Key Energy Announces First Quarter Results and Sale of Pressure Pumping Business
MIDLAND, Texas--(BUSINESS WIRE)--Nov. 4, 2002--Key Energy Services, Inc. (NYSE:KEG) today announced its operating results for the September 2002 quarter and a signed letter of intent to sell its pressure pumping business.
The results for the September 2002 quarter include the operating results from Q Services which was acquired on July 19, 2002 and the adoption of SFAS - 143 (Accounting for Asset Retirement Obligations).
Revenues for the quarter ended September 30, 2002 totaled approximately $202.1 million versus revenues of $169.7 million for the quarter ended June 30, 2002. EBITDA for the September 2002 quarter totaled approximately $33.8 million, which included certain unusual items totaling approximately $4.6 million. EBITDA, excluding unusual items, for the September 2002 quarter was approximately $38.4 million, as compared to $29.9 million in the June 2002 quarter. Net loss and loss per share for the September 2002 quarter before charges related to the adoption of SFAS 143 was approximately $2.6 million and $0.02, respectively. Earnings per share for the September 2002 quarter excluding the unusual items and the SFAS 143 charges were $0.00.
In addition, the Company announced that it has entered into a letter of intent to sell its pressure pumping business to a privately held company for $40.0 million in cash and notes. The Company expects the transaction to close by January 31, 2003 and intends to use the cash proceeds to further reduce debt. For the September 2002 quarter, the pressure pumping business contributed revenue of $7.7 million and generated a pre-tax loss of $900,000.
In the September 2002 quarter, the Company adopted Statement of Financial Accounting Standards 143 - Accounting for Asset Retirement Obligations which requires that the Company establish a reserve for the future costs of abandonment of its oil and gas wells and salt water disposal wells. As a result of adopting SFAS 143, the Company will record an after-tax non-cash charge of approximately $2.9 million, or $0.02 per share. Adoption of SFAS 143 is required for all companies with fiscal years beginning after June 15, 2002.
The Company recorded three unusual, non-recurring expense items in the September 2002 quarter: (i) approximately $1.7 million of costs associated with Q Services personnel and consolidation; (ii) approximately $2.2 million in settlement costs associated with an unusual general liability claim; and (iii) approximately $700,000 of start-up costs associated with the Company's Egypt project.
Market conditions continued to improve modestly during the September 2002 quarter. Rig hours for the September 2002 quarter totaled approximately 551,000 versus 539,000 in the June 2002 quarter. Well service rig rates increased slightly during the September 2002 quarter as workover activity increased in the last half of the quarter. Drilling rig activity also increased during the month of September and has continued through October, with drilling rig rates remaining competitive. Rig utilization and operating margins in Argentina and Egypt have improved substantially. Additionally, the Company estimates that the recent Gulf Coast tropical storms reduced September 2002 quarter revenues by approximately $2.5 million and EBITDA by approximately $700,000.
The Company believes that the consolidation and integration of Q Services has been successful. The cost savings achieved through the facility closings and headcount reductions implemented to date are at levels consistent with the Company's goal of ultimately achieving at least $10 million in annual cost savings. In addition, the Company continued to generate free cash flow after capital expenditures allowing the Company to reduce debt. The Company's net funded debt to total capitalization is now approximately 40.3%.
Francis D. John, Chairman and CEO, stated, "We are pleased with the improved operating performance and progress we have made during the quarter and feel we are well positioned to benefit from improved market conditions. During the quarter, our core well service and trucking business improved with rates remaining constant. During October, we continued to experience a modest increase in demand for most of our product lines, particularly in the natural gas producing regions of the Rocky Mountains and the San Juan Basin. As previously stated, we expect a modest increase in demand through the balance of this calendar year and a more robust recovery during calendar 2003."
Mr. John continued, "The pending sale of our pressure pumping assets will enable us to remain focused on our core production services strengths and to expand our fishing and rental tool business while continuing to reduce debt. We also believe that the sale of the pressure pumping business currently contemplated will be beneficial to the employees supporting that business." |
