EX-99.1 2 h59105exv99w1.htm PRESS RELEASE exv99w1
Exhibit 99.1
         
(PIONEER DRILLING LOGO)
    Contacts: Joyce M. Schuldt, Executive VP & CFO
Pioneer Drilling Company
210-828-7689
      Lisa Elliott / lelliott@drg-e.com
      Anne Pearson / apearson@drg-e.com
      DRG&E / 713-529-6600
 
     
FOR IMMEDIATE RELEASE
     
Pioneer Drilling Discloses Findings of Internal Investigation
and Reports First Quarter 2008 Financial Results
Second quarter results and conference call are scheduled for
Thursday, August 7 at 2:00 p.m. Eastern Time
SAN ANTONIO, Texas, August 5, 2008 — Pioneer Drilling Company, Inc. (AMEX: PDC) today announced that it has filed its Form 10-Q for the quarter ended March 31, 2008 with the Securities and Exchange Commission. As previously reported, the Company’s Board of Directors formed a special subcommittee to investigate certain questions raised with respect to the effectiveness of the Company’s internal control over financial reporting. The special subcommittee engaged independent legal counsel and forensic accountants to assist in the investigation.
     During the course of the investigation, no information was discovered that evidences a material weakness in the Company’s internal control over financial reporting or requires a restatement of the Company’s historical financial statements. Upon filing timely the 2008 second quarter Form 10-Q with the Securities and Exchange Commission, the Company expects to meet the extended filing deadline established by the American Stock Exchange (“AMEX”) for continued listing of the Company’s common stock and regain compliance with Sections 134 and 1101 of the AMEX Company Guide. The Company will notify the AMEX Listing Qualification Department of this development.
     The Company has also delivered its financial statements for the quarter ended March 31, 2008 to its lenders, together with a compliance certificate, as required under the Company’s senior revolving credit facility led by Wells Fargo Bank, N.A. and Fortis Merchant Banking.
     Commenting on the results of the investigation, Pioneer’s President and CEO, Wm. Stacy Locke said, “We are thankful that this internal investigation is complete and we can now turn our full attention to operating our business and ensuring that Pioneer continues to be a leader in our industry.”

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First Quarter 2008 Financial Results
Net income for the first quarter of 2008 was $11.8 million, or $0.24 per diluted share, compared with net income of $14.8 million, or $0.29 per diluted share, for the three months ended December 31, 2007 (“the prior quarter”), and net income of $17.2 million, or $0.34 per diluted share, for the three months ended March 31, 2007 (“the year-earlier quarter”). The first quarter was impacted by a $0.01 per diluted share favorable tax benefit compared with a $0.04 per diluted share favorable tax benefit.
     The first quarter of 2008 included the 31 days’ contribution from the new Production Services Division, whose businesses were acquired from the WEDGE Group and Competition Wireline on March 1, 2008, plus the contribution from the our Colombian operations, which commenced in the third quarter of 2007.
     Revenues for the first quarter were $113.4 million, compared with $104.6 million for the prior quarter and $103.3 million for the year-earlier quarter. The Drilling Services Division contributed $100.0 million of revenues, and the Production Services Division contributed $13.4 million of revenue for the one-month period in the first quarter of 2008. EBITDA(1) for the first quarter increased $1.1 million from the prior quarter to $36.2 million but declined $4.1 million from the year-earlier quarter. Cash flows from operations for the three months ended March 31 totaled $40.0 million, an increase of $3.4 million versus the prior quarter and $3.5 million compared with the year-earlier quarter.
     Selling, general and administrative expenses increased $1.9 million from the prior quarter and $3.9 million versus the year-earlier quarter, primarily due to additional compensation-related costs associated with the addition of WEDGE personnel, expanding the Company’s land drilling operations into Colombia and enhancing the corporate staff to manage the our transition into a multinational, oilfield services company. Interest expense paid on the new senior secured revolving credit facility used to fund the WEDGE acquisition totaled $1.6 million for the first quarter. Other income for the first quarter was favorably impacted by a $1.1 million foreign currency translation gain related to our operations in Colombia.
     “The first quarter of 2008 marked significant progress towards Pioneer’s long-term strategic transformation from a domestic land driller into a multi-service, international oilfield services company, with the closing of the WEDGE acquisition and our continued expansion into Colombia,” said Locke. “The WEDGE acquisition has been accretive to earnings from the outset. While we experienced lower drilling margins and utilization during the first quarter as a result of surplus rig capacity in the U.S. land market, we believe the first quarter marks the bottom of the current industry cycle. And the reduced drilling margins we experienced were

