Key Energy Services Inc. announced on Sept. 21 the sale of all its Texas and New Mexico fluid management and saltwater disposal well assets for cash to an undisclosed buyer.
Though terms of the transaction weren’t disclosed, the sale effectively completes Key’s exit from this line of business in these states as the company aims to further strengthen its liquidity position after a challenging couple of years for the Houston-based oilfield service company.
“The sale of these assets represents a significant milestone in our efforts to focus Key on our core operations,” Marshall Dodson, president and CEO of Key Energy Services, commented in a release by the company on Sept. 21.
“While our liquidity position has already benefited from our positive operating cash flow and recovery of cash previously used to collateralize our outstanding letters of credit,” he continued, “the proceeds from this asset sale significantly accelerate that improvement and provide Key with additional resources to take advantage of opportunities in the market today.”
One of the largest well-servicing and workover companies in the U.S., Key Energy Services completed an out-of-court restructuring in March 2020 that effectively cut shareholder’s ownership in the company by 97%.
To complete the restructuring, lenders exchanged roughly $241.9 million of outstanding principal into 13.3 million newly issued shares of common stock and $20 million of term loans under a new approximately $51.2 million term loan facility. The company also effected a 50-for-1 reverse stock split.
Since the restructuring, Key’s efforts to lower its cost structure have continued, including through the rationalization of its fleet of well service rigs. According to the Sept. 21 release, roughly 350 well service rigs have been scrapped since the end of 2019 and Dodson said he expects to be at its target fleet size of around 400 rigs by first-quarter 2022.
Dodson also noted in the release that the company’s levels of activity are currently the highest Key has seen since November 2019. However, shortages of qualified employees and the impacts of COVID continue to weigh on the company’s recovery.
“Financially, with higher activity, net pricing improvements and reduced cost structure we continue to generate positive operating cash flow,” he said. “We are experiencing cost pressures with labor, steel and other products, however, we expect that these higher costs will be offset by further price increases in 2021 and in 2022.”
Rattler Midstream acquired a minority interest in a gas gathering and processing JV servicing the Midland Basin where Diamondback Energy is deploying a majority of its development capital.
The remainder of the year’s deals will likely involve gas assets (while prices are good) and could come to include the low cost supply areas in the Texas and Louisiana Haynesville. Barring a miraculous rally, oil looks likely to remain the New Coke of commodities.
As 2020 crawls through the third quarter, the strains on M&A and the oil and gas industry are beginning to take on albatross-ian levels.