Union Drilling, Inc. Q2 2010 Earnings Call Transcript

These all represent slight improvements over the first quarter, but the bottom line is certainly not where we want or expect it to be. Utilization averaged 45% for the quarter, which represents an improvement over 39.6% in Q1 and 34.7% in last years second quarter.

Increases in utilization were driven primarily by the rapid ramp up in West Texas Oil Drilling and to a lesser extent by increased activity in the Arkoma Basil. This was some what offset by atypical weakness in Appalachia, driven by low gas prices, regulatory and permitting uncertainty and a well fire that put one of our rigs out of service.

Regarding that well fire, on June 7, rig 43 was in the early stages of drilling the Marcellus well in Northern West Virginia, prior to setting any casing, when it encountered a pocket of methane gas was ignited and caused a fire at the surface. Since no casing was set, there was no blow up preventer or well control equipment installed and the fire burned to a height of about 40 feet for five days.

Seven workers were injured, including five Union Drilling employees. I am thankful that the workers are progressing well in their recovery from second-degree burns to exposed areas such as their hands, neck and face.

As a result of this fire, the main components of the rig such as derrick, substructure and top drive were destroyed and the State of West Virginia suspended permitting. Given this fire and another substantial Marcellus gas leak in July that did not ignite, it is not surprising the permits are now requiring shallower surface casing strings, so that blow out preventors can be installed earlier in the drilling process.

As a result of that incident, and possibly several other high profile accidents by other operators, the Pennsylvania DEP undertook an investigation of union drillings operating there. We are please to report that this investigation concluded with no violations being found on those rigs. I’ll talk more about our safety programs in a few minutes.

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