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partially offset by a strong margin contribution from Production Services. We also continue to be very pleased with the growth in our new Colombian operations and expect it to continue to be a strong contributor to revenues and profitability going forward,” Locke said
Pioneer Conference Call
     Pioneer’s management team will hold a conference call Thursday, August 7, at 2:00 p.m. Eastern Time (1:00 p.m. Central Time), to discuss these results and the second quarter 2008 results, which will be released that morning at 6:00 a.m. Eastern Time. To participate in the call, dial (303) 205-0066 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 August 14. To access the replay, dial (303) 590-3000 and enter the pass code 11118059#.
     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&E at (713) 529-6600 or e-mail dmw@drg-e.com.
About Pioneer
     Pioneer Drilling Company provides land contract drilling services to independent and major oil and gas operators in Texas, Louisiana, Oklahoma, Kansas, the Rocky Mountain region and internationally in Colombia though 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 69 land drilling rigs that drill at depths of 6,000 and 18,000 feet, 66 workover rigs (sixty one 550-horsepower rigs, four 600-horsepower rigs and one 400-horsepower rig), 51 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, the continued strength or weakness of the contract land drilling industry in the geographic areas in which we operate, decisions about onshore exploration and development projects to be made by oil and gas companies, the highly competitive nature of our business, difficulty in integrating the services of acquired companies, including the production services businesses of WEDGE and Competition, 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 these factors in more detail in our transition report on Form 10-KT for the fiscal year ended December 31, 2007 and our quarterly report on Form 10-Q for the quarter ended March 31,

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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, in our annual report on Form 10-K or in our quarterly reports on Form 10-Q 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 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 below.
 
(1)   We define EBITDA as earnings before interest income (expense), taxes, depreciation and amortization. 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 income to EBITDA can be found later in the 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.
- Financial Statements Follow -

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PIONEER DRILLING COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
                         
    Three Months Ended  
    March 31,     December 31,  
    2008     2007     2007  
Revenues
   $ 113,397     $ 103,347     $ 104,589  
 
                  
 
                        
Costs and Expenses:
                        
Operating Costs
     70,426       59,189       63,736  
Depreciation
     17,119       14,736       16,661  
Selling, general and administrative
     7,722       3,824       5,822  
Bad debt expense (recovery)
     135       —       (15 )
 
                  
Total operating costs
     95,402       77,749       86,204  
 
                  
 
                        
Operating income
     17,995       25,598       18,385  
 
                  
 
                        
Other income (expense):
                        
Interest expense
     (1,574 )     —       (1 )
Interest income
     585       881       808  
Other
     1,092       8       97  
 
                  
Total other
     103       889       904  
 
                  
 
                        
Income before taxes
     18,098       26,487       19,289  
 
                        
Income tax expense
     (6,250 )     (9,269 )     (4,512 )
 
                  
 
                        
Net earnings
   $ 11,848     $ 17,218     $ 14,777  
 
                  
 
                        
Earnings per share:
                        
Basic
   $ 0.24     $ 0.35     $ 0.30  
 
                  
Diluted
   $ 0.24     $ 0.34     $ 0.29  
 
                  
 
                        
Weighted average number of shares outstanding:
                        
Basic
     49,759       49,619       49,651  
Diluted
     50,291       50,127       50,188  

 

 

PIONEER DRILLING COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
                 
    March 31, 2008     December 31, 2007  
    (unaudited)     (audited)  
Assets
                
Current assets:
                
Cash and cash equivalents
   $ 15,618     $ 76,703  
Receivables, net
     68,491       47,370  
Contract drilling in progress
     16,603       7,861  
Deferred income taxes
     5,334       3,670  
Inventory
     2,813       1,180  
Prepaid expenses and other
     6,022       5,073  
 
