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Executives

Lisa Elliott - Investor Relations, DRG&E

Stacy Locke - President and Chief Executive Officer

Lorne E. Phillips - Executive Vice President and Chief Financial Officer

F.C. Red West - President of Drilling Services

Joe Eustace - President of Production Services

Analysts

Christopher Butschek – Raymond James

Brian Uhlmer - Global Hunter Securities

John Keller - Stephens Investment Management

John Daniel - Simmons & Company

Judd Bailey - Jefferies & Company

Pioneer Drilling Company (PDC) Q4 2010 Earnings Call February 17, 2011 11:00 AM ET

Operator

Good day ladies and gentlemen, thank you for standing by. Welcome to the Pioneer Drilling’s Fourth Quarter Earnings Conference Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Thursday, February 17, 2011.

I’d now like to turn the conference over to Ms. Lisa Elliott with DRG&L, please go ahead ma’am.

Lisa Elliott

Thank you, and good morning, everyone. Before management makes their formal remarks, I do have a few items to cover. First, a replay of today's call will be available and can be accessed by via webcast by going to the Investor Relations section of Pioneer's website and also by telephone replay. You can find all of the replay information in today's news release.

Information on this call speaks only as of today, February 17, 2011, so any time-sensitive information may no longer be accurate as of the time of any replay. And during the call today, management may make forward-looking statements that are based on its beliefs and assumptions and information currently available to them. Although management believes the expectations in these statements are reasonable, they can give no assurance that they will prove to be correct. The statements are subject to certain risks, uncertainties, and assumptions that are described in this morning's release and also in the most recent filings with the SEC. Should one or more of these risks materialize or should underlying assumptions prove to be incorrect, actual results may differ materially.

Also please note that this conference call may contain certain references to non-GAAP measures. And you can find reconciliation to the GAAP financial measures in the Form 8-K, as well as in today's news release and SEC filings.

Now with that, I'll turn the call over to Stacy Locke, Pioneer's President and CEO. Stacy?

Stacy Locke

Thank you, Lisa. Good morning, everyone. Joining me on the call today is Red West, the President of our Land Drilling Division; Joe Eustace, our President of our Production Services Division and Lorne Phillips, our Chief Financial Officer.

We were very pleased with our fourth quarter results. Revenue was up again 10% this time to $149 million of revenues. EBITDA up also up 10% to $38 million. Again, oil was the primary driver of activity levels and comprised over 60% of revenues in the fourth quarter.

On the land drilling side of the business, utilization was 64%, about where we had anticipated, but we are running a little bit better today at 66%, and we've been averaging between 65% and 69% here for a while.

Average drilling margins per day was considerably above our expectations, up $1,412 a day to 7,679. This is always a difficult number to forecast, but we are nonetheless pleased with those results.

Our primary strategic objectives for the land-drilling segment in 2011 are, one, to add new builds. We are still confident that we'll be able to add two to three new builds in the fourth quarter of this year and additional new builds into 2012.

Our engineering department has three new rig designs that we are currently marketing and in discussion with customers on. One of these is a fit for purpose, 555,000 pound upload mass stub for the kind of Marcellus type of market. The other is the more traditional 750,000 pound hook load, 1,500 horsepower. All of these are AC, all have capable of taking walking systems, all can be rigged up without a crane.

And then we're also working on one other walking or pad site design for a specific customer. Don't have the work yet, but it's for pad drilling where they want to drill parallel rows of wells, and therefore, you’ve got to be able to walk and get over stacks, get over Christmas trees, and do that efficiently.

So that also is a crane-less rig design. But so any way we're excited about these new designs. Two of them aren't too different from our 50 series designs, but they've got a few tweaks to them that make them a little faster, little more efficient, and we're excited about that.

The other big initiative for 2011 is to put some our conventional rigs that have been stacked back to work. Most of these are the North Texas rigs that used to work in the Barnett, the East Texas rigs and them in some of the Western Oklahoma rigs. They're all pretty much gas-price dependent and that market has been soft and so we're making a concerted effort this year now that we've gotten all the other rigs back to work in the shale plays that were appropriate for the shale, that's our goal for 2011, is to get these rigs contributing for 2011 and into 2012.

