e425
Filed by Grey Wolf, Inc.
Commission File No. 1-08226
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Subject Company: Basic Energy Services, Inc.
Commission File No. 1-32693
Subject Company: Horsepower Holdings, Inc.
Final Transcript
May. 01. 2008 / 9:00AM ET, GW Q1 2008 Grey Wolf, Inc. Earnings Conference Call
CORPORATE PARTICIPANTS
David Wehlmann
Grey Wolf, Inc. EVP & CFO
Tom Richards
Grey Wolf, Inc. Chairman, President & CEO
David Crowley
Grey Wolf, Inc. EVP & COO
CONFERENCE CALL PARTICIPANTS
Marshall Adkins
Raymond James Analyst
Victor Marchon
RBC Capital Markets Analyst
James West
Lehman Brothers Analyst
Arun Jayaram
Credit Suisse Analyst
PRESENTATION
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Grey Wolf first quarter 2008
earnings conference call. During the presentation, all participants will be in a listen-only mode.
Afterwards we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder,
this conference is being recorded Thursday May 1st, 2008.
I would like now to turn the conference over to David Wehlmann, Executive Vice President and Chief
Financial Officer. Please go ahead, sir.
David Wehlmann Grey Wolf, Inc. EVP & CFO
Thank you. Good morning, everyone. Wed like to welcome you to our first quarter 2008 earnings
conference call and webcast. We released earnings yesterday after the market closed. If you need a
copy of the release, one is available through the investor relations page on our web site at
www.gwdrilling.com. With me today on the call are Tom Richards, our Chairman, President and Chief
Executive Officer and David Crowley,
our Executive Vice President and Chief Operating Officer. Ron Hale our Senior Vice President of
Business Development is also here with us this morning.
We believe that it is in the best interest of our shareholders and the investing community for us
to make forward looking statements in our press releases and in todays call. All statements made
today that are not statements of historical fact are forward-looking statements. The specific
forward-looking statements cover our expectations and projections regarding day rates, average day
work revenue and EBITDA per day, rig activity, expected new rig delivery schedules and cost,
availability of term contracts, the future success of turnkey drilling, rig supply and demand, our
projected tax rate, interest expense, depreciation and capital expenditures. The forward-looking
statements made in todays call are subject to a number of risks and uncertainties, many of which
are beyond our control. Please refer to our 2007 annual report on form 10-K filed February 28th,
2008 with the SEC for additional information concerning risk factors that could cause actual
financial results to differ materially from the projections made in todays call.
In addition, all statements included herein that address the proposed merger between Grey Wolf and
Basic Energy Services, Inc. that the company expects, believes or anticipates will occur in the
future are forward-looking statements and are subject to certain risks. These risks can require
approval by shareholders and regulatory agency, the possibility that the anticipated benefits from
the proposed merger cannot be fully realized,
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© 2008 Thomson Financial. Republished with permission. No part of this publication may be
reproduced or transmitted in any form or by any means without the prior written consent of Thomson
Financial.
Final Transcript
May. 01. 2008 / 9:00AM ET, GW Q1 2008 Grey Wolf, Inc. Earnings Conference Call
the possibility that costs or difficulties related to
integration of the two companies will be greater than expected and the impact of competition and
other risk factors included in the reports filed with the SEC by both Grey Wolf and Basic Energy
Services. With that Id like to turn the call over to Tom Richards.
Tom Richards Grey Wolf, Inc. Chairman, President & CEO
Thank you, David and good morning everyone. I would like to begin by discussing our first
quarter 2008 results and touch briefly on the recent merger announcement. David Crowley will
provide details on activity in our various markets. David Wehlmann will then provide more detail on
Grey Wolfs quarterly financial results and I will conclude with a few remarks on our market
outlook prior to the Q&A session. Grey Wolf delivered very positive financial results for the first
quarter of this year. Net income was $0.15 per diluted share compared to $0.27 per share a year
ago, and $0.16 per share in the final quarter of 2007. U.S. land rig supply has out paced demand
for several quarters, which dampened year-over-year results. However, we have seen a recent
increase in the average number of rigs running for the second quarter of 2008 to date, averaging
104 rigs.