            
Total current assets
     114,881       141,857  
 
                
Net property and equipment
     570,312       417,022  
Deferred income taxes
     708       573  
Goodwill
     172,228       —  
Other long-term assets
     43,140       760  
 
            
Total assets
   $ 901,269     $ 560,212  
 
            
 
                
Liabilities and Equity
                
Current liabilities:
                
Current maturities of long-term debt
   $ 23,457     $ —  
Accounts payable
     24,888       21,424  
Income taxes payable
     4,371       —  
Prepaid drilling contracts
     3,082       1,933  
Accrued expenses
     32,140       18,693  
 
            
Total current liabilities
     87,938       42,050  
Long-term debt
     271,563       —  
Other non-current liabilities
     5,087       254  
Deferred taxes
     51,430       46,836  
 
            
Total liabilities
     416,018       89,140  
Total shareholders’ equity
     485,251       471,072  
 
            
Total liabilities and shareholders’ equity
   $ 901,269     $ 560,212  
 
            

 

 

PIONEER DRILLING COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
                         
    Three Months Ended  
    March 31,     December 31,  
    2008     2007     2007  
Cash flows from operating activities:
                        
Net earnings
   $ 11,848     $ 17,218     $ 14,777  
Adjustments to reconcile net earnings to net cash provided by operating activities:
                        
Depreciation and amortization
     17,119       14,736       16,661  
Allowance for doubtful accounts
     135       —       (15 )
Loss (gain) on dispositions of property and equipment
     (23 )     576       884  
Stock-based compensation expense
     951       587       1,031  
Deferred income taxes
     554       6,179       1,672  
Change in other assets
     74       5       (519 )
Change in non-current liabilities
     (88 )     (85 )     (103 )
Changes in current assets and liabilities
     9,415       (2,761 )     2,239  
 
                  
Net cash provided by operating activities
     39,985       36,455       36,627  
 
                  
 
                        
Cash flows from investing activities:
                        
Acquisition of WEDGE, net of cash acquired
     (313,610 )     —       —  
Acquisition of Competition Wireline, net of cash acquired
     (26,101 )     —       —  
Purchases of property and equipment
     (32,938 )     (27,870 )     (27,033 )
Purchase of auction rate securities, net
     (16,475 )     —       —  
Proceeds from sale of property and equipment
     933       1,477       806  
 
                  
Net cash used in investing activities
     (388,191 )     (26,393 )     (26,227 )
 
                  
 
                        
Cash flows from financing activities:
                        
Payments of debt
     (22,001 )     —       —  
Proceeds from issuance of debt
     311,500       —       —  
Debt issuance costs
     (3,281 )     —       —  
Proceeds from sale of common stock
     653       110       —  
Excess tax benefit of stock option exercises
     250       19       —  
 
                  
Net cash provided by financing activities
     287,121       129       —  
 
                  
 
                        
Net increase (decrease) in cash and cash equivalents
     (61,085 )     10,191       10,400  
 
                        
Beginning cash and cash equivalents
     76,703       74,754       66,303  
 
                  
Ending cash and cash equivalents
   $ 15,618     $ 84,945     $ 76,703  
 
                  

 

 

PIONEER DRILLING COMPANY AND SUBSIDIARIES
Operating Statistics
(in thousands)
(unaudited)
                         
            Three Months Ended        
    March 31,     March 31,     December 31,  
    2008     2007     2007  
Drilling Services Division:
                        
Revenues
   $ 100,041     $ 103,347     $ 104,589  
Operating costs
     63,497       59,189       63,736  
 
                  
Drilling services margin (1)
   $ 36,544     $ 44,158     $ 40,853  
 
                  
 
                        
Average number of drilling rigs
     67.0       64.3       67.0  
Utilization rate
     84 %     90 %     86 %
Revenue days
     5,186       5,203       5,343  
 
                        
Average revenues per day
   $ 19,291     $ 19,863     $ 19,575  
Average operating costs per day
     12,244       11,376       11,929  
 
