##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from ___ to ___
 Commission File Number 1-8182
 PIONEER DRILLING COMPANY
  TEXAS
    
    74-2088619(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification Number)1250 N.E. Loop 410, Suite 1000, San Antonio, Texas
    
    78209(Address of principal executive offices)
    
    (Zip Code)
 
 þ o
  Large accelerated filer o   
    Accelerated filer þ
    Non-accelerated filer o
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONITEM I. FINANCIAL STATEMENTSITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 4. CONTROLS AND PROCEDURESPART II. OTHER INFORMATIONITEM 1.LEGAL PROCEEDINGSITEM 1A. RISK FACTORSITEM 2. Unregistered Sales of Equity Securities and Use of ProceedsITEM 3. Defaults Upon Senior SecuritiesITEM 4. Submission of Matters to a Vote of Security HoldersITEM 5. Other InformationITEM 6. EXHIBITSIndex to ExhibitsAmended and Restated Key Executive Severance PlanAmended and Restated 2007 Incentive PlanCertification of Wm. Stacy Locke, President & CEO, Pursuant to Rule 13a-14(a) or 15d-14(a)Certification of Joyce M. Schuldt, EVP & CFO, Pursuant to Rule 13a-14(a) or 15d-14(a)Certification of Wm. Stacy Locke, President & CEO, Pursuant to Section 906Certification of Joyce M. Schuldt, EVP & CFO, Pursuant to Section 906    Table of Contents  
  
 FINANCIAL STATEMENTS
 
 March 31,
    
    
    December 31,2008
    
    
    2007(unaudited)
    
    
    (audited)(In thousands, except share data)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    15,618
    
    
    $
    76,703Receivables:Trade, net
    
    
    68,151
    
    
    
    46,759Contract drilling in progress
    
    
    16,603
    
    
    
    7,861Income tax receivable
    
    
    340
    
    
    
    611Deferred income taxes
    
    
    5,334
    
    
    
    3,670Inventory
    
    
    2,813
    
    
    
    1,180Prepaid expenses and other
    
    
    6,022
    
    
    
    5,073Total current assets
    
    
    114,881
    
    
    
    141,857Property and equipment, at cost
    
    
    743,863
    
    
    
    578,697Less accumulated depreciation and amortization
    
    
    173,551
    
    
    
    161,675Net property and equipment
    
    
    570,312
    
    
    
    417,022Deferred income taxes
    
    
    708
    
    
    
    573Goodwill
    
    
    172,228
    
    
    
    Intangibles and other long term assets
    
    
    43,140
    
    
    
    760Total assets
    
    $
    901,269
    
    
    $
    560,212LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    24,888
    
    
    $
    21,424Current portion of long-term debt
    
    
    23,457
    
    
    
    Income taxes payable
    
    
    4,371
    
    
    
    Prepaid drilling contracts
    
    
    3,082
    
    
    
    1,933Accrued expenses:Payroll and related employee costs
    
    
    12,533
    
    
    
    5,172Insurance premiums and deductibles
    
    
    16,144
    
    
    
    9,548Other
    
    
    3,463
    
    
    
    3,973Total current liabilities
    
    
    87,938
    
    
    
    42,050Long-term debt, less current portion
    
    
    271,563
    
    
    
    Other liabilities
    
    
    5,087
    
    
    
    254Deferred income taxes
    
    
    51,430
    
    
    
    46,836Total liabilities
    
    
    416,018
    
    
    
    89,140Commitments and contingenciesShareholders equity:Preferred stock, 10,000,000 shares authorized; none issued and outstanding
    
    
    
    
    
    
    Common stock $.10 par value; 100,000,000 shares authorized; 49,788,978 shares
and 49,650,978 shares issued and
outstanding at March 31, 2008 and December 31, 2007, respectively
    
    
    4,979
    
    
    
    4,965Additional paid-in capital
    
    
    298,189
    
    
    
    294,922Accumulated other comprehensive loss
    
    
    (950
    )
    
    
    Accumulated earnings
    
    
    183,033
    
    
    
    171,185Total shareholders equity
    
    
    485,251
    
    
    
    471,072Total liabilities and shareholders equity
    
    $
    901,269
    
    
    $
    560,212
  2




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Three Months EndedMarch 31,2008
    
    
    2007(In thousands, except per share data)Revenues
    
    $
    113,397
    
    
    $
    103,347Costs and expenses:Operating costs
    
    
    70,426
    
    
    
    59,189Depreciation and amortization
    
    
    17,119
    
    
    
    14,736Selling, general and administrative
    
    
    7,722
    
    
    
    3,824Bad debt expense
    
    
    135
    
    
    
    Total operating costs and expenses
    
    
    95,402
    
    
    
    77,749Income from operations
    
    
    17,995
    
    
    
    25,598Other income (expense):Interest expense
    
    
    (1,574
    )
    
    
    Interest income
    
    
    585
    
    
    
    881Other
    
    
    1,092
    
    
    
    8Total other income
    
    
    103
    
    
    
    889Income before income taxes
    
    
    18,098
    
    
    
    26,487Income tax expense
    
    
    (6,250
    )
    
    
    (9,269
    )Net earnings
    
    $
    11,848
    
    
    $
    17,218Earnings per common share  Basic
    
    $
    0.24
    
    
    $
    0.35Earnings per common share  Diluted
    
    $
    0.24
    
    
    $
    0.34Weighted average number of shares
outstanding  Basic
    
    
    49,759
    
    
    