First quarter EBITDA totaled $81.9 million with day work generating $73.6 million, and turnkey
generating $8.2 million, about 10% of the total. Day work EBITDA per day was $8,627, down slightly
from the fourth quarter 2007 amount of $8,743 per day. While day work revenue decreased quarter by
quarter as expected, our experienced personnel were able to keep operating costs contained, a focus
which continues at Grey Wolf today. Turnkey EBITDA was $13,642 per day and that was up 22% from the
fourth quarter of last year of $11,219 per day. An average of 7 rigs ran on turnkey contracts
during the first quarter of this year, the same as the previous quarter. Turnkey represented
approximately 7% of the total rig days worked, and 10% of EBITDA. Overall, the Company averaged 100
rigs working this past quarter compared to 103 in the fourth quarter of 2007 and 110 in the first
quarter of last year.
In mid January, we began to see an upward trend in the U.S. land rig count, and current market
conditions suggest that this trend should continue. Leading-edge spot market bid rates have moved
to a range of $15,000 to $21,000 per day, an increase from rates we reported in our last quarterly
conference call. Higher contract renewal levels and greater interest in new long-term contracts
also reflect the uptick in activity as we continue into the second quarter. We are extending our
long-term contract portfolio but continue to feel the effect of those contracts rolling over from
rates which were achieved two years or so ago. We continue to value our long-term contract
portfolio, which has helped protect Grey Wolf from market fluctuations and provided a strong
balance sheet as well as the second highest margins in this industry and the opportunity to pursue
our growth strategy on several levels.
First, weve invested in our already strong fleet, as reflected in Grey Wolfs continuing upgrades
and the two new proprietary pads rigs which are being finalized. These new built-for-purpose rigs
will provide customers the capability to drill and produce multiple wells at a single well site.
Our first two pads rigs are set to deploy in the second and third quarters bringing Grey Wolfs
quality rig fleet to 123. The second level of our growth strategy has been geographic expansion and
we have expanded into new U.S. market areas, as well as Mexico, in the past several years. And we
will continue to explore additional opportunities both domestically and internationally. The final
part of our growth strategy as formalized and approved by our board of directors last year is to
seek acquisitions and/or complimentary business models that would increase shareholder value
through enhanced scale, broader geographic reach, more balanced commodity exposure, and expanded
service offerings. To that end we announced on April the 21st a definitive merger agreement with
Basic Energy Services, the summary of which is available by press release and conference call
replay on our web site.
At Grey Wolf we are very excited about the prospects of the merger and the opportunity that it
presents to Grey Wolf for strategic growth. As I noted upon the announcement of this merger
agreement, Grey Wolfs premium land drilling fleet complements Basic Energy Services premium well
servicing equipment, and we are highly confident that our valued customers will respond positively
to this merger with the combined companys enhanced ability to satisfy their needs. And now I would
like to turn the call over to David Crowley to discuss our current market activity.
David Crowley Grey Wolf, Inc. EVP & COO
Thank you, Tom. And good morning to everyone. Grey Wolf is marketing 121 rigs, with 106 under
contract today. Of those, 54 are under term day work contracts, 46 are in the spot market and six
are working under turnkey contracts. We continue to experience moderating pressure on the supply
side of our business. We are aware of approximately 70 new builds that have been announced that
will enter the U.S. market in 2008 compared to 250 and 190 units in 2006 and 2007 respectively. On
the demand side we saw a 9% increase in the first quarter of well permitting compared to the
previous quarter. In Grey Wolfs core markets there has been a 12% year-to-date 2008 increase in
permits compared to 2007 at the end of April. Our marketing team continues to maintain a high level
of utilization for our rigs, aided by the steady performance of our
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© 2008 Thomson Financial. Republished with permission. No part of this publication may be
reproduced or transmitted in any form or by any means without the prior written consent of Thomson
Financial.
Final Transcript
May. 01. 2008 / 9:00AM ET, GW Q1 2008 Grey Wolf, Inc. Earnings Conference Call
operations team and their
relationships with our key clients. Of the 12 term contracts that rolled off in the first quarter,
12 are renewed with 10 on term and two going well to well. In the second quarter we expect all 17
contracts rolling off to be renewed.