As part of the effort, we're very pleased to announce our new West Texas division. We've opened offices there, we’ve hired a Division Manager and a Superintendent, a safety man, and we're going to work out there. We’ve got one rig currently drilling its first horizontal well, it’s a 1,200 horsepower mechanical rig with a top drive.

We’ve got a second rig that is moving its last loads right now and is currently rigging up on location, that will be a 1,000 horsepower mechanical rig just drilling vertical holes. And then a third rig we have contracted will begin moving at the end of next week or the following week. That too is a 1,000 horsepower mechanical rig. All three of those specific rigs were stacked in our East Texas division. But Red West has identified about 10 to 12 rigs that we would like to relocate, if we have that opportunity, and these are mostly East Texas rigs. I’d say about six of them are stacked in East Texas.

We’ve got a few in North Texas, a couple in Western Oklahoma and possibly in one or two in South Texas. So we are aggressively marketing these rigs. We are finding the market to be very receptive to Pioneer and we’re finding the terms and conditions to be a little more favorable than we had anticipated prior to making the move out there.

So we're very encouraged by this. It's going to help bring our utilization out of the 60s into the 70s through the course of this year. It’s going to have an impact on these further EBITDA growth and of course it’s oil related work. So we’re very excited about that.

With respect to the rest of the fleet, not a lot of change there, we continue to have the seven rigs working up in the Marcellus Shale. We’ve got nine rigs working in the Bakken, two rigs up in the Uintah Basin, 12 rigs continue working in the Eagle Ford, 8 rigs down in Columbia, and then kind of our swing rigs are the vertical hole drilling East Texas mechanical rigs. They range anywhere from two to six rigs working at a time and then the non-Eagle Ford rigs in South Texas, most of which are drilling vertical gas holes, but some of those are even drilling horizontally without top drives, but that's probably four to eight rigs that go up and down just depending on what business is there.

So we continue to have 35 rigs operating with top drives and approximately 70% of those rigs that are working are under term contract, which Lorne will review in more detail in a minute.

On the production service side of the business, revenue was up a surprising 10% in the fourth quarter despite the holidays, very pleased about that. Margins also held in solid at 41.5% of revenues.

In Q4, well services really kind of outshined. They led the way in revenues, and well services were up over 20% in the quarter and averaged a 90% utilization as compared to about 81% in the third quarter, and hourly rate was up 8% as well, to just over $500 an hour. So that was a nice move there for the well services division, wireline revenues and margins were fairly flat.

Revenues per job were up slightly, but the number of jobs completed were down a little bit on more working units in the fourth quarter. As we discussed on the last call, we grew the wireline division significantly during 2010, up 21 units from 63 to 84 units at 33% unit growth. And we saw EBITDA margins increase steadily throughout the year, except the fourth quarter were it flattened a little bit.

Fishing and rentals which is a very small part of our business, well less than 10% of revenues, remained depressed, and we actually saw revenues decline slightly in the fourth quarter.

Now I would like to turn the call over to Lorne for a financial review and then I’ll come back and talk about our outlook and some Q4 guidance. Lorne?

Lorne E. Phillips

Thanks, Stacy. Good morning, everyone. Excluding the $3.3 million impact of the impairment of our investment in auction rate preferred securities, our Pioneer had a net loss of $2.7 million or $0.05 per share for the first quarter of 2010 and that compares to a net loss of $2.6 million or $0.05 per share in the third quarter of 2010.

On a reported basis, including the ARPS' impairment, Pioneer had a net loss of $6 million or $0.11 per share in the latest quarter. Our total revenue was $148.6 million, up approximately 10% from the prior quarter. Adjusted EBITDA totaled $37.7 million, also an increase of 10% from the third quarter. I'll just talk briefly here about the ARPS.

We've been holding them with a $15.9 million par value since early 2008 when that market began experiencing failed auction, and based on our desire to access this capital, we sold the ARPS in January to a financial institution for $12.6 million, a 21% discount to par.

As a result, we recognized an impairment of $3.3 million against our fourth quarter results and on that, please note that we did not realize a tax benefit on that charge in the fourth quarter, so the full $3.3 million hit our bottom line.

Under the sale agreement, we have the right to buy the ARPS back at the $12.6 million price that we sold them and this buyback option is available for two years from the date of sale until January 7, 2013.

In addition, if we don't buy the ARPS back and they are redeemed by the original issuer, then we will receive the net proceeds over the sales price during that time period until January 7, 2013.