    49,619Weighted average number of shares
outstanding  Diluted
    
    
    50,291
    
    
    
    50,127
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Three Months Ended March 31,2008
    
    
    2007(In thousands)Cash flows from operating activities:Net earnings
    
    $
    11,848
    
    
    $
    17,218Adjustments to reconcile net earnings
to net cash provided by operating
activities:Depreciation and amortization
    
    
    17,119
    
    
    
    14,736Allowance for doubtful accounts
    
    
    135
    
    
    
    Loss (gain) on dispositions of
property and equipment
    
    
    (23
    )
    
    
    576Stock-based compensation expense
    
    
    951
    
    
    
    587Deferred income taxes
    
    
    554
    
    
    
    6,179Change in other assets
    
    
    74
    
    
    
    5Change in non-current liabilities
    
    
    (88
    )
    
    
    (85
    )Changes in current assets and liabilities:Receivables
    
    
    (7,023
    )
    
    
    2,149Inventory
    
    
    (259
    )
    
    
    Prepaid expenses and other
    
    
    491
    
    
    
    374Accounts payable
    
    
    132
    
    
    
    (3,170
    )Income tax payable
    
    
    4,780
    
    
    
    (3,791
    )Prepaid drilling contracts
    
    
    1,150
    
    
    
    Accrued expenses
    
    
    10,144
    
    
    
    1,677Net cash provided by operating activities
    
    
    39,985
    
    
    
    36,455Cash flows from investing activities:Acquisition of production services business of WEDGE
    
    
    (313,610
    )
    
    
    Acquisition of production services business of Competition
    
    
    (26,101
    )
    
    
    Purchases of property and equipment
    
    
    (32,938
    )
    
    
    (27,870
    )Purchase of auction rate preferred securities
    
    
    (16,475
    )
    
    
    Proceeds from sale of property and equipment
    
    
    933
    
    
    
    1,477Net cash used in investing activities
    
    
    (388,191
    )
    
    
    (26,393
    )Cash flows from financing activities:Payments of debt
    
    
    (22,001
    )
    
    
    Proceeds from issuance of debt
    
    
    311,500
    
    
    
    Debt issuance costs
    
    
    (3,281
    )
    
    
    Proceeds from exercise of options
    
    
    653
    
    
    
    110Excess tax benefit of stock option exercises
    
    
    250
    
    
    
    19Net cash provided by financing activities
    
    
    287,121
    
    
    
    129Net increase (decrease) in cash and cash equivalents
    
    
    (61,085
    )
    
    
    10,191Beginning cash and cash equivalents
    
    
    76,703
    
    
    
    74,754Ending cash and cash equivalents
    
    $
    15,618
    
    
    $
    84,945Supplementary disclosure:Interest paid
    
    $
    1,489
    
    
    $
    11Income tax paid
    
    $
    1
    
    
    $
    
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1. Nature of Operations and Summary of Significant Accounting Policies
 Business and Basis of Presentation
  st st
  Drilling Contracts
  Foreign Currencies
  5




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Revenue and Cost Recognition
 Drilling Services 
  Production Services 
 Restricted Cash
  Trade Accounts Receivable
  Investments
   6




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Fair Value Measurement,
  Inventories
  Property and Equipment
    Three MonthsEndedMarch 31, 2008Depreciation and amortization expense using prior useful lives
    
    $
    18,063Impact of change in estimated useful lives
    
    
    (944
    )Depreciation and amortization expense, as reported
    
    $
    17,119Diluted earnings per common share using prior useful lives
    
    $
    0.22Impact of change in estimated useful lives
    
    
    0.02Diluted earnings per common share, as reported
    
    $
    0.24
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LivesDrilling rigs and equipment
    
    
    3 - 25Workover rigs and equipment
    
    
    5 - 20Wireline units and equipment
    
    
    5 - 10Fishing and rental tools equipment
    
    
    7Vehicles
    
    
    5 - 10Office equipment
    
    
    3 - 5Buildings and improvements
    
    
    3 - 40
 Goodwill and Other Intangible Assets
 Goodwill and Other Intangible Assets
  Income Taxes
  Comprehensive Income
  Three Months EndedMarch 31,2008
    
    
    2007Net income
    
    $
    11,848
    
    
    $
    17,218Other comprehensive loss  unrealized loss on securities
    
    
    (950
    )
    
    
    Comprehensive income
    
    $
    10,898
    
    
    $
    17,218
 Stock-based Compensation
 Share-Based Payment, Accounting for Stock Issued to Employees, Accounting for Stock-Based Compensation.
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Three Months EndedMarch 31, 2008Weighted average expected volatility
    
    
    43%Weighted-average risk-free interest rates
    
    
    2.0%Weighted-average expected life in years
    
    
    3.75Options granted
    
    
    345,000Weighted-average grant-date fair value
    
    $
    4.73
  Related-Party Transactions
    Recently Issued Accounting Standards
 Fair Value Measurements Effective Dates of FASB Statement No. 157,
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The Fair Value Option for Financial Assets and
Financial Liabilities  Including an amendment of FASB Statement No. 115
 Noncontrolling Interests in Consolidated
Financial Statements  an Amendment of ARB No. 51
 Business Combinations Accounting for Costs Associated
with Exit or Disposal Activities Accounting for Contingencies
 Disclosures about Derivative Instruments and
Hedging Activitiesan amendment of FASB Statement No. 133
 Reclassification
  2. Acquisitions
  10




