Key Energy to acquire Q Services in $265 million deal

May 15, 2002
Key Energy Services Inc., Midland, Tex., the world's largest well-servicing firm, signed a definitive merger agreement with Q Services Inc., Houston, one of the largest privately held US production-services companies, through a stock exchange and debt assumption valued at $265 million, officials said Wednesday.

By OGJ editors

HOUSTON, May 15 -- Key Energy Services Inc., Midland, Tex., the world's largest well-servicing firm, signed a definitive merger agreement with Q Services Inc., Houston, one of the largest privately held US production-services companies, through a stock exchange and debt assumption valued at $265 million, officials said Wednesday.

Under terms of the merger agreement, based on current projections of Q Services' balance sheet by the time the deal closes in late June or July, Key expects to issue $185-190 million of its common stock, at a price of $11-13/share. It also will assume $80 million of Q Services debt.

Q Services has more than 1,200 employees in 50 operating locations, primarily offshore and on land along the Texas-Louisiana Gulf Coast, as well as in Northwest Texas, New Mexico, and Oklahoma. Its three main business lines include:

-- Fluid hauling services, with 350 vacuum trucks, 700 pressure-pumping tanks, and 26 active salt-water disposal wells.

-- Pressure pumping, acidizing, and cementing services operating under the name of American Energy Services.

-- Fishing and rental tools, operating as QTS Fishing & Rental Tools.

Synergies
Because Key and Q Services operate in adjacent and overlapping areas, officials said, the merger should produce an estimated $10 million annually in synergies and cost savings. It's also expected to be "immediately and significantly accretive" to Key's earnings and cash flow.

The acquisition will further strengthen Key's balance sheet, officials said. Its net debt-to-capitalization ratio at closing is expected to improve to 38% from 41% at the end of March.

The combined companies will have $1.5 billion in assets and 1,500 well service rigs, 2,050 oil field service vehicles, 2,000 pressure-pumping tanks, 120 disposal wells, 79 drilling rigs, expanded fishing and rental tools, and a substantial high-quality pressure-pumping business.

"We will be even better prepared to serve our customers—we can deliver an increased range of services, bring a larger base of equipment to bear, and allow our customers to enhance their profitability by reducing the number of vendors they must use," said Francis D. John, chairman and CEO of Key Energy.

Key Energy currently owns 1,478 well service rigs and 1,641 oil field service vehicles, as well as 79 drilling rigs. It operates in all major onshore oil and gas producing regions of the continental US, as well as in Argentina and Canada.