Looking at the drilling division financial performance, our revenue for the fourth quarter was $94.6 million, which was an increase of 10% sequentially. Our Columbian operations accounted for $25.6 million of that total, which is up about 3% from the third quarter.

Turnkey revenues represented $3.7 million in the fourth quarter compared to less than $1 million in the third. We completed three turnkey jobs in that quarter, and we've completed two more here in the first quarter, and we have another one about to begin.

The drilling services gross margin increased to 33.7%, from 30% in the prior quarter, driven primarily by average revenue per day improvements, which were up about 9% to $22,783. Average margins per day in the fourth quarter were $7,679, up 23% from the third quarter.

Stacy mentioned our average utilization in the quarter was up slightly from the third at 64%. Our utilization for January was also 64%, and February has been in the 66% to 69% range, depending on the day. Of the 32 rigs that are on term contracts today, 24 are operating in the U.S. and 8 are operating in Columbia. The rigs in the U.S. have an average remaining term of six months and on a consolidated basis the average remaining term is nine months.

Moving now to production services, combined revenues were $54 million, a sequential increase of 8%, and gross margin was flat at 41.5% in the fourth quarter. Well servicing utilization was 90% compared to 81% in the third quarter and a hourly rate for well services was 503, up 8.4% quarter-over-quarter.

Production services represented approximately 41% of our company-wide gross profit in the fourth quarter. At this point, all 75 of our well serviced rigs have crews assigned and are actively well marketed.

Company-wide G&A costs were $15.3 million versus $13 million in the third quarter. The increase was primarily due to higher accruals for incentive compensation, which is based on several performance measures, including Pioneer's share price improvement.

For 2011, we expect the G&A costs to be in the $56 million to $58 million range assuming target levels are achieved on the performance measures for incentive compensation.

Depreciation and amortization costs were $31.5 million, which is up about $700,000 from the prior quarter. We now expect 2011 depreciation and amortization to be in the range of $124 million to $128 million based on planned capital spending and of course that can vary depending on when equipment goes into service. Our interest expense for the fourth quarter was $7.8 million, which is up approximately $250,000 from the third quarter.

At this point, I'd like to remind everyone of an item that we discussed in the last call, which will impact our first quarter 2011 results.

The Colombian government is assessing a one-time special tax based on entities net equity, measured on a tax basis as of January 1, 2011. This cost for Pioneer will be approximately $7.3 million, which is higher than our original estimate of between $5.3 million and $6.3 million.

The higher estimate is due to a legislative increase in the tax rate between the time of our last call and this call. The full amount of the charge will be taken in this first quarter, but it will be paid out semiannually over four years beginning in 2011. Please note that this tax is also not deductible for tax purposes. So the full impact of that number will reduce our bottom line by approximately $0.14 per share in the first quarter.

In 2011, our statutory tax rate is currently estimated to be in the 35% to 37% range. However, nondeductible items, such as the $7.3 million Colombian tax in the first quarter will cause the effective tax rate to vary significantly.

Looking at the balance sheet, at the end of the year, we had $37.8 million drawn on our revolving credit facility, and we have paid that down to $25 million as of today. We also have $9.2 million in committed letters of credit, so that leaves our current borrowing availability at $195.8 million.

Our cash and cash equivalents were $22 million at December 31st. At year end, we were in compliance with our financial covenants under the credit facility, and we saw a strengthening in our key ratios.

Our total consolidated leverage revenue was 2.7 to 1. Our senior consolidate leverage ratio was 0.4 to 1, and our interest coverage ratio was 4.2 to 1. For the full year, cash used for CapEx came in at about $131 million with approximately 81% of our spending in the drilling services division.

For 2011, we currently expect to spend between $140 to $150 million on capital expenditures. And that level of spending would include the addition of two new build drilling rigs in the fourth quarter as well as other PPS unit growth that Stacy will discuss in a minute.

The above spending range could change depending on other opportunities that meet our return on capital requirements and whether we sign contracts for new builds in time to deliver in the fourth quarter of 2011. About three quarters of our spending would be allocated for drilling services and the balance for production services.

And with that I'll turn it back over to Stacy.

Stacy Locke

Thank you, Lorne. I would say our outlook for our businesses is positive going forward.

We see stable and modestly improving market conditions for 2011, and I think that's true for all three of our primary businesses.

