Key Energy Services. Inc
Pre and Post SOX
The Sarbanes Oxley Act of 2002, signed into law by President Bush, had several effects on the way organizations report financial statements and govern themselves today. This paper will uncover corporate governance issues with Key Energy Services prior to the Sarbanes Oxley Act of 2002, the impact to the business and post SOX remedies. Key Energy Services is the largest onshore, rig-based well servicing contractor based on the number of rigs owned. Key provides a complete range of well intervention services and has operations in all major onshore oil and gas producing regions of the continental United States and internationally in Mexico, Colombia, the Middle East, Russia, and Argentina. The company is headquartered in Houston, Texas. Key offers clients a comprehensive and advanced array of onshore energy production services. Key Energy Services employs more than 8,500 people worldwide. The company has 4 major lines of business:
1. Rig Services – Includes drilling, installation of onshore rigs and rigs maintenance.
2. Fluid Management – Operating a fleet of fluid carrying trucks / bowsers from each yard to dump sites.
3. Intervention Services – This is a new line of business that installs and maintains Coil Tubing / pipes around the rigs.
4. Fishing / Rentals – Involves recovering lost or stuck equipment in the wellbore and the rental of drill pipes and production control equipment.
(CNN Money, 2015)
The corporate governance structure today consists of eleven board members including its Chief Executive Officer Mr. Richard Alario, who also serves as Chairman of the board. Prior to 2002 the company had only seven board members in which the Chief Executive Officer, John Fransis, was also the Chairman of the board, President and Chief Operating Officer. Today Key’s board of director’s experiences range from finance businesses, investment firms, oilfield businesses, Oil technology firms, energy and insurance companies. In addition, each member has been on one or more boards in the past, or currently sits on the board of another company. However, It is interesting that prior to 2002 the company board of directors were not as experienced and had no prior board experience before joining Key Energy Services. Additionally, the number of board members under the age of fifty was 42% prior to 2002 and 11% in 2014.
The board holds about seven to twelve annual meetings a year in which the directors attend at least 75% of the meetings. Key Energy Services corporate governance guidelines states that a lead director will be appointed among the independent directors to be the middle man in discussions between non-employees and Key’s management team. Also the non-employee directors need to meet regularly in executive sessions without the presence of management. The new guidelines post SOX states that all directors are to attend every stockholder meeting.
Pre SOX the company Board of Directors had an Audit Committee, a Compensation Committee and an Executive Committee. Now there are five standing committees that the board uses to govern the corporation. Of the five committees Audit, Compensation and Corporate Governance are independent to comply with NYSE regulations. According to the SEC post SOX regulations, all audit committees should disclose whether or not the committee has an expert auditor. This financial expert should satisfy all of the experience requirements set forth by the SEC. Key have designated Ms. Yocum and Mr. Michael as their audit committee experts. The members of the committee also communicate directly with Key’s public accounting firm and with the management team to address concerns with accounting practices.
Prior to 2006 KPMG handled all of the company’s public accounting needs including the reported misstatements and restatements that occurred from the year’s prior to SOX though 2006. Prior to SOX the company leaders made several