SAN ANTONIO, Texas, February 26, 2009 – Pioneer Drilling Company, Inc. (NYSE Alternext US: PDC) today reported financial and operating results for the three and twelve months ended December 31, 2008.

 

Fourth Quarter 2008 Results

Net income adjusted to exclude the impact of impairment charges (1) was $18.7 million, or (2) for the fourth quarter was $60.4

 

Full Year 2008 Results

Net income adjusted to exclude the impact of the impairment charges $1.47 per diluted share, for the full year 2008, compared with net income of $56.9 million, or $1.13 per diluted share, for 2007. Net loss as reported for 2008, which includes the impact of the two impairment charges, was $62.7 million, or $1.26 per diluted share. Revenues for 2008 were $610.9 million, compared with $417.2 million for 2007.

 

EBITDA for 2008 increased 48% to $214.8 million from $144.6 million for 2007. Full year 2008 results include operating results from our Production Services Division, which was formed on March 1, 2008.

 

“During the fourth quarter, both our Drilling Services Division and Production Services Division felt the effects of the downturn in the energy sector,” said Wm. Stacy Locke, President and CEO of Pioneer Drilling. “In the face of declining commodity prices, tight credit markets, depressed market capitalizations and a worldwide recession, our customers abruptly curtailed their capital spending.

 

While the fourth quarter was generally a good quarter, we have been surprised by the rate of decline that began in mid-November across all rig classes and in every geographic region. Currently, we are operating 34 of our 65 U.S. drilling rigs and three of our five Colombian drilling rigs for an overall 53% utilization rate.

 

“Revenues for the Drilling Services Division were $123.3 million for the fourth quarter, almost flat with the prior quarter, and as we anticipated, rig utilization declined. Fourth quarter rig utilization averaged 87% as compared to 96% in the prior quarter, and revenue days declined to 5,529 from

6,017.

 

“Revenues held stable due to higher average revenues per day of $22,301. Drilling Services Margin $8,967, despite an increase in drilling costs per day to $12,974. This was the highest quarterly margin achieved during 2008.

 

“Colombian operations performed well during the quarter; however, declining oil prices have began to curtail capital spending plans much like in the U.S.,” added Mr. Locke. “Dayrates and rig utilization will likely be severely impacted for the remainder of 2009.

 

“Revenues for the Production Services Division decreased 5% to $47.4 million for the fourth quarter, compared to $49.9 million in the prior quarter of 2008. Production Services margins (3) per day increased to $9,327 in the fourth quarter, a 4% increase over the prior quarter of(3)  decreased 15% to $21.2 million, compared to $24.9 million in the prior quarter, and margins as a percentage of revenue also decreased to 45% as compared to 50% in the prior quarter. Currently, 62 of our 74 workover rigs are operating and the remaining 12 workover rigs are idle with no crews assigned.

 

“As a result of the rapid decline in drilling and production service activity, we have reduced our workforce by approximately 37%, reduced field wages by roughly 10%, cut numerous other expenses and scaled back budgeted capital expenditures approved for 2009 to $65 million. In addition, budgeted capital expenditures previously approved for 2008 of $19.3 million will carryover and be incurred in 2009.

 

“Our balance sheet is strong, with $64.4 million in working capital at December 31, 2008, up from $60.4 at September 30. We have good liquidity with $26.8 million in cash and cash equivalents as of December 31, 2008 and borrowing availability of $133.2 million as of February 23, 2009 on our senior secured revolving credit facility,” he said.

 

Conference Call

Pioneer’s management team will hold a conference call today at 2:00 p.m. Eastern Time (1:00 p.m. Central Time), to discuss these results. To participate in the call, dial 303-262-2055 at least 10 minutes early and ask for the Pioneer Drilling conference call. A replay will be available

 approximately two hours after the call ends and will be accessible until March 5. To access the replay, dial (303) 590-3000 and enter the pass code 11125734#. The conference call will also be available on the Internet at Pioneer’s Web site at www.pioneerdrlg.com register and download any necessary audio software. An archive will be available shortly after the. To listen to the live call, visit Pioneer’s Web site at least 10 minutes early to  call. For more information, please contact Donna Washburn at DRG &E at (713) 529-6600 or e-mail  dmw@drg-e.com.

