Key Energy Provides Activity and Financial Reporting Update, Announces New Capital Investment Plan and Seeks Credit Facility Ame
23 July 2007 - 10:00PM
PR Newswire (US)
HOUSTON, July 23 /PRNewswire-FirstCall/ -- Key Energy Services,
Inc. (Pink Sheets: KEGS) announced today its rig and trucking hours
for the month of June 2007, updated its guidance for 2007 revenues
and provided an update on the status of its financial reporting for
2006 and 2007. In addition, the Company announced that its Board of
Directors has approved a new capital investment plan that includes
an intended $200 million to $300 million repurchase of its common
stock once the Company is current in its financial reporting and
also includes geographic-focused acquisitions in its core business.
The Company also announced that it is seeking an amendment to its
Senior Credit Facility. Operations Update Despite continued
historically strong oil and natural gas prices, which have
generally resulted in overall strong demand for oilfield services,
new capacity in all of the Company's businesses, especially
pressure pumping and to a lesser extent well servicing and fishing
and rental services, has started to impact certain of the regional
markets in which the Company operates. Recently, the Company has
experienced moderate pricing pressures within the well servicing
segment in several regions, including the Gulf Coast and East Texas
regions, as well as the Rocky Mountain region where natural gas
prices in the field are being negatively impacted by limitations of
pipeline capacity to export the gas to other markets. The Company
believes that the pipeline capacity issues will improve in early
2008. The Company has also been affected by price discounting in
the pressure pumping segment while heavy rains and flooding in May
and June hampered the Company's activity levels in all segments in
both Texas and Oklahoma. The oil markets, as well as Appalachia,
remain strong. Commenting on activity levels, Dick Alario, Chairman
and CEO, stated, "While most of our markets remain strong and
customer spending is expected to continue to be good, additional
capacity has resulted in some pricing pressure in several of our
regions and may limit our ability to improve margins from the first
half of this year as our originally budgeted second half price
increases appear to be no longer possible." Mr. Alario concluded,
"We still anticipate another record year in 2007. However, the
combination of new rig and pumping capacity entering the market in
2007 and pricing pressure in both the well service and pressure
pumping segments, low wellhead gas prices in the Rocky Mountains
and the weather- impacted months of May and June will make it
difficult for us to achieve our prior 2007 revenue guidance of
$1.70 to $1.75 billion. That estimate, which was made in early May,
assumed that new capacity entering the industry would be used to
replace older, less efficient equipment, and that pricing would be
stable. We now forecast revenue to be closer to $1.65 billion, and
this estimate is again made with the assumption that current
pricing can be maintained. We will provide more information
regarding our 2007 outlook during our second quarter financial data
conference call, which we will host on August 13, 2007." For the
month ending June 30, 2007 May 31, 2007 June 30, 2006 Working Days
21 22 22 Rig Hours 204,024 207,650 233,399 Trucking Hours 194,297
198,936 203,209 The Company calculates working days as total
weekdays for the month less any Company holidays that occur that
month. For the month of July 2007, there are 21 working days.
Financial Reporting Update The Company now intends to
contemporaneously file its 2006 Annual Report on Form 10-K and its
Quarterly Reports on Form 10-Q for 2005 and 2006. The Company
previously planned to file the 2006 10-K first, followed by the
filing of the 2005 and 2006 Quarterly Reports shortly thereafter.
However, because the quarterly financial information will be
completed in conjunction with the audited financial statements for
2004-06, the Company concluded that it was preferable to file all
prior year filings at once. The contemporaneous filings are
expected to result in a delay of the 2006 10-K filing; however, the
Company is targeting a filing of both the 2006 Annual Report on
Form 10-K and the 2005 and 2006 Quarterly Reports on Form 10-Q
before the end of August. Commenting on the 10-K filing status,
Bill Austin, the Company's Chief Financial Officer, stated, "The
Company and its auditors have been working hard to meet the July
31st filing objective for our 2006 10-K. While it appears that the
2006 10-K filing will slip into August, it is important to
recognize that we will make contemporaneous filings of our 2005 and
2006 10- Q's. That will eliminate any lag between the filing of the
2006 annual report and the 2005 and 2006 quarterly reports." Mr.
