Seeking Alpha: Should This KEG Be Tapped?

If you believe that the ugly conditions today in the U.S. onshore energy market are just a part of the ups and downs that the market has seen over decades, you probably see several values in the space. Whether Key Energy Services (NYSE:KEG) belongs on that list is an interesting question to me. This wasn't always a particularly well-run company before the widespread downturn, and I believe it is going to be difficult to generate attractive economic returns in coiled tubing and fluid services due to the low barriers to entry.

On the other hand, Key has the largest well services fleet in the U.S. onshore market and the steep decline rates of new unconventional wells, not to mention their high drilling cost, should make for a worthwhile long-term opportunity. In addition, a refinancing last month should significantly reduce the company's liquidity risks (albeit at a cost). Looking at the long-term FCF potential, EV/EBITDA, and ROE-TBV, I believe that $2.50 to $3.50 is a credible range for valuation, but this is a very high-risk proposition in a market where residual asset value means little and E&P companies are more than willing to use service companie

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Should This KEG Be Tapped?

Seeking Alpha: Whither Onshore Drilling Activity Goest, Basic Energy Services Will Follow

If large energy service companies like Weatherford (NYSE:WFT) are right about the second quarter of 2015 marking the trough of land rig activity in North America, investors may have already missed their chance to buy service names like Basic Energy Services (NYSE:BAS), Key Energy Services (NYSE:KEG), Superior Energy Services (NYSE:SPN), and C&J Energy Services (NYSE:CJES) at the point of maximum pain.

On the other hand, Basic Energy's exposure to competitive and largely commoditized services (the name "Basic Energy Services" really is a fair representation) in the oil fields means that this stock is highly sensitive to any changes in sentiment around North American onshore activity. As more than one analyst has described it, Basic Energy is the "tip of the whip" and however sentiment goes, Basic Energy's stock will react strongly.

As things sit today, with the shares up almost 75% over the past three months and having doubled off the low in mid-March, I'm not hugely interested in owning the shares. I think there are better bargains in the offshore services space (which admittedly has a very different set of fundamentals and drivers) and perhaps even on the onshore space. That said, sustained evidence of a bottoming/turnaround in the North American market could lead analysts to boost their estimates almost as quickly as they cut them and Basic Energy's stock would likely react dramatically. This isn't my kind of investment/speculation, but more aggressive or short-term oriented investors may see a better opportunity here.

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Whither Onshore Drilling Activity Goest, Basic Energy Services Will Follow

Seeking Alpha: Has All The Bad News Been Baked Into RPC's Price?

Superior quality can help a company through hard times, and energy services provider RPC (NYSE:RES) has held up better than companies like Basic Energy (NYSE:BAS), Key Energy (NYSE:KEG), and C&J Energy Services (NYSE:CJES), but a 40% drop in six months is still harsh. What's more, I think it's anybody's guess as to whether estimates have gone low enough to accurately reflect this downturn in the cycle - even RPC's management doesn't believe it has much visibility as to the depth or duration of the downturn.

I expect that RPC will emerge from this downturn in good condition and maintain its reputation as one of the highest-quality small cap service providers. While RPC shares should do better if/when the market believes it has overcorrected (and/or if the company's Permian-centric pressure pumping business holds up better than expected), but I don't expect RPC to offer the same sort of leverage to improving sentiment as Basic Energy or Key Energy would. On the other hand, I am confident in RPC's ability to withstand a prolonged downturn while its more debt-laden peers may not.

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Has All The Bad News Been Baked Into RPC's Price?

Seeking Alpha: Key Energy Services Needs To Get Its Act Together

Many energy service stocks have had a tough time since early July, but Key Energy Services (NYSE:KEG) has had it worse. This is not wholly undeserved, as the company has been struggling to overcome weak international results, delays from customers in California, and a concerning lack of momentum in key basins like the Permian. Although Key is one of the biggest players in well servicing, fluid management, coiled tubing, and frac stacks (all vital offerings in the onshore market), I have to question whether the company has been seeing market share losses. Key Energy Services does look undervalued today, but so do Basic Energy Services (NYSE:BAS) and Superior Energy Services (NYSE:SPN), and management needs to be on point and drive better execution in the remainder of 2014.

