Access to Company Reports
Our Web site address is www.keyenergy.com, and we make available free of charge through our Web site our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, as soon as reasonably practicable after such materials are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). Our Web site also includes general information about us, including our Corporate Governance Guidelines and charters for the committees of our board of directors. Information on our Web site or any other Web site is not a part of this report.
ITEM 1A. RISK FACTORS
In addition to the other information in this report, the following factors should be considered in evaluating us and our business.
Risks Related to Our Business
The depressed conditions in our industry have materially and adversely affected our results of operations, cash flows and financial condition during 2017 and, unless conditions in our industry improve, this trend could continue during 2018 and potentially beyond.
Oil and natural gas prices began a rapid and substantial decline in the fourth quarter of 2014. Depressed commodity price conditions persisted and worsened during 2015 and remained depressed and volatile during 2016 and 2017. As a result, demand for our products and services declined substantially from 2014, and the prices we are able to charge our customers for our products and services also declined substantially. These trends materially and adversely affected our results of operations, cash flows and financial condition during 2017 and, unless conditions in our industry improve, this trend will continue during 2018 and potentially beyond.
We had substantial net losses during 2015, 2016 and 2017, and, during 2017, our cash flow used by operations was $51.4 million. If industry conditions do not improve, we may continue to suffer net losses and negative cash flows from operations.
Although our financial position has improved as a result of the reorganization and we are continuing to pursue cost reduction initiatives, there can be no assurance that we will be able to successfully consummate these initiatives or that they will be successful to improve our financial condition and liquidity.
Our business is cyclical and depends on conditions in the oil and natural gas industry, especially oil and natural gas prices and capital and operating expenditures by oil and natural gas companies. A continuation of the depressed state of our industry, tight credit markets and disruptions in the U.S. and global economies and financial systems may adversely impact our business.
Prices for oil and natural gas historically have been volatile as a result of changes in the supply of, and demand for, oil and natural gas and other factors. The significant decline in oil and natural gas prices that began in 2014 and continued throughout 2015, 2016 and 2017 caused many of our customers to significantly reduce drilling, completion and other production activities and related spending on our products and services in those years. In addition, the reduction in demand from our customers has resulted in an oversupply of many of the services and products we provide, and such oversupply substantially reduced the prices we can charge our customers for our services.
We depend on our customers’ willingness to make capital expenditures to explore for, develop and produce oil and natural gas. Therefore, weakness in oil and natural gas prices (or the perception by our customers that oil and natural gas prices will remain reduced or will continue to decrease in the future) has and may continue to result in a reduction in the utilization of our equipment and in lower rates for our services. In addition to adversely affecting us, the continuation and worsening of these conditions have resulted and may continue to result in a material adverse impact on certain of our customers’ liquidity and financial position resulting in further spending reductions, delays in payment of, or non-payment of, amounts owing to us and similar impacts. These conditions have had and may continue to have an adverse impact on our financial conditions, results of operations and cash flows, and it is difficult to predict how long the current uncertain commodity price environment will continue.
Many factors affect the supply of and demand for oil and natural gas and, therefore, influence product prices, including:
prices, and expectations about future prices, of oil and natural gas;
domestic and worldwide economic conditions;
domestic and foreign supply of and demand for oil and natural gas;
the price and quantity of imports of foreign oil and natural gas including the ability of OPEC to set and maintain production levels for oil;
the cost of exploring for, developing, producing and delivering oil and natural gas;
the level of excess production capacity, available pipeline, storage and other transportation capacity;
lead times associated with acquiring equipment and products and availability of qualified personnel;