For the year ended December 31, 2006, Grey Wolf reported record net income of $220.0 million, or $0.98 per share on a diluted basis, on revenues of $945.5 million. This compares with net income of $120.6 million, or $0.54 per share on a diluted basis, on revenues of $697.0 million for the year ended December 31, 2005. The 2006 results include a second quarter after-tax gain related to insurance proceeds of $2.7 million ($0.01 per diluted share) along with after-tax gains of $7.6 million ($0.03 per diluted share) from the sale of five rigs formerly held for refurbishment and other spare equipment.
"2006 was the second straight year in which the Company set record levels of revenue, net income, and EBITDA," commented Tom Richards, Chairman, President and Chief Executive Officer. "Year-over-year the Company's net income rose by 82% and revenues were up 36%. EBITDA for 2006 totaled $432.0 million, up 63% from 2005. Not only did we break the record for all of these financial metrics, but we also improved our year-over-year safety recordable incident rate by 31% at the same time that man hours worked increased by almost 10%."
Mr. Richards continued, "Three of the six new 1,500 horsepower rigs we ordered in 2006 have been delivered and are working. One of the remaining three new rigs is scheduled for delivery later in the first quarter of 2007, one in the second quarter, and the last rig is expected by the end of the third quarter. All six of the new rigs, as well as the 17 refurbishments completed over the last two years are supported by long-term contracts under which the Company fully expects to recover the cost of the capital expended during the initial contract term. After deployment of these rigs, our fleet will total 121 rigs. Our continuing strategy is to add new rigs to our fleet only when supported by term contracts."
As of February 26, 2007, the Company is marketing 118 rigs, with 83 of those working under daywork term contracts, 23 working under spot market daywork contracts, eight working under turnkey contracts and four rigs are idle. Grey Wolf averaged 110 rigs working in the fourth quarter of 2006. This compares with an average of 107 rigs working in the third quarter of 2006 and 108 rigs working during the fourth quarter of 2005.
The Company renewed 14 of 19 term contracts that were scheduled for renewal in the fourth quarter of 2006, and to date has renewed two of the fourteen first quarter 2007 renewals and one second quarter renewal. The Company has approximately 21,600 days, or an average of 59 rigs, contracted for all of 2007 and 6,800 days or an average of 19 rigs committed in 2008.
Mr. Richards concluded, "There is currently some excess capacity in the land drilling market and newly built rigs are coming into the market. With this additional capacity, we have seen a softening in some spot market dayrates over the past two months. While there are differences depending on market and rig size, the average decline in dayrates is between 5% and 15%. Grey Wolf's extensive portfolio of term contracts and our premium quality equipment coupled with our skilled rig crews buffer our exposure to the recent erosion in spot market dayrates and the effects of extra capacity."
Capital expenditures totaled $197.2 million in 2006, including $65.1 million during the fourth quarter. Based upon the remaining payments for the new rig purchases and 2007 rig activity, capital expenditures for 2007 are projected to be $130.0 million to $140.0 million.
The Company reported total earnings before interest expense, taxes, depreciation and amortization ("EBITDA") of $105.0 million in the fourth quarter of 2006, compared to $108.9 million for the previous quarter and $81.2 million for the fourth quarter of 2005. On a per-rig-day basis, EBITDA was $10,384 for the fourth quarter of 2006, $11,046 for the third quarter of 2006 and $8,212 for the fourth quarter of 2005. Turnkey EBITDA per rig day in the fourth quarter was $7,444 and daywork EBITDA per rig day totaled $10,626.
Although turnkey EBITDA per rig day for the fourth quarter of 2006 was lower compared to the previous quarter, our turnkey business added $61.2 million, or 14%, of total Company EBITDA for 2006 and outpaced daywork EBITDA per rig day by 51% for the year.
Under the previously announced plan that authorizes the repurchase of up to $100 million of Grey Wolf common stock, the Company repurchased 9.3 million shares during 2006 at a total cost of $65.1 million. In the first quarter of 2007 to date, the Company repurchased an additional 1.2 million shares for $8.0 million.
During the first quarter of 2007, the Company expects to average 108 to 110 rigs working with six to eight of these rigs performing turnkey services. In addition, average daywork revenue per day is expected to increase by $200 to $300 as the Company's new rigs enter the market and the effect of higher term contract dayrates from fourth quarter term contract renewals is realized. Depreciation expense of approximately $20.7 million, interest expense of approximately $3.5 million and an effective tax rate of approximately 37% are expected for the first quarter of 2007.
Grey Wolf, Inc., headquartered in Houston, Texas, is a leading provider of turnkey and contract oil and gas land drilling services in the best natural gas producing regions in the United States with a current total drilling rig fleet of 118, which will increase to 121 with the expected addition of three new rigs by the end of the third quarter of 2007.
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