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Cash acquired
    
    $
    1,168Other current assets
    
    
    22,102Property and equipment
    
    
    137,173Intangible asset and other assets
    
    
    418Goodwill
    
    
    168,216Total assets acquired
    
    $
    329,077Current liabilities
    
    $
    10,655Long-term debt
    
    
    1,462Other long term liabilities
    
    
    2,182Total liabilities assumed
    
    $
    14,299Net assets acquired
    
    $
    314,778
  Pro FormaThree Months Ended March 31,2008
    
    2007(in thousands, except per share data)Total revenues
    
    $
    137,048
    
    
    $
    125,842Net earnings
    
    $
    14,140
    
    
    $
    17,853Earnings per common shareBasic
    
    $
    0.28
    
    
    $
    0.36Diluted
    
    $
    0.28
    
    
    $
    0.36
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3. Long-term Debt
  Senior secured credit facility
    
    $
    289,500Subordinated notes payable
    
    
    5,520295,020Less current portion
    
    
    (23,457
    )$
    271,563
 Senior Secured Revolving Credit Facility
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Subordinated Notes Payable
  4. Commitments and Contingencies
   5. Earnings Per Common Share
  Three Months EndedMarch 31,2008
    
    
    2007BasicNet earnings
    
    $
    11,848
    
    
    $
    17,218Weighted average shares
    
    
    49,759
    
    
    
    49,619Earnings per share
    
    $
    0.24
    
    
    $
    0.35
 Three Months EndedMarch 31,2008
    
    
    2007DilutedNet earnings
    
    $
    11,848
    
    
    $
    17,218Weighted average shares:Outstanding
    
    
    49,759
    
    
    
    49,619Diluted effect of stock options
    
    
    532
    
    
    
    50850,291
    
    
    
    50,127Earnings per share
    
    $
    0.24
    
    
    $
    0.34
 6. Equity Transactions
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7. Segment Information
  Drilling Services Division
 Production Services Division 
 
    
    Well services are provided with a fleet of 66 rigs (61  550 horsepower
rigs, 4  600 horsepower rigs and 1  400 horsepower rig) and pump packages
capable of working at depths of 20,000 feet to complete, maintain, and
workover oil and natural gas producing wells.
    
    Wireline services provide open and cased-hole wireline services with a
fleet of 51 wireline units. Services include radial and standard cement bond
logging with gamma-ray-neutron, casing calipers, temperature logging, pipe
recovery, bridge plugs and a full range of perforating. In addition, the
group operates the latest pulsed-neutron technology in through-casing logs,
utilizing a direct, deeper-reading neutron detector.
    
    Fishing and rental services are provided though approximately $14 million
of fishing and rental tools equipment, air drilling equipment, power swivels
and blowout preventers.
  Drilling
    
    
    ProductionServices
    
    
    ServicesDivision
    
    
    Division
    
    
    Corporate
    
    
    TotalRevenues
    
    $
    100,041
    
    
    $
    13,356
    
    
    $
    
    
    
    $
    113,397Operating costs
    
    
    63,497
    
    
    
    6,929
    
    
    
    
    
    
    
    70,426Segment profits
    
    $
    36,544
    
    
    $
    6,427
    
    
    $
    
    
    
    $
    42,971Depreciation and amortization
    
    $
    15,729
    
    
    $
    1,298
    
    
    $
    92
    
    
    $
    17,119Capital expenditures
    
    $
    24,814
    
    
    $
    3,139
    
    
    $
    
    
    
    $
    27,953Identifiable assets
    
    $
    511,866
    
    
    $
    368,332
    
    
    $
    21,071
    
    
    $
    901,269
  Segment profits
    
    $
    42,971Depreciation and amortization
    
    
    (17,119
    )Selling, general and administrative
    
    
    (7,722
    )Bad debt expense
    
    
    (135
    )Income from operations
    
    $
    17,995
  Identifiable assets
    
    $
    97,779Revenues
    
    $
    8,541
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Statements we make in the following discussion that express a belief, expectation or
intention, as well as those that are not historical fact, are forward-looking statements that are
subject to risks, uncertainties and assumptions. Our actual results, performance or achievements,
or industry results, could differ materially from those we express in the following discussion as a
result of a variety of factors, including general economic and business conditions and industry
trends, the continued strength or weakness of the contract land drilling industry in the geographic
areas in which we operate, decisions about onshore exploration and development projects to be made
by oil and gas companies, the highly competitive nature of our business, difficulty in integrating
the services of acquired companies, including the production services businesses of WEDGE and
Competition, in an efficient and effective manner, the availability, terms and deployment of
capital, the availability of qualified personnel, and changes in, or our failure or inability to
comply with, government regulations, including those relating to the environment. We have
discussed many of these factors in more detail elsewhere in this report and in our transition
report on Form 10-KT for the fiscal year ended December 31, 2007. These factors are not
necessarily all the important factors that could affect us. Unpredictable or unknown factors we
have not discussed in this report or in our transitional report on Form 10-KT could also have
material adverse effects on actual results of matters that are the subject of our forward-looking
statements. All forward-looking statements speak only as the date on which they are made and we
undertake no duty to update or revise any forward-looking statements. We advise our shareholders
that they should (1) be aware that important factors not referred to above could affect the
accuracy of our forward-looking statements and (2) use caution and common sense when considering
our forward-looking statements.
 Company Overview
  Business Segments
 Segment Information, Financial Statements,
 