In addition, were seeing demand rise for term contracts and we recently added or renewed over a
dozen term contracts in April alone. This has increased the expected average rigs working under
term contracts to 56 for the second quarter and an average of 52 rigs under term contracts for the
remaining three quarters of 2008. These figures do not include any term contracts that we may sign
in the future. Turning to pricing, both spot market and term day rates are on the increase. We
believe the 12-month strip on gas prices and our customers peaked level of interest around
resource plays should provide a healthy platform for upward pressure on the day rates in the near
term. As mentioned previously we currently have six rigs working on turnkey contracts. We expect to
average six to eight rigs working in the second quarter of 2008. Top drives also continue to add
additional value at the well site. These units are commanding a premium of up to $3,000 per day in
addition to day rates. We currently have 25 units deployed.
Before I recap activity in the various markets, I want to point out that you can see the breakdown
of average rigs running by market area in the press release. You may also go to our web site to see
a complete list of rigs. In the Ark-La-Tex market, the Company averaged 25 rigs running in the
first quarter. We are marketing 28 in that area and 24 are currently contracted with 14 under term
contracts. In the gulf coast regions we have 25 rigs marketed. We average 23 rigs running in the
first quarter and there are 23 rigs currently contracted. Three of these rigs are working turnkey
and seven are under term contracts. In our South Texas division, we have 31 marketed rigs. We
averaged 26 running in the first quarter and there are 28 rigs working there today with three of
these under turnkey and 11 rigs working under term contracts. In the Rocky Mountains, our fleet
totals 16 rigs and we average 10 rigs working in the first quarter. 13 are working today. Of the 13
rigs working today, nine are under term contracts.
Were pleased to announce that we have recently signed a term contract for a rig that has mobilized
and is drilling in the Bakken shale play in North Dakota. Grey Wolf targeted this significant
resource play in 2007 as a priority for expanding our geographic footprint in the lower 48. We
expect additional demand for rigs in this resource play in the near term. As Tom mentioned
previously, our built-for-purpose pads rigs 109 and 110 will be deployed in the Peance and Pinedale
resource plays respectively in the second and third quarters under three-year term contracts. The
mid continent market area encompasses west Texas, Oklahoma, New Mexico and the Barnett shale area
in north Texas. We have 19 marketed rigs in this division. We averaged 14 rigs in the first quarter
and we have 16 working today. 11 of these rigs are working under term contract. Two rigs were
recently added to term contract portfolio in the Barnett shale.
In the southern portion of Mexico on the international side, we have two 3,000 horsepower rigs
drilling under three-year term contracts. We are actively pursuing opportunities to deploy more
units into the northern and central areas of Mexico, either directly with PEMEX or through
established integrators. That completes my remarks and I will now turn it over to David Wehlmann
for his financial review.
David Wehlmann Grey Wolf, Inc. EVP & CFO
Thanks, David. As Tom mentioned, net income for the first quarter of 2008 was $31.3 million or
$0.15 per share compared with net income of $58.6 million or $0.27 per share for the first quarter
of 2007. Net income for the last quarter of 2007 was $34 million or $0.16 per share. EBITDA for the
first quarter of 2008 totaled $81.9 million compared with $84.4 million for the fourth quarter of
2007. EBITDA for the first quarter of 2007 was $116.9 million. First quarter day work EBITDA was
$73.6 million, compared with $77 million in the fourth quarter of 2007. Day work EBITDA per rig day
was $8,627 and was $8,743 in the fourth quarter of 2007. The decline in day work EBITDA was less
than anticipated due to cost containment that both Tom and David have talked about. Turnkey EBITDA
per rig day was $13,642. You can see our press release for disclosure on EBITDA per day for day
work and turnkey and a reconciliation of EBITDA to net income.
Turning to our balance sheet, we had cash of $287 million and working capital of $352 million at
March 31st and our debt to total capitalization ratio continues to improve, and it is down at 28%.
Our total long-term debt is $275 million. And the current interest rate this second quarter on our
$125 million of floating rate convertible notes is 2.65% per annum. We have a $100 million line of
credit that remains available, with $69 million available to us, the difference being outstanding
letters of credit for insurance purposes. Total assets at the end of the quarter were $1.26 billion
and stockholders equity was $690.1 million. Our capital expenditures for the first quarter were
$46.1 million, and for the full year of 2008 the Company is expecting to spend approximately $150
million to $160 million on capital expenditures. This includes $34.5 million for the remaining
payments on our two new rigs, and another $41 million for the continued upgrading of our fleet.