We are very well positioned in all of the key oil plays in some form or fashion around the country and we intend to grow all three of our core businesses. As I mentioned previously, land drilling, we hope to have two to three new build contracts executed and rigs delivered in our fourth quarter of this year and then additional new builds into 2012. We're working on that each and every day.

On the wireline business, we anticipate another very robust growth year approximately 20% growth for 2011. That's 17 additional units are planned. Five have already hit the ground so far this year, and most of the 17 units will be here and working by the summer. That will put us at about 101 wireline units by year-end.

On the well services side, we also plan to add units there. We did not add units in 2010. We have already ordered six units for 2011. The first unit is here and about to ship out to the Bakken next week and the other five units should all be here and contributing before the summer. So if we don’t order additional units and we’ll end the year at 80 well services unit.

Now turning specifically to the first quarter guidance, that's a little bit trickier, just because for production services, that's seasonally a low quarter, but we'll make a stab at it.

On the drilling side, we do think that rig utilization will be up 2% to 4%, kind of in the 66% to 69% range. And we're hesitant to call for increased margins after the big increase we had in our fourth quarter, but we do think that margins will expand a little bit somewhat depended on oil prices, because we have some significant contracts tied to the price of oil. But right now we are forecasting margins growth of $200 to $300 a day on top of what we did in the fourth quarter.

On the production services side of the business, mostly due to the typical seasonal low quarter, but further exacerbated by the icy conditions mostly in the first half of February in the southern states, we are anticipating the revenues to decline in the production services business 4% to 6%, and with that we think margins will contract a little bit somewhere on the order of 2% to 3%.

But having said that, overall EBITDA margins we do think are going to grow somewhere 5% to 10% and we see EBITDA margins, or EBITDA continuing to grow each quarter throughout the remainder of the year.

So we're very optimistic, and I think we're done with the prepared remarks and happy to entertain any questions.

Question-And-Answer Session

Operator

Thank you, sir. (Operator Instructions) Our first question is from the line of Christopher Butschek with Raymond James. Please go ahead.

Christopher Butschek – Raymond James

Hey, guys. Great quarter. Looking to your production services business 90% utilization in the walk over rigs, have you all considered, if I think about adding more wirelines to the walk over rigs, is there a preference between the two as I look into the back half of the year, you already talked about.

Stacy Locke

Well, they're both very good businesses and we anticipate growing both of them. So I wouldn't say there was a strong preference one versus the other. Dollar wise the wireline units are less expensive so the actual dollars committed is pretty much roughly the same for both businesses, you just get more units with wireline units. Is that your question?

Christopher Butschek – Raymond James

Yeah, I understand in the first half of the year, I'm thinking more on a go forward basis, if you have a preference one or the other, but it sounds like you're kind of indifferent to the two. So switching gears a little bit, I see that you're trying to, still a couple of new builds on contracts by the end of the year, would you have any interest on building a couple of rigs on spec and leaving them available?

Stacy Locke

No, with our debt level, we're not comfortable with building on spec. We feel like the market doesn't need that. We're confident, we can obtain multiyear contracts at an attractive rate, good terms and conditions. So we're busy in that process right now. So, I think we're still confident that we don't need to take this speculation risk.

Christopher Butschek – Raymond James

Okay. That makes sense. One quick follow-up and I’d hand it back over. If I think about production services margin, obviously, they're down in the seasonal stuff. When they bounce back in 2Q, will we be above 4Q levels, or we kind of looking for much, much going forward?

Stacy Locke

It's hard to say, but I think you could be above the fourth quarter in the second, and we would think the third quarter would strengthen further. So we see good continued activity. Things have softened a little bit in this quarter as they typically do, and, you know, well services, utilization has pulled back, I think it's running something like 77% in this month, month-to-date, but it was still pretty robust in January.

But we’re forecasting a lower utilization for there is quarter compared to the fourth quarter. But we think activity will start picking back up, and, you know, we feel that the hourly rate pricing is firm and probably improving as we progress through the year on well services.

Christopher Butschek – Raymond James

All right. Well, sounds great.

Stacy Locke

Right.

Christopher Butschek – Raymond James

Nice quarter. I'll hand it back.

Stacy Locke

Great. Thank you.

Operator

Thank you. And our next question is from the line of Brian Uhlmer with Global Hunter Securities. Please go ahead.

