QUOTE AND NEWS
Benzinga  Nov 7  Comment 
In a report published Wednesday, BMO Capital Markets terminated its coverage on Union Drilling (NASDAQ: UDRL). BMO Capital Markets noted, “We are discontinuing coverage of Union Drilling following the successful tender offer by Sidewinder...
Benzinga  Oct 17  Comment 
Union Drilling (NASDAQ: UDRL) ("Union Drilling"), a land drilling services and equipment contractor headquartered in Fort Worth, Texas, and Sidewinder Drilling Inc. ("Sidewinder"), a Houston-based land drilling company controlled by Avista Capital...
OilVoice  Oct 5  Comment 
Sidewinder Drilling Inc. a Houstonbased land drilling company controlled by Avista Capital Partners today announced that its direct whollyowned subsidiary Fastball Acquisition Inc. quotFastba
Benzinga  Sep 26  Comment 
In a report published Wednesday, BMO Capital Markets reiterated its Market Perform rating on Union Drilling (NASDAQ: UDRL), but slightly lowered its price target from $7.00 to $6.50. BMO Capital noted, “Union Drilling and Sidewinder Drilling...
Benzinga  Sep 25  Comment 
BMO Capital Markets has published a research report on Union Drilling (NASDAQ: URDL) and has downgraded the company from Outperform to Market Perform. In the report, BMO Capital Markets wrote, "Union's shares have risen nearly 70% since early...
StreetInsider.com  Sep 25  Comment 
C.H. Robinson Worldwide, Inc. (Nasdaq: CHRW) has reached a stock purchase agreement to acquire Phoenix International, Inc. (“Phoenix”) for $571.5 million in cash and approximately $63.5 million in newly-issued C.H. Robinson stock. The...
Wall Street Journal  Sep 25  Comment 
Among the companies with shares expected to actively trade in Tuesday's session are Caterpillar, Union Drilling and Odyssey Marine Exploration.
Reuters  Sep 25  Comment 
Sidewinder Drilling Inc, controlled by private equity firm Avista Capital Partners, will buy Union Drilling Inc for $139.1 million in cash.
Benzinga  Aug 3  Comment 
BMO Capital Markets raised its rating on Union Drilling (NASDAQ: UDRL) from Market Perform to Outperform while reiterating its $6 price target. BMO Capital Markets commented, "The current EV/Rig of roughly $3.5 million is by far the lowest in...
StreetInsider.com  Aug 1  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Earnings/Union+Drilling%2C+Inc.+%28UDRL%29+Tops+Q2+EPS+by+8c/7623152.html for the full story.




 
TOP CONTRIBUTORS

Union Drilling (NYSE: UDRL) provides contract drilling services and equipment (including drilling rigs and their crew) to land-based, natural gas producers in the United States.[1] In 2007, 84% of Union Drilling's $289 million revenue came from "daywork" contracts, where Union Drilling was paid for each day their rigs and crews were used by respective operators.[2] However, plummeting oil prices reduce demand for drilling services, in turn lowering the number of daywork contracts Union Drilling works on.[3] Union Drilling distinguishes itself from other drilling contractors with the ability to drill horizontally and and in difficult, mountainous terrain, such as in key rigging markets like Appalachia. [4]

Starting in April of 2005, Union Drilling began expanding its national presence by acquiring Thornton Drilling Company which operated in the Arkoma Basin of Oklahoma and Arkansas. Additionally, Union Drilling acquired SPA Drilling L.P. which operated eight rigs, five of which were in the Barnett Shale formation in Northern Texas, the largest natural gas field in Texas.[1]

As a result of these acquisitions, Union Drilling saw a 12% increase in revenue to $289 million in 2007 from $256 million in 2006.[5] Operating expenses, however, increased by 11%, or $16.8 million in FY 2007 and by 52%, or $53 million in FY 2006 as a result of the costs of integrating these acquisitions.[5] Union Drilling's business performance subsequently saw a 7% decrease in net income in FY 2007, from $32 million to $30 million.[6] Union Drilling's performance is also impacted by challenges that arise from changing levels of American development and exploration in onshore natural gas, costly repairs to fix aging equipment, as well as seasonal impediments, such as snow and ice, that limit operations during colder parts of the year.