    
    Drilling Services Division Our Drilling Services Division provides
contract land drilling services with its fleet of 69 drilling rigs, 17 of
which are operating in South Texas, 21 of which are operating in East Texas, 9
of which are operating in North Texas, 6 of which are operating in Western
Oklahoma, 11 of which are operating in the Rocky Mountain region and 3 of
which are operating internationally in Colombia. In
addition, we deployed a 1000 horsepower rig to Colombia that we expect to begin
operating in August 2008 and we are currently marketing a 1500 horsepower rig
that we plan to deploy for further expansion into international markets. We are
currently constructing a 1500 horsepower drilling rig that we expect to be
completed and available for operation in the United States in December 2008.
In addition to our drilling rigs, we provide the drilling crews and most of the
ancillary equipment needed to operate our drilling rigs. We obtain our
contracts for drilling oil and gas wells either through competitive bidding or
through direct negotiations with customers. Our drilling contracts generally
provide for compensation on either a daywork, turnkey or footage basis.
Contract terms generally depend on the complexity and risk of operations, the
on-site drilling conditions, the type of equipment used and the anticipated
duration of the work to be performed.
    
    Production Services Division Our Production Services Division earns
revenues for well services, wireline services and fishing and rental services
based on purchase orders, contracts or other persuasive evidence of an
arrangement with the customer, such as master service agreements, that include
fixed or determinable prices. These production services revenues are
recognized when the services have been rendered and collectability is
reasonably assured.
 o
    
    Well services are provided with a fleet of 66 rigs (61  550
horsepower rigs, 4  600 horsepower rigs and 1  400 horsepower rig)
with pump packages capable of working at depths of 20,000 feet to
complete, maintain, and workover oil and natural gas producing wells.
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o
    
    Wireline services provide open and cased-hole wireline
services with a fleet of 51 wireline units. Services include radial and
standard cement bond logging with gamma-ray-neutron, casing calipers,
temperature logging, pipe recovery, bridge plugs and a full range of
perforating. In addition, the group operates the latest pulsed-neutron
technology in through-casing logs, utilizing a direct, deeper-reading
neutron detector.o
    
    Fishing and rental services are provided though approximately
$14 million of fishing and rental tools equipment, air drilling
equipment, power swivels and blowout preventers.
  Business Strategy
  
    
    Expand our Operations into International Markets In early 2007, we
announced our intention to expand internationally and began negotiating
drilling contracts in Colombia. We are currently operating 3 drilling rigs in
Colombia, deploying a 1000 horsepower drilling rig that we expect will begin
operating in Colombia in August 2008 and marketing a 1500 horsepower drilling
rig for further international expansion.
    
    Pursue Opportunities into Other Oilfield Services We strive to mitigate
the cyclical risk in oilfield services by complimenting our drilling services
with certain production services. Effective March 1, 2008, we acquired the
production services businesses of WEDGE and Competition which provide well
services, wireline services and fishing and rental services with a fleet of 62
workover rigs, 51 wireline units and approximately $13 million of fishing and
rental tools equipment through its facilities in Texas, Kansas, North Dakota,
Colorado, Utah, Montana and Oklahoma. These acquisitions resulted in the
formation of our Production Services Division operating segment.
    
    Continue Growth with Select Capital Deployment We intend to continue
growing our business by making selective acquisitions, continuing new-build
programs and / or upgrading our existing assets. Our capital investment
decisions are determined by an analysis of the projected return on capital
employed on each of those alternatives. Acquisitions and new-build
opportunities that support our long term strategy are also evaluated for fit
with our current geographic locations and risk assessments are performed. We
are currently constructing a 1500 horsepower drilling rig that we expect to be
completed and available for operation in the United States in December 2008.
 Market Conditions in Our Industry
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Three MonthsEndedMarch 31,
    
    Years Ended March 31,2008
    
    2008
    
    2007
    
    2006
    
    2005
    
    2004Oil (West Texas
Intermediate)
    
    $
    97.74
    
    
    $
    82.50
    
    
    $
    64.96
    
    
    $
    59.94
    
    
    $
    45.04
    
    
    $
    31.47Natural Gas (Henry Hub)
    
    $
    8.63
    
    
    $
    7.27
    
    
    $
    6.53
    
    
    $
    9.10
    
    
    $
    5.99
    
    
    $
    5.27U.S. Land Rig Count
    
    
    1,689
    
    
    
    1,685
    
    
    
    1,589
    
    
    
    1,329
    
    
    
    1,110
    
    
    
    964U.S. Workover Rig Count
    
    
    2,463
    
    
    
    2,412
    
    
    
    2,376
    
    
    
    2,271
    
    
    
    2,087
    
    
    
    1,996
      Liquidity and Capital Resources
 Sources of Capital Resources
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Uses of Capital Resources
    Working Capital
    March 31, 2008
    
    
    December 31, 2007
    
    
    Change(In thousands)Cash and cash
equivalents
    
    $
    15,618
    
    
    $
    76,703
    
    
    $
    (61,085
    )Trade receivables, net
    
    
    68,151
    
    
    
    46,759
    
    
    
    21,392Contract drilling in progress
    
    
    16,603
    
    
    
