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: Superior Energy Searches For Opportunity Amid Adversity

There is still no clear sign that the U.S. onshore energy market has bottomed, nor that global energy prices are likely to head meaningfully higher quickly. With abundant overcapacity across multiple service areas, Superior Energy (NYSE:SPN) is looking at a long, hard, and painful slog through this weak part of the cycle.

The good news is that the bad times won't last forever - at a minimum, there are too many over-leveraged service providers accepting almost any price to keep the lights on and their business models aren't viable on a long-term basis. Superior Energy has no such concerns for the foreseeable future and has instead been pursuing a strategy of preserving key customer relationships and assets while searching for M&A opportunities that could leave it as a more viable back-up choice when the Big Three become the Big Two after the Halliburton (NYSE:HAL) - Baker Hughes (NYSE:BHI) merger.

Sell-side analysts have made multiple cuts to their estimates for Superior as 2015 has gone on and I wouldn't be surprised if there are further cuts still to be made. At a more fundamental level, though, I believe these shares offer some solid long-term upside. A range of methodologies (cash flow, EV/EBITDA, and ROE/BV) supports a fair value range of $22.50 to over $30, all of which suggest upside for investors willing to hold through what will almost certainly be a few more rough quarters if not a protracted recovery period.

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Superior Energy Searches For Opportunity Amid Adversity

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: 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: 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: 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: 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: RPC Needs Activity To Pick Up To Sustain The Rally

Many investors are already looking ahead to 2014, and it's probably just a matter of weeks before we start seeing the "stocks to own for 2014" pieces coming out. As it pertains to the energy sector, one of the biggest questions is the extent to which drilling activity will pick up in North America and how much of the excess capacity in areas like pressure pumping will get absorbed into the market.

Given how stocks like RPC (RES), Halliburton (HAL), C & J Energy Services (CJES), and Calfrac (CFW.TO) have been behaving of late, it looks investors are expecting a pretty favorable answer. Although the valuation on RPC isn't so great at this point, I do believe it's a stock worthy of further due diligence. Despite overcapacity in pressure pumping, the company has maintained solid margins and returns in capital, due in part to other service offerings like downhole tools and coiled tubing.

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RPC Needs Activity To Pick Up To Sustain The Rally

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

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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Investopedia: Petrohawk Flies Into The Sunset

It cannot really be said that the announcement of the acquisition of Petrohawk (NYSE:HK) Thursday night was a big surprise. Not only was this an attractive "mid-major" with productive and highly concentrated assets, but most analysts of note thought it was trading well below the fair value of its assets. Apparently BHP Billiton (NYSE:BHP) agreed, and had no problem opening its wallet and paying a premium for this natural gas-focused exploration and production company. (To learn more about mergers, check out The Merger - What To Do When Companies Converge.)

The Terms of the Deal  
BHP Billiton proposes to acquire Petrohawk for $38.75 per share in cash, a price that creates a total deal value of approximately $15 billion (including debt) and a 65% premium on the shares. Assuming that the deal goes through, and the $400 million break-up is high but not necessarily prohibitive, BHP will be paying something north of seven times the forward EBITDA for Petrohawk - more or less near the "standard" forward multiple for a company like this (albeit a premium to the current group average in the "5s").

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Investopedia: High Oil Prices Should Make For A Healthy Halliburton

Building models and calculating price targets for energy service companies like Halliburton (NYSE:HAL) almost feels like an exercise in futility. Not only is the business maddeningly inconsistent, but there is only scant evidence that investors pay much attention to valuation. More often, energy services are simply a trading vehicle for attitudes about near-term exploration and production in oil and gas. 

That said, Halliburton is seeing stronger business conditions and with oil prices as high as they are, the near-term outlook for exploration and production should be quite healthy. (For more, see Unearth Profits In Oil Exploration And Production.)

North America Drives the Quarter 

Halliburton delivered strong revenue performance to start the year, driven in large part by momentum in the North American business. Overall revenue jumped 40% from last year and rose more than 2% on a sequential basis. Completion and production saw better than 6% growth (and made up about 60% of total revenue), while the drilling and evaluation segment saw a 3% contraction. North American revenue jumped 13% sequentially, while business in regions like Africa, Europe, Russia, Asia and the Mideast dropped by double-digit amounts.

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Another Big Gulf Clean-Up Operation

It looks like the U.S. government is getting serious about cleaning up the Gulf of Mexico. In the wake of the BP (NYSE: BP) Macondo oil spill, the U.S. government has issued an order that will require energy companies to permanently decommission idle wells in the Gulf. Under the order, wells and platforms that have been idle for five or more years will have to be plugged and dismantled, and it would appear to include roughly 3,500 wells and 650 production platforms.

To a large extent, this move makes sense. The temporary plugs that are installed in idle wells do not last forever and can leak. Likewise, a platform can be vulnerable to severe events, like a hurricane. While severe damage is relatively rare (these platforms are built to withstand bad weather), it is nevertheless possible that a bad storm could wreck a platform and create both an oil spill risk and a hazard to navigation.

Major Gulf operators like Chevron (NYSE:CVX), ExxonMobil (NYSE:XOM), BP and Apache (NYSE:APA) could all be on the hook, as well as numerous tiny operators. Although it is not uncommon for operators to use temporary plugs for marginal wells (particularly when prices are low), this order would require permanent plugs that would not be removable later. Then again, given the high prices of the past five years, if a well has been idle for all of that time, it is not too likely that it would be coming back into significant production. (For related reading, see A Primer On Offshore Drilling.)

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