UDRL » Topics » Our markets

These excerpts taken from the UDRL 10-K filed Mar 10, 2008.

Our markets

Appalachian Basin

We provide drilling services to customers engaged in developing unconventional natural gas formations throughout the Appalachian Basin. The Appalachian Basin is one of the largest hydrocarbon producing regions in North America, covering approximately 72,000 square miles in the states of Kentucky, New York, Ohio, Pennsylvania, Tennessee, Virginia and West Virginia.

The Appalachian Basin is characterized by highly porous sandstones alternating with less porous shales, at depths of 3,000 to 8,000 feet. Since the mid 1970’s, significant resources have been committed to developing the natural gas bearing Clinton/Medina sands in northwestern Pennsylvania, western New York and eastern Ohio. The Clinton/Medina sands, which are 4,000 to 6,000 feet in depth, generally have very low porosities and permeabilities. To recover natural gas from this formation, fracturing techniques are used to increase permeability, allowing the natural gas to flow to the surface. More recently, producers have been increasing capital spending focused on the development of the deeper Trenton/Black River (“TBR”) and Marcellus Shale formations, which are at depths of up to 10,000 feet. Deeper TBR wells are vertically drilled on air in an underbalanced state prior to drilling a several thousand foot horizontal section in the formation on fluid. These wells tend to be significantly more prolific than more conventional Clinton/Medina wells, with initial production rates ranging from 10 to 20 Mmcf/day and gross reserves per well ranging from 8 to 10 Bcf. Most of the equipment in the Appalachian Basin capable of drilling TBR wells is owned and operated by Union.

Natural gas also is found in shallow coal seams throughout the Appalachian Basin. This natural gas is commonly referred to as CBM. In recent years, natural gas producers have begun to exploit these CBM formations due to advances in extraction technology and higher energy prices. In addition to exploration and development activity on behalf of more traditional natural gas producers, coal companies have engaged in the development of CBM formations in order to reduce the concentration of these deposits in advance of mining operations, reducing the risk of underground fires or explosions. We support these activities with rigs that drill horizontally into the coal seams, providing faster drainage than vertical drilling. We also have rigs that work for coal companies in advance of coal mining operations to extract metal casing and other materials from existing wells to reduce the possibility of underground fires or explosions during mining. With increased demand for natural gas drilling rigs in the Appalachian Basin, we have upgraded several of these rigs for that purpose and, as a result, well plugging and abandonment work for the coal companies is becoming a smaller portion of our business.

In the last three years, we have witnessed a significant increase in acquisitions and divestitures of oil and gas properties in the Appalachian Basin, which we believe to be directly attributable to the appreciation of natural gas prices over the same period of time and the corresponding improvement in the economics of producing natural gas. Acquisition activity has been driven by a broad universe of buyers, comprised of both publicly-traded independent oil and natural gas companies who have actively sought to expand their operations in the region, and a number of financial investors who have shown an active interest in the region. We believe that the recent buyers of oil and natural gas properties in the region intend to increase the level of drilling activity on the properties which they have acquired in an effort to enhance the return on the capital invested in the acquisition of the property. We believe the increased level of acquisition activity should produce an acceleration of drilling activity in the Appalachian Basin that, given our market position, will inure to our benefit. However, one of these recent buyers of oil and natural gas properties in the Appalachian Basin has elected to add its own in-house drilling capability. Some of that capability was achieved by acquiring a previously independent drilling contractor in the Appalachian Basin, which was our competitor.

We market 32 drilling rigs in the Appalachian Basin. Our principal competitors in the Appalachian Basin are primarily smaller, family-owned companies that serve fragmented markets within the Appalachian Basin.

Arkoma Basin

The Arkoma Basin includes Arkansas and eastern Oklahoma covering an area of about 33,800 square miles. The area is characterized by organically rich rock layers that produce natural gas at depths averaging 6,000 feet. Most natural gas directed drilling in the Arkoma Basin is conducted by rigs equipped with air compression equipment for underbalanced drilling operations.