 

About Pioneer

Pioneer Drilling Company provides contract land drilling services to independent and major oil and gas operators in Texas, Louisiana, Oklahoma, Kansas, the Rocky Mountain region and internationally in Colombia through its Pioneer Drilling Services Division. The Company also provides workover rig, wireline and fishing and rental services to producers in the U.S. Gulf Coast, Mid-Continent and Rocky Mountain regions through its Pioneer Production Services Division. Its fleet consists of 70 land drilling rigs that drill at depths of 6,000 and 18,000 feet, 74 workover rigs (sixty nine 550 horsepower rigs, four 600 horsepower rigs and one 400 horsepower rig), 59 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, risks associated with the current global economic crisis and its impact on capital markets and liquidity, the continued strength or weakness of the oil and gas production industry in the geographic areas in which we operate including the price of oil and natural gas in general, and the recent precipitous decline in prices in particular, and the impact of commodity prices and other factors upon future decisions about onshore exploration and development projects to be made by oil and gas companies and their ability to obtain necessary financing, the highly competitive nature of our business, difficulty in integrating the services of acquired companies, including the production services businesses of WEDGE, Competition, Paltec and Pettus in an efficient and effective manner, the availability, terms and deployment of capital, the availability of qualified personnel, changes in, or our failure or inability to comply with, government regulations, including those relating to the environment, the economic and business conditions of our international operations, challenges in achieving strategic objectives, and the risk that our markets do not evolve as anticipated.

We have discussed many of these factors in more detail in our annual report on Form 10-K for the year ended December 31, 2008.

 

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 could also have material adverse effects on actual results of matters that are the subject of our forwardlooking statements. All forward-looking statements speak only as the date on which they are made and we undertake no duty to update or revise any forward-looking statements. 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) Net income adjusted to exclude the impact of impairment charges represents net loss as reported less the goodwill impairment charge, intangible asset impairment charge and the tax benefit recognized from the impairments. We believe that net income adjusted to exclude the impact of impairment charges is a useful measure for evaluating financial performance, although it is not a measure of financial performance under GAAP. A reconciliation of net income adjusted to exclude the impact of impairment charges to net loss as reported is included in the tables to this news release. Net income adjusted to exclude the impact of impairment charges as presented may not be comparable to other similarly titled measures reported by other companies.

 

(2) We define EBITDA as earnings (loss) before interest income (expense), taxes, depreciation, amortization and impairments. Although not prescribed under GAAP, we believe the presentation of EBITDA is relevant and useful because it helps our investors understand our operating performance and makes it easier to compare our results with those of other companies that have different financing, capital or tax structures. EBITDA should not be considered in isolation from or as a substitute for net income, as an indication of operating performance or cash flows from operating activities or as a measure of liquidity. A reconciliation of net (loss) earnings to EBITDA is included in the tables to this press release. EBITDA, as we calculate it, may not be comparable to EBITDA measures reported by other companies. In addition, EBITDA does not represent funds available for discretionary use.

 

(3) 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 (loss) earnings 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.

 

September 30,

2008 2007 2008 2008 2007

(unaudited)

 

Revenues:

Drilling services 123,303 104,589 124,297 456,890 417,231

Production services 47,392 - 49,948 153,994 -

Total revenue $ 170,695 $ 104,589 $ 174,245 $ 610,884 $ 417,231

 

Costs and Expenses:

Drilling services 71,731 63,749 70,342 269,846 250,564

Production services 26,226 - 25,025 80,097 -

Depreciation and amortization 26,221 16,661 24,225 88,145 63,588

Selling, general and administrative 12,123 5,809 12,840 44,834 19,608

Bad debt expense 639 (15) (260) 423 2,612

Impairment of goodwill 118,646 - - 118,646 -

Impairment of intangible assets 52,847 - - 52,847 -

Total operating costs and expenses 308,433 86,204 132,172 654,838 336,372

(Loss) income from operations (137,738) 18,385 42,073 (43,954) 80,859

 

