##### 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 June 30, 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
(State or other jurisdiction 
of incorporation or organization)
    
    74-2088619
(I.R.S. Employer
Identification Number)1250 N.E. Loop 410, Suite 1000, San Antonio, Texas
(Address of principal executive offices)
    
    78209
(Zip Code)
 
  þ o
  Large accelerated filer oAccelerated filer þNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o 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 ExhibitsCertification by Wm. Stacy Locke pursuant to Rule 13a-14(a)Certification by Joyce M. Schuldt purusuant to Rule 13a-14(a)Certification by Wm. Stacy Locke pursuant to Section 906Certification by Joyce M. Schuldt pursuant to Section 906    Table of Contents  
  
 FINANCIAL STATEMENTS
 
 June 30,
    
    
    December 31,2008
    
    
    2007(unaudited)
    
    
    (audited)(In thousands, except share data)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    18,069
    
    
    $
    76,703Receivables:Trade, net
    
    
    78,206
    
    
    
    46,759Contract drilling in progress
    
    
    14,398
    
    
    
    7,861Income tax receivable
    
    
    632
    
    
    
    611Deferred income taxes
    
    
    6,243
    
    
    
    3,670Inventory
    
    
    3,159
    
    
    
    1,180Prepaid expenses and other
    
    
    5,854
    
    
    
    5,073Total current assets
    
    
    126,561
    
    
    
    141,857Property and equipment, at cost
    
    
    767,711
    
    
    
    578,697Less accumulated depreciation and amortization
    
    
    192,367
    
    
    
    161,675Net property and equipment
    
    
    575,344
    
    
    
    417,022Deferred income taxes
    
    
    638
    
    
    
    573Goodwill
    
    
    172,228
    
    
    
    Intangibles and other long term assets
    
    
    42,294
    
    
    
    760Total assets
    
    $
    917,065
    
    
    $
    560,212LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    25,251
    
    
    $
    21,424Current portion of long-term debt
    
    
    13,811
    
    
    
    Income taxes payable
    
    
    3,640
    
    
    
    Prepaid drilling contracts
    
    
    1,789
    
    
    
    1,933Accrued expenses:Payroll and related employee costs
    
    
    12,127
    
    
    
    5,172Insurance premiums and deductibles
    
    
    16,718
    
    
    
    9,548Other
    
    
    6,446
    
    
    
    3,973Total current liabilities
    
    
    79,782
    
    
    
    42,050Long-term debt, less current portion
    
    
    271,820
    
    
    
    Other liabilities
    
    
    5,580
    
    
    
    254Deferred income taxes
    
    
    54,618
    
    
    
    46,836Total liabilities
    
    
    411,800
    
    
    
    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 June 30, 2008 and December 31,
2007, respectively
    
    
    4,979
    
    
    
    4,965Additional paid-in capital
    
    
    299,086
    
    
    
    294,922Accumulated other comprehensive loss
    
    
    (950
    )
    
    
    Accumulated earnings
    
    
    202,150
    
    
    
    171,185Total shareholders equity
    
    
    505,265
    
    
    
    471,072Total liabilities and shareholders equity
    
    $
    917,065
    
    
    $
    560,212
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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands, except per share data)Revenues
    
    $
    152,547
    
    
    $
    102,779
    
    
    $
    265,944
    
    
    $
    206,126Costs and expenses:Operating costs
    
    
    86,193
    
    
    
    62,388
    
    
    
    156,619
    
    
    
    121,578Depreciation and amortization
    
    
    20,580
    
    
    
    16,098
    
    
    
    37,699
    
    
    
    30,834Selling, general and
administrative
    
    
    12,150
    
    
    
    4,724
    
    
    
    19,872
    
    
    
    8,547Bad debt expense (recovery)
    
    
    (92
    )
    
    
    
    
    
    
    43
    
    
    
    Total operating costs and expenses
    
    
    118,831
    
    
    
    83,210
    
    
    
    214,233
    
    
    
    160,959Income from operations
    
    
    33,716
    
    
    
    19,569
    
    
    
    51,711
    
    
    
    45,167Other income (expense):Interest expense
    
    
    (4,265
    )
    
    
    (1
    )
    
    
    (5,839
    )
    
