QUOTE AND NEWS
Sydney Morning Herald  Apr 15  Comment 
The political tussle over US spending has ensnared an unlikely victim, the grey wolf, whose long-time status as an endangered species will most likely be axed due to a late addition to the budget deal.
Red Orbit  Jan 29  Comment 
Scientists have discovered that the Egyptian jackal, which was previously thought to be a subspecies of the golden jackal, is actually a relative of the grey wolf. Genetic information shows that the species is more closely related to Indian and...
Red Orbit  Jan 27  Comment 
New molecular evidence reveals a new species of grey wolf living in Africa. Formerly confused with golden jackals, and thought to be an Egyptian subspecies of jackal, the new African wolf shows that members of the grey wolf lineage reached Africa...
Upstream Online  Jul 22  Comment 
Precision Drilling Trust has seen its takeover of US onshore drilling contractor Grey Wolf pay off, with the Canadian player booking a a 51% jump in revenue and a 67% rise in earnings before interest, taxes, depreciation and amortisation...




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Grey Wolf was acquired by Precision Drilling (PDS). The transaction closed on December 31, 2008. Shareholders received a combined $1.2 billion dollars in cash and 42 million Precision Trust Units.

Houston, Texas-based Grey Wolf, Inc. (GW) is a major land drilling contractor with a current total drilling fleet of 121 rigs, which will increase to 123 with the expected addition of two new rigs shortly. The company's areas of operations include Ark-La-Tex (approximately 21% of its fleet is located in this area), Gulf Coast (18%), South Texas (23%), the Rocky Mountain (12%), and Mid Continent (12%) regions. Approximately 13% of its fleet is currently idle.

Grey Wolf typically enters into long-term contracts. At the end of the third quarter of 2006, the company had the highest number of term contracts in its history with 78 rigs (70% of its marketed fleet) working under such contracts, translating into approximately 7,200 days contracted under term contracts for the fourth quarter of that year. Grew Wolf currently has approximately 5,340 rig days, or an average of 58 rigs, contracted for the fourth quarter of 2007, approximately 11,350 rig days or an average of 31 rigs committed in 2008 and approximately 6,070 rig days or an average of 17 rigs committed in 2009. The contracts range in length from one to three years but end at various times over this period.

Grey Wolf's contracts are either on a daywork or turnkey basis, with majority of its rigs contracted on a daywork basis. In a daywork contract, Grey Wolf provides a drilling rig with the required personnel to its customer and gets paid on a fixed rate per day basis. In a turnkey contract, the company is committed to drilling a well to an agreed upon depth for a fixed price, regardless of the time required to complete the job. Turnkey contracts typically carry higher margins, provided the job can be completed without complications. In 2006, approximately 22% of the company's total revenue came from turnkey projects, while the rest came from dayrate contracts. In the first nine months of 2007, dayrate contracts accounted for 82.5% of total revenue.

Grey Wolf shares are down approximately 37% from their mid-June 2007 highs. Shares of other onshore drilling companies have been similarly weak in the recent past, largely reflecting concerns about the market's softening supply-demand fundamentals. While newbuilds remain a concern, particularly in a weakening demand environment, our medium to long-term demand outlook continues to remain positive. We think that natural gas prices will need to weaken significantly from current levels to have a material impact on onshore drilling activities. We believe that the stock offers significant upside from current levels, given its strong leverage to the still robust land-drilling scene, its high quality rig fleet and significant long-term contract portfolio, and attractive valuation. The $150 million share buyback program (a major part of which is already implemented) is also expected to provide valuation support.

Oilfield activity levels in the U. S. onshore region continue to remain strong in response to peak cycle commodity prices. Of particular significance to the onshore drilling market is natural gas, as the bulk of the land drilling activities in the U.S. target that commodity. While natural gas prices certainly have pulled back from the post-hurricane peak of 2005, they are still high enough to sustain onshore drilling activities at robust levels. Land drilling contractors have been primary beneficiaries of this favorable environment, enjoying increased fleet utilization levels and rising dayrates.

Current leading edge bid rates have, however, declined approximately 15% to 25% from a year ago and range from $14,000 to $22,000 per day, without fuel or top drives. This reflects the addition of newly built rigs that has created some excess supply in the market. The demand side had weakened already in response to softness in natural gas prices since early 2006. The resultant downward pressure on dayrates is expected to remain in place for the next few months, through we expect the trend to reverse eventually by a pick up in drilling activities. Grey Wolf's portfolio of term contracts is limiting its exposure to this relatively weak near-term outlook. The company is also better positioned than others due to its fleet of premium drilling rigs, demand for which typically remains fairly robust.

Grey Wolf placed orders for the purchase of six new 1,500 horsepower rigs for a total of $91.6 million in 2006, all of which have since been delivered. The company's ongoing strategy is to add to capacity only with the support of term contracts. All six of the new rigs as well as the 17 refurbishments completed over the last several years are supported by long-term contracts, whereby the company fully expects to recover the cost of capital expended during the original contract term.

Grey Wolf recently signed a three-year term contract for two 3,000-horsepower rigs to work in Mexico for a major international oilfield services company. In early July 2007, the company purchased 2 operating rigs from a privately owned exploration and production company and concurrently signed a term contract with the seller to provide drilling services for 1,095 rig days for each of these rigs. In August, the company deployed a newly built 1,000 horsepower SCR rig, capable of drilling up to 15,000 feet, under a two-year term contract in Colorado. The addition to these three rigs, which takes the company's fleet size to 121 rigs, is consistent with the company's strategy to augment its fleet in a financially prudent manner.

As would be expected, Grey Wolf is in excellent financial health. The company generated strong free cash flows (cash flow from operations less capex), totaling approximately $101 million in 2005. And despite a more than 50% jump in 2006 capital budget due to the addition of newbuild capacity, the company generated more than $90 million in free cash flow. We project that free cash flows by the end of 2007 to exceed the 2006 level. Currently, the company has long-term debt of $275 million and cash on hand of $255 million. Given its strong cash flow position, we expect the company to continue returning increased amounts to shareholders through buybacks.


 This graph shows market share for the United States' onshore contract drilling market in FY 2007. Market share is determined by the number of rigs owned and operated by the respective drilling companies.
This graph shows market share for the United States' onshore contract drilling market in FY 2007. Market share is determined by the number of rigs owned and operated by the respective drilling companies.[1][2][3][4][5][6][7][8]



References

  1. Pioneer Drilling Company Rig Fleet List
  2. Grey Wolf, Inc. Summary
  3. Nabors Industries Ltd Summary
  4. Patterson UTI Summary
  5. Helmerich & Payne Rig Fleet
  6. Rowan Companies Land Rig Fleet
  7. Parker Drilling Fleet
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