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Executives

Steve Jumper – President and Chief Executive Officer

Chris Hagan – Executive Vice President and Chief Financial Officer

Analysts

Collin Gerry – Raymond James

Veny Aleksandrov – Pritchard Capital Partners

Dawson Geophysical Company (DWSN) F3Q 2011 Earnings Conference Call July 26, 2011 10:00 AM ET

Operator

Good morning. My name is (Tiffany) and I will be your conference operator today. At this time, I would like to welcome everyone to the Dawson Geophysical Third Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions)

I would now like to turn the conference over to Steve Jumper. Please go ahead sir.

Steve Jumper – President and Chief Executive Officer

Well, thank you, Tiffany. Good morning and welcome to Dawson Geophysical Company’s third quarter 2011 earnings and operations conference call. As Tiffany said, my name is Steve Jumper, President and CEO of the company. Joining me on the call are Christina Hagan, Executive Vice President and Chief Financial Officer; Decker Dawson, Chairman and Founder of the company; and Ray Tobias, Executive Vice President and Chief Operating Officer.

Today’s call will be presented in three segments. Following opening remarks, Chris will discuss our financial results. I will then return for an operations update, then open the call for questions. The call is scheduled for 30 minutes and we will not provide any guidance as we have done in the past.

At this point, I will turn control of the call over to Chris Hagan, our CFO to discuss our financial results.

Chris Hagan – Executive Vice President and Chief Financial Officer

Thank you, Steve. During this conference call, we will make references to EBITDA, which is a non-GAAP financial measure. A reconciliation of the non-GAAP measure to the applicable GAAP measure can be found in our current earnings release, a copy of which is located on our website, www.dawson3d.com.

As you know, Dawson and TGC Industries have entered into a definitive merger agreement in which subject to the terms and conditions set forth in the merger agreement, Dawson will acquire TGC in a tax-free stock-for-stock transaction. Dawson files with the Securities and Exchange Commission and registration statement on Form S-4 that included a joint proxy statement of Dawson and TGC that also constitutes a prospectus of Dawson.

Investors and security holders are urged to read the joint proxy statement prospectus as amended filed with the SEC which can be obtained free from the SEC’s website, www.sec.gov and from the company’s website. Dawson-TGC, their directors, executive officers, and certain members of management and their employees may be considered participants in the solicitation of proxies from the shareholders in connection with the proposed transaction. This is described further in the proxy statement prospectus filed with the SEC.

Today, we reported revenues of $98,033,000 for the quarter ending June 30, 2011, our third quarter of fiscal 2011 compared to $61,178,000 for the same quarter in fiscal 2010, an increase of 60%. Net income for the third quarter of fiscal 2011 was $334,000 compared to net loss of $1,019,000 for the same quarter of fiscal 2010. Earnings per share for the third quarter of fiscal 2011 were $0.04 compared to a loss per share of $0.13 for the third quarter of fiscal 2010. EBITDA for the third quarter of fiscal 2011 was $8,821,000 compared to $5,591,000 in the same quarter of fiscal 2010, an increase of 58%.

For the nine months ended June 30, 2011, we reported revenues of $249,023,000 compared to $146,093,000 for the nine months ended June 30, 2010, an increase of 70%. Net loss for the period decreased to $6,190,000 in 2011 from $7,941,000 in 2010. Loss per share for the first nine months of fiscal 2011 was $0.79 compared to a loss per share of $1.02 for the first nine months of fiscal 2010. EBITDA for the first nine months of fiscal 2011 increased to $14,939,000 compared to $7,868,000 in the same period of fiscal 2010, an increase of 90%.

Revenues in the third quarter and first nine months of fiscal 2011 increased significantly over the same period of fiscal 2010 due to increase in active crew count to 14 working crews including the two formally provisioned crews added during the second fiscal quarter and significantly higher third party charges which have constituted one half of the growth in revenues during these periods. Third party charges are related to the company’s use of helicopter support services, specialized survey technologies and dynamic energy sources in areas of limited access, such as the Appalachian Basin, Oklahoma, East Texas and Arkansas. We are reimbursed for these expenses by our clients.

