Pioneer Drilling Reports Third Quarter 2011 Results

SAN ANTONIO, Texas, Nov. 3, 2011 /PRNewswire/ -- Pioneer Drilling Company, Inc. (NYSE Amex: PDC) today reported financial and operating results for the three and nine months ended September 30, 2011.  Operational highlights include:

• Three multi-year term contracts for new-build drilling rigs added during the third quarter, for a total of nine new-build drilling rigs that will begin operating in U.S. shale plays in 2012
• Currently, 71% of the working drilling rigs in our fleet are operating under term drilling contracts
• Production Services revenue increased 22% over the second quarter of 2011, and represented 42% of total revenues and generated 49% of total gross margin

Financial Results

Revenues for the third quarter of 2011 were $187.7 million, a 10% increase compared with $171.3 million for the second quarter of 2011 ("the prior quarter") and a 38% increase over $135.5 million for the third quarter of 2010 ("the year-earlier quarter").  The increase from the prior quarter and from the year-earlier quarter was primarily due to higher utilization and improved pricing in both the Drilling Services and the Production Services Divisions, plus the contribution of additional equipment in the Production Services Division.

Net income for the third quarter was $6.7 million, or $0.11 per diluted share, compared with net income for the prior quarter of $3.7 million, or $0.07 per diluted share, and a net loss for the year-earlier quarter of $2.6 million, or $0.05 per share.  Third quarter 2011 results were reduced by a $0.5 million impairment related to six older mechanical rigs being sold and one rig that is being retired from our fleet for spare equipment.  Third quarter Adjusted EBITDA(1) was $51.6 million, representing  a 14% increase from $45.1 million in the prior quarter and a 51% increase over Adjusted EBITDA of $34.2 million in the year-earlier quarter.

Operating Results

Revenues for the Drilling Services Division were $108.8 million in the third quarter, a 2% increase over the prior quarter and a 27% increase from the year-earlier quarter.  During the third quarter, the utilization rate for our fleet of 71 drilling rigs averaged 71%, up from 69% in the prior quarter and 63% a year ago.  Average drilling revenues per day dropped 3% from the prior quarter as a result of more rigs operating in West Texas, but were 12% higher versus a year ago.  Drilling Services margin(2) was $7,797 per day in the third quarter as compared to $7,504 per day in the prior quarter and $6,267 per day in the year-earlier period.

Revenues for the Production Services Division were $78.9 million in the third quarter, up 22% from the prior quarter and up 58% from the year-earlier quarter. Third quarter Production Services margin(2) as a percentage of revenue grew to 44% from 42% in the prior quarter and 41% in the year-earlier quarter.  During the third quarter, our well service rig utilization was approximately 92%, and pricing increased to $555 from $524 per hour as compared to the prior quarter.

"Demand for all of our core businesses continued to grow in the third quarter, driving steadily higher equipment utilization and operating margins," said Wm. Stacy Locke, President and CEO of Pioneer Drilling.  

"Drilling activity has remained robust in the Bakken, Marcellus and Eagle Ford shale plays, as well as in the Permian Basin, where we are focusing much of our U.S. operations.  In addition, activity in Colombia has remained steady allowing us to keep our eight drilling rigs fully utilized.  Our West Texas drilling division has continued to grow and we now have 14 drilling rigs working, with two more expected to go to work there under term contracts by year-end.  Currently, 71% of our working drilling rigs are working under term contracts.  

"In September, we decided to sell or retire seven drilling rigs that had remained idle over the last two years. Six of these drilling rigs are being sold and one is being retired from our fleet for spare equipment.  We will begin the fourth quarter with 64 drilling rigs, all of which will be actively marketed.  Our fleet count will begin to grow again in 2012, when we place into service the nine new-build drilling rigs that are currently under construction.  The nine new-build drilling rigs will operate in U.S. shale plays under multi-year term contracts.  

"We had another excellent quarter in our Production Services Division, which contributed almost half of our total gross margin.  Due to solid demand and improving pricing, we continued to add equipment, including four wireline units and six well service rigs since the beginning of the third quarter.  We expect to add another three wireline units and two well service rigs in the fourth quarter, bringing our total by year-end to 106 wireline units and 88 well service rigs in the fleet.  

"In the fourth quarter of 2011, we expect drilling rig utilization for our 64 rigs to average between 87% and 89%, and our Drilling Services margin to be approximately flat to a decrease of $400 per day, as compared to the third quarter.  

In Production Services, we anticipate that the impact of our fleet additions will be offset by normal fourth quarter seasonality.  As a result, we expect both revenues and margin as a percentage of revenues to be flat quarter over quarter," Locke said.

Liquidity

Working capital was $89.9 million at September 30, 2011, compared to $76.1 million at December 31, 2010.  Our cash and cash equivalents at September 30, 2011 were $21.9 million, flat with $22.0 million at year-end 2010.  

In July, we completed an equity offering of 6.9 million shares of common stock, which generated net proceeds of approximately $94.3 million.  We used $57.0 million of these proceeds to pay down the entire debt balance outstanding under our $250 million Revolving Credit Facility, which currently remains at zero with $9.2 million in committed letters of credit.  Availability under our Revolving Credit Facility is currently $240.8 million.

