SEGMENT INFORMATION

9 Months Ended

Sep. 30, 2020

NOTE 16. SEGMENT INFORMATION

Our reportable business segments are Rig Services, Fishing and Rental Services, Coiled Tubing Services and Fluid Management Services. We also have a “Functional Support” segment associated with overhead and other costs in support of our reportable segments. We evaluate the performance of our segments based on gross margin measures. All inter-segment sales pricing is based on current market conditions.

Rig Services

Our Rig Services include the completion of newly drilled wells, workover and recompletion of existing oil and natural gas wells, well maintenance, and the plugging and abandonment of wells at the end of their useful lives. We also provide specialty drilling services to oil and natural gas producers with certain of our larger rigs that are capable of providing conventional and horizontal drilling services. Our rigs encompass various sizes and capabilities, allowing us to service all types of wells. Many of our rigs are outfitted with our proprietary KeyView® technology, which captures and reports well site operating data and provides safety control systems. We believe that this technology allows our customers and our crews to better monitor well site operations, improves efficiency and safety, and adds value to the services that we offer.

The completion and recompletion services provided by our rigs prepare wells for production, whether newly drilled, or recently extended through a workover operation. The completion process may involve selectively perforating the well casing to access production zones, stimulating and testing these zones, and installing tubular and downhole equipment. We typically provide a well service rig and may also provide other equipment to assist in the completion process. Completion services vary by well and our work may take a few days to several weeks to perform, depending on the nature of the completion.

The workover services that we provide are designed to enhance the production of existing wells and generally are more complex and time consuming than normal maintenance services. Workover services can include deepening or extending wellbores into new formations by drilling horizontal or lateral wellbores, sealing off depleted production zones and accessing previously bypassed production zones, converting former production wells into injection wells for enhanced recovery operations and conducting major subsurface repairs due to equipment failures. Workover services may last from a few days to several weeks, depending on the complexity of the workover.

Maintenance services provided with our rig fleet are generally required throughout the life cycle of an oil or natural gas well. Examples of these maintenance services include routine mechanical repairs to pumps, tubing and other equipment, removing debris and formation material from wellbores, and pulling rods and other downhole equipment from wellbores to identify and resolve production problems. Maintenance services are generally less complicated than completion and workover related services and require less time to perform.

Our rig fleet is also used in the process of permanently shutting-in oil or natural gas wells that are at the end of their productive lives. These plugging and abandonment services generally require auxiliary equipment in addition to a well servicing rig. The demand for plugging and abandonment services is not significantly impacted by the demand for oil and natural gas because well operators are required by state regulations to plug wells that are no longer productive.

Fishing and Rental Services

We offer a full line of fishing services and rental equipment designed for use in providing drilling and workover services. Fishing services involve recovering lost or stuck equipment in the wellbore utilizing a broad array of “fishing tools.” Our rental tool inventory consists of drill pipe, tubulars, handling tools (including our patented Hydra-Walk® pipe-handling units and services), pressure-control equipment, pumps, power swivels, reversing units and foam air units.

Demand for our fishing and rental services is closely related to capital spending by oil and natural gas producers, which is generally a function of oil and natural gas prices.

Coiled Tubing Services

Coiled Tubing Services involve the use of a continuous metal pipe spooled onto a large reel which is then deployed into oil and natural gas wells to perform various applications, such as wellbore clean-outs, nitrogen jet lifts, through-tubing fishing, and formation stimulations utilizing acid and chemical treatments. Coiled tubing is also used for a number of horizontal well applications such as milling temporary isolation plugs that separate frac zones, and various other pre- and post-hydraulic fracturing well preparation services.

Fluid Management Services

We provide transportation and well-site storage services for various fluids utilized in connection with drilling, completions, workover and maintenance activities. We also provide disposal services for fluids produced subsequent to well completion. These fluids are removed from the well site and transported for disposal in saltwater disposal wells owned by us or a third party. In addition, we operate a fleet of hot oilers capable of pumping heated fluids used to clear soluble restrictions in a wellbore. Demand and pricing for these services generally correspond to demand for our well service rigs.

Functional Support

Our Functional Support segment includes unallocated overhead costs associated with administrative support for our reporting segments.