Our third quarter and nine months results also included approximately $1,465,000 and $2,421,000, or $0.19 per share and $0.31 per share, respectively of expenses related to its previously announced merger with TGC Industries and respective increases of $884,000 and $2,579,000 of depreciation charges related to the Company's continued investment in new recording equipment and energy source units.

During the third fiscal quarter, the company’s Board of Directors approved a $5 million increase to the company's capital budget and approved the purchase of the previously leased OYO GSR equipment, bringing the total amount of the fiscal 2011 capital budget to $61,918,000. To date, $56,264,000 of the capital budget has been spent primarily to purchase a 2000-station OYO GSR four-channel recording system along with three-component geophones, 24,850 single-channel OYO GSR recording boxes, additional conventional geophones, cables for existing systems, vehicles to improve our fleet and ten INOVA vibrator energy source units. The remaining balance of the capital budget will be used for maintenance capital purposes. Steve?

Steve Jumper – President and Chief Executive Officer

Thank you, Chris. Our third quarter highlights included a 60% increase in revenues from $61,178,000 in the third quarter of 2010 to $98,030.000 in the third quarter of 2011. A 58% increase in EBITDA for the third quarter of fiscal 2011 was $8.8 million compared to $5.591 million in the year ago quarter.

Net income of $334,000 or $0.04 per share compared to a net loss of $1,019,000 or $0.13 per share in the same comparable year ago quarter. We purchased 14,850 channels of OYO GSR equipment previously held under lease. We increased EBITDA from $1.219 million in the second quarter fiscal 2011 to $1.821 million in the third quarter of fiscal 2011. We increased net income from the loss of $4.857 million in the second quarter fiscal 2011 to a net income of $334,000, and we maintain an order book that has reached its highest level since 2008.

Strong commodity prices combined with increasing seismic activity across the US fueled our third quarter growth. Demand for services was particularly strong in the Eagle Ford, Bakken, Niobrara and Avalon liquids rich oil shales. From a natural gas perspective, exploration activity remains relatively strong in the Marcellus, the Barnett, and the Haynesville shales. The increase in activity and demand drove our decision to fully deploy two additional seismic data acquisition crews to better serve our clients’ needs and timing demand.

We added crews combined with improved efficiencies and an expanded order book have further increase short term utilization rate. With a total of 14 crews working in all of our reporting channels fully deployed, we operate in virtually every major oil and gas shale across the lower 48 states.

During the quarter we exercised the purchase option of the 14,850 OYO GSR channels leased in March. The purchase of approximately $16.9 million was financed through a term note payable in 2014. The financed amount was approximately $16.4 million. The effect of the conversation of the lease to a purchase was an increase in depreciation charges of approximately $0.02 per share per month and a decrease in lease expense of approximately $0.06 per share per month as compared to March. I would note that we have the full amount of our $20 million available to us under our revolving line of credit.

Upon completion of this purchase, we now own 40,850 OYO GSR channels, all of which are fully deployed. As Chris mentioned in her remarks, we incurred approximately $0.19 per share with expenses related to our proposed transaction with TGC Industries during the quarter. In addition, we incurred higher than anticipated increases in operating spend is for the quarter primarily in equipment repair resulting from operational difficulties in the first and second quarter and increase in fuel cost.

Although our contracts are canceled on short notice and project subject to delay due to permitting and weather constraints. Our order book is sufficient to fully sustain work for all 14 crews throughout the remainder of 2011 and is presently at levels not seen since the exit of oil and natural gas markets in 2008.

Pricing and contract terms are showing continued improvements. With the continued improvement in pricing and contract terms comes increased efficiency, which allows us to better serve our clients. On March 20 of this past year, we entered into a definitive agreement with TGC Industries, to combine TGC with Dawson Geophysical in a tax-free stock-for-stock transaction.

