Union Drilling, Inc. ( UDRL)

Q3 2010 Earnings Call

November 03, 2010 10:00 am ET

Executives

Ben Burnham - IR, DRG&E

Chris Strong - President and CEO

Tina Castillo - CFO

Analysts

Max Barrett - Tudor, Pickering, Holt

John Keller - Stephens Inc

Andrea Sharkey - Gabelli & Company

Victor Marchon - RBC Capital Market

Jud Bailey - Jefferies & Company

Conor Ryan - Deutsche Bank

Presentation

Operator

Welcome to Union Drilling’s third quarter earnings conference call. During today’s presentation all participants will be a listen-only mode. Following the presentation the conference will be opened for questions. (Operator instructions) As a reminder, today’s conference is being recorded Wednesday 3rd, November 2010.

I would now like to hand the conference over to Mr. Ben Burnham, with DRG&E. Please go ahead.

Ben Burnham

Thank you Josh and good morning everyone. We appreciate you joining us for Union Drilling’s conference call today to review third quarter 2010 results. Before I turn the call over to management, I have some details to run through.

You may have received an email of the earnings release yesterday afternoon. If you didn’t get your release or would like to be added to the email distribution list, please call DRG&E at 713-529-6600.

A recorded replay of today’s call will be available until November 10. Information for accessing the telephonic replay is in yesterday’s press release. The replay will also be available via webcast by going to the company’s website at www.uniondrilling.com

Please note that information reported on this call, speaks only as of today, November 3, 2010 and therefore you are advised that time sensitive information may no longer be accurate at the time of any replayed listening. Also, statements made on this conference call that are not historical facts, including statements accompanied by 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 the results expressed or implied in these statements, as a result of risks, uncertainties and other factors, including 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 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 press 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 with me this morning are Chris Strong, President and Chief Executive Officer and Tina Castillo, Union Drilling’s CFO. I’d like to turn the call over to Chris.

Chris Strong

Thank you, Ben. Good morning everyone and thanks for joining us today. As you saw in yesterday’s press release our results for the third quarter of 2010 included revenue to $52 million, EBITDA of $6.2 million and a net loss of $4.4 million or $0.19 per share. Revenue grew by 19% over last quarter and this was matched by the improvement in utilization from 45% to 53%, so average day rate remained essentially flat.

The sequential increase in utilization was driven by higher activity levels in Texas and Appalachian. In Texas, we continue to put additional rigs to work out west with 13 rigs now drilling for oil. We also have two rigs drilling for NGLs in the oily part of the Barnett Shale in Montague County. Today 19 of our 20 rigs in Texas are currently running.

In Appalachia, we have 17 of our 32 rigs under contract while in the Arkoma Fayetteville Shale area work has been pretty steady all year and we have 11 of 19 rigs under contract today. That puts us at 47 rigs or 66% of the fleet on a rig count basis under contract today. Of course, we have the holidays, winter weather and the daily rig count bounces around some with maintenance activities and news, but the trend is clearly positive.

Most of the rigs that are currently under contract are the small single engine rigs with less than 750 horsepower in Appalachia and to a less extent Arkoma. With our continuing pattern of investing in higher horsepower rigs and upgrades to them, the disparity of rig values in the fleet continues to grow. In fact if you look at our utilization by rig value on our books or on a dollar weighted basis, those 47 rigs working today represent 94% of the company’s total rig PP&E book value. Much more of our capital is at work and it’s been reflected in utilization by rig count.

Our expanded safety program which we mentioned on last quarter’s call is going extremely well. We started with Texas and virtually every employee has been through multi day offsite behavior based training designed to enhance employee buy into a team oriented safety first culture. We are now in the middle of this program in the Arkoma and Exxon our largest customer following the XTO acquisition is sending most of their mid-continent field people we work with to attend the training with us.

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