We currently have 54 rigs working under term contract. On average, we should have approximately 56
rigs working under term contracts for the second quarter, 53 in the third quarter, and 48 in the
fourth quarter. For 2009 we have 29 rigs locked up under term contracts. This translates into
14,300 days committed for the remaining three quarters of 2008 and 10,400 rig days in 2009. If you
recall, during our last quarterly conference
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© 2008 Thomson Financial. Republished with permission. No part of this publication may be
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Financial.
Final Transcript
May. 01. 2008 / 9:00AM ET, GW Q1 2008 Grey Wolf, Inc. Earnings Conference Call
call at the end of February just two short months ago,
we had 37 rigs committed for 2008. With the recent uptick in activity, we now have 52 rig years
committed and this is a point in time measurement, and as we sign additional term contracts, these
numbers will also increase.
Now looking forward into the second quarter of 2008, we expect to average 104 to 106 rigs working
with six to eight of those performing turnkey services. As we bring additional rigs out of stacked
status, we expect those to enter the market late in the second and early in the third quarter. Our
average day work EBITDA per day is expected to decrease by about $500 to $700 per day in relation
to the first quarter. About a third of this has to do with term contracts that we signed up two
years ago rolling over in the first two quarters, and the other two thirds is related to
anticipated costs that we see in bringing out stacked rigs. Theres no increase in our normal
operating costs. This is just related to the cost to bringing out some of these stacked rigs. Our
depreciation expense is expected to be about $27 million in the second quarter, with interest
expense of $2.8 million and an effective tax rate of approximately 38%. I will now turn it back
over to Tom for some closing remarks.
Tom Richards Grey Wolf, Inc. Chairman, President & CEO
In closing, there has been a steady upward trend in the Baker Hughes rig count since mid
January, so we anticipate fewer idle rigs in the market as the year continues to progress. As
additional rigs return to work in the market, day rate increases are expected to follow and we are
seeing the beginning of this trend in the market today. Further bolstering our positive outlook are
strong commodity prices. The 12-month strip for natural gas is over $11 per million BTU, its
highest level since January 2006 and oil is at historic highs with a 12-month strip over $110 per
barrel. It has been estimated that natural gas prices at an even two thirds of the current level
provide attractive returns to our customers. So we anticipate continuing investment in natural gas
drilling program. We cant predict the short-term fluctuations in natural gas prices, but we
believe that our customers have greater confidence in the long-term price of this commodity. And
that bodes well for our business for the remainder of 2008 and into 2009. We appreciate your
participation on this call, and now well be happy to try to answer any further questions that you
might have.
David Wehlmann Grey Wolf, Inc. EVP & CFO
Operator will open it up for questions now.
QUESTION AND ANSWER
Operator
Thank you. (OPERATOR INSTRUCTIONS) One moment please for our first question. And our first
question comes from the line of Marshall Adkins of Raymond James. Please proceed with your
question.
Marshall Adkins Raymond James Analyst
Good morning, guys. Very impressive on the cost side, and Tom, you of course mentioned that a
lot of that was due to your experienced personnel, but could you give me a little more color on how
you were able to reduce costs in this environment? I mean, it seems like certainly the parts and
component costs keep going up, and fuel costs keep going up, and youre still able to bring down
costs. So can you give me some more specifics on exactly how you achieve this?
Tom Richards Grey Wolf, Inc. Chairman, President & CEO
Well, thank you, Marshall, and I would love to take credit for that but Im going to let David
Crowley whos responsible for doing that answer that directly to you.
David Crowley Grey Wolf, Inc. EVP & COO
Thanks, Tom. Marshall, one of the big issues that has really helped us is weve concentrated
on attrition. And I think with the hiatus that we had on the up-tick that we saw certainly in 2006
and the first half of 2007 has helped us significantly. Weve dropped attrition in the first
quarter year-on-year by 40% from last years numbers, and just the costs associated with rehire,
its about $3,500 a person to bring somebody into the company with all the testing and
requirements. So thats definitely been a significant positive impact. And then the other issue is
that we have spent a lot of
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© 2008 Thomson Financial. Republished with permission. No part of this publication may be
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Financial.