Business Overview

Union Drilling owns and operates 71 oil rigs capable of operating in unconventional, mostly mountainous, natural gas producing areas.[1] Of these 71 rigs, 50 are equipped for drilling horizontal wells and 44 are rigged to provide underbalanced drilling, allowing for higher penetration rates through harder substances than traditional drilling operations. These capabilities distinguish Union Drilling from other contract drilling services. [1]

Union Drilling operates in three markets: the Appalachian Basin, the Arkoma Basin, and Northern Texas.[7] Starting in 2005, Union Drilling began expanding its national presence through the acquisition of Thornton Drilling Company and SPA Drilling L.P. [1] In 2007, Union drilled wells for 114 different customers, a decrease from past years indicating Union Drilling's concentration on fewer customers. Union Drilling's top 20 customers accounted for 76% of total revenue in FY 2007.[8]

Business Financials

In FY 2007, Union Drilling increased revenue by 12% to $289 million from $235 million the previous year.[5] Revenue grew by approximately 81%, or $115 million, in FY 2006 from FY 2005.[5] Increases in revenue are a direct result of Union Drilling's acquisition of Thornton Drilling Company and SPA Drilling, L.P., as well as the addition of new rigs to Union Drilling's Texas operations[5] Operating expenses, however, increased by 11%, or $16.8 million in FY 2007 and by 52%, or $53 million in FY 2006 as a result of the costs of integrating these acquisitions.[5] Net income also decreased by 7% in FY 2007, from $32 million to $30 million.[6]

 This graph shows both revenue and net income for Union Drilling over the past three years. Profit margin is superimposed to offer a visual of its trend over this time frame.
This graph shows both revenue and net income for Union Drilling over the past three years. Profit margin is superimposed to offer a visual of its trend over this time frame. [6]
Income Statement for FY 2005-2007 (Dollars in thousands)
[9] 2005 2006 2007
Revenue $141,621 $256,944 $289,035
Net income 5,599 31,852 30,832
Operating Expenses 102,266 155,123 171,897
Income from operations 11,214 54,487 53,291
Depreciation and amortization 15,121 24,820 39,072

Business Segments

All of Union Drilling's revenue comes from its land drilling services, with segments only being distinguished by theater of operation. Union Drilling's areas of operation are in the Appalachian Basin, stretching from New York to Tennessee; the Arkoma Basin located in eastern Oklahoma and Arkansas; and the Fort Worth Basin in northern Texas.[1]

  • Appalachian Basin- The Appalachian Basin is one of North America's largest hydrocarbon producing regions, spanning over 70,000 square miles and covering seven states. There have been increased acquisitions and divestitures of oil and gas properties in the Appalachian Basin in the last three years which has increased business in that market. Union Drilling owns and operates 32 drilling rigs in the Appalachian Basin.[10]
  • Arkoma Basin- The Arkoma Basin is located in eastern Oklahoma and Arkansas and spans an area of approximately 34,000 square miles. The acquisition of Thornton Drilling in April 2005 led to Union Drilling's presence in the region, especially its horizontal drilling capability. Union Drilling markets 19 rigs in this area.[10]
  • Northern Texas- Union Drilling's operations in the Barnett Shale formation near Fort Worth fall into the largest natural gas field in Texas. Union owns and markets 20 drilling rigs in this area.[10]

The expansion of Union Drilling into the Arkoma Basin and Northern Texas led to an increase in its number of customers from 112 to 148 in FY 2006; however, this number fell back to 114 in FY 2007 as Union Drilling concentrated its drilling activities on fewer customers.[8]

