
THE MARKET PRICE OF OUR COMMON STOCK IS HIGHLY VOLATILE The market price of our common stock has been and is expected to continue to be highly volatile |
Factors, including announcements of technological innovations by us or other companies, regulatory matters, new or existing products or procedures, concerns about our financial position, operating results, litigation, government regulation, developments or disputes relating to agreements, patents or proprietary rights, may have a significant impact on the market price of our common stock |
In addition, potential dilutive effects of future sales of shares of common stock by our shareholders and by us could have an adverse effect on the market price of our common stock |
EMPLOYEES As of December 31, 2005, we had 258 employees, including 203 operating personnel and 55 corporate, administrative and management personnel |
These employees are not unionized or employed pursuant to any collective bargaining agreement or any similar agreement |
We believe our relations with our employees are generally good |
With the acquisition of Preheat in February 2006, we currently have approximately 400 employees |