Brian Uhlmer - Global Hunter Securities

Hey, good morning, gents. How are you guys doing?

Stacy Locke

Good morning, Brian.

Brian Uhlmer - Global Hunter Securities

I have a quick question for you. The first one is real quick. I think I just missed G&A guidance. What was that?

Lorne E. Phillips

Brian, the G&A guidance was $56 million to $58 million for 20 11, which is a decrease in the current quarterly run rate, but I mentioned in the fourth quarter, it was up greater, because we had some performance incentive increases, including items tied to share price.

Brian Uhlmer - Global Hunter Securities

Okay. Good deal.

Lorne E. Phillips

So that resets in the first quarter.

Brian Uhlmer - Global Hunter Securities

All right. Okay, I just missed that one line. All right. When I look at West Texas opening up in Q1, I guess my question is you're going to spread that over your OpEx of your rigs, but you still expect margins to go up, is that correct? So the costs associated with opening that up are more than offset by the rates being good in that area, that we don't have to worry about margins actually declining due to that in Q1?

Stacy Locke

Well, that's going to be a delicate balance, because you have a number of factors influencing that. I think that as we guided Q4 to Q1 that margins should expanded a little bit.

If we are successful moving more rigs out to West Texas quicker prior to bringing on new builds, then you could have a situation where does that margin in West Texas is going to be the lower than our current average margins? So the more success you have there, the more weight it pulls down on that average. But that’s going to be offset with new builds.

We'll just have to see how that plays out. I hope that we will be successful enough in West Texas, that it will pull a little on the average margin, because that means utilization is going up, stacked assets are contributing EBITDA again.

And I think conservatively each one of those assets that goes up there is going to add at least minimum $1.5 million of EBITDA a year on average. And so we would really like to have that EBITDA, that contribution. So that's more important to us than the average margin per day.

Lorne E. Phillips

Brian, this is Lorne. I’d just add, in the first quarter specifically, we don't really have all three contributing until late February, early March. So their impact on the first quarter is less than it will be when you look into the second and third quarter.

Brian Uhlmer - Global Hunter Securities

Okay. Good, thanks. It really clears it up. I have one final question, just an overview question on the entire space. As we look at all of these offshore guys just add tons of spec builds, none of you guys are really going after spec builds and the outlook for the oil plays is pretty solid.

So I guess my question is, from the perspective of the industry, is this somewhat a snake bit or a little bit of trepidation, or are you guys just all keeping capital discipline because it's good for your business. And do you expect that to continue, because obviously that will bode well overall for the entire industry and how do you look at that from your own point of view and your competition?

Stacy Locke

I am only aware of one contractor out there that's building some on spec, but in the market, as you pointed out, in this market right now, most of those rigs probably before they're completed will be on a term contract of some sort. But the market is willing, lot of these plays, you can pick any number of these shale plays, the Eagle Ford, the Marcellus, the Bakken. I think if we talk to the E&P companies there, they're planning on multi-decade of work there. So they're willing to give you the term for the right company and the right rigs. So I think that there's just no reason to go out and build on spec.

And the flip side of that is, that we know there will come a point when supply equals demand and you don't want to have particularly a company like us. Now, some of the larger cap names, they could absorb it a lot better, but Pioneer doesn't want to be in a position where we have three 75% completed new builds and no customers. We can't take that kind of risk.

And the good news is we don't have to and most of the people building build the same way it appears. So I think contract terms and conditions are likely going to improve from this point going forward for that period of time.

Brian Uhlmer - Global Hunter Securities

Absolutely. It's been very good by you guys than your competitors. I will turn it back over. Thanks a lot, guys.

Stacy Locke

Thank you.

Lorne E. Phillips

Thank you.

Operator

And our next question is from the line of John Keller with Stephens. Please go ahead.

John Keller - Stephens Investment Management

Hey, guys. Good morning.

Stacy Locke

Good morning.

John Keller - Stephens Investment Management

Just kind of trying to understand a couple of the cross currents with putting some of these lower horsepower lower spec rigs to work. As you put that against the repricing opportunities on the existing fleet, it seems like this will be something that will unfold over the next six months or in the next couple of quarters, but in that period of time, you'll also be repricing. A number of rigs rolling off-term contracts presumably to higher rates, so I guess, Stacy, you talked about some margin drag from some of these lower rigs going back to work. I mean is that not going to be more than offset by repricing opportunities on the higher spec part of the fleet?

