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Pioneer Drilling Co (PDC) |
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WIKI ANALYSIS
Pioneer Drilling Company (AMEX: PDC) contracts onshore drilling rigs to oil and gas companies. Pioneer rigs can drill and maintain wells for any hydrocarbons, but most of the company’s rigs are contracted to natural gas producers. The company has a limited geographic scope: about 93% of its drilling rigs operate in the U.S., with 68% contracted in Texas alone. The company earned $326 million in revenue but incurred a net loss of $23 million in 2009.[1]
Technological developments in the gas drilling industry, such as horizontal drilling and hydraulic fracturing, have opened up 842 trillion cubic feet of previously inaccessible shale natural gas in the last two years. The sudden availability of enormous, untapped natural gas reserves has driven exploration and production (E&P) companies to ramp up drilling since 2006, consequently increasing demand for Pioneer rigs and services. The company also faces risks from the volatility of these prices. As gas prices fall, drilling activity slows, which ultimately hurts demand for Pioneer rigs.
Company Overview
Pioneer Drilling Company is an oilfield services business that contracts land drilling rigs, crews, and maintenance equipment to oil and gas exploration and production companies. With the acquisition of WEDGE Companies and Competition Wireline, Pioneer Drilling Company also offers workover rigs and wireline units to accompany its established line-up of drilling rigs. While drilling rigs create new wells, workover rigs and wireline units help maintain existing ones.
Business Segments[2]
Drilling Services
The Drilling Services segment offers 71 drilling rigs and crews to natural gas and oil exploration and production companies. Pioneer rigs, with a drilling capacity of 6,000 to 18,000 feet, are primarily used for natural gas production.
Production Services
This segment contracts 74 workover rigs, 65 wireline units, and $13 million of fishing and rental tools for oil and natural gas production. Oil and gas E&P companies rent production services equipment to aid with maintenance and production at existing wells. For instance, workover rigs replace well tubing, while wireline units help lower equipment into open wells.
Geographic Distribution
Pioneer generally contracts its rigs to companies throughout Texas and the American Midwest.[3]
- East Texas Division - 19
- South Texas Division - 15
- North Dakota Division - 8
- North Texas Division - 5
- Utah Division - 5
- Appalachia Division - 5
- Oklahoma Division - 6
- Colombia - 8
Business Growth
FY 2009 (ended December 31, 2009)[1]
- Net revenue fell 47% to $326 million. The company attributes the decline to a 52% decrease in revenue days that resulted from a decline in the company's rig utilization rate from 89% to 41%.
- The company incurred a net loss of $23 million an improvement over the net loss of $63 million in the previous year.
Trends and Forces
Pioneer stands to benefit from the unconventional gas production boom occurring in the Texas Barnett Shale.
Domestic natural gas production has risen dramatically since 2006, as the new combination of horizontal drilling and hydraulic fracturing lets companies access gas stored in shale beds.[4] Pioneer Drilling benefits from unconventional gas production due to its proximity to the Barnett Shale in North Texas, where production has jumped over 3000% since 1998.[5] Pioneer offers the horizontal rigs that E&P companies, like EOG and Chesapeake, need to access shale gas.
Pioneer production services are moderately counter cyclical.
Production services help insulate the company from the substantial fluctuations of the drilling business. Even when oil and gas companies cut back on production, existing wells require workover and wireline rigs for regular maintenance. As E&P companies drill fewer wells, existing wells need more regular maintenance to keep up production levels. However, in severe downturns, workover rigs could be laid down as much as conventional rigs.
Competition
Pioneer Drilling Company competes with onshore drilling rig and workover rig contractors, particularly those dealing with natural gas exploration and production companies in Texas.
- Helmerich & Payne (HP) has 157 onshore drilling rigs in the U.S. Helmerich & Payne's FlexRig technology is ideal for unconventional shale drilling.
- Nabors Industries (NBR) has 535 onshore drilling rigs, 564 domestic and 173 internationally deployed onshore well workover and well-servicing rigs, 35 offshore platform rigs, 12 jack-ups, 4 barges, and a host of marine transport units. The company is the largest land driller in North America, and is rapidly expanding internationally.
- Patterson-UTI Energy (PTEN) markets 350 onshore drilling rigs in the United States, making it the second largest land drill contractor in North America.
- Unit (UNT) operates 129 land rigs in Wyoming, Utah, Colorado, New Mexico, Texas, Oklahoma, Kansas, and Louisiana. Since the company is also involved in E&P, many of these rigs are used internally.
- Grey Wolf (GW) focuses on drilling contracts in the US, with a fleet size of 121 drilling rigs.
References
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