Pioneer Drilling Company ( PDC)

Q3 2010 Earnings Conference Call

November 4, 2010 11:00 AM ET


Anne Pearson – IR, DRG&E

Stacy Locke – President and CEO

Lorne Phillips – EVP, CFO

Joe Eustace – President, Production Services Division


John Keller – Stephens

John Daniel – Simmons & Company

Shawn Boyd – Westcliff Capital Management



Good day ladies and gentlemen. Thank you for standing by. Welcome to the Pioneer Drilling third quarter earnings conference call. During today’s presentation all parties will in a listen only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Thursday, November 4, 2010. I would now like to turn the conference over to Miss Anne Pearson, Senior Vice President with DRG&E. Please go ahead ma’am.

Ann e Pea rson

Thank you and good morning everybody. Before management makes their formal remarks, I have a few of the usual items to cover. First, a replay of today’s call will be available and can be accessed by webcast by going to the investor relations section of Pioneer’s website and also by telephone replay, and you can find all of the replay information in today’s news release.

Information on this call speaks only as of today, November 4, 2010, so any time sensitive information may no longer be accurate as of the time of any replay.

Management may make forward-looking statements today that are based on beliefs and assumptions and information currently available to it. Although management believes the expectations in these statements are reasonable, they can give no assurance they will prove to be correct. The statements are subject to certain risks, uncertainties and assumptions that are described in this morning’s release and also in most recent filings with the SEC. Should one or more of these risks materialize, or should underlying assumptions prove to be incorrect, actual results may differ materially.

Also please note in this conference call, may contain certain references to non-GAAP measures. You can find reconciliations to the GAAP measures in Form 8-K as well as in today’s news release.

Now with that, I’ll turn it over to Stacy Locke, Pioneer President and CEO.

Stacy Locke

Thank you Ann and good morning. Joining me on the call this morning is Red West, President of our Land Drilling division, Joe Eustace, President of our Production Services division and Lorne Phillips, our Chief Financial Officer.

As you can see from the press release, we had another very solid quarter in the third quarter. Total revenues were up 16%. However, when you correct revenues Q2 to Q3 for turnkey activity, the baseline revenue growth was actually 24%, so an excellent quarter for us.

EBITDA was also up substantially, 56% to $34 million and EBITDA as a percentage of revenues grew from 19% to 25% of revenues.

Revenues derived from work in oil, mostly the oil shelf plays was also up. You may recall last quarter was the first quarter that we had oil related revenues in excess of 50%. In the third quarter, our oil related revenues were over 60% in both our drilling division and our production services division. Strategically, as you may recall, we have pushed both assets, both drilling and production service assets into oil over the last five years.

In addition, strategically we have upgraded and repositioned our drilling fleet into the shale plays and secured that activity with term contracts. Today, approximately 70% of our working rigs are under term protection.

Turning now to the drilling division, play by play, in the Marcellus we have seven active rigs there. We are installing the final three skid package systems on rigs there in the Marcellus. All are under term and before the stronger winter months hit, all seven rigs will have skid packages.

Turning to the Bakken, we’ve added our ninth rig there in October, so eight of the nine rigs are operating under term, and our performance in the Bakken has been superb. We have multiple rigs drilling sub 20 day, 20,000 for laterals on a consistent basis.

In the Eagleford , we continue to have a commanding market position with 12 active rigs there. In the Iberia we have two rigs under term and just as a note, one of our 1,000 hp mechanical top drive rigs on a walking system is outperforming some of the latest technology rigs on a consistent basis in both penetration rate and cost per foot, which gets back to something you’ve heard me comment on in that past, that at the end of the day, the drilling crews and the way we run our operations is more important than the technology.

In Columbia, we have eight rigs under term. We anticipate that in Columbia we will install or begin installing our final walking system on the rig there by the end of this quarter.

Currently, we’re turning our focus on more successfully working our remaining 20 or so conventional rigs, and we’re seeing some hope and opportunity in that regard.

Looking at production services, wireline and well services performed very well in the quarter while fishing and rentals remain challenged. Wireline, we’re on track to grow 33% in unit growth this year, ending the year with 84 units, up 21 from 63 at the end of 2009. We continue to position our wireline operations in every significant shale play the in country. We will soon be placing orders for six more units to be deployed mostly in the first quarter of 2011.

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