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Key Energy Services Needs To Get Its Act Together

Seeking Alpha: C&J Energy Services Goes All-In With The Nabors Deal

Small-cap energy services company C&J Energy Services (CJES) doesn't want to be small any longer. C&J has done a good job building its fracking business on the back of modern, high-spec equipment and the ability to execute well on challenging or complex jobs, but now the company is looking to be an integrated services provider that can compete more effectively with Halliburton (HAL), Schlumberger (SLB), and Baker Hughes (BHI). While I appreciate the willingness of C&J management to make such a bold move, I do wonder about the price paid and the quality of assets the company is getting in return.

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C&J Energy Services Goes All-In With The Nabors Deal

Seeking Alpha: At Basic Energy Services, Sentiment Has Changed Faster Than The Business

A sector-wide re-rating can be a powerful driver for a stock, and so it has been for Basic Energy Services (BAS). Amidst an improving outlook (or at least perceived outlook) for energy service stocks, Basic Energy has been one of the strongest names - handily beating Schlumberger (SLB) and Halliburton (HAL) so far this year, as well as most other small/mid-cap service names like Key (KEG), Superior (SPN), RPC (RES), and C & J Energy Services (CJES).

While I thought that Basic Energy had been overlooked back in 2013, it's hard to make the same argument now that sector-wide forward EV/EBITDA multiples have moved from 5x to 6x to 7x to 8x. Basic Energy is likely to see good improvements in its core Permian market in 2014, and those improvements are going to be an important part of the remaining upside in these shares as sentiment has already improved markedly.

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At Basic Energy Services, Sentiment Has Changed Faster Than The Business

Seeking Alpha: Superior Energy Services Needs U.S. Land To Turn

Investors have gotten quite a bit more bullish about prospects for the energy service companies over the last three to six months, largely due to increased optimism that U.S. land conditions really are improving. That should be good news for Superior Energy Services (SPN), as should the signs that deepwater Gulf of Mexico activity is turning around. The real question for Superior, though, is whether the company can better leverage its "integrated lite" operating structure and start delivering better returns for shareholders.

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Superior Energy Services Needs U.S. Land To Turn

Seeking Alpha: RPC's Winter Of Discontent Has Passed

When I wrote on RPC (RES) about six months ago, I thought the company was a well-run, quality small-cap energy services name, but also a little pricey relative to some other options in the services space. RPC's performance in the interim was quite good (up about 20%), but the relative performances of Basic Energy (BAS) (up almost 120%) and several other service companies were even better, so I'm not exactly regretting the call.

Service stocks have rebounded on the prospects of greater activity in 2014, particularly in areas like pressure pumping and coiled tubing. Given that RPC maintained pretty good margins even as contracts rolled off and the company was forced to the tough spot market, I like this company's prospects for making hay as increased activity leads to better prices. The valuation isn't dirt-cheap right now, but I still think these shares can head higher in 2014.

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RPC's Winter Of Discontent Has Passed

Seeking Alpha: Basic Energy Blowing Up

I liked Basic Energy Services (BAS) back in October, but even I didn't think the shares were going to snap back this strongly. Competition remains fierce in basins like the Permian and activity levels weren't great in the fourth quarter, but Basic Energy has done a good job of controlling costs while adding assets in its fluid services business.

It looks as though energy companies are getting an early start to their 2014 capex plans, and pricing is improving as a result. Valuation for small service companies is frustratingly imprecise, but I wouldn't rule out the possibility of EBITDA estimates moving up throughout the year. For now, though, I think some of the excitement in the shares can be explained a reaction to some very loudly bearish analysts and a large short position, and I'd probably wait for the dust to settle a bit before buying.

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Basic Energy Blowing Up

Seeking Alpha: It's Not Easy Being GreenHunter

Given the controversy over the pollution risks from the improper handling of wastewater produced from fracking operations, I looked into GreenHunter Resources (GRH) hoping that I might find an appealing small cap energy services play. I have to say that I came away disappointed and unimpressed.