    
    (1
    )Interest income
    
    
    205
    
    
    
    862
    
    
    
    790
    
    
    
    1,743Other
    
    
    (930
    )
    
    
    20
    
    
    
    162
    
    
    
    28Total other income (expense)
    
    
    (4,990
    )
    
    
    881
    
    
    
    (4,887
    )
    
    
    1,770Income before income taxes
    
    
    28,726
    
    
    
    20,450
    
    
    
    46,824
    
    
    
    46,937Income tax expense
    
    
    (9,609
    )
    
    
    (7,362
    )
    
    
    (15,859
    )
    
    
    (16,631
    )Net earnings
    
    $
    19,117
    
    
    $
    13,088
    
    
    $
    30,965
    
    
    $
    30,306Earnings per common share  Basic
    
    $
    0.38
    
    
    $
    0.26
    
    
    $
    0.62
    
    
    $
    0.61Earnings per common share  Diluted
    
    $
    0.38
    
    
    $
    0.26
    
    
    $
    0.61
    
    
    $
    0.60Weighted average number of shares
outstanding  Basic
    
    
    49,789
    
    
    
    49,634
    
    
    
    49,774
    
    
    
    49,627Weighted average number of shares
outstanding  Diluted
    
    
    50,483
    
    
    
    50,212
    
    
    
    50,369
    
    
    
    50,167
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Six Months Ended June 30,2008
    
    
    2007(In thousands)Cash flows from operating activities:Net earnings
    
    $
    30,965
    
    
    $
    30,306Adjustments to reconcile net earnings
to net cash provided by operating
activities:Depreciation and amortization
    
    
    37,699
    
    
    
    30,834Allowance for doubtful accounts
    
    
    320
    
    
    
    Loss (gain) on dispositions of
property and equipment
    
    
    (377
    )
    
    
    1,434Stock-based compensation expense
    
    
    1,848
    
    
    
    1,662Deferred income taxes
    
    
    2,919
    
    
    
    8,157Change in other assets
    
    
    256
    
    
    
    5Change in non-current liabilities
    
    
    (168
    )
    
    
    (70
    )Changes in current assets and liabilities:Receivables
    
    
    (15,955
    )
    
    
    6,055Inventory
    
    
    (605
    )
    
    
    Prepaid expenses
    
    
    658
    
    
    
    1,109Accounts payable
    
    
    667
    
    
    
    (1,522
    )Income tax payable
    
    
    4,049
    
    
    
    2,083Prepaid drilling contracts
    
    
    (144
    )
    
    
    140Accrued expenses
    
    
    13,294
    
    
    
    1,349Net cash provided by operating activities
    
    
    75,426
    
    
    
    81,542Cash 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
    
    
    (58,936
    )
    
    
    (78,519
    )Purchase of auction rate preferred securities
    
    
    (16,475
    )
    
    
    Proceeds from sale of property and equipment
    
    
    1,851
    
    
    
    1,817Proceeds from insurance recoveries
    
    
    2,301
    
    
    
    Net cash used in investing activities
    
    
    (410,970
    )
    
    
    (76,702
    )Cash flows from financing activities:Payments of debt
    
    
    (32,170
    )
    
    
    Proceeds from issuance of debt
    
    
    311,500
    
    
    
    Debt issuance costs
    
    
    (3,323
    )
    
    
    Proceeds from exercise of options
    
    
    653
    
    
    
    217Excess tax benefit of stock option exercises
    
    
    250
    
    
    
    73Net cash provided by financing activities
    
    
    276,910
    
    
    
    290Net increase (decrease) in cash and cash equivalents
    
    
    (58,634
    )
    
    
    5,130Beginning cash and cash equivalents
    
    
    76,703
    
    
    
    74,754Ending cash and cash equivalents
    
    $
    18,069
    
    
    $
    79,884Supplementary disclosure:Interest paid
    
    $
    4,982
    
    
    $
    1Income tax paid
    
    $
    8,163
    
    
    $
    6,318
  4




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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 Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30, 2008
    
    
    June 30, 2008Depreciation and amortization expense using prior useful
lives
    
    $
    21,524
    
    
    $
    39,587Impact of change in estimated useful lives
    
    
    (944
    )
    