 This graph is a breakdown of Union Drilling's markets by number of rigs. Union Drilling operates in three markets: Appalachian Basin, Arkoma Basin, and Northern Texas.
This graph is a breakdown of Union Drilling's markets by number of rigs. Union Drilling operates in three markets: Appalachian Basin, Arkoma Basin, and Northern Texas.[11]

Trends and Forces

Volatility of U.S. Onshore Natural Gas Exploration Results in Unstable Profitability

Union Drilling's business and operations are dependent upon the level of American development and exploration in onshore natural gas.[12] In 2001 and 2002, there was an economic downturn in the onshore contract drilling industry resulting in losses in operating results as well as profitability across the entire industry. During this time, natural gas production decreased by over 24%.[13] Conversely, as of 2005, demand for drilling services has been strong, as noted by an increase in customers[12] as well as a 70% increase in the price of drilling products and services.[14]

Politically speaking, the outcome of the 2008 presidential elections and the promotion of political and economic incentives for the development of alternate energy sources challenges the onshore contract drilling industry by diverting resources and exploration efforts towards other energy outlets.[15]. On November 10, 2008, President-elect Barack Obama announced measures to limit gas drilling in the United States, reversing executive orders supportive of the drilling industry signed by President Bush. [16]

Aging Equipment Requires Increased Capital to Upgrade and Repair Rigs

Union Drilling's rig fleet is outdated with many rigs nearing their expiration. Union's rigs were built between the years of 1976 and 1982, the last period of substantial rig construction. Aging equipment requires upgrades and refurbishment, normally taking 60-90 days of work to complete at an excess cost of $200,000. If left unchecked, an idled rig would require between $1.5 to $2.5 million to repair, leaving the machinery inoperable for between 90 to 180 days.[12] Seeing as how 84% of Union Drilling's revenue comes from daywork contracts, or contracts that are paid on a negotiated fixed rate per day while the rig is used,[2] taking time and capital to upgrade and repair rigs is costly. Such repairs and replacements have led to a 38% decrease in earnings for Union Drilling in October 2008 when the company added two new rigs to replace older, idled rigs in the Appalachia.[17]

Seasonality Dictates Operational Ability, Limits First and Fourth Quarter Growth

Land drilling, especially in the Appalachian Basin, is subject to unfavorable weather conditions and often in difficult terrain. Cold, snow and mud hinder Union Drilling's operations, especially during the Winter and Spring. Local and state governments place restrictions, known as "frost laws" on the movement of drilling equipment during various times of the year, namely when roads are vulnerable to damage from the movement of such equipment. Frost laws and winter weather lead to adverse performances in the First and Fourth quarter.[18] Union Drilling's first and fourth quarter for FY 2007 were the lowest performing, indicating in part the impact of these forces. [19] In FY 2007 and FY 2006, the quarterly highs for the fourth quarter were on average 8% lower than the quarterly highs for the second and third quarter.[19] Also, the quarterly highs for the first quarter during this time period were on average 10% lower than the quarterly highs for the second and third quarter.[19]

Competition

Union Drilling distinguishes itself from its competitors by offering horizontal and underbalanced drilling capabilities. Union's competitors are unique to each area of operation in which Union Drilling markets. In the Appalachia, Union Drilling is the largest and only public driller, competing only with smaller companies.[20] In the Arkoma Basin and in northern Texas, Union Drilling competes namely with Nabors Industries (NBR).[8]

Union Drilling's Main Competitors

  • Nabors Industries (NBR)-- Nabors Industries is an international land drilling contractor with approximately 535 land drilling rigs in North America, South America, Mexico, the Caribbean, the Middle East, the Far East, Russia and Africa.[21]
  • Grey Wolf (GW)-- Grey Wolf is an American-based land drilling contractor with a rig fleet of 121 rigs. Grey Wolf does its business in the Gulf Coast; Mississippi/Alabama; Arkansas-Louisiana-Texas; the Rocky Mountain, as well as in the Mid-Continent.[22]
  • Pioneer Drilling Co (PDC)-- Pioneer Drilling Co is an American-based land drilling contractor.[23]
Primary Competitors
[6] 2007 Total Revenue (In millions) % Revenue Growth in 2007 2007 Net Profit Margin
Union Drilling[6] $289 12% 10.7%
Nabors Industries[21] $4,940.68 2.29% 18.84%
Grey Wolf [22] $906.58 (4.30%) 18.74%
Pioneer Drilling Company [23] $313.88 (32.59%) Not available