    7,861
    
    
    
    8,742Income tax receivable
    
    
    340
    
    
    
    611
    
    
    
    (271
    )Deferred income taxes
    
    
    5,334
    
    
    
    3,670
    
    
    
    1,664Inventory
    
    
    2,813
    
    
    
    1,180
    
    
    
    1,633Prepaid expenses and other
    
    
    6,022
    
    
    
    5,073
    
    
    
    949Current assets
    
    
    114,881
    
    
    
    141,857
    
    
    
    (26,976
    )Accounts payable
    
    
    24,888
    
    
    
    21,424
    
    
    
    3,464Current portion of long-term debt
    
    
    23,457
    
    
    
    
    
    
    
    23,457Prepaid drilling contracts
    
    
    3,082
    
    
    
    1,933
    
    
    
    1,149Income taxes payable
    
    
    4,371
    
    
    
    
    
    
    
    4,371Accrued payroll and
related employee costs
    
    
    12,533
    
    
    
    5,172
    
    
    
    7,361Accrued insurance premiums
and deductibles
    
    
    16,144
    
    
    
    9,548
    
    
    
    6,596Other accrued expenses
    
    
    3,463
    
    
    
    3,973
    
    
    
    (510
    )Current liabilities
    
    
    87,938
    
    
    
    42,050
    
    
    
    45,888Working capital
    
    $
    26,943
    
    
    $
    99,807
    
    
    $
    (72,864
    )
 19




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20




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##### Table of Contents



Long Term Debt
  Senior secured credit facility
    
    $
    289,500Subordinated notes payable
    
    
    5,520295,020Less current portion
    
    
    (23,457
    )$
    271,563
 Contractual Obligations
  Payments Due by PeriodLess than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Contractual Obligations
    
    Total
    
    
    year
    
    
    1-3 years
    
    
    4-5 years
    
    
    yearsLong-term debt
    
    $
    295,020
    
    
    $
    23,457
    
    
    $
    2,763
    
    
    $
    268,800
    
    
    $
    Interest on long term debt
    
    
    64,286
    
    
    
    13,854
    
    
    
    25,927
    
    
    
    24,505
    
    
    
    Purchase commitments
    
    
    14,429
    
    
    
    14,429
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    5,101
    
    
    
    1,387
    
    
    
    2,142
    
    
    
    1,304
    
    
    
    268Restricted cash obligations
    
    
    3,250
    
    
    
    650
    
    
    
    1,300
    
    
    
    1,300
    
    
    
    Other
    
    
    491
    
    
    
    246
    
    
    
    245
    
    
    
    
    
    
    
    Total
    
    $
    382,577
    
    
    $
    54,023
    
    
    $
    32,377
    
    
    $
    295,909
    
    
    $
    268
      Debt Requirements
  21




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##### Table of Contents



Results of Operations
  Statement of Operations Analysis
  Three Months EndedMarch 31,2008
    
    
    2007Drilling Services Division:Revenues
    
    $
    100,041
    
    
    $
    103,347Operating costs
    
    
    63,497
    
    
    
    59,189Drilling Services Division margin
    
    $
    36,544
    
    
    $
    44,158Average number of drilling rigs
    
    
    67.0
    
    
    
    64.3Utilization rate
    
    
    84
    %
    
    
    90
    %Revenue days
    
    
    5,186
    
    
    
    5,203Average revenues per day
    
    $
    19,291
    
    
    $
    19,863Average operating costs per day
    
    
    12,244
    
    
    
    11,376Drilling Services Division margin per
day
    
    $
    7,047
    
    
    $
    8,487Production Services Division:Revenues
    
    $
    13,356
    
    
    $
    Operating costs
    
    
    6,929
    
    
    
    Production Services Division margin
    
    $
    6,427
    
    
    $
    EBITDA
    
    $
    36,206
    
    
    $
    40,342
  22




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Three Months EndedMarch 31,2008
    
    
    2007(in thousands)Reconciliation of combined Drilling Services Dvision
margin and Production Services Division margin
and EBITDA to net earnings:Drilling Services Division margin
    
    $
    36,544
    
    
    $
    44,158Production Services Division margin
    
    
    6,427
    
    
    
    Combined margin
    
    
    42,971
    
    
    
    44,158Selling, general and administrative
    
    
    (7,722
    )
    
    
    (3,824
    )Bad debt expense
    
    
    (135
    )
    
    
    Other income (expense)
    
    
    1,092
    
    
    
    8EBITDA
    
    
    36,206
    
    
    
    40,342Depreciation and amortization
    
    
    (17,119
    )
    
    
    (14,736
    )Interest income (expense), net
    
    
    (989
    )
    
    
    881Income tax expense
    
    
    (6,250
    )
    
    
    (9,269
    )Net earnings
    
    $
    11,848
    
    
    $
    17,218
        23




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Inflation
   Off Balance Sheet Arrangements
  Critical Accounting Policies and Estimates
 Revenue and cost recognition
     24




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Asset impairments
 Goodwill Impairments  Goodwill and Other Intangible Assets
 Deferred taxes
 Accounting estimates
  25




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Recently Issued Accounting Standards
 Fair Value Measurements
 26




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Effective Dates of FASB Statement No. 157,
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an amendment of FASB Statement No. 115
 Noncontrolling interests in Consolidated
Financial Statements  an Amendment of ARB No. 51
 Business Combinations Accounting for Costs Associated
with Exit or Disposal Activities Accounting for Contingencies
 Disclosures about Derivative Instruments and
Hedging Activitiesan amendment of FASB Statement No. 133
 