                  
 
                        
Drilling services margin per day (2)
   $ 7,047     $ 8,487     $ 7,646  
 
                  
 
                        
Production Services Division:
                        
Revenues
   $ 13,356     $ —     $ —  
Operating costs
     6,929       —       —  
 
                  
Production services margin (1)
   $ 6,427     $ —     $ —  
 
                  
 
                        
EBITDA (3)
   $ 36,206     $ 40,342     $ 35,143  
 
                  
 
                        
Reconciliation of combined Drilling services margin and Production services margin and EBITDA to net earnings:
                        
 
                        
Drilling services margin
   $ 36,544     $ 44,158     $ 40,853  
Production services margin
     6,427       —       —  
 
                  
Combined margin
     42,971       44,158       40,853  
 
                        
General and administrative
     (7,722 )     (3,824 )     (5,822 )
Bad debt expense
     (135 )     —       15  
Other income (expense) recovery
     1,092       8       97  
 
                  
 
                        
EBITDA
     36,206       40,342       35,143  
 
                        
Depreciation
     (17,119 )     (14,736 )     (16,661 )
Interest income (expense), net
     (989 )     881       807  
Income tax expense
     (6,250 )     (9,269 )     (4,512 )
 
                  
 
                        
Net earnings
   $ 11,848     $ 17,218     $ 14,777  
 
                  
 
(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 earnings is included in the operating statistics table. 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 before interest income (expense), taxes, depreciation and amortization. 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 income to EBITDA can be found later in the 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.

 

 

PIONEER DRILLING COMPANY AND SUBSIDIARIES
Capital Expenditures
(in thousands)
                                 
                            Budget  
            Three Months Ended             Fiscal Year Ending  
    March 31,     March 31,     December 31,     December 31,  
    2008     2007     2007     2008  
Capital expenditures:
                                
 
                                
Drilling Services Division:
                                
Routine rigs
   $ 4,007     $ 4,724     $ 5,570     $ 21,200  
Discretionary
     19,014       12,227       14,350       47,600  
Tubulars
     1,047       3,589       2,740       12,600  
New-builds and acquisitions
     746       9,487       3,012       20,000  
 
                        
 
                                
Total Drilling Services Division capital expenditures
     24,814       30,027       25,672       101,400  
 
                        
 
                                
Average routine rig capital expenditures per revenue day (1)
   $ 773     $ 908     $ 1,077     $ 998  
 
                        
 
                                
Production Services Division:
                                
Routine
     108       —       —       2,030  
New-builds and acquisitions
     3,031       —       —       39,800  
 
                        
 
                                
Total Production Services Division capital expenditures
     3,139       —       —       41,830  
 
                        
 
                                
Total capital expenditures
   $ 27,953     $ 30,027     $ 25,672     $ 143,230  
 
                        
 
(1)       Average routine rig capital expenditures per revenue day represents the Drilling Services Division’s routine rig capital expenditures divided by the number of revenue days for each period presented.

 

 

PIONEER DRILLING COMPANY AND SUBSIDIARIES
Drilling Rig, Workover Rig and Wireline Unit Information
                         
    Rig Type        
    Mechanical     Electric     Total Rigs  
Drilling Services Division:
                        
 
                        
Drilling rig horsepower ratings:
                        
550 to 700 HP
     6       —       6  
750 to 900 HP
     15       2       17  
1000 HP
     17       12       29  
1200 to 1500 HP
     3       14       17  
 
                  
Total
     41       28       69  
 
                  
 
                        
Drilling drilling depth ratings:
                        
Less than 10,000 feet
     8       2       10  
10,000 to 13,900 feet
     30       7       37  
14,000 to 18,000 feet
     3       19       22  
 
                  
Total
     41       28       69  
 
                  
 
                        
Production Services Division:
                        
 
                        
Workover rig horsepower ratings:
                        
400 HP
                     1  
550 HP
                     61  
600 HP
                     4  
 
                      
Total
                     66  
 
                      
 
                        
Wireline units
                     51  
 
                      
Fishing & Rental Tools Inventory
                   $14 Million