Financial Summary

The following tables set forth our unaudited segment information as of and for the three and nine months ended September 30, 2020 and 2019 (in thousands):

As of and for the three months ended September 30, 2020


			Fishing and		Coiled		Fluid
			Rental		Tubing		Management		Functional		Reconciling
	Rig Services		Services		Services		Services		Support		Eliminations		Total
Revenues from external customers	$	29,598	$	4,085	$	1,714	$	7,514	$	—	$	—	$	42,911
Intersegment revenues		25		220		—		59		—		(304)		—
Depreciation and amortization		4,108		843		1,008		470		678		—		7,107
Other operating expenses		23,578		3,675		2,023		7,046		9,503		—		45,825
Operating income (loss)		1,912		(433)		(1,317)		(2)		(10,181)		—		(10,021)
Interest expense, net of amounts capitalized		70		5		12		10		2,141		—		2,238
Income (loss) before income taxes		1,845		(438)		(1,325)		(12)		(3,967)		—		(3,897)
Long-lived assets(1)		110,750		15,868		12,126		14,829		47,843		—		201,416
Total assets		136,289		22,043		15,536		19,818		55,106		7,768		256,560
Capital expenditures		207		—		18		—		16		—		241

As of and for the three months ended September 30, 2019


			Fishing and		Coiled		Fluid
			Rental		Tubing		Management		Functional		Reconciling
	Rig Services		Services		Services		Services		Support		Eliminations		Total
Revenues from external customers	$	64,465	$	14,135	$	9,714	$	18,209	$	—	$	—	$	106,523
Intersegment revenues		87		241		—		58		—		(386)		—
Depreciation and amortization		6,289		4,139		1,397		2,294		465		—		14,584
Other operating expenses		55,424		11,713		9,862		16,338		15,994		—		109,331
Operating income (loss)		2,752		(1,717)		(1,545)		(423)		(16,459)		—		(17,392)
Interest expense, net of amounts capitalized		33		7		13		12		8,346		—		8,411
Income (loss) before income taxes		2,734		(1,724)		(1,558)		(424)		(24,480)		—		(25,452)
Long-lived assets(1)		124,078		41,897		17,165		47,980		24,464		—		255,584
Total assets		173,079		55,625		26,174		59,827		50,000		9,441		374,146
Capital expenditures		932		418		1,246		33		1,492		—		4,121

As of and for the nine months ended September 30, 2020


			Fishing and		Coiled		Fluid
			Rental		Tubing		Management		Functional		Reconciling
	Rig Services		Services		Services		Services		Support		Eliminations		Total
Revenues from external customers	$	98,332	$	17,648	$	8,418	$	28,571	$	—	$	—	$	152,969
Intersegment revenues		150		445		—		93		5		(693)		—
Depreciation and amortization		12,275		5,025		3,346		2,698		2,043		—		25,387
Impairment expense		—		17,551		—		23,691		—		—		41,242
Other operating expenses		83,124		16,973		9,163		25,935		31,085		—		166,280
Operating income (loss)		2,933		(21,901)		(4,091)		(23,753)		(33,128)		—		(79,940)
Gain on debt restructuring		—		—		—		—		(170,648)		—		(170,648)
Interest expense, net of amounts capitalized		170		17		39		33		12,266		—		12,525
Income (loss) before income taxes		2,786		(21,906)		(4,125)		(23,781)		133,971		—		86,945
Long-lived assets(1)		110,750		15,868		12,126		14,829		47,843		—		201,416
Total assets		136,289		22,043		15,536		19,818		55,106		7,768		256,560
Capital expenditures		597		106		290		123		104		—		1,220

As of and for the nine months ended September 30, 2019


			Fishing and		Coiled		Fluid
			Rental		Tubing		Management		Functional		Reconciling
	Rig Services		Services		Services		Services		Support		Eliminations		Total
Revenues from external customers	$	197,375	$	43,534	$	32,134	$	55,696	$	—	$	—	$	328,739
Intersegment revenues		341		1,436		—		133		—		(1,910)		—
Depreciation and amortization		18,419		12,493		3,923		6,917		1,390		—		43,142
Other operating expenses		165,866		35,703		33,343		48,894		48,922		—		332,728
Operating income (loss)		13,090		(4,662)		(5,132)		(115)		(50,312)		—		(47,131)
Interest expense, net of amounts capitalized		69		20		43		33		25,999		—		26,164
Income (loss) before income taxes		13,070		(4,671)		(5,172)		(133)		(74,657)		—		(71,563)
Long-lived assets(1)		124,078		41,897		17,165		47,980		24,464		—		255,584
Total assets		173,079		55,625		26,174		59,827		50,000		9,441		374,146
Capital expenditures		3,745		2,491		3,163		2,088		4,996		—		16,483

(1)

Long-lived assets include fixed assets, intangibles and other non-current assets.

KEY ENERGY SERVICES INC 10-Q