Final Transcript
May. 01. 2008 / 9:00AM ET, GW Q1 2008 Grey Wolf, Inc. Earnings Conference Call
time on upgrading these rigs over the last five years, and weve had no
major significant events, unplanned events particularly, or significant overhauls of equipment in
the first quarter.
Marshall Adkins Raymond James Analyst
So a little more reliability there. David Wehlmann mentioned that were looking at margin
decline of $500 to $700 per day, of which I think I heard roughly a third of that was going to be
on the revenue side and two thirds on the cost side. First of all I want to make sure I heard that
right. Second of all, as we go forward on that revenue side, and you reprice more of these
contracts, should we even though leading-edge rates are ticking up, should we look at that
average revenue per rig to trend down into Q3 and Q4 as well?
David Wehlmann Grey Wolf, Inc. EVP & CFO
Marshall, this is David Wehlmann. Youre correct. The one third, two thirds as you mentioned
is correct. And I would expect that the bottoming of these rollover contracts happens in this
quarter. We dont have as many contracts rolling over in the third and fourth quarters, and those
were signed at points in time where the rates werent as high. So I would expect that, going
forward into the third and fourth quarter, if market conditions remain and rates go up, that our
average revenue per day should go up as well.
Marshall Adkins Raymond James Analyst
All right. Last question, as I go, I talk to investors, one of the questions I get all the
time regarding you all is the you do have technically older rigs. Yes, youve upgraded them, but
they are saying the brand new rigs that are coming out from H&P and Nabors, et cetera are just
way more efficient than the older rigs. How do you respond to that when you get those questions?
Tom Richards Grey Wolf, Inc. Chairman, President & CEO
Well, number one, I dont accept that statement. Number two, I think if you just look, I mean,
who people are going to for term contracts today, for many of the customers, if not all of them, we
are one of the preferred providers. We have an exemplary safety performance, and were
performing at the bottom line. Otherwise, you would not see people coming to us today trying to
enter into term contracts and even to put our stacked rigs to work. So I dont think thats a fair
statement.
Marshall Adkins Raymond James Analyst
Okay. Great, guys. Thank you very much.
Tom Richards Grey Wolf, Inc. Chairman, President & CEO
Thank you, Marshall.
David Crowley Grey Wolf, Inc. EVP & COO
Thanks, Marshall.
Operator
And our next question comes from the line of Victor Marchon with RBC Capital. Please proceed
with your question.
Victor Marchon RBC Capital Markets Analyst
Thank you. Good morning, everyone.
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© 2008 Thomson Financial. Republished with permission. No part of this publication may be
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Financial.
Final Transcript
May. 01. 2008 / 9:00AM ET, GW Q1 2008 Grey Wolf, Inc. Earnings Conference Call
Tom
Richards Grey Wolf, Inc. Chairman, President & CEO
Good morning, Victor.
Victor Marchon RBC Capital Markets Analyst
David, Im not sure if you said this. I apologize if you did, just regarding the number of
rollovers in the third and the fourth quarter.
David Crowley Grey Wolf, Inc. EVP & COO
No, I didnt speak to the actual number of them, but if Im not mistaken, we have less than 10
in the third quarter, and the fourth quarter, bear with me just a second. We have five in the third
and eight in the fourth.
Victor Marchon RBC Capital Markets Analyst
Okay. Thanks. And just as it relates to the pricing environment right now, are you starting to
see any of that translate into mobilization, recoveries coming back into your favor, or is it
pretty much where we were a couple months ago?
David Crowley Grey Wolf, Inc. EVP & COO
No, weve actually brought the mobilization recoveries back in line to where they were
previously. So thats no longer an issue.
Victor Marchon RBC Capital Markets Analyst
Okay. And the last one I just had was on Mexico. I just wanted to see if you guys can talk to
the opportunities there as to order of magnitude on potentially the number of rigs as well as
timing.
David Crowley Grey Wolf, Inc. EVP & COO
Well, theres been some activity for bidding with PEMEX on the Chicontepec field, which is an
oil field just south of the Burgos basin, and it requires, I would say, the range from 800 to 1,200
horsepower units. Were participating with one of the large megaservice companies on that bidding
process. This week alone theres two 300-well packages going out. Those 300-well packages would
translate to typically somewhere between 8 and 12 rigs for an 18-month term, and I will say that
PEMEX has plans right now, particularly with the falloff of the Cantarell field, to replace a lot
of that lost oil production with the land work on Chicontepec and weve seen figures of somewhere
between 50 and 70% of the wells drilled in Mexico four to five years from now will be on that
field. So its going to be sizeable and arguably demand-wise more than Burgos.