Stacy Locke

Well, that’s a great question, and I don't know the answer to it. It's going to be close. I think that some of the contracts will reprice. Some of our significant contracts are tied to the price of oil. So if at the start of any month we're on the wrong side of that that can have a pretty material impact for that month. So we bounce around a little bit that way, but the day rates for the rigs that we have out working right now have moved up considerably.

That's why we said two quarters ago that we were pretty confident that we could see average margins per day increasing through the end of the year and into the first quarter of 2011, and that's basically what we're still seeing today.

But beyond that it just, we don't know if they're still for the existing rigs, whether there's a lot of upside left in those. It's just, I think, too tough to say, but we have repriced some at increasing rates and that could offset the down drag, down current from the West Texas rig to the point of where the new builds start kicking in and then average margins will start going up. But that is just a fine line there. It's hard to say.

I guess my guess call would be I think margins will continue to expand a little bit through the quarters until we get the new builds kicking in, and then they'll really start expanding as you add the new builds. But it's not going to be like Q3 to Q4 where you get in excess of a thousand a day jumps across the broad fleet.

But as we still have some conventional rigs that are drilling for gas and those still work and the more of those you get to work, the more those pull down on your average margins, but we’re in a pretty healthy spot with our average margins and we'll see how that plays out over the next few quarters.

John Keller - Stephens Investment Management

Sure. And maybe could you, if you wouldn't mind maybe quantifying the day rate or margin differential between what's going on in the West Texas and in other parts of your business, say the Bakken or even in the Eagle Ford, because I think you had made the comment that terms there were better than you thought maybe three or four months ago?

Stacy Locke

Right. I probably don't want to give too much color on that, but I would say that initially when we were viewing West Texas we were thinking that we could generate 200,000 to 300,000 a day margins in West Texas. I think that we're confident today those margins are going to be considerably higher than that on average and as I mentioned we took one out there with the top drive. That rig is earning quite a bit more in margin. So now it's not earning a heck of a lot more in margin than it was when it was working in the East Texas division, but it's earning a little bit more margin.

So it just depends on how that plays out. But those margins for the mechanical fleet in West Texas are even in our improved outlook case, they're going to be less than any of the 1,000 or 1,500 horsepower electric top drive rigs working in any one of the shale plays. You will not approximate that. And those rates have moved up pretty significantly over the last several quarters and I think they're getting pretty toppy. They could continue to go up, but I don’t know that.

John Keller - Stephens Investment Management

Got it. Okay. And If I could sneak maybe one more in here, maybe if you could elaborate a little bit on the contracts tied to the price of oil, maybe just mechanically, how those contracts work and how many of those you have in the fleet. Just kind of get a handle on that, and I'll turn it back. I appreciate it.

Stacy Locke

Well, I don't think it's appropriate to kind of get into those details. It's something one of our customers wanted to do, and I would say we have a handful of rigs that are kind of move with the price of oil. All I could tell you is that, above $90 in oil, above 90 they're very attractive to us. So we keep the price of oil at 90 or a hundred plus, we're in great shape.

Lorne E. Phillips

And then even under 90, they're still very, very good contracts.

John Keller - Stephens Investment Management

Okay. Great. Thanks.

Stacy Locke

All right.

Operator

Thank you. And our next question is from the line of John Daniel with Simmons & Company.

John Daniel - Simmons & Company

Hey, Stacy and Lorne. It's John calling.

Stacy Locke

Good morning.

Lorne E. Phillips

Good morning.

John Daniel - Simmons & Company

Hey, a quick question. How aggressively are bankers at this point pitching you guys, the tender for your bonds? Is that anything you would contemplate doing?

Lorne E. Phillips

Well, we've certainly, I think they pitch, obviously, that's going on in the marketplace, it’s just something we evaluate and look at. That's probably all I'd say. I mean, I think we're focused on executing on the plans that Stacy laid out.

John Daniel - Simmons & Company

Yeah.

Lorne E. Phillips

And if we do that, we’ll do it. But, we're always going to -- we should always evaluate it, and we'll continue to do so.

John Daniel - Simmons & Company

Would the terms look attractive at this point? Can you say that?

Lorne E. Phillips

I'd just say what I just said, John. I apologize.