    
    (1,888
    )Depreciation and amortization expense, as reported
    
    $
    20,580
    
    
    $
    37,699Diluted earnings per common share using prior useful lives
    
    $
    0.37
    
    
    $
    0.59Impact of change in estimated useful lives
    
    
    0.01
    
    
    
    0.02Diluted earnings per common share, as reported
    
    $
    0.38
    
    
    $
    0.61
 7




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##### Table of Contents



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 Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(amounts in thousands)Net income
    
    $
    19,117
    
    
    $
    13,088
    
    
    $
    30,965
    
    
    $
    30,306Other comprehensive loss  unrealized loss on securities
    
    
    (950
    )
    
    
    
    
    
    
    (950
    )
    
    
    Comprehensive income
    
    $
    18,167
    
    
    $
    13,088
    
    
    $
    30,015
    
    
    $
    30,306
 Stock-based Compensation
 Share-Based Payment, Accounting for Stock Issued to Employees, Accounting for Stock-Based Compensation.
 8




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Three Months EndedJune 30,
    
    Six Months Ended June 30,2007
    
    2008
    
    2007Weighted average expected volatility
    
    
    47
    %
    
    
    43
    %
    
    
    47
    %Weighted-average risk-free interest rates
    
    
    4.7
    %
    
    
    2.0
    %
    
    
    4.7
    %Weighted-average expected life in years
    
    
    3.88
    
    
    
    3.75
    
    
    
    3.88Options granted
    
    
    769,500
    
    
    
    345,000
    
    
    
    769,500Weighted-average grant-date fair value
    
    $
    5.84
    
    
    $
    4.73
    
    
    $
    5.84
  Related-Party Transactions
    Recently Issued Accounting Standards
 Fair Value Measurements Effective Dates of FASB Statement No. 157,
 9




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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
 The Hierarchy of Generally Accepted Accounting
Principles The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles
 Reclassification
  10




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2. Acquisitions
   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 FormaSix Months Ended June 30,2008
    
    2007(in thousands)Total revenues
    
    $
    289,595
    
    
    $
    255,886Net earnings
    
    $
    33,419
    
    
    $
    34,077Earnings per common shareBasic
    
    $
    0.67
    
    
    $
    0.69Diluted
    
    $
    0.66
    
    
    $
    0.68
   11




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3. Long-term Debt
  Senior secured credit facility
    
    $
    279,500Subordinated notes payable
    
    
    5,350Other
    
    
    781285,631Less current portion
    
    
    (13,811
    )$
    271,820
 Senior Secured Revolving Credit Facility
     12




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Subordinated Notes Payable and Other
   4. Commitments and Contingencies
   5. Earnings Per Common Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007BasicNet earnings
    
    $
    19,117
    
    
    $
    13,088
    
    
    $
    30,965
    
    
    $
    30,306Weighted average shares
    
    
    49,789
    
    
    
    49,634
    
    
    
    49,774
    
    
    
    49,627Earnings per share
    
    $
    0.38
    
    
    $
    0.26
    
    
    $
    0.62
    
    
    $
    0.61
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007DilutedNet earnings
    
    $
    19,117
    
    
    $
    13,088
    
    
    $
    30,965
    
    
    $
    30,306Weighted average shares:Outstanding
    
    
    49,789
    
    
    
    49,634
    
    
    
    49,774
    
    
    
    49,627Diluted effect of stock options
    
    
    694
    
    
    
    578
    
    
    
    595
    
    
    
    54050,483
    
    
    
    50,212
    
    
    
    50,369
    
    
    
    50,167Earnings per share
    
    $
    0.38
    
    
    $
    0.26
    
    
    $
    0.61
    
    
    $
    0.60
 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 tool equipment, air drilling equipment, power swivels
and blowout preventers.
  As of and for the Three Months Ended June 30, 2008Drilling
    
    
    ProductionServices
    
    
    ServicesDivision
    
    
    Division
    
    
    Corporate
    
    
    TotalIdentifiable assets
    
    $
    521,459
    
    
    $
    374,843
    
    
    $
    20,763
    
    
    $
    917,065Revenues
    
    $
    109,250
    
    
    $
    43,297
    
    
    $
    
    
    
