TWST: Would you mind providing our readers with a brief overview of Key Energy Services (NYSE:KEG)?
Mr. John: Key Energy is the largest well service company in the world with over 1,400 well service rigs, 75 drilling rigs, 1,200 oilfield service vehicles. We have 8,000 employees, 135 locations and the number one position in virtually all of the domestic oil and gas markets in the United States, except California, where we are number two. In Argentina, we have 24 service rigs and seven drilling rigs and in Ontario, Canada, we have three drilling rigs and two service rigs. The company has steadily evolved since the early 1980s. Following a restructuring in 1992, from 1993 through 1998, we consolidated the most fragmented segment of the oilfield service industry into probably the most consolidated sector. Today, we sit here with 1,400 well service rigs, with the next largest competitor being Nabors, which owns 750 rigs, and then after Nabors, there are only small regional players.
TWST: What would you say gives you your competitive advantage? What is it that makes you number one right now?
Mr. John: We believe that there are only about 3,200 well service rigs in the US that are capable of working. Key has 1,400 of them. But more significantly, we have the trucking operations, ancillary services, which include blowout preventers, rental tools, fishing tools, frac tanks, water-hauling and salt water disposal wells. We can offer our customers, such as Occidental, Exxon, and Chevron, a full package of everything they need out at the site, allowing them to consolidate multiple vendors. This lowers their cost by being able to work through one vendor that has all the equipment, the insurance and the quality, safety-trained employees versus having to manage over a rodeo of vendors out at the well site.
TWST: Would you say you have more salt water disposal wells than the competition?
Mr. John: I don’t have specific numbers on those. We have approximately to 30 to 35 SWDs, as we refer to them, and we believe we are one of the leaders in that segment.
TWST: Will your strategy for growth involve further acquisitions and mergers or partnerships?
Mr. John: Our growth strategy first and foremost is to refurbish and deploy our 350 idle rigs. As we bring those out, either in the US or the international markets, we can grow organically without the need for acquisitions. However, while we are not currently looking at any acquisitions, if an acquisition opportunity developed, it would have to 1) enhance the company’s market position, 2) be accretive and 3) reduce the company’s leverage. But again, there is nothing that we are currently looking at right now.
TWST: Would you say there has been just as much consolidation in the industry in the last few years as there was during a brief 1998 period?
Mr. John: There has been some consolidation in the last two years, but not nearly the pace that went on in the 1996 through 1998 period. Just recently, you saw the combination of the UTI and Patterson, which we think is good for the industry. Generally, more consolidation occurs in a downturn rather than in an upturn. But specifically, there is some consolidation activity going on, but not nearly the pace that existed a few years ago. Remember, the industry, both drilling and well service, was very fragmented up until the mid-1990s. |
