Revenues for the fourth quarter of 2008 were $478.1 million, down 31%. Apart from some one-time non-cash items, fourth quarter 2008 net income and earnings per diluted share would have been $34.7 million and $0.29, respectively. The decrease in quarterly revenues and earnings resulted from commodity price weakness and the lack of readily available credit experienced by customers during the latter part of 2008. The related decrease in North American oil service activity had a pronounced impact on both activity and pricing in all of Key Energy Services’ business lines, especially those related to the completion of newly drilled natural gas wells.
Adjusted EBITDA for the first quarter of 2009 accounted for $56.1 million, as compared with $107 million for the first quarter of 2008 and $115.7 million for the quarter ended December 31, 2008, down 48% and 52%, respectively. General and administrative expenses of $48.7 million, down 28% from the $67.7 million reported in the first quarter of 2008, and 17% from $58.4 million (excluding certain one-time non-cash items) reported in the fourth quarter of 2008.
Total capital expenditures were $44.8 million for first quarter of 2009, the majority of which related to projects approved in and carried over from 2008. As a result of activity declines experienced throughout the quarter, the company now expects capital expenditures to approximate $100 million for 2009. As of April 30, 2009, the company had about $185 million in cash on hand, up about $93 million from year end 2008 levels. With an additional $139 million available under its credit facility, the company perists to maintain a very flexible position with regard to liquidity.
International
The company recently delivered the 21st well servicing rig to its Mexican operations in support of its contracted work with PEMEX. With the delivery of this unit, the company hopes to be able of attaining revenue in surplus of $120 million annualized in Mexico by late in the second quarter of 2009. Key Energy Services believes that its ability to deliver value to its customer through readily quantifiable operating efficiencies will serve as a model for expansionary efforts worldwide. The company is presently working with its customer to determine avenues for increasing the size and scope of its relationship.
In Argentina, revenues in the first quarter of 2009 were down by 36% sequentially and were down 28% from first quarter of 2008. Given the severe reduction in activity, the situation Key Energy Services faces with regard to its labor force in Argentina has become increasingly untenable. Key Energy Services has taken appropriate legal actions to proactively seek relief from the Argentine government, enabling Key Energy Services to downsize its workforce. Because of the significant influence of organized labor, the company has not been able to make personnel reductions consistent with the erosion in business conditions. In the near future, Key Energy Services may choose to terminate a significant portion of its Argentine employee base. The ultimate outcome of its actions in Argentina is impossible to determine at this time, but Key Energy Services is prepared to downsize its local operations or exit the region entirely. Adjusted EBITDA derived from operations in Argentina has historically represented less than 4% of consolidated Adjusted EBITDA, and less than 6% of consolidated revenue.
Overview and Outlook
Dick Alario, chairman and chief executive officer, stated, The precipitous drop in the U.S. land drilling rig count from its late third quarter 2008 peak has negatively impacted our operations, but the active workover rig market has declined at a somewhat lower rate, as anticipated. Through most of April we witnessed a continuation in this downtrend, with rig hours estimated to decline 8% for the month versus March. However, we believe that adverse weather conditions and the Easter Holiday may have masked some early signs of improvement, especially as it pertains to oil driven activity in the Permian Basin and Mid-Continent regions. With the relatively short payback on oil well maintenance and service at today’s commodity price, we believe our core customer base will soon begin to increase maintenance driven investment in the mature oil producing regions of the US.
Alario continued, While there is little satisfaction to be gained from our first quarter results, our cost reduction initiatives have allowed Key to remain profitable while adding cash to the balance sheet even as the market has softened. Key’s employees continue to address this challenging market by remaining focused on taking costs out of the system, with the clear goal of maximizing profit while maintaining financial flexibility. The market did deteriorate somewhat more than we had anticipated, but we were prepared, and have taken further measures in rationalizing our cost structure.
Share Repurchase Program
During the first quarter of 2009, Key Energy Services did not repurchase any shares under its repurchase program. From the inception of the share repurchase program in November 2007 through March 31, 2009, the company repurchased about 13.4 million shares of its common stock, at an aggregate cost of about $167.3 million. The company’s authorization to repurchase up to $300 million of its common stock expired on March 31, 2009. As of April 30, 2009, the number of outstanding shares of common stock was 123,587,563.