We are continuing to work to move towards closing the merger as we believe the combination of resources and equipment of the two company expanded high basin and improve operational logistics to add value to our clients, employees and to Dawson and TGC shareholders. Additional details of the proposed transaction are outlined in a press release issued on March 21, 2011, which you can find on our website www.dawson3d.com.

Continued increases in exploration activity on behalf of our clients throughout the lower 48 states have fueled our growth and improved results. We added two seismic crews during 2011. We have increased short-term utilization rates through improved efficiencies and expanded backlog, order book and we expanded the average channel count per crew.

We have made great progress as an industry, and in particular as a company, in terms of outlook, performance and demand for land seismic data acquisition services in the lower 48 United States. While we are pleased with our results, we believe there is tremendous upside as we have not yet met our expected potential in crew efficiencies, revenue generation and margin improvement. We are excited about our pending merger with TGC, which provides the right combination of resources and equipment to best serve our oil and natural gas clients and our employees and to enhance the shareholder value of both Dawson and TGC.

In closing, it is our intention to continue to operate with the conservative financial structure, remain loyal to our employees and shareholders while continuing to focus on helping our trusted clients find oil and gas. I would note that we are extremely proud of the hardware that our employees have put forth in their perseverance to this prior two year downturn that we have been experiencing in our industry.

And with that operator, we are ready for questions.

Question-and-Answer Session

(Operator Instructions)

Your first question is from the line of Collin Gerry of Raymond James.

Collin Gerry – Raymond James

Hey good morning.

Steve Jumper

Good morning, Collin.

Collin Gerry – Raymond James

How you are doing?

Steve Jumper

Doing good. How are you?

Collin Gerry – Raymond James

Excellent. Well, I want to focus in on some of you mentioned in your press release and you also said it on the call. You mentioned the word tremendous upside and that sounds bullish from you and knowing you in the past, I haven’t heard you talk like that. So, you speak of that in terms of efficiency gains and margins improvements for the potential going forward. I wonder if you can just maybe walk us through specifically what that means. I mean is it less downtime in between jobs, as it more accrued utilization on jobs. Like what are the specific mechanical issues that gets you there?

Steve Jumper

Well, Collin, first I would comment that what gives me a lot of excitement about the potential going forward it just the strength of the demand out there. It seems to be increasing and we have opened up these oil shales and we are opened up regions that quite honestly we have been talking about it for several quarters now that there is some upside in the western oil shales just based on the fact that they will go more vibrator, they will go less dynamite as a general rule of land ownership positions are much larger.

So, the permitting issues while still difficult are not what you would face in the eastern part of the U.S. particularly in the natural gas shale plays, where you’ve got land ownership positions that are very small, lot of permits to get and lot of difficulty in getting those permits. We are going to still have activity in those regions, but the mid-comment to the Western U.S., we can just see some real efficiencies and improvement coming just from a daily production level, which somewhat softens a little bit on the pricing issue.

You have as a general rule you are going to have somewhat less exposure to weather. That’s not always going to be a true statement, but as a general rule the weather downtime should be less. So, the fact that the order book is strengthening, we are getting projects in-house. There are various sizes. The mobilization is back and forth across the country. The peer volumes are going to reduce and we are in areas where we are using vibrators we can use crew efficiencies. We have brought the two oil systems on the fully utilized and higher channel counts. We are understanding how to utilize that equipment better and we are seeing improved efficiencies on those crews.

The cable based system, the channel count continued to get higher. And so, now we are operating three or four crews that are channel counts in excess of 10,000 on the cable-based equipment, which for the most part appears to be areas where the cable equipment is going to work just fine. Then we have experienced some difficulties in certain areas with high channel counts, lot of road traffic, lot of operational issues, but when you just go back and you look over the last few quarters at the overall utilization rate and what the potential would be, it gives me a lot of excitement about the upside. We are still subject to the same things we’ve always been subject to. I mean, permit delays are still going to be there. Weather issues are still going to be there. Operational issues are still going to be there. But we are getting a much better handle on things going forward on how to handle those issues particularly in the west.

