San Antonio-based Pioneer Drilling (AMEX: PDC) reported two rigs shipped in September and October to Colombia have begun operations.
The drilling contracts signed with Colombian operators were the company's first in Latin America, company CEO Wm Stacy Locke said in a conference call with investors and analysts.
A third rig is being upgraded and will be deployed before the end of the company's fiscal year.
"We now have two rigs under contract in Colombia with state oil company Ecopetrol," Locke said.
"Each contract is structured somewhat differently, but each has a certain number of wells contracted for, and then [there are] option wells. However, the framework of the relationship with Ecopetrol is to have these rigs working exclusively for them for many years to come," he continued.
Pioneer Drilling is in talks with Ecopetrol and several other customers about additional rigs that could be delivered to Colombia later this year and next. Pioneer Drilling expects to have one to two more rigs running in the country before the end of its fiscal year, Locke said.
Profit margins from the company's Colombian operations are expected to be greater than those from activities in the US.
"Colombian rig day rates on a comparative basis to the US without fuel and top drives are in the mid-20s. But the rigs there have 500-tonne top drives and we provide the fuel so the day rates there are over US$30,000 a day," Locke said.
"Over the long term, it would be safe to assume average drilling margins per day of 20-25% over our US land operations. However, we don't have actual data to guide that as the operations in the country are still new," he added.
Locke expects margins third quarter FY08 for those two rigs averaging from US$15,000-17,000 a day and then declining in 4Q08 to US$11,000-12,000 a day.
The company's second fiscal quarter of FY08 ended on September 30, 2007.
CONTINUED REGIONAL EXPANSION
The company is continuing to explore other opportunities in Latin America but is first looking to establish itself in Colombia, Locke said.
"We have chosen to focus initially on Colombia. We want to make sure our model works and we can perform the contracts at the forecasted cost. In order to realize this fully, we need to reach some critical mass in Colombia," Locke said.
"We would like to take the rig count up to 5-7 before the end of next fiscal year," he continued.
Pioneer Drilling will later be looking into other opportunities outside Colombia that might include Ecuador, Peru, Argentina and Brazil, Locke added.
"In the 3-5 year timeframe, assuming we can generate the returns on capital, we could see ourselves with 5-7 rigs in multiple countries in South America," he concluded.
The company reported net income of US$11.8mn for the three months ended September 30 (the company's 2Q08) compared with net income of US$13.1mn for the three months ended June 30, 2007.
Costs for the second quarter were up over the previous quarter roughly US$3mn due to the commencement of operations in Colombia, according to a statement.
The company reported total revenue of US$209mn in the six months ending September 30, 2007, compared to revenues of US$200mn in the six months ending September 30, 2006.
Net profits in the six months ending September 30, 2007, were US$24.9mn compared to US$42.9mn in the six months ending on the same date a year earlier.