Pioneer Drilling Company (PDC, Financial) filed Quarterly Report for the period ended 2009-09-30.
Pioneer Drilling provides land contract drilling services to independent and major oil and gas operators drilling wells in Texas Louisiana Oklahoma Kansas the Rocky Mountain region and internationally in Colombia. Pioneer Drilling Company has a market cap of $345.1 million; its shares were traded at around $6.86 with a P/E ratio of 9.3 and P/S ratio of 0.6. Pioneer Drilling Company had an annual average earning growth of 102.3% over the past 5 years.
On October 23, 2009 the spot price for West Texas Intermediate crude oil was $80.05, the spot price for Henry Hub natural gas was $4.89 and the Baker Hughes land rig count was 1,003, a 46% decrease from 1,867 on October 24, 2008. The table below presents average weekly spot prices of West Texas Intermediate crude oil and Henry Hub natural gas, the average weekly domestic land rig count per the Baker Hughes land rig count, and the average monthly domestic workover rig count for the nine months ended September 30, 2009, and each of the previous five years ended September 30, 2009:
Our principal sources of liquidity consist of: (i) cash and cash equivalents (which equaled $53.3 million as of September 30, 2009); (ii) cash generated from operations; and (iii) the unused portion of our senior secured revolving credit facility which has borrowing availability of $56.0 million as of October 23, 2009. On February 29, 2008, we entered into a credit agreement with Wells Fargo Bank, N.A. and a syndicate of lenders (the Initial Credit Agreement). On October 5, 2009, we entered into a First Amendment to the Initial Credit Agreement (the Amended Credit Agreement). There are no limitations on our ability to access the full borrowing availability under the senior secured revolving credit facility other than maintaining compliance with the covenants in the Amended Credit Agreement. Additional information regarding these covenants is provided in the Debt Requirements section below. Our principal liquidity requirements have been for working capital needs, capital expenditures and acquisitions. In addition, when appropriate, we may consider equity or debt offerings to meet our liquidity needs.
At September 30, 2009, we held $15.9 million (par value) of investments comprised of tax exempt, auction rate preferred securities (ARPSs), which are variable-rate preferred securities and have a long-term maturity with the interest rate being reset through Dutch auctions that are held every 7 days. The ARPSs have historically traded at par because of the frequent interest rate resets and because they are callable at par at the option of the issuer. Interest is paid at the end of each auction period. Our ARPSs are AAA/Aaa rated securities, collateralized by municipal bonds and backed by assets that are equal to or greater than 200% of the liquidation preference. Until February 2008, the auction rate securities market was highly liquid. Beginning mid-February 2008, we experienced several failed auctions, meaning that there was not enough demand to sell all of the securities that holders desired to sell at auction. The immediate effect of a failed auction is that such holders cannot sell the securities at auction and the interest rate on the security resets to a maximum auction rate. We have continued to receive interest payments on our ARPSs in accordance with their terms. Unless a future auction is successful or the issuer calls the security pursuant to redemption prior to maturity, we may not be able to access the funds we invested in our ARPSs without a loss of principal. We have no reason to believe that any of the underlying municipal securities that collateralize our ARPSs are presently at risk of default. We believe we will ultimately recover the par value of the ARPS without loss, primarily due to the collateral securing the ARPSs and our estimate of the discounted cash flows that we expect to collect. We do not currently intend to sell our ARPSs at a loss. Also, we believe it is more-likely-than-not that we will not have to sell our ARPS prior to recovery, since our liquidity needs are expected to be met with cash flows from operating activities and our senior secured revolving credit facility. Our ARPSs are designated as available-for-sale and are reported at fair market value with the related unrealized gains or losses, included in accumulated other comprehensive income (loss), net of tax, a component of shareholders equity. The estimated fair value of our ARPSs at September 30, 2009 was $12.7 million compared with a par value of $15.9 million. The $3.2 million difference represents a fair value discount due to the current lack of liquidity which is considered temporary and has been recorded as an unrealized loss, net of tax, in accumulated other comprehensive income (loss). There was no portion of the fair value discount attributable to credit losses. We would recognize an impairment charge in our statement of operations if the fair value of our investments falls below the cost basis and is judged to be other-than-temporary or is judged to be attributable to credit losses. Our ARPSs are classified with other long-term assets on our condensed consolidated balance sheet as of September 30, 2009 because of our inability to determine the recovery period of our investments.