Collin Gerry – Raymond James

That’s good color. You mentioned the kind of the trend towards more channels, how would those crews you mentioned in excess of 10,000 channels, I mean, is that two times what it was in 2008 or I mean always kind of thought of our crew was kind of in the 3,000 to 5,000 or maybe 6,000 or 7,000 channels. Those just seem like really high numbers.

Steve Jumper

Well, we are operating about the 160,000 channels and we have got spread over 14 operating units right now. And of course, we have talked about this in the past that crew counts not necessarily going to be the measure going forward, it’s going to be more channel count utilization. But we are operating one, if you go back in time, I would say, that we’ve seen increases on average of 2,000 per crew up to an average of 7,000 to 8,000 over a 15-year period. We currently have about 18,000 channels on a I cable-based system. We have II cable-based systems that are about 10,000 or 11,000. We have a couple of RSR crews that are 9,000 or 10,000. We’ve got 14,000 on one OYO crew. We’ve got 10,000 on another OYO crew.

So, as we have talked about in the past, I just don’t see any change in channel count demand other than it’s going to continue to go up. Now, with increased channel count column, you bring into play increased efficiencies, better crew days, and there is a balance or a shift in the type of work you are doing. You are going to more channels and more energy sources per square mile. You are getting denser surveys. You are getting higher resolution and you are providing a better product. There is value-added there. There is upside to the crew efficiencies. But handling large channel count continues to be an issue in your industry that I think we are all learning how to do. You are either dealing with a whole lot of wire on the ground which you can have good days and you can have bad days with the wire or you’re handling an awful lot of cable-less equipment that presents a logistical data management issue on the backside. Both of which are manageable, but both of which you just have to learn how to hand that.

Now, while you've got crews – there have been an average of 5000, 6000, 3 to 4 whatever the number was you threw out there, when you essentially double the size of those crews, there is a learning curve on how that crew manage them and handle higher channel count. So, the upside is we’re still – part of the upside is we are still learning, we’re still getting better at it. We’re becoming more efficient. We’ve got to get fully priced into what the downtime issues are and fully priced into what the expenses are. We’ve always talked about this in years passed in our industry because of the delay time, we are always behind the pricing curve a little bit. And I think we are still there at the certain degree. I don’t think we are fully priced into equipment downtime and damage issues. But we certainly have a long way to go in terms of channel count.

The other thing that we’re starting to see a lot more of – we are starting to see more utilization of our channel OYO GSR where we are utilizing either a forward channel GSR conventional system with cables, but we are also seeing quite a bit of usage of using the three components phones and getting more multi component data in many of these oil rich basins that we’ve been working. So, we are starting to see a pick up in some of the multi component utilization of the equipment as well.

Collin Gerry – Raymond James

All right, that’s great color. Thanks very much and congrats on a strong quarter.

Operator

Your next question is from the line of Veny Aleksandrov of Pritchard Capital Partners.

Veny Aleksandrov – Pritchard Capital Partners

Good morning.

Steve Jumper

Good morning, Veny. How are you doing?

Veny Aleksandrov – Pritchard Capital Partners

I’m good. How are you doing?

Steve Jumper

I’m doing fine. Thank you.

Veny Aleksandrov – Pritchard Capital Partners

I have a question based on the number of crews and the new crews that you guys deployed. Now you have 14 and the channel count equate, but if in two months, three months you have 16 projects at the same time, do you still have enough people to deploy more crews?

Steve Jumper

Veny, we took the channel count on the cable based equipment that we had working in South Texas. If you recall in our last quarter we talked about replacing the equipment in East Texas and oil system when we replace some equipment in South Texas on the oil equipment. So that freed up quite a bit of cable based equipment which we then turned around and redeployed on two additional crews and dispersed some of that equipment out to the other cable based systems.