John Daniel - Simmons & Company

No, that's okay. 2010 tax refund, is that something we should expect in Q2, do you think coming this year as well?

Stacy Locke

I'm sorry. Can you repeat that?

John Daniel - Simmons & Company

I’m sorry. Any tax refunds possibly coming your way this year?

Stacy Locke

Some very minor. I mean, nothing like what we've had in the prior years. So we'll get some, but it's not going to move the needle much.

John Daniel - Simmons & Company

Fair enough. And then just the last one from me on the workover pricing? How much of the increase in Q4 was business mix versus straight price and can you say where rates are today relative to that 503, Q4 average? And that's all.

Stacy Locke

Joe, do you want to?

Joe Eustace

(inaudible) business mix. Fourth quarter tends to have more then 24-hour work and as the year goes on, it seems like it's starting throughout the second quarter, we are seeing more – it’s interesting, they'll pick up as the year goes on.

John Daniel - Simmons & Company

Okay.

Stacy Locke

Yeah. But the rates look pretty, pricing looks pretty firm and probably on the increase. We had a heck of a lot of 24-hour work going in the third and the fourth quarter that is a little bit absent now and is impacting our utilization, but we think February is a traditionally soft period and we've had some adverse weather, but we think that things will start picking up hopefully next month and certainly into Q2 and Q3.

John Daniel - Simmons & Company

Okay. Great quarter, thanks guys.

Stacy Locke

Okay, thank you.

Operator

(Operator Instructions) And our next question is from the line of Judd Bailey with Jefferies & Company. Please go ahead.

Judd Bailey - Jefferies & Company

Thank you. Good morning, guys.

Stacy Locke

Good morning, Judd.

Judd Bailey - Jefferies & Company

Most of my questions have been answered, but two quick follow-ups. You noted the pricing trends and your big areas, like the Marcellus and Bakken over the last few months. Over the last 30 to 60 days, are you still seeing marginal increases in pricing in those markets?

Stacy Locke

I think they're popping out. Red, do you have any -- do you think they're…

F.C. Red West

I think there's maybe a little room left in Eagle Ford. I think we are top in the Marcellus and Bakken.

Stacy Locke

Yeah. That's my assessment as well. I think the rates have moved up a long way.

I mean, really I think they've surprised us how much they have moved up, and I think, you know, it could still go up, but I think what we're seeing right now is that it's pretty high right now. It's not that different from new build pricing in some markets, so, you know, that's getting up there. So we'll just have to see.

Judd Bailey - Jefferies & Company

Okay. And that was Eagle Ford you said, Red, okay. And then my other question, just a follow-up on your earlier comment, you said -- I believe you said you saw a 10 to 12 opportunities in the Permian. Does that mean we could see that many rigs in the Permian for you guys by the year end, it’s everything were to go as you hope?

Stacy Locke

Right, what I said was that red has kind of identified 10 to 12 rigs out of our various divisions that he thinks would be suitable rigs for West Texas. And so I would say that it’s the success that we had early on continues then we could easily see 9 to 12 rigs in West Texas by the end of the year.

Red West

That's what we're striving for.

Judd Bailey - Jefferies & Company

Okay, for potential new build or new builds I should say, if you do get a contract here shortly, could you have those revenue in the fourth quarter of this year, or that would be really more something to be counted for start of the year 2012?

Stacy Locke

We're still hopeful to have a rig hit the ground in November and another one in December and if we get lucky maybe a third one in there. And then we hope to lay some in for the first quarter. That's how we're working towards.

Judd Bailey - Jefferies & Company

Okay.

Stacy Locke

Second quarter of next year.

Judd Bailey - Jefferies & Company

Okay. Great. Thanks guys. Congratulations in the quarter.

Lorne E. Phillips

Thank you.

Operator

And, ladies and gentlemen, there are no further questions at this time. I would now like to turn the call back over to Mr. Locke for closing remarks.

Stacy Locke

All right. Well, thank you very much for participating in this morning’s call. And we look forward to visiting on our first quarter results coming up. Thank you.

Operator

Ladies and gentlemen, that does conclude the Pioneer Drilling's Fourth Quarter Earnings Conference Call. If you would like to listen to a replay of today's conference, please dial 303-590-3030 with the access code 4405009. ACT would like to thank you for your participation. You may now disconnect.

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