 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
   27




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Foreign Currency Risk
    
 CONTROLS AND PROCEDURES
    Investigation by the Special Subcommittee of the Board of Directors
  28




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29




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LEGAL PROCEEDINGS
  
 RISK FACTORS
   Risks Relating to the Oil and Gas Industry
 We derive all our revenues from companies in the oil and gas exploration and production
industry, a historically cyclical industry with levels of activity that are significantly
affected by the levels and volatility of oil and gas prices.
  
    
    our revenues, cash flows and profitability;
    
    the fair market value of our drilling rig fleet and production service assets;
    
    our ability to maintain or increase our borrowing capacity;
    
    our ability to obtain additional capital to finance our business and make acquisitions,
and the cost of that capital; and
    
    our ability to retain skilled rig personnel whom we would need in the event of an upturn
in the demand for our services.
  
    
    the cost of exploring for, producing and delivering oil and gas;
    
    the discovery rate of new oil and gas reserves;
    
    the rate of decline of existing and new oil and gas reserves;
    
    available pipeline and other oil and gas transportation capacity;
    
    the ability of oil and gas companies to raise capital;
    
    economic conditions in the United States and elsewhere;
    
    actions by OPEC, the Organization of Petroleum Exporting Countries;
    
    political instability in the Middle East and other major oil and gas producing regions;
    
    governmental regulations, both domestic and foreign;
 30




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
    
    domestic and foreign tax policy;
    
    weather conditions in the United States and elsewhere;
    
    the pace adopted by foreign governments for the exploration, development and production
of their national reserves;
    
    the price of foreign imports of oil and gas; and
    
    the overall supply and demand for oil and gas.
 Risks Relating to Our Business
 Reduced demand for or excess capacity of drilling services or production services could
adversely affect our profitability.
  We operate in a highly competitive, fragmented industry in which price competition could reduce
our profitability.
   
    
    the type and condition of each of the competing drilling, workover and well-servicing
rigs;
    
    the mobility and efficiency of the rigs;
    
    the quality of service and experience of the rig crews;
    
    the safety records of the rigs;
    
    the offering of ancillary services; and
    
    the ability to provide drilling and production equipment adaptable to, and personnel
familiar with, new technologies and drilling and production techniques.
  We face competition from many competitors with greater resources.
  
    
    better withstand industry downturns;
    
    compete more effectively on the basis of price and technology;
    
    retain skilled rig personnel; and
 
 31




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
    
    build new rigs or acquire and refurbish existing rigs so as to be able to place rigs
into service more quickly than us in periods of high drilling demand.
 Unexpected cost overruns on our turnkey drilling jobs and our footage contracts could adversely
affect our financial position and our results of operations.
   Our operations involve operating hazards, which, if not insured or indemnified against, could
adversely affect our results of operations and financial condition.
  
    
    blowouts;
    
    cratering;
    
    fires and explosions;
    
    loss of well control;
    
    collapse of the borehole;
    
    damaged or lost drilling equipment; and
    
    damage or loss from natural disasters.Any of these hazards can result in substantial liabilities or losses to us from, among
other things:
 
    
    suspension of operations;
    
    damage to, or destruction of, our property and equipment and that of others;
    
    personal injury and loss of life;
    
    damage to producing or potentially productive oil and gas formations through which we
drill; and
    
    environmental damage.
  32




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We face increased exposure to operating difficulties because we primarily focus on providing
drilling and production services for natural gas.
  Our current primary focus on drilling for customers in search of natural gas could place us at a
competitive disadvantage if we were to change our primary focus to drilling for customers in
search of oil.
  We could be adversely affected if shortages of equipment, supplies or personnel occur.
   Our acquisition strategy exposes us to various risks, including those relating to difficulties
in identifying suitable acquisition opportunities and integrating businesses, assets and personnel,
as well as difficulties in obtaining financing for targeted acquisitions and the potential for
increased leverage or debt service requirements.
   
    
    unanticipated costs and assumption of liabilities and exposure to unforeseen liabilities
of acquired businesses, including environmental liabilities;
    
    difficulties in integrating the operations and assets of the acquired business and the
acquired personnel;
    
    limitations on our ability to properly assess and maintain an effective internal control
environment over an acquired business in order to comply with applicable periodic reporting
requirements;
    
    potential losses of key employees and customers of the acquired businesses;
    
    risks of entering markets in which we have limited prior experience; and
    
    increases in our expenses and working capital requirements.
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Our indebtedness could restrict our operations and make us more vulnerable to adverse economic
conditions.
   
    
    impairing our ability to make investments and obtain additional financing for working
capital, capital expenditures, acquisitions or other general corporate purposes;
    
    limiting our ability to use operating cash flow in other areas of our business because
we must dedicate a substantial portion of these funds to make principal and interest
payments on our indebtedness;
    
    making us more vulnerable to a downturn in our business, our industry or the economy in
general as a substantial portion of our operating cash flow will be required to make
principal and interest payments on our indebtedness, making it more difficult to react to
changes in our business and in industry and market conditions;
    
    limiting our ability to obtain additional financing that may be necessary to operate or
expand our business;
    
    putting us at a competitive disadvantage to competitors that have less debt; and
    
    increasing our vulnerability to interest rate increases to the extent that we incur
variable rate indebtedness.
  