Following the acquisition of Thornton Drilling in April 2005, the majority of our rigs in the Arkoma Basin were drilling horizontally into the Hartshorne coal seam, which is found at depths of 300 to 4,000 feet throughout the

 

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Arkoma Basin. Unlike CBM plays in other parts of the U.S., the Hartshorne coal seams produce very little water and allow for rapid production of CBM after a well is completed. The typical CBM well we drill in this market is 2,500 to 3,000 feet deep with a horizontal section of similar length.

Drilling activity and equipment requirements in this area have changed as operators have been leasing acreage to develop natural gas-bearing formations known as the Fayetteville Shale on the Arkansas side and the Caney and Woodford Shales on the Oklahoma side of the Arkoma Basin. These formations, existing at depths of 1,500 to 10,500 feet, are geologically similar to the Barnett Shale formation in northern Texas. Within the Fayetteville Shale, two producers have amassed substantial acreage positions and have horizontal drilling programs that are yielding results comparable to what has been achieved in some of the more prolific unconventional resource plays in North America.

We market 19 drilling rigs in the Arkoma Basin. Our principal competitor in the Arkoma Basin is Nabors Industries Inc.

Northern Texas

The Barnett Shale formation, found near Fort Worth, Texas, at average depths of 6,500 to 8,500 feet, is the largest natural gas field in Texas. Although natural gas deposits were discovered in the Barnett Shale several decades ago, the technology necessary to economically exploit lower permeability reservoir rock was not available. The use of horizontal drilling to develop the formation, combined with the application of multi-stage fracturing techniques, has opened this formation to extensive drilling.

We market 20 drilling rigs in northern Texas. Our principal competitors in northern Texas are Grey Wolf Inc., Pioneer Drilling Company and Nabors Industries Inc.

Our markets

SIZE="2">Appalachian Basin

We provide drilling services to customers engaged in developing unconventional natural gas formations throughout the
Appalachian Basin. The Appalachian Basin is one of the largest hydrocarbon producing regions in North America, covering approximately 72,000 square miles in the states of Kentucky, New York, Ohio, Pennsylvania, Tennessee, Virginia and West Virginia.

The Appalachian Basin is characterized by highly porous sandstones alternating with less porous shales, at depths of 3,000 to 8,000 feet. Since the mid
1970’s, significant resources have been committed to developing the natural gas bearing Clinton/Medina sands in northwestern Pennsylvania, western New York and eastern Ohio. The Clinton/Medina sands, which are 4,000 to 6,000 feet in depth,
generally have very low porosities and permeabilities. To recover natural gas from this formation, fracturing techniques are used to increase permeability, allowing the natural gas to flow to the surface. More recently, producers have been
increasing capital spending focused on the development of the deeper Trenton/Black River (“TBR”) and Marcellus Shale formations, which are at depths of up to 10,000 feet. Deeper TBR wells are vertically drilled on air in an underbalanced
state prior to drilling a several thousand foot horizontal section in the formation on fluid. These wells tend to be significantly more prolific than more conventional Clinton/Medina wells, with initial production rates ranging from 10 to 20
Mmcf/day and gross reserves per well ranging from 8 to 10 Bcf. Most of the equipment in the Appalachian Basin capable of drilling TBR wells is owned and operated by Union.

FACE="Times New Roman" SIZE="2">Natural gas also is found in shallow coal seams throughout the Appalachian Basin. This natural gas is commonly referred to as CBM. In recent years, natural gas producers have begun to exploit these CBM formations due
to advances in extraction technology and higher energy prices. In addition to exploration and development activity on behalf of more traditional natural gas producers, coal companies have engaged in the development of CBM formations in order to
reduce the concentration of these deposits in advance of mining operations, reducing the risk of underground fires or explosions. We support these activities with rigs that drill horizontally into the coal seams, providing faster drainage than
vertical drilling. We also have rigs that work for coal companies in advance of coal mining operations to extract metal casing and other materials from existing wells to reduce the possibility of underground fires or explosions during mining. With
increased demand for natural gas drilling rigs in the Appalachian Basin, we have upgraded several of these rigs for that purpose and, as a result, well plugging and abandonment work for the coal companies is becoming a smaller portion of our
business.

