Key Energy continued its retreat from international oil patches as the embattled oil field services company struggles with a diminishing demand for its services and an ongoing investigation into foreign bribery allegations.
In the third quarter, Key shut down its businesses in Colombia, Ecuador and Oman, cutting nearly all of its staff in those areas and selling off equipment it doesn’t plan to ship back to the United States, the company announced on an earnings call with investors Wednesday. It also revealed Wednesday that it found a buyer for its business in Bahrain and that it remains in discussions with potential buyers in Russia to sell off its business segment there. In Mexico, third quarter revenue fell by more than one-third from the prior quarter as the company continues to consolidate its footprint there.
Those asset sales could generate some much-needed cash for Key in the fourth quarter as the company continues to look for ways to slash costs and shift its focus on its U.S. operations.
“This downturn is the worst that I can remember,” CEO Dick Alario told investors Wednesday. “The current pricing environment is unsustainable and there’s limited evidence to suggest that it’s going to improve in the near-term.”
As it braces for an extended slump in oil field activity, Key has restructured its organization, cut wages, closed facilities and laid off workers, including a “significant round of headcount reductions” late in the third quarter, although the company did not reveal on the call how many workers it let go. Key also said it has discounted prices as much as it can, and will no longer pursue jobs that don’t make economic sense for the company.
The pullback in the oil patch has intensified pressure on services companies to offer ever-deeper discounts, which has triggered a round of “suicidal-type bidding,” Alario said, although he acknowledged that the competition may be slackening as the prolonged slump forces some companies out of business.
Oil field activity in the U.S. is expected to tumble more in the fourth quarter as oil companies run out of cash and drillers take an extended holiday break, but companies may be more willing to spend again in the first quarter of 2016, and there will be fewer services companies to bid on that work.
“Instead of bidding against five companies on a particular project, we are going to find ourselves bidding against two, maybe three, as a result of all this,” he said. “And so we do expect to get some relief from the competitive side of the pricing pressure.”
The company sees one other potential bright spot for revenue generation in the coming months: A growing backlog of maintenance on producing wells.
“I’ve been on the road a lot in the last quarter talking with our customers and every one of them has said the same things: They are not doing the maintenance they would like to do because the commodity price doesn’t support it, especially in the older, legacy, vertical wells,” Robert Drummond, president and chief operating officer, said. “If the oil price goes up a little bit, that will change dramatically.”
Given Key’s position in the market, the company sees a “meaningful opportunity” to take advantage of that new work once its customers begin spending on maintenance again, although none has indicated when they may restart work, Drummond said.
The tougher business climate in the third quarter, coupled with charges associated with its exit from international markets, severance pay for laid-off employees and the ongoing Foreign Corrupt Practices Act investigation caused Key to lose $640 million, or $4.06 per share, during the three-month period ending Sept. 30. That’s down from a loss of $62.2 million, or 41 cents per share, during the same time a year ago.
The company did not provide details on the ongoing FCPA investigation other than to say that a special committee has finished gathering facts related to its independent review into claims that Key possibly violated bribery laws related to its operations in Mexico and Russia,
“The committee and the company continue to work diligently to bring the matter to a close and to remove the uncertainty surrounding it,” Alario said. “We are unable to answer any questions on this subject.”