Pioneer Drilling CEO Discusses Q2 2011 Results - Earnings Call Transcript

Pioneer Drilling Company ( PDC)

Q2 2011 Earnings Call

August 4, 2011 11:00 am ET

Executives

Anne Pearson - SVP, IR Counsel, DRG&L

Stacy Locke - President and CEO

Red West - President of Drilling Services

Joe Eustace - President of Production Services

Lorne Phillips - CFO

Analysts

Marshall Adkins - Raymond James

Brian Uhlmer - Global Hunter

John Daniel - Simmons & Company

John Keller - Stephens Inc.

Presentation

Operator

Welcome to the Pioneer Drilling second quarter earnings conference call. (Operator Instructions) I would now like to turn the conference over to Anne Pearson of DRG&L Investor Relations.

Ann e Pearson

Good morning, everyone. Before I turn the call over to Stacy and Lorne for their formal remarks, I have a few of the usual items I need to cover.

First of all, a replay of today's call will be available and is accessible by webcast by going to the IR section of Pioneer's website and also by telephone replay. You can find the replay information for both in this morning's news release.

As a reminder, information reported on this call speaks only as of today, August 4, 2011, so any time-sensitive information may no longer be accurate at the time of the replay. Management may make forward-looking statements today that are based on beliefs and assumptions and information currently available to them. Although they believe the expectations reflected in these statements are reasonable, they can give no assurance they'll prove to be correct. They are subject to certain risks, uncertainties and assumptions that are described in this morning's news release and also in recent public filings with the SEC. If one or more of these risks materialize or should underlying assumptions prove to be incorrect, actual results may differ materially.

Also, please note that this conference call may contain references to non-GAAP measures. You'll find a reconciliation to the GAAP measures in this morning's news release.

So now I'd like to turn the call over to Stacy Locke, Pioneer President and CEO.

Stacy Locke

Thank you, Anne, and good morning. Joining me here in San Antonia on the call this morning is Red West, President of our Drilling Services Division; and Joe Eustace, President of our Production Services business; and Lorne Phillips, our Chief Financial Officer. We appreciate everyone joining the call today.

Overall, we had very solid second quarter. Topline revenue growth was 12%. But more importantly, EBITDA grew by 16%. And this was primarily driven by the 21% revenue growth in our Production Services, which is a very high-margin business, just under 42% in this second quarter. And finally, we had enough business and earnings to generate $0.07 on the diluted EPS line, which we're very proud to accomplish.

These good results were achieved by essentially just executing on our strategic plan. In Drilling, we put stacked rigs back to work in our new West Texas division. Today, we have 12 rigs working in West Texas with four additional rigs contracted. Two of those four rigs will be in West Texas, working in mid-September; a third one in mid-October; and the fourth one by the beginning of November.

Incidentally, two of the 16 total rigs were part of these six cold-stacked rigs that have been cold-stacked in Western Oklahoma since the summer of '08. So we're very pleased to activate those two units, one of those with a 550 horsepower and one with an 800 horsepower. The vast majority of other rigs that we have in West Texas are 1,000-horsepower to 1,300-horsepower rigs. And we continue to market stacked East Texas rigs and hope to have 18 to 20 rigs working in the West Texas division by the first quarter of 2012.

On the newbuild front, we continue to market aggressively. We have five rigs under construction currently with signed multiyear contracts. We're very close to executing the contracts on our six rigs. It's another 1,500-horsepower rig. And we plan to deliver at least eight to 10 newbuild rigs during 2012.

Drilling outside of West Texas and in other markets, the Bakken, we had a little bit of a downtime in some of these other divisions. The Bakken had two mechanical rigs down in the month of July in this third quarter. One of those was down and being upgraded. It's a 1,000-horsepower mechanical rig. It was upgraded to a 1,300-horsepower rig with 500-ton top drive and 1,600-horsepower mud pump. And it is just beginning this week on an 18-month term contract at a day rate of well in excess of 20,000 a day. So we're very excited about that opportunity.

We have our smallest rig, lowest horsepower rig down currently, but we have some opportunities that lead us to believe that that rig will also go back to work and put us back to full utilization there in the Bakken.

In the Marcellus, we had a couple of our top drive rigs, 1,000-horsepower rigs, go down at the combination of their term contracts. One of those is contracted and going back to work, and we're optimistic that the second rig will be going to back to work in the next six weeks or so.

In the Eagle Ford, just really more by timing and coincidence, we had two mechanical rigs go down. One was a 1,000-horsepower top drive rig. That's one of the rigs that we've relocated to West Texas. And that makes two 1,000-horsepower, one 1,200-horsepower rig with top drive in West Texas now, all drilling horizontal wells. And then the other 1,200-horsepower mobile mechanical rig in South Texas is contracted and going to back to work within about five days.

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