Austin concluded, "Very soon we will begin preparation of our 2007
first and second quarter financial statements and our objective is
to file them within 45 to 60 days of our 2006 10-K filing. Assuming
we do not encounter any unexpected delays, we will seek relisting
on a national exchange during the fourth quarter." New Capital
Investment Plan The Company's Board of Directors and management
have adopted a near-term strategy to return capital to shareholders
and to make strategic geographic- focused acquisitions to take
advantage of the Company's under-levered balance sheet. Once the
Company is current with its financial reporting, the Board intends
to initiate a program to repurchase between $200 million and $300
million of the Company's common stock. The amount, terms and method
of execution of the stock buyback will be determined by the Board
once the Company becomes current. Any buyback program, as well as
the amount and timing of the buyback, is subject to market
conditions and the Company's financial condition and liquidity at
the time, including (as discussed below) obtaining additional debt
financing for the buyback program. The Company's Senior Credit
Facility currently limits stock repurchases to $250 million. The
plan also contemplates that the Company may make acquisitions that
strengthen its presence in selected regional markets. The Company
is currently evaluating a number of acquisition candidates;
however, at present the Company has not entered into any definitive
acquisition agreements and any acquisition is subject to agreement
upon terms, negotiation of definitive documentation, regulatory
clearances and other conditions. The Company expects that these
acquisitions would be for cash. The Company's ability to complete
acquisitions for cash is not affected by its financial reporting
status, although the Company's Senior Credit Facility presently
limits the Company to $100 million in cash acquisitions. The
capital investment plan also contemplates that, in accordance with
the Board's prior authorization, the Company will continue to make
capital expenditures of approximately $200 million during 2007.
Commenting on the capital investment plan, David Breazzano, Lead
Director, stated, "The Board of Directors believes that a balanced
approach to both acquisitions and stock repurchases is a good way
to enhance shareholder value. We believe the Company can support
additional leverage to finance these initiatives. Presently, we are
limited in our ability to repurchase shares due to the filing
status; however, once the Company is current with its financial
reporting, and assuming no material deterioration in the Company's
business and financial condition or change in market conditions, we
intend to approve and commence a common stock buyback program." Mr.
Breazzano continued, "The Company is also evaluating a number of
acquisition candidates, primarily in the well servicing segment in
regions in which the Company operates. We believe that several of
these candidates provide strategic value to the Company and if
completed, will strengthen the Company's market position in several
core markets." The stock repurchase program and the acquisition
program, as well as planned capital expenditures, would be financed
through a combination of cash on hand and additional borrowings.
The Company's cash and short-term investments, which totaled
approximately $176.3 million as of June 30, 2007, and the $65.0
million in availability under its revolving credit facility would
enable it to finance a portion of the capital investment plan.
However, to complete the capital plan, the Company anticipates that
it will have to incur more indebtedness. The Company can provide no
assurance that new debt financing can be obtained or as to the
terms and conditions on which it can be obtained. Bank Amendment
Request The Company is seeking an amendment under its Senior Credit
Facility in order to provide the Company with more flexibility.
Specifically, the Company intends to ask the lenders to: 1.
Eliminate the $100 million limitation on acquisitions; 2. Increase
the stock repurchase basket from $250 million to $300 million; 3.