Tom Richards Grey Wolf, Inc. Chairman, President & CEO
And Victor, let me just mention to you that Grey Wolf expects to be successful in
participating in the further growth of that market down there, but its really a tide that will
lift all boats, because the majority of the rigs will have to come out of the United States and
irrespective of who gets the work down there, its going to further tighten the supply-demand
ratios here in the United States.
Victor Marchon RBC Capital Markets Analyst
Right. Right. Well, thats great. Thank you very much. Thats all I had.
Tom Richards Grey Wolf, Inc. Chairman, President & CEO
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© 2008 Thomson Financial. Republished with permission. No part of this publication may be
reproduced or transmitted in any form or by any means without the prior written consent of Thomson
Financial.
Final Transcript
May. 01. 2008 / 9:00AM ET, GW Q1 2008 Grey Wolf, Inc. Earnings Conference Call
Thank you, Victor.
Operator
(OPERATOR INSTRUCTIONS) And our next question comes from the line of James West with Lehman
Brothers. Please proceed with your question.
James West Lehman Brothers Analyst
Hey, good morning, guys.
Tom Richards Grey Wolf, Inc. Chairman, President & CEO
Good morning, James.
James West Lehman Brothers Analyst
Tom, if the U.S. market continues to improve similar to the way youve outlined it and some
rigs go to Mexico and they tighten further, presumably day rates would take another move higher in
here. Now, you guys traditionally have locked in a lot of your rigs under term contracts. And I
know that in April you were successful in a number of term commitments, but in this kind of
scenario where day rates would be probably rising rapidly, would you rather change that strategy at
least somewhat near term and be short the market, so you can capture some of this upside or in your
opinion is it better just to stick with what you know and what you have done historically, where
youve been successful?
Tom Richards Grey Wolf, Inc. Chairman, President & CEO
Well, we can clearly do it either way, James. I would just mention to you what I said earlier
on in the call, is that we believe that we can accomplish the best of both worlds. If you look at
the previous up cycles in 1997 and again beginning in early 2004, I mean, weve always had term
contracts in place. And think about it as layering of bonds so that, even if you had all of your
rigs under term contract, which we only have 54 today, you are always you are repricing a
certain percentage of your fleet every month and every quarter to the higher rates. In both of
those up cycles we were able to do that and obtain the second highest margin, including those
people that were 100% on spot. So we have been able to deliver the best of both worlds, the high
margins in the up cycle, and the security from the term contracts on the down cycle. So thats kind
of a long-winded way of saying we will just continue what we have been doing.
David Wehlmann Grey Wolf, Inc. EVP & CFO
Let me add to that, is that not only do we derive the second highest margins but we had the
highest return on capital employed in the industry over the last two years. So its not only the
margins, but its also the investment and the quality of the assets.
James West Lehman Brothers Analyst
Okay. That makes sense. A second question, now, its been a few weeks since you announced the
transaction with Basic. How has your customer response been to the announcement of that acquisition
and how are their views I guess on combining of the two companies.
David Crowley Grey Wolf, Inc. EVP & COO
James, this is David Crowley. The customer response has been positive, and I will say neutral.
We have not received any negative response. The larger companies, the larger independents see it
positively. They see it as our ability in the future maybe to pull through other services and
standardize some contracts, if required. And the smaller companies are fairly neutral on it to
positive. They dont really see it as affecting their business with us, but they do see it as an
opportunity for us to increase our geographic footprint.
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© 2008 Thomson Financial. Republished with permission. No part of this publication may be
reproduced or transmitted in any form or by any means without the prior written consent of Thomson
Financial.
Final Transcript
May. 01. 2008 / 9:00 AM ET, GW Q1 2008 Grey Wolf, Inc. Earnings Conference Call
James West - Lehman Brothers Analyst
Okay. Thats helpful. And then one last question for me, on the international side of the
business, you obviously will be participating in additional rigs going to Mexico or most likely.