I don’t see an expansion in crew count other than temporary expansions which would be utilization of idle equipment. Our channel count usage is very fluid and so we can move equipment from crew to crew. We can upsize a crew from 5000 to 10,000 channels and downsize it back to 7. We’re very diligent on trying to mange the entire asset base particularly in terms of channel count energy sources. And those assets will be deployed across various platforms where its 14 crews or 15 or 13 as we move forward. And there maybe situations where we combine two to get channel count up to get a project down or there maybe times that we split a 10,000 channel crew to get two 5000 channels. So, I think we’re going to be in a very solid position here to meet what we see as a demand of our services or our order book as it sits right now going forward. Something big happens and something changes as always we’ll react to that. But I think from an equipment standpoint, on a order position we can manage our order book quite well going forward.

Veny Aleksandrov – Pritchard Capital Partners

Thank you. And then I don’t know if I have the question for Dawson, but out of the 14 crews working right now, you mentioned that you have backlog with old pricing. Do you know how many of the 14 crews are still working on the contract without pricing?

Steve Jumper

Well, we’ve got one certainly right now that work on a project that was priced mid early part of 2010. It’s been delayed by some weather issues back in the winter time. And of course, they are experiencing some weather trouble right now, where they are working. And then we have got a couple of more projects that are not of any grand scale that I am terribly worried about. We’ve got some smaller ones that we are going to need to get but – and finish up. But I believe by the end of the year, we should be through these projects that are difficult on as we do have the one right now that is difficult, but will get it done. Way the issue going forward is with fuel cost rising a little bit and from where they have been and the amount of equipment we are handling, there is still quite a bit of work to do in terms of gaining efficiencies and getting back to where we were in the 2007-2008 range, but I certainly think or feel like it’s within time. It is achievable I should say.

Veny Aleksandrov – Pritchard Capital Partners

Thank you. It seems like we are on the right track. Thank you. I really appreciate it.

Steve Jumper

Thank you, Veny.

Operator

(Operator Instructions) Your next question is from the line of Rajen Shah of (indiscernible).

Unidentified Analyst

Hi, good morning.

Steve Jumper

Good morning.

Unidentified Analyst

Just wanted to get an update on the deal, I wasn’t sure if you mentioned it earlier on, so just wanted to find out where the secondary request kind of stood the proxies said that you are expecting the deal to close also end of this quarter. Is there any kind of guidance for that? So, are you expecting the deal to close by the end of September?

Steve Jumper

No, we are still in the HSR review. It’s ongoing and we are responding to the government’s questions. And we are working through the SEC process. And as the merger agreements says we haven’t working towards closing this thing for getting the meeting later in August, but that’s really only comment I can make on at this time.

Unidentified Analyst

Okay. So is the – that the process, the HSR process is it moving forward? Is there any kind of hurdles that you kind of see or this is more kind of procedural?

Steve Jumper

All I can comment on is that the process is continuing and ongoing and we are responding to the government’s questions.

Unidentified Analyst

Okay. Just one last point, I know that there is significant shareholder hurdle of 80%. And so have you noticed any kind of shareholder dissent that would prevent this deal from being completed, if all of the approvals are in place on the other price side?

Steve Jumper

I don’t think I am in a position to comment on that.

Unidentified Analyst

Okay. Fair enough. Thank you very much.

Operator

There are no further questions at this time. Presenters do you have any closing remarks.

Steve Jumper – President and Chief Executive Officer

Yes, Tiffany. I would just like to thank everyone for listening in to the conference call. Once again, I would like to comment that we are extremely proud of our employees who have worked diligently over the last two years and persevered this downturn. We are extremely grateful to them and will remain loyal to them. I want to thank our clients for their continued support and trust and the relationships we have built and I want to thank our shareholders for their continued support.

We are optimistic. We are pleased about where we are and we are optimistic about the future of our industry, the future of the business particularly in the lower 48. We are excited about our company and our proposed merger with TGC. Our industry has done a lot of good work. We still have a lot of work left to do and still improvement to come forward, but we are excited about it. We will be presenting I believe in August at the oil and gas conference in Denver, the EnerCom Oil & Gas Conference. So, there will be a webcast of that presentation. I believe it’s on August 14 or 15, something like that. And with that, I will close the call and look forward to hearing from all of you again in 90 days. Thank you.

Operator

This concludes today’s conference call. You may now disconnect.

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