Other (expense) income:

Interest expense (3,460) (1) (3,773) (13,072) (16)

Interest income 261 808 205 1,256 3,282

Other 471 97 (1,551) (918) 136

Total other (expense) income (2,728) 904 (5,119) (12,734) 3,402

(Loss) Income before income taxes (140,466) 19,289 36,954 (56,688) 84,261

Income tax benefit (expense) 22,562 (4,512) (12,760) (6,057) (27,398)

Net (loss) earnings $ (117,904) $ 14,777 $ 24,194 $ (62,745) $ 56,863

 

(Loss) Earnings per common share:

Basic $ (2.37) $ 0.30 $ 0.49 $ (1.26) $ 1.15

Diluted $ (2.37) $ 0.29 $ 0.48 $ (1.26) $ 1.13

 

Weighted average number of shares outstanding:

Basic 49,818 49,651 49,791 49,789 49,638

Diluted 49,818 50,188 50,449 49,789 50,180

 

Years ended

December 31,

 

PIONEER DRILLING COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

December 31,

Three months ended (unaudited)

 

December 31, 2008 December 31, 2007

 

ASSETS

Current assets:

Cash and cash equivalents $ 26,821 $ 76,703

Receivables, net 87,161 47,370

Unbilled receivables 12,262 7,861

Deferred income taxes 6,270 3,670

Inventory 3,874 1,180

Prepaid expenses and other current assets 8,902 5,073

Total current assets 145,290 141,857

Net property and equipment 627,562 417,022

Deferred income taxes - 573

Intangible assets, net of amortization 29,913 -

Other long-term assets 21,714 760

Total assets $ 824,479 $ 560,212

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

Current liabilities:

Accounts payable $ 21,830 $ 21,424

Current portion of long-term debt 17,298 -

Prepaid drilling contracts 1,171 1,933

Accrued expenses 40,619 18,693

Total current liabilities 80,918 42,050

Long-term debt, less current portion 262,115 -

Other long-term liabilities 6,413 254

Deferred income taxes 60,915 46,836

Total liabilities 410,361 89,140

Total shareholders' equity 414,118 471,072

Total liabilities and shareholders' equity $ 824,479 $ 560,212

 

PIONEER DRILLING COMPANY AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands)

2008 2007

(unaudited)

 

Cash flows from operating activities:

Net (loss) earnings $ (62,745) $ 56,863

Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:

Depreciation and amortization 88,145 63,588

Allowance for doubtful accounts 1,592 2,612

(Gain) loss on dispositions of property and equipment (805) 3,385

Stock-based compensation expense 4,597 3,744

Impairment of goodwill and intangible assets 171,493

Deferred income taxes (2,310) 12,126

Change in other assets 265 (513)

Change in non-current liabilities (621) (177)

Changes in current assets and liabilities (13,220) 10,282

Net cash provided by operating activities 186,391 151,910

 

Cash flows from investing activities:

Acquisition of WEDGE, net of cash acquired (313,621) -

Acquisition of Competition Wireline, net of cash acquired (26,772) -

Acquisition of other production services businesses (9,301) -

Purchases of property and equipment (147,455) (154,027)

Purchase of auction rate securities, net (15,900) -

Proceeds from sale of property and equipment 4,008 3,776

Proceeds from insurance recoveries 3,426 -

Net cash used in investing activities (505,615) (150,251)

 

Cash flows from financing activities:

Payments of debt (87,767) -

Proceeds from issuance of debt 359,400 -

Debt issuance costs (3,319) -

Proceeds from sale of common stock 784 217

Excess tax benefit of stock option exercises 244 73

Net cash provided by financing activities 269,342 290

Net (decrease) increase in cash and cash equivalents (49,882) 1,949

Beginning cash and cash equivalents 76,703 74,754

Ending cash and cash equivalents $ 26,821 $ 76,703

 

PIONEER DRILLING COMPANY AND SUBSIDIARIES

Years ended

December 31,

Condensed Consolidated Statements of Cash Flows

(in thousands)

 

September 30,

2008 2007 2008 2008 2007

 