    
    refinancing or restructuring our debt;
    
    selling assets;
    
    reducing or delaying acquisitions or capital investments, such as refurbishments of our
rigs and related equipment; or
    
    seeking to raise additional capital.
  34




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Our senior secured revolving credit facility imposes restrictions on us that may affect our
ability to successfully operate our business.
  
    
    limitations on the incurrence of additional indebtedness;
    
    restrictions on investments, mergers or consolidations, asset dispositions,
acquisitions, transactions with affiliates and other transactions without the Lenders
consent; and
    
    limitation on dividends and distributions.
  Our international operations are subject to political, economic and other uncertainties not
encountered in our domestic operations.
  
    
    risks of war, terrorism, civil unrest and kidnapping of employees;
    
    expropriation, confiscation or nationalization of our assets;
    
    renegotiation or nullification of contracts;
    
    foreign taxation;
    
    the inability to repatriate earnings or capital due to laws limiting the right and
ability of foreign subsidiaries to pay dividends and remit earnings to affiliated
companies;
    
    changing political conditions and changing laws and policies affecting trade and
investment;
    
    regional economic downturns;
    
    the overlap of different tax structures;
    
    the burden of complying with multiple and potentially conflicting laws;
 35




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##### Table of Contents




    
    the risks associated with the assertion of foreign sovereignty over areas in which our
operations are conducted;
    
    difficulty in collecting international accounts receivable; and
    
    potentially longer payment cycles.
  Our operations are subject to various laws and governmental regulations that could restrict our
future operations and increase our operating costs.
  
    
    environmental quality;
    
    pollution control;
    
    remediation of contamination;
    
    preservation of natural resources; and
    
    worker safety.
    36




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Our combined operating history may not be sufficient for investors to evaluate our business and
prospects.
  Risk Relating to Our Capitalization and Organizational Documents
 We do not intend to pay dividends on our common stock in the foreseeable future, and therefore
only appreciation of the price of our common stock will provide a return to our shareholders.
  We may issue preferred stock whose terms could adversely affect the voting power or value of our
common stock.
  Provisions in our organizational documents could delay or prevent a change in control of our
company even if that change would be beneficial to our shareholders.
  
    
    provisions regulating the ability of our shareholders to nominate candidates for
election as directors or to bring matters for action at annual meetings of our
shareholders;
    
    limitations on the ability of our shareholders to call a special meeting and act by
written consent;
    
    provisions dividing our board of directors into three classes elected for staggered
terms; and
    
    the authorization given to our board of directors to issue and set the terms of
preferred stock.
 We may continue to experience market conditions that could adversely affect the liquidity of our
auction rate preferred security investment.
  37




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Unregistered Sales of Equity Securities and Use of Proceeds
  
 Defaults Upon Senior Securities
  
 Submission of Matters to a Vote of Security Holders
  
 Other Information
  38




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##### Table of Contents



EXHIBITS
  2.1 *
    
    -
    
    Securities Purchase Agreement, dated January 31, 2008, by and
among Pioneer Drilling Company, WEDGE Group Incorporated, WEDGE
Energy Holdings, L.L.C., WEDGE Oil & Gas Services, L.L.C.,
Timothy Daley, John Patterson and Patrick Grissom (Form 8-K dated
February 1, 2008 (File No. 1-8182, Exhibit 2.1)).2.2 *
    
    -
    
    Letter Agreement, dated February 29, 2008, amending the
Securities Purchase Agreement, dated January 31, 2008, by and
among Pioneer Drilling Company, WEDGE Group Incorporated, WEDGE
Energy Holdings, L.L.C., WEDGE Oil & Gas Services, L.L.C.,
Timothy Daley, John Patterson and Patrick Grissom (Form 8-K dated
March 3, 2008 (File No. 1-8182, Exhibit 2.1)).3.1 *
    
    -
    
    Articles of Incorporation of Pioneer Drilling Company, as amended
(Form 10-K for the year ended March 31, 2001 (File No. 1-8182,
Exhibit 3.1)).3.2 *
    
    -
    
    Articles of Amendment to the Articles of Incorporation of Pioneer
Drilling Company (Form 10-Q for the quarter ended September 30,
2001 (File No. 1-8182, Exhibit 3.1)).3.3 *
    
    -
    
    Amended and Restated Bylaws of Pioneer Drilling Company (Form 8-K
dated December 10, 2007 (File No. 1-8182, Exhibit 3.1)).4.1 *
    
    -
    
    Form of Certificate representing Common Stock of Pioneer Drilling
Company (Form S-8 filed November 18, 2003 (Reg. No. 333-110569,
Exhibit 4.3)).10.1*
    
    -
    
    Credit Agreement, dated February 29, 2008, among Pioneer Drilling
Company, as Borrower, and Wells Fargo Bank, N.A., as
administrative agent, issuing lender, swing line lender and
co-lead arranger, Fortis Bank SA/NV, New York Branch, as co-lead
arranger, and each of the other parties listed therein (Form 8-K
dated March 3, 2008 (File No. 1-8182, Exhibit 10.1)).10.2*+
    
    -
    
    Employment Letter, effective March 1, 2008, from Pioneer Drilling
Company to Joseph B. Eustace (Form 8-K dated March 5, 2008 (File
No. 1-8182, Exhibit 10.1)).10.3 *+
    