For the nine months ended September 30, 2009, we had $64.5 million of additions to our property and equipment. For the remainder of fiscal year 2009, our budgeted capital expenditures are approximately $35.0 million, comprised of new rig and equipment expenditures of approximately $1.5 million, routine capital expenditures of approximately $12.0 million, and non-routine capital expenditures of approximately $21.5 million. We expect to fund these capital expenditures primarily from operating cash flow in excess of our working capital and other normal cash flow requirements and availability under our senior secured revolving credit facility. In addition, when appropriate, we may consider equity or debt offerings to meet our liquidity needs. Based on our near-term strategy to maintain adequate liquidity, budgeted capital expenditures for 2009 represent routine capital expenditures necessary to keep our equipment in safe and efficient working order and discretionary capital expenditures of new equipment or upgrades of existing equipment when necessary to obtain new contracts.
The increases in both our receivablesinsurance recoveries and accrued expensesinsurance claims and settlements as of September 30, 2009 as compared to December 31, 2008 are primarily due to lawsuit settlement costs that are payable by our insurance carriers. We settled a lawsuit in July 2009 for $16.0 million, all but $1.0 million of which will be covered by our insurance carriers. As of September 30, 2009, we have paid $1.0 million and our insurance carriers have paid another $1.0 million of the lawsuit settlement obligation. Our insurance carriers will pay the remaining $14.0 million of the settlement obligation in installments from October 2009 through December 2009. These settlement costs are reflected on our condensed consolidated balance sheet at September 30, 2009 as $14.0 million of accrued expenses insurance claims and settlements with an offsetting $14.0 million reflected as receivablesinsurance recoveries.
Read the The complete ReportPDC is in the portfolios of Third Avenue Management, John Keeley of Keeley Fund Management.
Pioneer Drilling provides land contract drilling services to independent and major oil and gas operators drilling wells in Texas Louisiana Oklahoma Kansas the Rocky Mountain region and internationally in Colombia. Pioneer Drilling Company has a market cap of $345.1 million; its shares were traded at around $6.86 with a P/E ratio of 9.3 and P/S ratio of 0.6. Pioneer Drilling Company had an annual average earning growth of 102.3% over the past 5 years.
Highlight of Business Operations:
Pioneer Drilling Company provides drilling services and production services to independent and major oil and gas exploration and production companies throughout the United States and internationally in Colombia. Our company was incorporated in 1979 as the successor to a business that had been operating since 1968. Our business has grown through acquisitions and through organic growth. Over the last 10 years, we have significantly expanded our drilling rig fleet by adding 35 rigs through acquisitions and by adding 31 rigs through the construction of rigs from new and used components. On March 1, 2008, we significantly expanded our service offerings when we acquired the production services businesses of WEDGE Group Incorporated (WEDGE) for $314.7 million and Prairie Investors d/b/a Competition Wireline (Competition) for $30.0 million which provide well services, wireline services and fishing and rental services. We funded the WEDGE acquisition primarily with $311.5 million of borrowings under our secured revolving credit facility. As of October 23, 2009, the senior secured revolving credit facility had an outstanding balance of $257.5 million, all of which matures in August 2012. Drilling services and production services are fundamental to establishing and maintaining the flow of oil and natural gas throughout the productive life at a well site and enable us to meet multiple needs of our customers.On October 23, 2009 the spot price for West Texas Intermediate crude oil was $80.05, the spot price for Henry Hub natural gas was $4.89 and the Baker Hughes land rig count was 1,003, a 46% decrease from 1,867 on October 24, 2008. The table below presents average weekly spot prices of West Texas Intermediate crude oil and Henry Hub natural gas, the average weekly domestic land rig count per the Baker Hughes land rig count, and the average monthly domestic workover rig count for the nine months ended September 30, 2009, and each of the previous five years ended September 30, 2009:
Our principal sources of liquidity consist of: (i) cash and cash equivalents (which equaled $53.3 million as of September 30, 2009); (ii) cash generated from operations; and (iii) the unused portion of our senior secured revolving credit facility which has borrowing availability of $56.0 million as of October 23, 2009. On February 29, 2008, we entered into a credit agreement with Wells Fargo Bank, N.A. and a syndicate of lenders (the Initial Credit Agreement). On October 5, 2009, we entered into a First Amendment to the Initial Credit Agreement (the Amended Credit Agreement). There are no limitations on our ability to access the full borrowing availability under the senior secured revolving credit facility other than maintaining compliance with the covenants in the Amended Credit Agreement. Additional information regarding these covenants is provided in the Debt Requirements section below. Our principal liquidity requirements have been for working capital needs, capital expenditures and acquisitions. In addition, when appropriate, we may consider equity or debt offerings to meet our liquidity needs.