Drilling Services Division:

Revenues $ 123,303 $ 104,589 $ 124,297 $ 456,890 $ 417,231

Operating costs 71,731 63,749 70,342 269,846 250,564

Drilling services margin (1) $ 51,572 $ 40,840 $ 53,955 $ 187,044 $ 166,667

Average number of drilling rigs 68.7 67.3 68.0 67.4 66.1

Utilization rate 87% 86% 96% 89% 89%

Revenue days 5,529 5,343 6,017 22,057 21,492

Average revenues per day $ 22,301 $ 19,575 $ 20,658 $ 20,714 $ 19,413

Average operating costs per day 12,974 11,931 11,691 12,234 11,658

Drilling services margin per day (2) $ 9,327 $ 7,644 $ 8,967 $ 8,480 $ 7,755

 

Production Services Division:

Revenues $ 47,392 $ - $ 49,948 $ 153,994 $ -

Operating costs 26,226 - 25,025 80,097 -

Production services margin (1) $ 21,166 $ - $ 24,923 $ 73,897 $ -

 

Combined:

Revenues $ 170,695 $ 104,589 $ 174,245 $ 610,884 $ 417,231

Operating Costs 97,957 63,749 95,367 349,943 250,564

Combined margin $ 72,738 $ 40,840 $ 78,878 $ 260,941 $ 166,667

EBITDA (3) $ 60,447 $ 35,143 $ 64,747 $ 214,766 $ 144,583

 

PIONEER DRILLING COMPANY AND SUBSIDIARIES

Operating Statistics

(in thousands)

(unaudited)

Years ended

December 31, December 31,

Three months ended

 

(1) Drilling services margin represents contract drilling revenues less contract drilling operating costs. Production services margin represents production services revenue less production services operating costs. Pioneer believes that Drilling services margin and Production services margin are useful measures for evaluating financial performance, although they are not measures of financial performance under generally accepted accounting principles. However, Drilling services margin and Production services margin are common measures of operating performance used by investors, financial analysts, rating agencies and Pioneer’s management. A reconciliation of Drilling services margin and Production services margin to net (loss) earnings is included in the table below. Drilling services margin and production services margin as presented may not be comparable to other similarly titled measures reported by other companies.

 

(2) Drilling services margin per revenue day represents the Drilling Services Division’s average revenue per revenue day less average operating costs per revenue day.

 

(3) We define EBITDA as earnings (loss) before interest income (expense), taxes, depreciation, amortization and impairments. Although not prescribed under GAAP, we believe the presentation of EBITDA is relevant and useful because it helps our investors understand our operating performance and makes it easier to compare our results with those of other companies that have different financing, capital or tax structures. EBITDA should not be considered in isolation from or as a substitute for net (loss) earnings as an indication of operating performance or cash flows from operating activities or as a measure of liquidity. A reconciliation of net (loss) earnings to EBITDA is included in the table below. EBITDA, as we calculate it, may not be comparable to EBITDA measures reported by other companies. In addition, EBITDA does not represent funds available for discretionary use.

 

September 30,

2008 2007 2008 2008 2007

 

Combined margin $ 72,738 $ 40,840 $ 78,878 $ 260,941 $ 166,667

General and administrative (12,123) (5,809) (12,840) (44,834) (19,608)

Bad debt expense (recoveries) (639) 15 260 (423) (2,612)

Other income (expense) 471 97 (1,551) (918) 136

EBITDA 60,447 35,143 64,747 214,766 144,583

Depreciation and amortization (26,221) (16,661) (24,225) (88,145) (63,588)

Impairment of goodwill (118,646) - - (118,646) -

Impairment of intangible assets (52,847) - - (52,847) -

Interest income (expense), net (3,199) 807 (3,568) (11,816) 3,266

Income tax expense 22,562 (4,512) (12,760) (6,057) (27,398)

Net (loss) earnings $ (117,904) $ 14,777 $ 24,194 $ (62,745) $ 56,863

 

PIONEER DRILLING COMPANY AND SUBSIDIARIES

Reconciliation of Combined Drilling Services Margin and Production

Services Margin and EBITDA to Net (Loss) Earnings

Three months ended Years ended

(in thousands)