    -
    
    Confidentiality and Non-Competition Agreement, dated February 29,
2008, by and between Pioneer Drilling Company, Pioneer Production
Services, Inc. and Joe Eustace (Form 8-K dated March 5, 2008
(File No. 1-8182, Exhibit 10.2)).10.4 **+
    
    
    
    Amended and Restated Pioneer Drilling Company Key Executive
Severance Plan.10.5 **+
    
    -
    
    Amended and Restated Pioneer Drilling Company 2007 Incentive Plan.31.1 **
    
    -
    
    Certification by Wm. Stacy Locke, President and Chief Executive
Officer, pursuant to Rule 13a-14(a) or 15d-14(a) under the
Securities Exchange Act of 1934.31.2 **
    
    -
    
    Certification by Joyce M. Schuldt, Executive Vice President and
Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a)
under the Securities Exchange Act of 1934.
 39




---



##### Table of Contents



32.1 #
    
    -
    
    Certification by Wm. Stacy Locke, President and Chief
Executive Officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).32.2 #
    
    -
    
    Certification by Joyce M. Schuldt, Executive Vice
President and Chief Financial Officer, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
 
 *
    
    Incorporated herein by reference to the specified prior filing by
Pioneer Drilling Company.**
    
    Filed herewith+
    
    Management contract or compensatory plan or arrangement.#
    
    Furnished herewith  PIONEER DRILLING COMPANY/s/ Joyce M. SchuldtJoyce M. SchuldtExecutive Vice President and Chief Financial Officer(Principal Financial Officer and Duly Authorized Representative)  40




---



##### Table of Contents



2.1 *
    
    -
    
    Securities Purchase Agreement, dated January 31, 2008, by and
among Pioneer Drilling Company, WEDGE Group Incorporated, WEDGE
Energy Holdings, L.L.C., WEDGE Oil & Gas Services, L.L.C.,
Timothy Daley, John Patterson and Patrick Grissom (Form 8-K dated
February 1, 2008 (File No. 1-8182, Exhibit 2.1)).2.2 *
    
    -
    
    Letter Agreement, dated February 29, 2008, amending the
Securities Purchase Agreement, dated January 31, 2008, by and
among Pioneer Drilling Company, WEDGE Group Incorporated, WEDGE
Energy Holdings, L.L.C., WEDGE Oil & Gas Services, L.L.C.,
Timothy Daley, John Patterson and Patrick Grissom (Form 8-K dated
March 3, 2008 (File No. 1-8182, Exhibit 2.1)).3.1 *
    
    -
    
    Articles of Incorporation of Pioneer Drilling Company, as amended
(Form 10-K for the year ended March 31, 2001 (File No. 1-8182,
Exhibit 3.1)).3.2 *
    
    -
    
    Articles of Amendment to the Articles of Incorporation of Pioneer
Drilling Company (Form 10-Q for the quarter ended September 30,
2001 (File No. 1-8182, Exhibit 3.1)).3.3 *
    
    -
    
    Amended and Restated Bylaws of Pioneer Drilling Company (Form 8-K
dated December 10, 2007 (File No. 1-8182, Exhibit 3.1)).4.1 *
    
    -
    
    Form of Certificate representing Common Stock of Pioneer Drilling
Company (Form S-8 filed November 18, 2003 (Reg. No. 333-110569,
Exhibit 4.3)).10.1*
    
    -
    
    Credit Agreement, dated February 29, 2008, among Pioneer Drilling
Company, as Borrower, and Wells Fargo Bank, N.A., as
administrative agent, issuing lender, swing line lender and
co-lead arranger, Fortis Bank SA/NV, New York Branch, as co-lead
arranger, and each of the other parties listed therein (Form 8-K
dated March 3, 2008 (File No. 1-8182, Exhibit 10.1)).10.2*+
    
    -
    
    Employment Letter, effective March 1, 2008, from Pioneer Drilling
Company to Joseph B. Eustace (Form 8-K dated March 5, 2008 (File
No. 1-8182, Exhibit 10.1)).10.3 *+
    
    -
    
    Confidentiality and Non-Competition Agreement, dated February 29,
2008, by and between Pioneer Drilling Company, Pioneer Production
Services, Inc. and Joe Eustace (Form 8-K dated March 5, 2008
(File No. 1-8182, Exhibit 10.2)).10.4 **+
    
    
    
    Amended and Restated Pioneer Drilling Company Key Executive
Severance Plan.10.5 **+
    
    -
    
    Amended and Restated Pioneer Drilling Company 2007 Incentive Plan.31.1 **
    
    -
    
    Certification by Wm. Stacy Locke, President and Chief Executive
Officer, pursuant to Rule 13a-14(a) or 15d-14(a) under the
Securities Exchange Act of 1934.31.2 **
    
    -
    
    Certification by Joyce M. Schuldt, Executive Vice President and
Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a)
under the Securities Exchange Act of 1934.




---



##### Table of Contents



32.1 #
    
    -
    
    Certification by Wm. Stacy Locke, President and Chief
Executive Officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).32.2 #
    
    -
    
    Certification by Joyce M. Schuldt, Executive Vice
President and Chief Financial Officer, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
 
 *
    
    Incorporated herein by reference to the specified prior filing by Pioneer Drilling Company.**
    
    Filed herewith+
    
    Management contract or compensatory plan or arrangement.#
    
    Furnished herewith