I do believe that GreenHunter is addressing a large potential market opportunity. Although wells in the Marcellus and Utica shales do not typically require as much water as those in the Bakken, the lack of disposal capacity (including haulage) has led to strong pricing.

My problem is with GreenHunter's apparent operating plan and financing woes - although I understand it takes money to make money, I don't see enough upside in the shares right now to compensate me for the risk. Speculative investors who believe that GreenHunter can grow out of its funding problems may be proven right (and have sizable profits to show for it), but I'm willing to take the risk of missing out until I see more signs of capital stability in the business.

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It's Not Easy Being GreenHunter

Seeking Alpha: Another "Wait 'Til Next Year" Year For Key Energy Services

Between weak rig counts and rampant competition in some parts of the well servicing business, 2013 has been a big disappointment. Things have been turning up recently, though, as E&P spending budgets for 2014 are looking promising and investors are counting on pent-up demand leading to better results. Given the demands of horizontal wells, Key Energy Services (KEG) has reason to expect better days.

I was bullish on Basic Energy Services (BAS) back in October, and the stock is up more than 20% since then. At this point, I feel like BAS versus KEG is more of a "pick 'em". I think Key Energy is a better company, but it seems that the Street thinks so too and the valuation is a little higher on these shares. Although Key Energy shares appear to be priced to generate a decent return on moderate expectations for 2014, investors have to be willing to accept the risk that 2014 is another disappointing year in the oilfields of the U.S. and Mexico.

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Another "Wait 'Til Next Year" Year For Key Energy Services

Seeking Alpha: Superior Energy Services Looks To Live Up To Its Name

Energy service stocks have had a pretty good run in 2013, even despite the fact that the expected second-half recovery in rig counts and activity doesn't seem to be materializing and pricing pressures are combining with cost inflation to squeeze margins in the U.S. land market. Even though Superior Energy Services' (SPN) shares are up more than 30% over the last twelve months, the stock still appears to be undervalued on the basis of good growth in offshore and international markets and the prospects for a recovery in the U.S. onshore market in 2014. Couple that with strong margin discipline and a commitment to return capital to shareholders, and I believe this name still deserves consideration from investors looking to add energy exposure.

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Superior Energy Services Looks To Live Up To Its Name

Seeking Alpha: Basic Energy Services Looks Too Cheap

When I was thinking about writing up Basic Energy Services (BAS) for Seeking Alpha, I was surprised to see how little coverage there has been on the name on this platform. Sure, this is not a large energy services company (with a market cap around $500 million and an enterprise value around $1.3 billion), but it is the third-largest company in the well servicing industry and this is a business that could do substantially better when (or if?) demand and pricing improve in major basins like the Permian.

It's looking like 2013 is going to finish on a fairly sour note, as competition among service firms continues to keep a lid on prices and profits. The next year should be better, though, and even at relatively modest EBITDA multiples this stock looks undervalued. While I still presently prefer to own Cameron (CAM) and Weatherford (WFT), it's not by a wide margin and Basic would be high on my list if I wanted to go more overweight towards service companies.

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Basic Energy Services Looks Too Cheap

Investopedia: Another Quarter Of Discontent For Energy Services

It looks like the energy services sector isn't going to deliver any sort of Christmas miracle this year. While I don't believe investors were expecting especially strong results for the calendar fourth quarter, early guidance is suggested that this is going to be a disappointing end to what has been a pretty dismal year.

Rigs Keep Easing
The data from Baker Hughes (NYSE:BHI) on global rig counts for November was not especially strong. The United States rig count fell more than 1% from October and the November 2012 count was about 10% lower than the 2011 figure, as producers continue to cut back in the face in the face of low natural gas prices.

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Investopedia: Schlumberger's The Reliable Name In An Unreliable Sector

Given how volatile the energy sector can be, as investors have seen lately with major service providers such as Baker Hughes (NYSE:BHI) and Halliburton (NYSE:HAL), as well as smaller names such as Basic Energy (NYSE:BAS), it's no surprise that Schlumberger (NYSE:SLB) gets the premium that it does. Although it is not immune to the ups and downs of the cycle, this is a company that executes on a consistent basis. While Schlumberger's leading position in energy services offers good leverage, it is worth asking if the stock's premium mitigates the potential returns.

