"In the first quarter, we continued to see further strengthening in the demand for the Company's services, we added to the Company's position in the new markets we've entered and ongoing interest expense was reduced," commented Tom Richards, Chairman, President and Chief Executive Officer. "Commodity prices are historically strong and the U.S. land rig count is up 19% from a year ago, finally reaching levels that could prompt improvements in dayrates. We expect our results in the remainder of 2004 to reflect these improved fundamentals," said Mr. Richards.
Grey Wolf averaged 65 rigs working in the first quarter of 2004 compared to 62 rigs working in the fourth quarter of 2003. Total operating margin for the first quarter of 2004 was $12.7 million compared with $7.1 million for the first quarter of 2003. Operating margin consists of revenues less drilling operations expenses. Of the total operating margin for the first quarter of 2004, $4.1 million was attributable to turnkey activity and $8.6 million to daywork.
"In April 2004, we increased our presence in the active Rocky Mountain market by acquiring New Patriot Drilling Corp. ("Patriot") and its fleet of 10 rigs in Wyoming and Colorado. In West Texas, we've activated two additional rigs, and our working rig count rose from 67 at the time of our last conference call to 84 rigs working today including eight of the rigs acquired from Patriot. We are also pleased to announce that we will be moving a 1,000 horsepower rig to Mexico to work for a major oil service company in the Burgos Basin. We expect operations to start in May 2004, and continue for approximately twelve months," continued Mr. Richards.
"We refinanced the remainder of our senior notes, completing a move begun nearly a year ago to lengthen our debt maturities and reduce our annual interest expense from $24.0 million to approximately $8.6 million at current interest rates -- an expected savings of $15.4 million a year," concluded Mr. Richards.
As previously announced, on March 31, 2004, the Company issued $100.0 million of floating rate contingent convertible senior notes due 2024. The majority of the proceeds were placed in escrow for the redemption of the remaining $85.0 million aggregate principal amount of the Company's 8-7/8% Senior Notes due 2007. The 8-7/8% Senior Notes will be redeemed at 102.958%, plus accrued interest, on April 30, 2004. The first quarter 2004 net loss includes approximately $2.5 million of pre-tax costs (approximately $1.7 million after tax) for the redemption premium on the 8-7/8% Senior Notes.
Capital expenditures were $4.5 million for the first quarter of 2004. The Company currently has 95 marketed rigs and 17 cold-stacked rigs that can be deployed quickly with relatively little capital outlay. In addition, 15 inventory rigs are available for refurbishment and reactivation as demand dictates. Capital expenditures for 2004 are currently projected to be $30.0 million to $34.0 million, subject to the actual level of rig activity and exclusive of the acquisition cost of Patriot.
Based on currently anticipated levels of activity and dayrates, the Company expects to generate an operating margin of approximately $16.5 million, or $2,150 per rig day for the second quarter of 2004. Net loss per share is expected to be approximately $0.02 on a diluted basis, using a tax benefit rate of approximately 26% based upon the expected level of loss. The Company expects depreciation expense of approximately $14.0 million and interest expense of approximately $4.0 million in the second quarter of 2004. Projected interest expense for the second quarter of 2004 includes approximately $1.8 million for the accelerated amortization of the previously deferred financing costs, original issue discount and interest expense on the 8-7/8% Senior Notes to the redemption date.
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