Market Share

Union Drilling only accounted for 5% of the United States' contract drilling market.[8] The market was largely dominated by Nabors Industries (NBR) who is a direct competitor to Union Drilling in the Arkoma Basin in eastern Oklahoma and Arkansas as well as in northern Texas.[8] Union Drilling's other main competitors, namely in northern Texas, are Grey Wolf (GW) and Pioneer Drilling Co (PDC).[8] Grey Wolf had a larger market share than Union Drilling, possessing 9% of the market[24] while both Pioneer Drilling Co (PDC) and Union Drilling possessed 5% market share.[25] [8]

 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.[26][27][28][29][30][8][31][32]

References

  1. 1.0 1.1 1.2 1.3 1.4 1.5 UDRL 2007 10-K; Part 1: Business, Page 1
  2. 2.0 2.1 UDRL 2007 10-K; Part 1: Business, Page 4
  3. "Low oil prices: Good for us now, bad for us later?"
  4. Perincheril, Biju. Union Drilling, Fortis: Initial Coverage. (Fortis Equity Research, 11 June 2007)
  5. 5.0 5.1 5.2 5.3 5.4 5.5 UDRL 2007 10-K; Part 2: Selected Financial Data, Page 25
  6. 6.0 6.1 6.2 6.3 6.4 UDRL 2007 10-K; Part 2: Selected Financial Data, Page 20
  7. UDRL 2007 10-K; Part 1: Business, Pages 2-3
  8. 8.0 8.1 8.2 8.3 8.4 8.5 8.6 8.7 UDRL 2007 10-K; Part 1: Business, Page 3
  9. UDRL 2007 10-K; Part 3: Selected Financial Data, Page 20 & 25
  10. 10.0 10.1 10.2 UDRL 2007 10-K; Part 1: Business, Page 2
  11. UDRL 2007 10-K; Part 1: Business, Pages 2-3
  12. 12.0 12.1 12.2 UDRL 2007 10-K; Part One: Business, Page 11
  13. Carter, Ray. "Drilling industry problems restrict exploration". Business Net (August 14, 2001)
  14. "Oil & Gas Well Drilling Industry Overview". Hoovers (Accessed December 8, 2008)
  15. Reeh, Foon. Obama Promotes Alternative Energy Plan. Political Intelligence (October 14, 2008)
  16. Rascoe, Ayesha. "Environmentalists look to Obama to limit drilling". Reuters (November 10, 2008)
  17. Union Drilling’s profit drops. Dallas Business Journal (October 30, 2008)
  18. UDRL 2007 10-K; Part One: Business, Page 8
  19. 19.0 19.1 19.2 UDRL 2007 10-K; Part One: Business, Page 17
  20. Perincheril, Biju. Union Drilling, Fortis: Initial Coverage. (Fortis Equity Research, 11 June 2007)
  21. 21.0 21.1 Industries Inc&um=1&ie=UTF-8&sa=N&tab=we NBR-Nabor Industries Ltd. Google Finance (2008)
  22. 22.0 22.1 GW-Grey Wolf, Inc. Google Finance (2008)
  23. 23.0 23.1 PDC-Pioneer Drilling Company Google Finance (2008)
  24. Grey Wolf, Inc. Summary
  25. Pioneer Drilling Company Rig Fleet List
  26. Pioneer Drilling Company Rig Fleet List
  27. Grey Wolf, Inc. Summary
  28. Nabors Industries Ltd Summary
  29. Patterson UTI Summary
  30. Helmerich & Payne Rig Fleet
  31. Rowan Companies Land Rig Fleet
  32. Parker Drilling Fleet
Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki