Unit CEO Discusses Q3 2010 Results - Earnings Call Transcript
Unit Corporation (
)
Q3 2010 Earnings Call
November 4, 2010 11:00 a.m. ET
Executives
Larry Pinkston - President and CEO
David Merrill - CFO
Brad Guidry - SVP, Exploration
John Cromling- EVP, Contract Drilling Operations
Bob Parks - President, Mid-Stream Segment
Analysts
Brad Evans - Heartland
Presentation
Operator
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Good morning and welcome to Unit Corp’s Third Quarter 2010 Earnings Call. My name is Alicia and I will be facilitating the audio portion of today’s interactive broadcast. (Operator instructions)
This conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act. All statements, other than statements of historical facts, included in this call that address activities, events or developments that the company expects or anticipates will or may occur in the future are forward-looking statements.
A number of risks and uncertainties could cause actual results to differ materially from those statements, including the impact that any decline in wells being drilled will have on production and drilling rig utilization; the productive capabilities of the company’s wells; including the ability of recently completed wells to maintain their initial rate of production or the projected rate of production. Future demands for oil and natural gas; future drilling rig utilization and days rates; projected or anticipated growth of the company’s oil and natural gas production; oil and gas reserve information, as well as the ability to meet future reserve replacement goals; anticipated gas gathering and processing rates and throughput volumes; the prospective capabilities of the reserves associated with the company’s inventory of future drilling sites; availability and timing of obtaining third-party services used in the drilling or completion of its oil and gas wells; anticipated oil and natural gas prices; the number of wells to be drilled by the company’s exploration segment; the development, operational implementation and opportunity risks; possible delays caused by limited availability of third-party services needed in the course of its operations; possibility of future growth opportunities; ability to successfully integrate recent acquisitions into the company’s operations and other factors described from time-to-time in the company’s publicly available SEC reports. The company assumes no obligation to update publicly such forward-looking statements, whether as a result of new information, future events or otherwise.
At this time, I would now like to turn the show over to Mr. Larry Pinkston, President and Chief Executive Officer. Sir, please go ahead.
Larry Pinkston
Thank you, Alicia. Welcome, everyone, this morning. We want to thank you for calling in to our third quarter conference call. I have with me today David Merrill, who is our CFO, Brad Guidry, who is the Executive Vice President of our Exploration Segment; John Cromling, who is the Executive Vice President of our Contract Drilling Operations; and Bob Parks, who is President of our Mid-Stream segment.
As we have done in the past quarters, I will spend a few minutes recapping our third quarter results, including an update of our contract drilling in our mid-stream operations. Brad then will discuss the details of our E&P operations and David will hit on a couple of key financial facts. Then we will take questions after our comments.
We released our third quarter results to the public this morning. We reported net income of $34.5 million and earnings per share of $0.73 per share. This represents a 7% increase of both net income and earnings per share over the second quarter of 2010. The increase was primarily due to 55% increase in operating profit before depreciation from our Contract Drilling segment and a 3% increase in our oil and gas segment.
Our Contract Drilling segment achieved very impressive growth in both rig utilization and daily cash flow margins during the third quarter. Rig utilization during the quarter increased by 13%, to an average of 65 rigs operating during the quarter. Rig activity continued to grow primarily with customers that are drilling oil prospects and/or high btu gas prospects in western Oklahoma and the Texas Panhandle along with the higher number of rigs working in the Bakken and Three Forks formations in North Dakota.
Demand during and subsequent to the end of the third quarter continued to show strength as evidenced by having 69 rigs operating at quarter end and 71 rigs operating today. The upgrade and refurbishment program of our drilling fleet continues to progress. We completed the upgrades on two of our rigs during the third quarter and we currently has 70 rigs in our fleet that we consider to be very competitive for horizontal drilling opportunities.
We have identified another 20 rigs primarily 800 to 1,000 horsepower rigs that are good candidates for upgrade. We will upgrade these as demand dictates. In October, we sold three of our mechanical rigs that were not good candidates for upgrading, the horizontal drilling for which we received 1,200 horsepower electric rig and $5.3 million in cash. We have now sold 11 rigs this year-to-date and we have used the proceeds from these sales to further enhance the upgrade of our rig fleet.
Currently 88% of our drilling rigs are either drilling horizontal or directional wells. Because of the demand for the 1,500 horsepower drilling rigs in the Bakken and Three Forks plays, we have now signed contracts to deliver four new rigs during 2011. The first rigs will be delivered in March of ‘11 and the other two rigs will be delivered in July. When these four rigs are delivered, we will have 14 rigs operating in this area.
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