Grey Wolf Enjoys Record Operating Results for 3Q05



Grey Wolf reported net income of $31.8 million, or $0.14 per share on a diluted basis, for the three months ended September 30, 2005 compared with net income of $5.5 million, or $0.03 per share on a diluted basis, for the third quarter of 2004. Net income for the second quarter of 2005 was $27.6 million or $0.12 per share on a diluted basis. Revenues for the third quarter of 2005 were $181.5 million compared with revenues for the third quarter of 2004 of $116.3 million.

For the nine months ended September 30, 2005, Grey Wolf reported net income of $82.5 million, or $0.37 per share on a diluted basis, on revenues of $492.8 million compared to a net loss of $2.5 million, or $0.01 per share on a diluted basis, on revenues of $295.2 million for the nine months ended September 30, 2004.

"Grey Wolf produced record results for revenue, EBITDA and net income for the second consecutive quarter supported by continued increases in dayrates and additional rigs working," commented Tom Richards, Chairman, President and Chief Executive Officer. "We have continued to enter into term contracts at unprecedented rates and currently have 60 rigs working under such contracts. A majority of these contracts end at various times over the next twelve months providing earnings strength and an opportunity to reprice at then-current market rates."

"Our dayrates increased an average of 10% per rig day across all rigs and market areas between the second and third quarters. Leading edge rates now range from $15,000 to $23,000 per day without fuel or top drives," Richards added. "We expect continued improvement in our quarterly results well into 2006."

The Company reported total earnings before interest expense, taxes, depreciation and amortization ("EBITDA") of $69.2 million in the third quarter of 2005, up from $61.7 million the previous quarter and $25.6 million for the third quarter of 2004. On a per-rig-day basis, EBITDA was $7,317 for the third quarter of 2005, $6,820 for the second quarter of 2005 and $2,972 for the third quarter of 2004. Turnkey EBITDA per rig day in the third quarter was $11,370, and daywork EBITDA per rig day totaled $6,896. Daywork EBITDA per rig day, which increased $774 over the second quarter of 2005, was the highest daywork EBITDA per rig day in the Company's history exceeding the previous high in the third quarter of 2001.

Grey Wolf averaged 103 rigs working in the third quarter of 2005. This compares with an average of 99 rigs working in the second quarter of 2005 and 94 rigs working during the third quarter of 2004. The Company has refurbished and reactivated four rigs under term contracts since the end of the second quarter of 2005.

The dayrate increase of $1,316 per average rig day includes approximately $500 in the third quarter related to a wage increase that was effective June 1, 2005, as those costs are contractually passed through as higher dayrates to customers.

In addition to the 60 rigs currently working under term contracts, Grey Wolf has five more rigs scheduled to go to work under term contracts by the end of the fourth quarter and one rig by the end of the first quarter of 2006. The Company has approximately 5,600 days contracted for the remainder of 2005, 15,100 days committed under term contracts in 2006 and 3,100 days in 2007.

Grey Wolf's fleet includes 110 marketed rigs and 17 rigs available for refurbishment and reactivation as demand dictates. Work on two of the 17 rigs available for refurbishment is underway with average capital expenditures estimated to be $8.4 million per rig. These rigs are being significantly upgraded and converted from mechanical to diesel electric SCR rigs. One of these rigs is projected to go to work near the end of the fourth quarter of 2005 with the second commencing operations by the end of the first quarter of 2006. The reactivation of these two rigs will increase the marketed rig fleet to 112. Both rigs being refurbished will go to work under term contracts expected to recover, in the aggregate, all of the incremental capital expended in their redeployment. The Company has identified three additional rigs for refurbishment and has or is in the process of obtaining the long-lead time items necessary to refurbish these identified rigs. The Company is currently seeking long-term contracts for these rigs.

Capital expenditures were $36.8 million in the third quarter of 2005. Based upon the current refurbishment plans, capital expenditures for 2005 are currently projected to be $140.0 million to $145.0 million. This projection is subject to the number of rigs returned to service during 2005 and purchasing long-lead time equipment in 2005 for use in 2006.

As had been previously reported, the Company has three rigs located in Southern Louisiana that were not accessible for a period of time due to flooding after Hurricane Rita. The Company has since been able to return to the drilling locations for these three rigs and assess the damage. Two of the rigs have returned to service. Equipment on the other rig is being replaced or restored, and it is expected that this rig will return to work in the next week. The Company's third quarter results included minimal expenses related to Hurricanes Katrina and Rita. Management expects the fourth quarter results of the Company to include approximately $0.4 million of expenses and $0.4 million of capital expenditures related to these storms.

An estimate of results for the fourth quarter of 2005 has been prepared based on anticipated levels of activity and dayrates. During the fourth quarter of 2005, the Company expects to average 106 rigs working and to generate EBITDA of approximately $75.2 million. The Company expects depreciation expense of approximately $16.2 million and interest expense of approximately $3.2 million in the fourth quarter of 2005. Net income per share is expected to be approximately $0.16 on a diluted basis, using a tax rate of approximately 37% based upon the expected net income of $35.1 million.
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