Key Energy Services Inc. (KEG) filed Quarterly Report for the period ended 2009-09-30.
Key Energy Services Inc. is one of the largest providers of onshore oil and gas well services in the United States and Argentina. The company generally provides a full range of maintenance and workover services to major and independent oil and gas companies in all of its operating regions. In addition to maintenance and workover services they also provide services which include the completion of newly drilled wells the recompletion of existing wells and the plugging and abandonment of wells at the end of their useful lives. Key Energy Services Inc. has a market cap of $906.78 million; its shares were traded at around $7.31 with and P/S ratio of 0.46.
Highlight of Business Operations:
Based on our assessment of the current and near-term market conditions for the rig-based oilfield services market, we chose to retire a portion of our U.S. rig fleet and associated equipment during the quarter, which resulted in a pre-tax charge of $65.9 million. Included in this retirement were approximately 250 of our older, less efficient rigs, leaving a remaining U.S. well service rig fleet of 743 rigs, consisting of 610 actively marketed rigs and 133 idled rigs. During the quarter, we also determined that continuing market overcapacity, continued and prolonged depression of natural gas prices, lower activity levels from our major customer base related to stimulation work and consecutive quarterly operating losses in our Production Services segment, indicated that the carrying amounts of the asset groups under this segment were potentially not recoverable. We performed an assessment of the fair value of the asset groups in this segment, and the results of this assessment indicated that our pressure pumping equipment was impaired. As a result, we recorded a pre-tax impairment charge of approximately $93.4 during the third quarter of 2009. We also recorded a pre-tax impairment charge of approximately $0.5 million related to goodwill in our Production Services segment during the third quarter of 2009.
Depreciation and amortization expense increased approximately $1.8 million, or 4.2%, to $44.5 million during the three months ended September 30, 2009, compared to $42.7 million for the same period in 2008. The increase in our depreciation and amortization expense is primarily attributable to our larger average fixed asset base during the current period. However, after giving effect to the rig retirement and asset impairment charges recorded in the third quarter of 2009, we expect depreciation and amortization expense will decrease in the future based on the current carrying value of our fixed assets.
During the three months ended September 30, 2009, we recognized $159.8 million in pre-tax charges associated with asset retirements and impairments. Included in this pre-tax charge is $65.9 million related to the retirement of certain of our rigs and associated equipment. Additionally, during the third quarter of 2009, we identified events and changes in circumstance indicating that the carrying amounts of certain of our asset groups may not be recoverable. Accordingly, we performed a recoverability assessment by comparing the estimated future cash flows for these asset groups to the asset groups’ estimated carrying value. The completion of this test indicated that the carrying value of our pressure pumping equipment was not recoverable and resulted in the recording of a $93.4 million pre-tax impairment charge. We also determined that the goodwill of the fishing and rental services line of business within our Production Services segment was impaired, and as such we recorded a pre-tax impairment charge of approximately $0.5 million during the three months ended September 30, 2009.
Our income tax benefit was $73.2 million on a pre-tax loss of $198.2 million for the three months ended September 30, 2009, compared to income tax expense of $29.1 million on pre-tax income of $77.5 million for the same period in 2008. Our effective tax rate was 36.9% for the three months ended September 30, 2009 compared to 37.5% for the three months ended September 30, 2008. The difference in our effective tax rates for the three months ended September 30, 2009 and 2008 is due to a more favorable mix of profits subject to varying rates, and the effect of the charges that we took during the third quarter of 2009 related to asset retirements and impairments.
During the third quarter of 2009, we recognized $159.8 million in pre-tax charges associated with asset retirements and impairments. Included in this pre-tax charge is $65.9 million related to the retirement of certain of our rigs and associated equipment. Additionally, during the third quarter of 2009, we identified events and changes in circumstance indicating that the carrying amounts of certain of our asset groups may not be recoverable. Accordingly, we performed a recoverability assessment by comparing the estimated future cash flows for these asset groups to the asset groups’ estimated carrying value. The completion of this test indicated that the carrying value of our pressure pumping equipment was not recoverable and resulted in the recording of a $93.4 million pre-tax impairment charge. We also determined that the goodwill of the fishing and rental services line of business within our Production Services segment was impaired, and as such we recorded a pre-tax impairment charge of approximately $0.5 million during the third quarter of 2009.
Our income tax benefit was $83.6 million on a pre-tax loss of $226.2 million for the nine months ended September 30, 2009, compared to income tax expense of $79.0 million on pre-tax income of $205.7 million for the same period in 2008. Our effective tax rate was 37.0% for the nine months ended September 30, 2009 compared to 38.4% for the nine months ended September 30, 2008. Our effective tax rate declined for the nine months ended September 30, 2009 due to a favorable mix of profit subject to tax at varying rates, coupled with an activity-related reduction in permanent tax differences.
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