    $
    152,547Operating costs
    
    
    64,277
    
    
    
    21,916
    
    
    
    
    
    
    
    86,193Segment profits
    
    $
    44,973
    
    
    $
    21,381
    
    
    $
    
    
    
    $
    66,354Depreciation and amortization
    
    $
    16,416
    
    
    $
    4,073
    
    
    $
    91
    
    
    $
    20,580Capital expenditures
    
    $
    18,298
    
    
    $
    6,843
    
    
    $
    310
    
    
    $
    25,451
 As of and for the Six Months Ended June 30, 2008Drilling
    
    
    ProductionServices
    
    
    ServicesDivision
    
    
    Division
    
    
    Corporate
    
    
    TotalIdentifiable assets
    
    $
    521,459
    
    
    $
    374,843
    
    
    $
    20,763
    
    
    $
    917,065Revenues
    
    $
    209,291
    
    
    $
    56,653
    
    
    $
    
    
    
    $
    265,944Operating costs
    
    
    127,774
    
    
    
    28,845
    
    
    
    
    
    
    
    156,619Segment profits
    
    $
    81,517
    
    
    $
    27,808
    
    
    $
    
    
    
    $
    109,325Depreciation and amortization
    
    $
    32,147
    
    
    $
    5,370
    
    
    $
    182
    
    
    $
    37,699Capital expenditures
    
    $
    43,112
    
    
    $
    9,982
    
    
    $
    310
    
    
    $
    53,404
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Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30, 2008
    
    
    June 30, 2008Segment profits
    
    $
    66,354
    
    
    $
    109,325Depreciation and amortization
    
    
    (20,580
    )
    
    
    (37,699
    )Selling, general and administrative
    
    
    (12,150
    )
    
    
    (19,872
    )Bad debt (expense) recovery
    
    
    92
    
    
    
    (43
    )Income from operations
    
    $
    33,716
    
    
    $
    51,711
  As of and
    
    
    As of andfor the
    
    
    for theThree Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30, 2008
    
    
    June 30, 2008Identifiable assets
    
    $
    103,819
    
    
    $
    103,819Revenues
    
    $
    11,185
    
    
    $
    19,726
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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.
 
    
    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.
 16




---



##### Table of Contents




    
    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 tool 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
   17




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##### Table of Contents



Six Months EndedJune 30,
    
    Years Ended June 30,2008
    
    2008
    
    2007
    
    2006
    
    2005
    
    2004Oil (West Texas
Intermediate)
    
    $
    111.51
    
    
    $
    97.54
    
    
    $
    63.49
    
    
    $
    64.33
    
    
    $
    48.74
    
    
    $
    33.78Natural Gas (Henry Hub)
    
    $
    9.98
    
    
    $
    8.24
    
    
    $
    6.79
    
    
    $
    8.98
    
    
    $
    6.20
    
    
    $
    5.39U.S. Land Rig Count
    
    
    1,732
    
    
    
    1,716
    
    
    
    1,624
    
    
    
    1,402
    
    
    
    1,153
    
    
    
    1,000U.S. Workover Rig Count
    
    
    2,498
    
    
    
    2,449
    
    
    
    2,378
    
    
    
    2,306
    
    
    
    2,127
    
    
    
    2,027
      Liquidity and Capital Resources
 Sources of Capital Resources
   18




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##### Table of Contents



Uses of Capital Resources
   19




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##### Table of Contents



Working Capital
    June 30, 2008
    
    
    December 31, 2007
    
    
    Change(In thousands)Cash and cash
equivalents
    
    $
    18,069
    
    
    $
    76,703
    
    
    $
    (58,634
    )Trade receivables, net
    
    
    78,206
    
    
    
    46,759
    
    
    
    31,447Contract drilling in progress
    
    
    14,398
    
    
    
    7,861
    
    
    
    6,537Income tax receivable
    
    
    632
    
    
    
    611
    
    
    
    21Deferred income taxes
    
    
    6,243
    
    
    
    3,670
    
    
    
    2,573Inventory
    
    
    3,159
    
    
    
    1,180
    
    
    
    1,979Prepaid expenses and other
    
    
    5,854
    
    
    
    5,073
    
    
    
