The Company reported record total earnings before interest expense, taxes, depreciation and amortization ("EBITDA") of $106.3 million in the first quarter of 2006 (including the $9.4 million pre-tax gain from the sale of five rigs previously held for refurbishment), up from $81.2 million the fourth quarter of 2005 and $53.6 million for the first quarter of 2005. On a per- rig-day basis, EBITDA was $10,866 for the first quarter of 2006, $8,212 for the fourth quarter of 2005 and $6,071 for the first quarter of 2005. Turnkey EBITDA per rig day in the first quarter was $19,294 and daywork EBITDA per rig day totaled $9,820. Daywork and turnkey EBITDA as well as EBITDA per rig day were the highest in the Company's history. Daywork EBITDA per day increased by $1,594 in the first quarter of 2006, exclusive of gain in sale of assets, over the fourth quarter of last year.
"On the heels of the best year in the Company's history, Grey Wolf produced record quarterly results for revenue, net income, and EBITDA, spurred by both daywork and turnkey operations," commented Tom Richards, Chairman, President and Chief Executive Officer. "Our net income increased 42% from the fourth quarter of 2005 and our dayrates rose an average of $1,500 per day across rigs and regions during the first quarter of 2006. We continue to build Grey Wolf through strategic investment in additional rig capacity buttressed by full payout term contracts and extended term contracts on a majority of our fleet."
Grey Wolf averaged 109 rigs working in the first quarter of 2006. This compares with an average of 108 rigs working in the fourth quarter of 2005 and 98 rigs working during the first quarter a year ago. Year-to-date, the Company has refurbished and reactivated two rigs under term contracts. Leading edge rates are currently $18,500 to $26,000 per day without fuel or top drives.
The Company expects to recognize an after-tax gain in the second quarter of 2006 of approximately $2.5 million from insurance proceeds following an extensive fire that destroyed a 2,000 horsepower rig in March. The rig will be replaced at a cost of approximately $11 million by using spare components and new components to construct a 2,000 horsepower diesel electric rig expected to be placed into service by year end.
After the loss of the rig in March, Grey Wolf's rig fleet includes 111 marketed rigs and three rigs available for refurbishment. The Company intends to reactivate all three of its remaining rigs available for refurbishment in 2006, significantly upgrading each at an average capital expenditure of approximately $11.8 million. These three rigs have been committed under term contracts with one expected to begin operations in the second quarter and the other two in the third quarter. 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. Grey Wolf's marketed rig fleet will total 119 rigs following the reactivation of the three rigs available for refurbishment, the replacement of the 2,000 horsepower rig, and the delivery of four new rigs that are on order as previously announced.
"These four new 1,500 horsepower rigs are expected to be delivered by the end of 2006 and are contracted with four different customers under three-year term contracts," said Mr. Richards. "These four new rigs, coupled with the three refurbishments and the replacement of the 2,000 horsepower rig, will add eight additional units earning revenue by the end of the year."
Grey Wolf continues to enter into long-term contracts and, as of May 1, 2006, has 73 rigs working under such contracts. The Company has approximately 18,700 days or an average of 68 rigs contracted for the remaining three quarters of 2006, 11,900 days or an average of 33 rigs committed under term contracts in 2007, and 3,600 days or an average of 10 rigs committed in 2008. These contracts range in length from one to three years but end at various times over this period providing an opportunity to reprice at then-current market rates. The average increase in the contracted revenue per day on long-term contracts renewed during the past few months is approximately $5,800.
Capital expenditures were $28.0 million during the first quarter. Based upon rig refurbishment plans, replacement of the 2,000 horsepower rig, and the purchase of four new rigs, capital expenditures for 2006 are currently projected to be $200 million to $210 million. This projection is subject to the ultimate number of rigs purchased or returned to service during 2006.
Beginning in May 2006, the Company is providing a wage increase (approximately $540 per operating day) to rig-based personnel that will be contractually passed through to our customers in the form of higher dayrates. This increase reflects our commitment to retaining experienced crews that provide superior service to our customers and operate our rigs in a safe and efficient manner.
Based on anticipated levels of activity and dayrates during the second quarter of 2006, the Company expects to average 109 rigs working and to generate EBITDA of approximately $107.8 million for the period. Depreciation expense of approximately $17.6 million and interest expense of approximately $3.5 million is anticipated. Net income per share is expected to be approximately $0.24 on a diluted basis, using a tax rate of approximately 37% based upon the expected net income of $54.5 million for the quarter. These projected results include an approximate after-tax gain of $2.5 million related to insurance proceeds expected to be received to recover the loss of the rig damaged by fire.
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