Unit Corporation. (UNT)
Q2 2010 Earnings Call
August 03, 2010 11:00 a.m. ET
Larry Pinkston - COO
Brad Guidry - EVP, Exploration
David Merrill - CFO
Jim Rollyson - Raymond James
Robert Christensen - Buckingham Research
Brad Evans - Heartland Advisors
Good morning and welcome to the Unit Corp. Second Quarter 2010 Earnings Call. My name is Sheryl and I will be facilitating the audio portion of today's interactive broadcast. All lines have been placed on mute to prevent any background noise. (Operators Instruction) This event after features streaming audio which allows you to attend to the show through your PC speakers.
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 that could cause actual results to differ materially from these statements, including the impact that the current decline in wells being drilled will have on the production and drilling rig utilization, productive capabilities of the company's wells, future demand for oil and natural gas, future drilling rig utilization and dayrates, projected growth of company's oil and natural gas production, oil and gas reserve information, as well the ability to meet its 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 gases, anticipated oil and natural gas prices, the number of wells to be drilled by the company's exploration segment, 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 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.
I would now like to turn the call over to Mr. Pinkston. Sir, you may begin.
Thank you, Sheryl. Good morning, everyone. We want to thank you for calling in to our second quarter conference call. I have with me today are David Merrill, our CFO; Brad Guidry as the Executive Vice President of our Exploration Segment; John Cromling as Executive Vice President of our Contract Drilling Operations and Bob Parks as President of our Mid-Stream Segment.
I will spend a few minutes recapping our second quarter results including an update on a contract drilling in our Mid-Stream Operations, Brad will discuss the details of our E&P operations and David will go on some key financials facts. Then we'll take questions after our comments are complete. We released our second quarter results to the public this morning. We reported net income of 32.2 million and earnings per share of $0.68 per share, this compares to a net income of $36.2 million and earnings per share of $0.76 per share in the first quarter of 2010.
The reduction was due to lower operating margins in our oil and gas in Mid-Stream divisions that was somewhat offset by higher margins and our Contract Drilling segment. And our Contract Drilling segment, we achieved a 28% improvement in operating profit before depreciation as compared to the first quarter of 2010. Revenues for Contract Drilling increased 19% during the second quarter, driven mostly by 14% increase in average number rigs working during the quarter and a 6% increase in average dayrates.
We averaged operating in 58 rigs for the quarter as is up seven from the third quarter; demand for our drilling rigs continues to gain momentum especially the rigs that are equipped to drill horizontal wells. We are currently operating 65 rigs and have 71 under contract. We have term contracts in place that were initially for periods primarily of six months to one year on 42 rigs. We have relieved that we would average 66 to 67 rigs operating in the third quarter.
Average dayrates have continued to improve during the year. Our second quarter average dayrates was 49 per day, that's $500 a day from the third quarter since the beginning of 2010 our average dayrate is up $1,100 per day and we exited the second quarter with $15,100 a day. Our costs per day between the first and second quarter was relatively unchanged.
Effective early in July, we have a labor increase on our rigs, labor increase or increase on average operating cost approximately $300 across our fleet, our contracts enabled us to pass this cost increase through the operators, virtually all of our rigs.
Our refurbishment program for drilling rigs is progressing, it's mid December of '09, we've upgraded 23 rigs and still have 12 rigs remaining to complete by the end of the year. Of the 123 rigs that we currently have in our fleet, we have 90 rigs that we feel are or will be competitive once the upgrades in the horizontal drilling marketplace were completed.
We have an inventory, the major components to be on 1,500 horsepower rigs, we will continue to monitor demand in margins to determine if these new bills should be constructed.
Our Mid-Stream segments financial results continued to remain strong during the second quarter, even though the gross margins declined from the first quarter of 2010, which was primarily due to lower overall liquid process. Gross margins in the second quarter 2010 compared to the second quarter of 2009 showed an increase from 4.0 million to 7.4 million.