    781Current assets
    
    
    126,561
    
    
    
    141,857
    
    
    
    (15,296
    )Accounts payable
    
    
    25,251
    
    
    
    21,424
    
    
    
    3,827Current portion of long-term
debt
    
    
    13,811
    
    
    
    
    
    
    
    13,811Prepaid drilling contracts
    
    
    1,789
    
    
    
    1,933
    
    
    
    (144
    )Income taxes payable
    
    
    3,640
    
    
    
    
    
    
    
    3,640Accrued payroll and
related employee costs
    
    
    12,127
    
    
    
    5,172
    
    
    
    6,955Accrued insurance premiums
and deductibles
    
    
    16,718
    
    
    
    9,548
    
    
    
    7,170Other accrued expenses
    
    
    6,446
    
    
    
    3,973
    
    
    
    2,473Current liabilities
    
    
    79,782
    
    
    
    42,050
    
    
    
    37,732Working capital
    
    $
    46,779
    
    
    $
    99,807
    
    
    $
    (53,028
    )
    20




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##### Table of Contents



Long Term Debt
  Senior secured credit facility
    
    $
    279,500Subordinated notes payable
    
    
    5,350Other
    
    
    781285,631Less current portion
    
    
    (13,811
    )$
    271,820
 Contractual Obligations
  Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    5 yearsLong-term debt
    
    $
    285,631
    
    
    $
    13,811
    
    
    $
    3,020
    
    
    $
    268,800
    
    
    $
    Interest on long term debt
    
    
    60,332
    
    
    
    13,261
    
    
    
    25,857
    
    
    
    21,214
    
    
    
    Purchase commitments
    
    
    35,097
    
    
    
    35,097
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    4,836
    
    
    
    1,401
    
    
    
    2,059
    
    
    
    1,200
    
    
    
    176Restricted cash obligation
    
    
    3,250
    
    
    
    650
    
    
    
    1,300
    
    
    
    1,300
    
    
    
    Other
    
    
    291
    
    
    
    146
    
    
    
    145
    
    
    
    
    
    
    
    Total
    
    $
    389,437
    
    
    $
    64,366
    
    
    $
    32,381
    
    
    $
    292,514
    
    
    $
    176
 21




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##### Table of Contents



Debt Requirements
   22




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##### Table of Contents



Results of Operations
  Statement of Operations Analysis
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Drilling Services Division:Revenues
    
    $
    109,250
    
    
    $
    102,779
    
    
    $
    209,291
    
    
    $
    206,126Operating costs
    
    
    64,277
    
    
    
    62,388
    
    
    
    127,774
    
    
    
    121,578Drilling Services Division margin
    
    $
    44,973
    
    
    $
    40,391
    
    
    $
    81,517
    
    
    $
    84,548Average number of drilling rigs
    
    
    67.0
    
    
    
    65.7
    
    
    
    67.0
    
    
    
    65.0Utilization rate
    
    
    90
    %
    
    
    90
    %
    
    
    87
    %
    
    
    90
    %Revenue days
    
    
    5,603
    
    
    
    5,387
    
    
    
    10,789
    
    
    
    10,590Average revenues per day
    
    $
    19,498
    
    
    $
    19,079
    
    
    $
    19,399
    
    
    $
    19,464Average operating costs per day
    
    
    11,472
    
    
    
    11,581
    
    
    
    11,843
    
    
    
    11,480Drilling Services Division margin per
day
    
    $
    8,026
    
    
    $
    7,498
    
    
    $
    7,556
    
    
    $
    7,984Production Services Division:Revenues
    
    $
    43,297
    
    
    $
    
    
    
    $
    56,653
    
    
    $
    Operating costs
    
    
    21,916
    
    
    
    
    
    
    
    28,845
    
    
    
    Production Services Division margin
    
    $
    21,381
    
    
    $
    
    
    
    $
    27,808
    
    
    $
    EBITDA
    
    $
    53,366
    
    
    $
    35,687
    
    
    $
    89,572
    
    
    $
    76,029
  23




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(amounts in thousands)Reconciliation of combined Drilling Services Dvision
margin and Production Services Division margin
and EBITDA to net earnings:Drilling Services Division
margin
    