Capital Expenditures

For the three months and nine months ended September 30, 2011, capital expenditures totaled $59.8 million and $158.3 million, respectively.  Currently, we expect to spend approximately $200 million to $220 million in 2011, which includes a portion of the construction costs for our new-build drilling rigs, upgrades to drilling rigs being relocated to West Texas, new well service rig and wireline unit fleet additions, and routine capital expenditures.  We expect to fund these capital expenditures from operating cash flow in excess of our working capital requirements and from borrowings under our Revolving Credit Facility.

Conference Call

Pioneer's management team will hold a conference call today at 11:00 a.m. Eastern Time (10:00 a.m. Central Time), to discuss these results.  To participate in the call, dial 480-629-9678 at least 10 minutes early and ask for the Pioneer Drilling conference call.  A replay will be available after the call ends and will be accessible until November 10, 2011.  To access the replay, dial (303) 590-3030 and enter the pass code 4481329#.

A broadcast of the conference call will also be available on the Internet at Pioneer's Web site at www.pioneerdrlg.com.  To listen to the live call, visit Pioneer's Web site at least 10 minutes early to register and download any necessary audio software.  An archive will be available shortly after the call.  For more information, please contact Donna Washburn at DRG&L at (713) 529-6600 or e-mail [email protected].

About Pioneer

Pioneer Drilling Company provides contract land drilling services to independent and major oil and gas operators in Texas, Louisiana, the Rocky Mountain and Appalachian regions and internationally in Colombia through its Pioneer Drilling Services Division. The Company also provides well service rig, wireline and fishing and rental services to producers in the U.S. Gulf Coast, Mid-Continent, Rocky Mountain and Appalachian regions through its Pioneer Production Services Division.  Its fleet consists of 64 land drilling rigs that drill at depths ranging from 6,000 to 25,000 feet, 86 well service rigs (seventy-seven 550-horsepower rigs, eight 600-horsepower rigs and one 400-horsepower rig), 103 wireline units, and fishing and rental tools.

Cautionary Statement Regarding Forward-Looking Statements,

Non-GAAP Financial Measures and Reconciliations

Statements we make in this news release that express a belief, expectation or intention, as well as those that are not historical fact, are forward-looking statements that are subject to risks, uncertainties and assumptions. Our actual results, performance or achievements, or industry results, could differ materially from those we express in this news release as a result of a variety of factors, including general economic and business conditions and industry trends; levels and volatility of oil and gas prices; decisions about onshore exploration and development projects to be made by oil and gas producing companies; risks associated with economic cycles and their impact on capital markets and liquidity; the continued demand for the drilling services or production services in the geographic areas where we operate; the highly competitive nature of our business; our future financial performance, including availability, terms and deployment of capital; the supply of marketable drilling rigs, well service rigs and wireline units within the industry; the continued availability of drilling rig, well service rig and wireline unit components; the continued availability of qualified personnel; the success or failure of our acquisition strategy, including our ability to finance acquisitions and manage growth; and changes in, or our failure or inability to comply with, governmental regulations, including those relating to the environment.  We have discussed many of these factors in more detail in our annual report on Form 10-K for the year ended December 31, 2010 and our quarterly report on Form 10-Q for the quarter ended June 30, 2011.  These factors are not necessarily all the important factors that could affect us.  Unpredictable or unknown factors we have not discussed in this news release, or in our annual report on Form 10-K or in our quarterly report on Form 10-Q for the quarter ended June 30, 2011 could also have material adverse effects on actual results of matters that are the subject of our forward-looking statements.  All forward-looking statements speak only as of the date on which they are made and we undertake no obligation to publicly update or revise any forward-looking statements whether, as a result of new information, future events or otherwise.  We advise our shareholders that they should (1) be aware that important factors not referred to above could affect the accuracy of our forward-looking statements and (2) use caution and common sense when considering our forward-looking statements.

This news release contains non-GAAP financial measures as defined by SEC Regulation G.  A reconciliation of each such measure to its most directly comparable GAAP financial measure, together with an explanation of why management believes that these non-GAAP financial measures provide useful information to investors, is provided in the following tables.

(1)  Adjusted EBITDA is a financial measure that is not in accordance with GAAP, and should not be considered (i) in isolation of, or as a substitute for, net income (loss), (ii) as an indication of operating performance or cash flows from operating activities or (iii) as a measure of liquidity. In addition, Adjusted EBITDA does not represent funds available for discretionary use. We define Adjusted EBITDA as income (loss) before interest income (expense), taxes, depreciation, amortization and any impairments. We use this measure, together with our GAAP financial metrics, to assess our financial performance and evaluate our overall progress towards meeting our long-term financial objectives. We believe that this non-GAAP financial measure is useful to investors and analysts in allowing for greater transparency of our operating performance and makes it easier to compare our results with those of other companies within our industry. Adjusted EBITDA, as we calculate it, may not be comparable to Adjusted EBITDA measures reported by other companies. A reconciliation of Adjusted EBITDA to net income (loss) is set forth below.

(2)  Drilling Services margin represents contract drilling revenues less contract drilling operating costs. Production Services margin represents production services revenues less production services operating costs. We believe that Drilling Services margin and Production Services margin are useful measures for evaluating financial performance, although they are not measures of financial performance under GAAP. However, Drilling Services margin and Production Services margin are common measures of operating performance used by investors, financial analysts, rating agencies and Pioneer management. A reconciliation of Drilling Services margin and Production Services margin to net income (loss) as reported is included in the tables to this press release. Drilling Services margin and Production Services margin as presented may not be comparable to other similarly titled measures reported by other companies.

SOURCE Pioneer Drilling Company, Inc.

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