In the last three years, we have witnessed a significant increase in acquisitions and divestitures of oil and gas properties in the Appalachian
Basin, which we believe to be directly attributable to the appreciation of natural gas prices over the same period of time and the corresponding improvement in the economics of producing natural gas. Acquisition activity has been driven by a broad
universe of buyers, comprised of both publicly-traded independent oil and natural gas companies who have actively sought to expand their operations in the region, and a number of financial investors who have shown an active interest in the region.
We believe that the recent buyers of oil and natural gas properties in the region intend to increase the level of drilling activity on the properties which they have acquired in an effort to enhance the return on the capital invested in the
acquisition of the property. We believe the increased level of acquisition activity should produce an acceleration of drilling activity in the Appalachian Basin that, given our market position, will inure to our benefit. However, one of these recent
buyers of oil and natural gas properties in the Appalachian Basin has elected to add its own in-house drilling capability. Some of that capability was achieved by acquiring a previously independent drilling contractor in the Appalachian Basin, which
was our competitor.

We market 32 drilling rigs in the Appalachian Basin. Our principal competitors in the Appalachian Basin are primarily smaller,
family-owned companies that serve fragmented markets within the Appalachian Basin.

Arkoma Basin

STYLE="margin-top:6px;margin-bottom:0px">The Arkoma Basin includes Arkansas and eastern Oklahoma covering an area of about 33,800 square miles. The area is characterized by organically rich rock layers that
produce natural gas at depths averaging 6,000 feet. Most natural gas directed drilling in the Arkoma Basin is conducted by rigs equipped with air compression equipment for underbalanced drilling operations.

STYLE="margin-top:12px;margin-bottom:0px">Following the acquisition of Thornton Drilling in April 2005, the majority of our rigs in the Arkoma Basin were drilling horizontally into the Hartshorne coal seam,
which is found at depths of 300 to 4,000 feet throughout the

 


2







Table of Contents


Arkoma Basin. Unlike CBM plays in other parts of the U.S., the Hartshorne coal seams produce very little water and allow
for rapid production of CBM after a well is completed. The typical CBM well we drill in this market is 2,500 to 3,000 feet deep with a horizontal section of similar length.

FACE="Times New Roman" SIZE="2">Drilling activity and equipment requirements in this area have changed as operators have been leasing acreage to develop natural gas-bearing formations known as the Fayetteville Shale on the Arkansas side and the
Caney and Woodford Shales on the Oklahoma side of the Arkoma Basin. These formations, existing at depths of 1,500 to 10,500 feet, are geologically similar to the Barnett Shale formation in northern Texas. Within the Fayetteville Shale, two producers
have amassed substantial acreage positions and have horizontal drilling programs that are yielding results comparable to what has been achieved in some of the more prolific unconventional resource plays in North America.

STYLE="margin-top:12px;margin-bottom:0px">We market 19 drilling rigs in the Arkoma Basin. Our principal competitor in the Arkoma Basin is Nabors Industries Inc.

STYLE="margin-top:18px;margin-bottom:0px">Northern Texas

The Barnett Shale formation, found near Fort Worth,
Texas, at average depths of 6,500 to 8,500 feet, is the largest natural gas field in Texas. Although natural gas deposits were discovered in the Barnett Shale several decades ago, the technology necessary to economically exploit lower permeability
reservoir rock was not available. The use of horizontal drilling to develop the formation, combined with the application of multi-stage fracturing techniques, has opened this formation to extensive drilling.

STYLE="margin-top:12px;margin-bottom:0px">We market 20 drilling rigs in northern Texas. Our principal competitors in northern Texas are Grey Wolf Inc., Pioneer Drilling Company and Nabors Industries Inc.

EXCERPTS ON THIS PAGE:

10-K (2 sections)
Mar 10, 2008

"Our markets" elsewhere:

Whiting Canadian Holding Co ULC (KOG)
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