    $
    44,973
    
    
    $
    40,391
    
    
    $
    81,517
    
    
    $
    84,548Production Services
Division margin
    
    
    21,381
    
    
    
    
    
    
    
    27,808
    
    
    
    Combined margin
    
    
    66,354
    
    
    
    40,391
    
    
    
    109,325
    
    
    
    84,548Selling, general and administrative
    
    
    (12,150
    )
    
    
    (4,724
    )
    
    
    (19,872
    )
    
    
    (8,547
    )Bad debt (expense) recovery
    
    
    92
    
    
    
    
    
    
    
    (43
    )
    
    
    Other income (expense)
    
    
    (930
    )
    
    
    20
    
    
    
    162
    
    
    
    28EBITDA
    
    
    53,366
    
    
    
    35,687
    
    
    
    89,572
    
    
    
    76,029Depreciation and amortization
    
    
    (20,580
    )
    
    
    (16,098
    )
    
    
    (37,699
    )
    
    
    (30,834
    )Interest income (expense), net
    
    
    (4,060
    )
    
    
    861
    
    
    
    (5,049
    )
    
    
    1,742Income tax expense
    
    
    (9,609
    )
    
    
    (7,362
    )
    
    
    (15,859
    )
    
    
    (16,631
    )Net earnings
    
    $
    19,117
    
    
    $
    13,088
    
    
    $
    30,965
    
    
    $
    30,306
        24




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##### Table of Contents



Inflation
   Off Balance Sheet Arrangements
  Critical Accounting Policies and Estimates
 Revenue and cost recognition
  25




---



##### Table of Contents



Asset impairments
 Goodwill Impairments  Goodwill and Other Intangible Assets
 Deferred taxes
 26




---



##### Table of Contents



Accounting estimates
      27




---



##### Table of Contents



Recently Issued Accounting Standards
 Fair Value Measurements 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
 28




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##### Table of Contents



The Hierarchy of Generally Accepted Accounting
Principles The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles
 
 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
   Foreign Currency Risk
    29




---



##### Table of Contents



CONTROLS AND PROCEDURES
    Investigation by the Special Subcommittee of the Board of Directors
        30




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##### Table of Contents



LEGAL PROCEEDINGS
  
 RISK FACTORS
  
 Unregistered Sales of Equity Securities and Use of Proceeds
  
 Defaults Upon Senior Securities
  
 Submission of Matters to a Vote of Security Holders
  1.
    
    A proposal to elect Dean A. Burkhardt as our single Class I director was approved, with
46,112,202 votes FOR and 1,058,305 votes WITHHELD for Dean A. Burkhardt. Wm. Stacy Locke,
C. John Thompson, and C. Robert Bunch continued as directors pursuant to their prior
election.2.
    
    A proposal to ratify the appointment of KPMG LLP as our independent auditors for our
fiscal year ending December 31, 2008 was approved, with 46,775,886 votes FOR, 285,145 votes
AGAINST, 109,476 ABSTENTIONS for KPMG LLP. There were no broker non-votes on this matter.
 
 Other Information
  31




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##### Table of Contents



EXHIBITS
  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 *
    
    -
    
    Waiver Agreement, dated as of June 9, 2008, among Pioneer
Drilling Company, the guarantors party thereto, Wells
Fargo Bank, N.A., as administrative agent, issuing lender
and swing line lender, and each of the other financial
institutions party thereto (Form 8-K dated June 11, 2008
(File No. 1-8182, Exhibit 10.1))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 1934.32.1 #
    
    -
    
    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#
    
    Furnished herewith  PIONEER DRILLING COMPANY/s/ Joyce M. SchuldtJoyce M. SchuldtExecutive Vice President and Chief Financial Officer
(Principal Financial Officer and Duly Authorized Representative)  32




---



##### Table of Contents



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 *
    
    -
    
    Waiver Agreement, dated as of June 9, 2008, among Pioneer
Drilling Company, the guarantors party thereto, Wells
Fargo Bank, N.A., as administrative agent, issuing lender
and swing line lender, and each of the other financial
institutions party thereto (Form 8-K dated June 11, 2008
(File No. 1-8182, Exhibit 10.1))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 1934.32.1 #
    
    -
    
    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#
    
    Furnished herewith