Union Drilling, Inc. (UDRL)

Q2 2010 Earnings Call

August 5, 2010; 11:00 am ET


Chris Strong - President & Chief Executive Officer

Tina Castillo - Chief Financial Officer

Ken Dennard - Investor Relations, DRG&E


Max Barrett - Tudor, Pickering, Holt

Ryan Fitzgibbon - Pritchard Capital

Andrea Sharkey - Gabelli & Company



Good day ladies and gentleman. Thank you for standing by. Welcome to the Union Drilling’s second quarter earnings call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions)

I would now like to turn the conference over to Ken Dennard, DRG&E. Please go ahead.

Ken Dennard

Thank you Luke and good morning everyone. We appreciate you joining us for Union Drilling's conference call today, to review second quarter 2010 results and before I turn the call over to the management, I have the normal house keeping details to run through.

You may have received an e-mail of the earnings release yesterday afternoon. If you didn't get your release or you would like to be added to the e-mail distribution list, please call our offices at DRG&E, that number is 713-529-6600.

A recorded replay of today's call will be available until August 12. Information for accessing the telephonic replay is in yesterday's release. The replay will also be available via webcast or archived webcast, by going to the company's website, which is of course www.uniondrilling.com.

Please note that information reported on this call speaks only as of today, August 5, 2010 and therefore you are advised that time-sensitive information may no longer be accurate at the time of any replay listening.

Also, statements made on this conference call that are not historical facts, including the statements accompanied by the words such as may, believe, anticipate, expect, estimate or similar words are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, regarding Union Drilling's plans and performance.

These statements are based on management's estimates, assumptions and projections as of the date of this call and they are not guarantees of future performance. Actual results may differ materially from results expressed or implied in these statements, as a result of risks, uncertainties and other factors, included but not limited to the factors set forth in the company's prior filings with the Securities and Exchange Commission.

Union Drilling cautions you not to place undue reliance on forward-looking statements contained in this call. Union Drilling does not undertake any obligation to publicly advise or revise any forward-looking statements to reflect future events, information or circumstances that may arise after the date of this call. For further information, please refer to the company's filings with the SEC.

During today's call, management will discuss EBITDA and drilling margin, which are non-GAAP financial measures. Please refer to yesterday's release, which can be found on the company's website, for disclosures about these measures and for reconciliation to the most directly comparable GAAP financial measures.

Now, that we have that out of the way, let me this morning introduce and pass the call to Chris Strong, President and Chief Executive Officer; and Tina Castillo, Union Drilling’s new CFO.

Now I would like to turn the call to Chris.

Chris Strong

Thanks Ken. Good morning everyone and thank you for joining us today. As you saw on yesterday’s press release, our results for the second quarter of 2010 included revenues of $43.7 million, EBITDA of $3.6 million and a net loss of $5.3 million or $0.23 per share.

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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