December 31, December 31,

Three months ended

ended Year ended

 

December 31, 2008 December 31, 2008

 

Net loss as reported $ (117,904) $ (62,745)

Impairment of goodwill 118,646 118,646

Impairment of intangible assets 52,847 52,847

Tax benefit recognized from impairment (34,886) (34,886)

Net earnings adjusted to exclude impairment charge impact (4) $ 18,703 $ 73,862

Basic weighted average number of shares outstanding, as reported 49,818 49,789

Effect of dilutive securities 255 546

Dluted weighted average number of shares outstanding adjusted for impairment charge impact 5 0,073 50,335

Diluted EPS adjusted to exclude impairment charge impact $ 0 .37 $ 1.47

Diluted EPS as reported (5) $ ( 2.37) $ (1.26)

 

PIONEER DRILLING COMPANY AND SUBSIDIARIES

Reconciliation of Net Loss as Reported to Net Earnings Adjusted to Exclude Impairment Charge Impact and Diluted EPS Adjusted to Exclude Impairment Charge Impact (in thousands, except per share data)

 

(4) Net income adjusted to exclude the impact of impairment charges represents net loss as reported less the goodwill impairment charge, intangible asset impairment charge and the tax benefit recognized from the impairments. We believe that net income adjusted to exclude the impact of impairment charges is a useful measure for evaluating financial performance, although it is not a measure of financial performance under GAAP. A reconciliation of net income adjusted to exclude the impact of impairment charges to net loss as reported is included in the table above. Net income adjusted to exclude the impact of impairment charges as presented may not be comparable to other similarly titled measures reported by other companies.

 

(5) The effect of dilutive securities is not reflected in diluted EPS as reported because the effect of their inclusion would be antidilutive, or would decrease the reported loss per share. Therefore, basic EPS as reported is the same as diluted EPS as reported.

 

Budget

Year Ending

September 30, December 31,

2008 2007 2008 2008 2007 2009

 

Capital expenditures:

 

Drilling Services Division:

Routine rigs $ 5,209 $ 5,570 $ 3 ,736 $ 16,766 $ 20,753 $ 13,100

Discretionary 13,105 14,350 1 5,211 61,034 53,300 32,100

Tubulars 44 2,740 - 1,094 14,808 5,000

New-builds and acquisitions 16,916 3,012 1 1,531 30,281 69,205 -

Total Drilling Services Division capital expenditures 35,274 25,672 3 0,478 109,175 158,066 50,200

 

Production Services Division:

Routine 1,337 - 2 ,460 4,740 - 5,800

Discretionary 146 - 8 19 1,175 2,200

New-builds and acquisitions 10,563 - 1 3,614 33,006 - 7,000

Total Production Services Division capital expenditures 12,046 - 1 6,893 38,921 - 15,000

Budgeted capital expenditures approved for 2009 - - - - - 65,200

Budgeted capital expenditures approved for 2008 that will be incurred in 2009 - - - - - 19,310

Total capital expenditures $ 47,320 $ 25,672 $ 47,371 $ 148,096 $ 158,066 $ 84,510

 

PIONEER DRILLING COMPANY AND SUBSIDIARIES

Capital Expenditures

(in thousands)

December 31,

Years ended

December 31,

Three months ended

 

Mechanical Electric Total Rigs

 

Drilling Services Division:

 

Drilling rig horsepower ratings:

550 to 700 HP 6 - 6

750 to 900 HP 1 4 2 16

1000 HP 1 8 12 30

1200 to 1500 HP 3 15 18

Total 4 1 29 70

Drilling rig depth ratings:

Less than 10,000 feet 8 2 10

10,000 to 13,900 feet 3 0 7 37

14,000 to 18,000 feet 3 20 23

Total 4 1 29 70

 

Production Services Division:

 

Workover rig horsepower ratings:

400 HP 1

550 HP 69

600 HP 4

Total 74

 

Wireline units 59

Fishing & Rental Tools Inventory $15 Million

Drilling Rig, Workover Rig and Wireline Unit Information