At September 30, 2009, we held $15.9 million (par value) of investments comprised of tax exempt, auction rate preferred securities (ARPSs), which are variable-rate preferred securities and have a long-term maturity with the interest rate being reset through Dutch auctions that are held every 7 days. The ARPSs have historically traded at par because of the frequent interest rate resets and because they are callable at par at the option of the issuer. Interest is paid at the end of each auction period. Our ARPSs are AAA/Aaa rated securities, collateralized by municipal bonds and backed by assets that are equal to or greater than 200% of the liquidation preference. Until February 2008, the auction rate securities market was highly liquid. Beginning mid-February 2008, we experienced several failed auctions, meaning that there was not enough demand to sell all of the securities that holders desired to sell at auction. The immediate effect of a failed auction is that such holders cannot sell the securities at auction and the interest rate on the security resets to a maximum auction rate. We have continued to receive interest payments on our ARPSs in accordance with their terms. Unless a future auction is successful or the issuer calls the security pursuant to redemption prior to maturity, we may not be able to access the funds we invested in our ARPSs without a loss of principal. We have no reason to believe that any of the underlying municipal securities that collateralize our ARPSs are presently at risk of default. We believe we will ultimately recover the par value of the ARPS without loss, primarily due to the collateral securing the ARPSs and our estimate of the discounted cash flows that we expect to collect. We do not currently intend to sell our ARPSs at a loss. Also, we believe it is more-likely-than-not that we will not have to sell our ARPS prior to recovery, since our liquidity needs are expected to be met with cash flows from operating activities and our senior secured revolving credit facility. Our ARPSs are designated as available-for-sale and are reported at fair market value with the related unrealized gains or losses, included in accumulated other comprehensive income (loss), net of tax, a component of shareholders equity. The estimated fair value of our ARPSs at September 30, 2009 was $12.7 million compared with a par value of $15.9 million. The $3.2 million difference represents a fair value discount due to the current lack of liquidity which is considered temporary and has been recorded as an unrealized loss, net of tax, in accumulated other comprehensive income (loss). There was no portion of the fair value discount attributable to credit losses. We would recognize an impairment charge in our statement of operations if the fair value of our investments falls below the cost basis and is judged to be other-than-temporary or is judged to be attributable to credit losses. Our ARPSs are classified with other long-term assets on our condensed consolidated balance sheet as of September 30, 2009 because of our inability to determine the recovery period of our investments.
For the nine months ended September 30, 2009, we had $64.5 million of additions to our property and equipment. For the remainder of fiscal year 2009, our budgeted capital expenditures are approximately $35.0 million, comprised of new rig and equipment expenditures of approximately $1.5 million, routine capital expenditures of approximately $12.0 million, and non-routine capital expenditures of approximately $21.5 million. We expect to fund these capital expenditures primarily from operating cash flow in excess of our working capital and other normal cash flow requirements and availability under our senior secured revolving credit facility. In addition, when appropriate, we may consider equity or debt offerings to meet our liquidity needs. Based on our near-term strategy to maintain adequate liquidity, budgeted capital expenditures for 2009 represent routine capital expenditures necessary to keep our equipment in safe and efficient working order and discretionary capital expenditures of new equipment or upgrades of existing equipment when necessary to obtain new contracts.
The increases in both our receivablesinsurance recoveries and accrued expensesinsurance claims and settlements as of September 30, 2009 as compared to December 31, 2008 are primarily due to lawsuit settlement costs that are payable by our insurance carriers. We settled a lawsuit in July 2009 for $16.0 million, all but $1.0 million of which will be covered by our insurance carriers. As of September 30, 2009, we have paid $1.0 million and our insurance carriers have paid another $1.0 million of the lawsuit settlement obligation. Our insurance carriers will pay the remaining $14.0 million of the settlement obligation in installments from October 2009 through December 2009. These settlement costs are reflected on our condensed consolidated balance sheet at September 30, 2009 as $14.0 million of accrued expenses insurance claims and settlements with an offsetting $14.0 million reflected as receivablesinsurance recoveries.
Read the The complete ReportPDC is in the portfolios of Third Avenue Management, John Keeley of Keeley Fund Management.
