Key Energy to spend $25 million on rig upgrades

With demand for natural gas rising and its backlog of gas-related drilling, completion, and workover services growing, well service firm Key Energy Services Inc., East Brunswick, NJ, said Monday it will refurbish 50-60 workover and completion rigs. The firm has scheduled about $25 million worth of rig work for 2001, aimed at serving the onshore natural gas regions of the US, Argentina, and Canada.


With demand for natural gas rising and its backlog of gas-related drilling, completion, and workover services growing, well service firm Key Energy Services Inc., East Brunswick, NJ, said Monday it will refurbish 50-60 workover and completion rigs and issue about 10 million shares of common stock.

The firm has scheduled about $25 million worth of rig work for 2001. Key said the projects are expected significantly to improve the company's ability to serve customers in the onshore natural gas regions of the US, Argentina, and Canada, where a substantial backlog of orders already exists.

Natural gas is increasingly dominating US drilling. According to Baker Hughes Inc., 83% of US drilling was directed toward natural gas in August 1999.

In his June analysis of the energy markets, Bill Gilmer, economist with the Houston branch of the Federal Reserve Bank of Dallas, reported most new work in the current recovery cycle has been dominated by onshore, domestic, shallow, and vertical wells, selected to be done cheaply and with as little risk as possible.

In addition to the rig upgrades, the company said it will expand the number and increase the capacity of the company's drilling and well-service rig refurbishment facilities, open at least two additional employee training and safety centers, and reallocate existing equipment to areas with higher demand and pricing levels.

Said Francis D. John, chairman and CEO, "We find ourselves in the enviable position of having the world's largest fleet of 500-1,000 hp completion rigs, mostly in prolific natural gas basins, at a time when deep drilling for natural gas is accelerating.

"We now have 1-3 week backlogs for many of our larger rigs. Finally, our plans to raise equity to pay down debt has been widely anticipated and the completion of this offering should be very positive for all shareholders."

Net proceeds of the offering will be used to repay long-term debt, improving the company's debt-to-capitalization ratio and its annual interest expense. Further, the interest savings from the debt repayment will augment cash flow and allow Key to reduce debt and fund future capital projects, the company said.

Key Energy Services owns about1,400 well-service rigs and 1,200 oil field trucks, as well as 73 drilling rigs.

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