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Investopedia: Is Basic Energy Already Priced For The Worst Case?

The relief in second quarter energy services company performance needs to be kept in context. While Baker Hughes (NYSE:BHI) and Halliburton (NYSE:HAL) did indeed do better than feared, revenue was still down sequentially in North America, and operating margins were still soft. As a smaller player with less leverage, it's not surprising that Basic Energy Services (NYSE:BAS) is also suffering. While conditions are indeed challenging, and likely to remain so for 2012, today's valuation seems to put little faith in a rebound and may be an appealing entry point for risk-seeking investors.

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Investopedia: Is Basic Energy Services An Overlooked Stock?

Although oil prices are back in the triple digits, energy investors are not exactly resting easy these days. Not only are investors worried about the extent to which E&P and service companies can shift from gas to oil, but also the potential impact of higher costs on forward margins and returns. While Basic Energy Services (NYSE:BAS) is not a perfect company, it seems to be trading too cheaply relative to its business prospects and financials.

Sluggish Performance to Close the Year  
To be sure, Basic Energy did not make the best case that it's a must-own stock on the basis of its fourth quarter performance. Revenue was up just 2% on a sequential basis, coming in as analysts expected, but offering less domestic growth (and BAS is a U.S.-only story) than major energy service companies like Halliburton (NYSE:HAL), Baker Hughes (NYSE:BHI) and Weatherford (NYSE:WFT). (For related reading, see Peak Oil: What To Do When The Wells Run Dry.)

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Investopedia: Weatherford's Tax Issues Shouldn't Obscure A Good Story

Energy services provider Weatherford (NYSE:WFT) can try investor's patience a fair bit. Not only does the company have a below-average record within the industry in terms of returns on capital, this is a story where the words "it's always something" seems to especially resonate. That said, the company's overseas leverage is appealing, as is the company's weighting towards oil-heavy services, and the valuation is compelling.

Not Many Operational Surprises in the Fourth Quarter  
Weatherford reported "preliminary" fourth quarter results that included 10% sequential revenue growth, with 15% growth overseas and 5% growth in North America. Although Weatherford's domestic growth was fairly consistent with the Big Three ((Schlumberger (NYSE:SLB), Halliburton (NYSE:HAL), and Baker Hughes (NYSE:BHI)), the international growth here was pretty solid - especially in Latin America (up 23% sequentially).

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Seeking Alpha: Waiting For Halliburton To Wash Out

Investors looking for an example of how short-term thinking dominates the equity markets these days do not have to go much past the energy sector. There are still plenty of arguments over what “Peak Oil” is supposed to mean, but hardly anybody thinks that long-term oil and natural gas prices are going to substantially lower than today. And yet, nervousness about the near-term economic outlook and short-term oil price declines as investors leery of even well-established service names like Halliburton (HAL).

Okay Results Fail To Impress
This is a market that wants dramatic outperformance and strong upward revisions from management, and Halliburton didn't deliver. Consequently, the fact that revenue was up about 10% sequentially and still a bit stronger that the average analyst guess just isn't going to cut it – particularly when management talked about an increasingly competitive international pricing environment and delays in key growth markets like Iraq and Angola.

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Waiting For Halliburton To Wash Out

Investopedia: A Superior Offer For Complete Production

Last summer showed signs and portents that the energy services sector was going to start picking up. One of those is the pace of merger and acquisition activities. While bad managers buy at the top, good companies try to expand their businesses just before the sector recovers - when the price of deals is lower and the opportunity for incremental operating leverage is greater. With that in mind, Superior Energy Services' (NYSE:SPN) deal for Complete Production Services (NYSE:CPX) could be a little more than just a combination of two smaller energy service players.


The Deal
Superior is acquiring CPX in a deal with a total value (at the time of the announcement) of $2.7 billion. The deal is a combination of cash ($7 per CPX share) and stock (0.945 shares of Superior) that values CPX shares at just under $33. That's a 61% premium to Friday's close and a 29% premium to the two-month average, but almost 30% below the average analyst target price.

Assuming that the deal goes through as described, Superior shareholders will own 52% of the combined company at closing



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