For the year ended December 31, 2005, Grey Wolf reported net income of $120.6 million, or $0.54 per share on a diluted basis, on revenues of $697.0 million. This compares with net income of $8.1 million, or $0.04 per share on a diluted basis, on revenues of $424.6 million for the year ended December 31, 2004.
"Grey Wolf produced record results for revenue, net income, and EBITDA for the third consecutive quarter and completed 2005 with the best annual results in the Company's history," commented Tom Richards, Chairman, President and Chief Executive Officer. "Our revenue increased 64% from 2004 and net income was 76% greater than our previous high in 2001, supported by continued strength in both turnkey and daywork operations. In addition, while our average working rig count increased by 17 in 2005, our ongoing commitment to rig safety led to an 18% reduction in our recordable incident rate for the year."
The Company reported record total earnings before interest expense, taxes, depreciation and amortization ("EBITDA") of $81.2 million in the fourth quarter of 2005, up from $69.2 million the previous quarter and $32.7 million for the fourth quarter of 2004. On a per-rig-day basis, EBITDA was $8,212 for the fourth quarter of 2005, $7,317 for the third quarter of 2005 and $3,725 for the fourth quarter of 2004. Turnkey EBITDA per rig day in the fourth quarter was $16,031 and daywork EBITDA per rig day totaled $7,253. Daywork and turnkey EBITDA and EBITDA per rig day were the highest in the Company's history. Total EBITDA reported for 2005 was $265.8 million.
Grey Wolf averaged 108 rigs working in the fourth quarter of 2005. This compares with an average of 103 rigs working in the third quarter of 2005 and 96 rigs working during the fourth quarter of 2004. The Company has refurbished and reactivated three rigs under term contracts since the end of the third quarter of 2005. Leading edge rates are currently $17,500 to $25,000 per day without fuel or top drives.
Mr. Richards commented, "We are also pleased to announce that Grey Wolf recently entered into agreements to purchase four new 1,500 horsepower rigs that will be delivered throughout the fourth quarter of 2006. The cost of these four rigs is projected at $15 million each. These new rigs are designed to enhance safety, increase the efficiency of rig moves, and maximize performance for our customers, who have signed three-year term contracts for each of these rigs. These term contracts provide solid returns on the capital invested and, in the aggregate, should recover the purchase price after projected operating expenses."
In early 2006, the Company completed the sale of five rigs that were previously held for future refurbishment for an aggregate purchase price of $15.3 million. The sale to a private company, resulted in a pre-tax gain of $9.4 million, which will be included in the first quarter 2006 results. In addition, the Company reviewed the remaining eleven rigs held for refurbishment and determined to utilize the component parts of seven of these rigs as spare equipment. There was no current financial statement impact as a result of this decision.
After this sale and the reclassification of the component parts of seven rigs to spare equipment, Grey Wolf's rig fleet includes 111 marketed rigs and four rigs available for refurbishment. The Company intends in 2006 to reactivate all four of its remaining rigs available for refurbishment, significantly upgrading each at an average capital expenditure estimated to be $11.4 million. Two of these rigs have been committed under term contracts to commence operations in the first and second quarters when the upgrades are completed. It is expected in the aggregate that the term contracts will recover, after projected operating expense, all of the incremental capital expended in their redeployment. The reactivation of these four rigs and the delivery of four new rigs will increase the marketed rig fleet to 119.
Grey Wolf continues to enter into long-term contracts and, as of February 22, 2006, has 68 rigs working under such contracts. A majority of these contracts end at various times over the next twelve months providing an opportunity to reprice at then-current market rates. Grey Wolf has had or will have the opportunity to reprice 53% of the term contracts in the first and second quarters of 2006. The long-term contracts that have been renewed over the past two months have experienced an average increase in the contracted revenue per day of $5,500. The Company has approximately 20,500 days or an average of 56 rigs contracted for 2006 and 8,000 days or an average of 22 rigs committed under term contracts in 2007.
Capital expenditures totaled $131.4 million in 2005, including $32.1 million during the fourth quarter. Based upon the refurbishment plans and the purchase of four new rigs, capital expenditures for 2006 are currently projected to be $180.0 million to $190.0 million. This projection is subject to the ultimate number of rigs purchased or returned to service during 2006.
In November 2005, the Company implemented a two-year employee retention and incentive program for its experienced rig-based personnel. The purpose of this program is to retain key operational personnel on our rigs and reduce the cost of turnover and improve safety and efficiency at the rig site. The covered employees will receive a retention bonus payment at the end of the first and second years of continuous service with the Company. The program had a $200 per rig day impact on operating costs during the fourth quarter of 2005 and is expected to have an estimated $300 per rig day impact on operating costs in 2006.
An estimate of results for the first quarter of 2006 has been prepared based on anticipated levels of activity and dayrates. During the first quarter of 2006, the Company expects to average 108 rigs working and to generate EBITDA of approximately $85.0 million. The Company expects depreciation expense of approximately $17.2 million and interest expense of approximately $3.3 million in the first quarter of 2006. Net income per share is expected to be approximately $0.18 on a diluted basis, using a tax rate of approximately 37% based upon the expected net income of $40.3 million. These projected results do not include an after tax gain of $5.9 million ($0.02 per diluted share) on the sale of the five rigs.
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