What other markets or would it be possible to hear about you entering other international markets
over the next call at two to three quarters?
David Crowley Grey Wolf, Inc. EVP & COO
Two to three quarters possibly. James, as Im sure youre aware of the gestation period for
some of this international business development work is fairly long-dated. We are interested in
north Africa and the Middle East, say markets that are a long second right now to Mexico. But we
have been keeping our eyes in those markets and plan to participate if we see some incremental
increase in demand.
Tom Richards Grey Wolf, Inc. Chairman, President & CEO
I might add to that, James, is that we see that as one of the a strong benefit of this
announced transaction, pending transaction with Basic because what it does is, is double the size
of both companies, the platform. And although in North America maybe you dont have that much
opportunity to bundle services. Its clearly an advantage to offer multiple lines of service as you
go into these international markets. So we feel like the combined companies are in a much better
position to do that than either one individually.
James West Lehman Brothers Analyst
Okay. Thats all I had. Thanks, guys.
Tom Richards Grey Wolf, Inc. Chairman, President & CEO
Thank you, James.
Operator
And our next question comes from the line of Arun Jayaram with Credit Suisse. Please proceed
with your question.
Arun Jayaram Credit Suisse Analyst
Good morning. Its Arun from Credit Suisse. It looks like youre moving a rig into the Bakken?
I was trying to I was wondering if maybe you could elaborate on what youre seeing on the oil
side. And I know you guys have been historically more of a gas play but the oil rig count has
ticked up pretty nicely. Just trying to see where you see some running room in terms of getting
additional rigs deployed for oil drilling.
Tom Richards Grey Wolf, Inc. Chairman, President & CEO
Thank you, Arun. And Ill let David follow that up since hes very close to that.
David Crowley Grey Wolf, Inc. EVP & COO
Yes. Arun, weve actually signed a contract for a year with an existing client to bring our
1,500 horsepower rig into that market, the 520. It is an oil shale up there. Youve probably heard
some recent news, a lot of upside surprises for EOG and a few others on initial production rates
that were significantly better than they had predicted and were seeing were getting inquiries
right now. Im not going to call them firm bids, but inquiries for term work for multiple rigs to
go into there. And the two areas we were looking at last year, and I think we probably mentioned it
on previous calls, is the Bakken and the Marcellus and the Bakken certainly was our first choice
because of the oily nature of it.
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© 2008 Thomson Financial. Republished with permission. No part of this publication may be
reproduced or transmitted in any form or by any means without the prior written consent of Thomson
Financial.
Final Transcript
May. 01. 2008 / 9:00AM ET, GW Q1 2008 Grey Wolf, Inc. Earnings Conference Call
Arun
Jayaram Credit Suisse Analyst
Okay. Any sense of you were running a little over 100 rigs, what percentage of those rigs are
drilling for oil today?
David Crowley Grey Wolf, Inc. EVP & COO
Were running now about 95% gas.
Arun Jayaram Credit Suisse Analyst
Okay. I got you.
Tom Richards Grey Wolf, Inc. Chairman, President & CEO
Let me just kind of correlate that to the Basic transaction as well. One of the objectives
that we were also looking for is some diversification away from
natural gas. Were 95% now, in post
closing of that transaction it will be about 75% gas and 25% oil. So that was one of the things
that we wanted to accomplish with that transaction.
Arun Jayaram Credit Suisse Analyst
I got you. I think James asked you how the customer adoption or thoughts have been regarding
the deal. I wanted to ask you how the investor reaction has been, as you guys have talked to some
of your key an investors. You havent got the same reaction as one of your peers when they
announced a transaction on the well servicing side. I was just wondering if you could comment on
that.
Tom Richards Grey Wolf, Inc. Chairman, President & CEO
Well, thats certainly a fair observation and were disappointed at this point to the
reaction. But let me say we started this process about a year ago, looking at what would provide
the most value for our shareholders going forward. And so it wasnt anything that was entered into
without a lot of thought, and we feel like it makes a lot of sense. I think what youre seeing in
the market right now is that people were surprised, number one. Number two, that there are certain
investors in Grey Wolf that are in there for the huge exposure to natural gas, and on the other
hand, people a different group of investors were in Basic because maybe less cyclicality and
exposure to oil and they like one service line rather than the other. What were doing is combining
two companies with a broad array of services, a broader geographical footprint, a bigger pattern
and I think that you will see some reallocation of investor resources into the combined companies,
and were very comfortable that ultimately the value of this transaction will be on will be
reflected in our share price.