Extend until August 31, 2007, the date by which the Company can
file its Annual Report on Form 10-K and the date by which the
Company can file its Quarterly Reports on Form 10-Q for 2005 and
2006; and 4. Extend until October 31, 2007, the date by which the
Company can file its Quarterly Reports on Form 10-Q for the
quarters ending March 31, 2007 and June 30, 2007. Commenting on the
requested bank amendment, Mr. Austin said, "We are seeking a bank
amendment to increase our flexibility with respect to our remaining
filings as well as to provide more flexibility to return cash to
our stockholders. We are presently reviewing a number of
acquisition opportunities and believe that eliminating the current
limitation on acquisitions is a prudent and necessary measure." Mr.
Alario concluded, "We are excited to be nearing the end of this
stage of the financial reporting process and we are eager to take
steps necessary to continue to grow our business and return capital
to shareholders. We believe that our new capital investment plan
will contribute to additional long-term value creation for all of
our shareholders." Key Energy Services, Inc. is the world's largest
rig-based well service company. The Company provides oilfield
services including well servicing, pressure pumping, fishing and
rental tools, electric wireline and other oilfield services. The
Company has operations in all major onshore oil and gas producing
regions of the continental United States and internationally in
Argentina and Mexico. Certain statements contained in this news
release constitute "forward- looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based on current expectations,
estimates and projections about the Company, the Company's
industry, management's beliefs and certain assumptions made by
management. Whenever possible, the Company has identified these
"forward-looking statements" by words such as "expects,"
"believes," "anticipates" and similar phrases. Readers are
cautioned that any such forward-looking statements are not
guarantees of future performance and are subject to certain risks,
uncertainties and assumptions that are difficult to predict,
including, but not limited to: uncertainties affecting whether the
Company will be able to complete and file financial statements for
2004, 2005 and 2006, and the timing thereof; the risk of possible
changes in the scope and nature of, and the time required to
complete, the audit of the Company's 2004, 2005 and 2006 financial
statements; risks that the Company will be unable to obtain from
its lenders an extension of the deadline for becoming current in
its SEC filings; risks that the Company will be unable to complete
its new capital investment plan, including that it will be unable
to complete acquisitions and integrate acquired operations and that
it will be unable to obtain loan covenant modifications and/or new
debt financing on acceptable terms and conditions in order to
enable it to complete acquisitions or repurchase stock; possible
legal consequences of failure to file compliant SEC filings for
2003, 2004 and 2005; risks that the Company will be unable to
satisfy the requirements for re-listing on a national stock
exchange or the timing thereof; potential impact on operations of
the Company's ongoing process to complete 2004, 2005 and 2006
financial statements; the effect of on-going financial reporting
and restatement-related expenses; possible additional tax
liabilities as a result of the restatement of financial results;
risks that the Company's efforts to remediate internal control and
accounting deficiencies will not be effective; potential financial
or other effects of on-going class action and derivative litigation
and litigation with former officers; risks affecting the ability of
the Company to maintain or improve operations, including the
ability to maintain price increases, possible over supply of new
rigs coming into the market and weather risk; and risks that the
Company will be unable to achieve budgeted financial targets and
risks affecting activity levels for rig hours including the risk
that commodity prices decline or the risk that capital budgets from
the Company's customers decrease. Readers should also refer to the
section entitled "Risk Factors" in the 2003 Financial and
Informational Report filed with a Form 8-K/A on October 26, 2006
for discussion of risks arising from the restatement process and
other risks to which the Company is subject. Because such
statements involve risks and uncertainties, the actual results and
performance of the Company may differ materially from the results
expressed or implied by such forward-looking statements. Given
these uncertainties, readers are cautioned not to place undue
reliance on such forward-looking statements. Unless otherwise
required by law, the Company also disclaims any obligation to
update its view of any such risks or uncertainties or to announce
publicly the result of any revisions to the forward-looking
statements made here; however, readers should review carefully
reports or documents the Company files periodically with the
Securities and Exchange Commission. Contact: John Daniel (713)
651-4300 DATASOURCE: Key Energy Services, Inc. CONTACT: John Daniel
of Key Energy Services, Inc., +1-713-651-4300 Web site:
http://www.keyenergy.com/
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