Operator
Mr. Wehlmann, there appears to be no further questions at this time.
Tom Richards Grey Wolf, Inc. Chairman, President & CEO
If there are no further questions, I would like to thank each and every one of you for taking
time from your busy schedule and well go back to work and do everything that we can to justify the
confidence that you have in this management team. Thanks and have a great day.
Operator
Ladies and gentlemen, that does conclude the conference call for today. We thank you for your
participation and ask you to please disconnect your lines.
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© 2008 Thomson Financial. Republished with permission. No part of this publication may be
reproduced or transmitted in any form or by any means without the prior written consent of Thomson
Financial.
Final Transcript
May. 01. 2008 / 9:00AM ET, GW Q1 2008 Grey Wolf, Inc. Earnings Conference Call
Forward Looking Statements and Additional Information
The Company may make statements herein that are forward-looking statements as defined by the
Securities and Exchange Commission (the SEC). All statements, other than statements of
historical fact, included herein that address activities, events or developments that the Company
expects, believes or anticipates will or may occur in the future are forward-looking statements.
These forward-looking statements are subject to risks and uncertainties that may cause actual
results to differ materially, including required approvals by stockholders and regulatory agencies,
the possibility that the anticipated benefits from the proposed mergers cannot be fully realized,
the possibility that costs or difficulties related to integration of the two companies will be
greater than expected, the impact of competition and other risk factors included in the reports
filed with the SEC by Grey Wolf and Basic Energy Services, Inc.
("Basic"). Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of their dates. Except as
required by law, the Company does not intend to update or revise its forward-looking statements,
whether as a result of new information, future events or otherwise.
Additional Information and Where to Find It
In connection with the proposed mergers, a registration statement of Horsepower Holdings, Inc.
(Holdings), which will include proxy statements of Basic and Grey Wolf and other
materials, will be filed with the Securities and Exchange Commission. INVESTORS AND SECURITY
HOLDERS ARE URGED TO CAREFULLY READ THE REGISTRATION STATEMENT AND THE PROXY STATEMENT/PROSPECTUS
AND THESE OTHER MATERIALS REGARDING THE PROPOSED TRANSACTION WHEN THEY BECOME AVAILABLE, BECAUSE
THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT BASIC, GREY WOLF, HOLDINGS AND THE
PROPOSED TRANSACTION. Investors and security holders may obtain a free copy of the registration
statement and the proxy statement/prospectus when they are available and other documents containing
information about Basic and Grey Wolf, without charge, at the SECs web site at
www.sec.gov, Basics web site at www.basicenergyservices.com, and Grey Wolfs web
site at www.gwdrilling.com. Copies of the registration statement and the proxy statement/prospectus
and the SEC filings that will be incorporated by reference therein may also be obtained for free by
directing a request to either Investor Relations, Basic Energy Services, Inc., (432) 620-5510 or to
Investor Relations, Grey Wolf, Inc., (713) 435-6100.
Participants in the Solicitation
Basic and Grey Wolf and their respective directors, officers and certain other
members of management may be deemed to be participants in the solicitation of proxies from their
respective stockholders in respect of the mergers. Information about these persons can be found in
Grey Wolfs proxy statement relating to its 2008 annual meeting of stockholders as filed with the
SEC on April 8, 2008. Information concerning beneficial ownership of Basic stock
by its directors and certain of its executive officers is included in its Form 10-
K/A filed on April 29, 2008 and subsequent statements of changes in beneficial ownership on file
with the SEC. Additional information about the interests of such persons in the solicitation of
proxies in respect of the mergers will be included in the registration statement and the joint
proxy statement/prospectus to be filed with the SEC in connection with the proposed transaction.
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© 2008 Thomson Financial. Republished with permission. No part of this publication may be
reproduced or transmitted in any form or by any means without the prior written consent of Thomson
Financial.
Final Transcript
May. 01. 2008 / 9:00AM ET, GW Q1 2008 Grey Wolf, Inc. Earnings Conference Call
DISCLAIMER
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