Grey Wolf, Inc. Announces Operating Results for the Quarter Ended June 30, 2007 and the Purchase of Two Operating Rigs

HOUSTON, Aug. 1 /PRNewswire-FirstCall/ -- Grey Wolf, Inc. ("Grey Wolf" or the "Company") reported net income of $41.7 million, or $0.19 per share on a diluted basis, for the three months ended June 30, 2007 compared with net income of $57.9 million, or $0.25 per share on a diluted basis, for the second quarter of 2006. Revenues for the second quarter of 2007 were $227.5 million compared with revenues of $239.6 million for the same quarter a year ago. The second quarter 2006 results included an after-tax gain of $2.7 million ($0.01 per diluted share) related to insurance proceeds.

For the six months ended June 30, 2007, Grey Wolf reported net income of $100.3 million, or $0.46 per share on a diluted basis, on revenues of $469.5 million compared to net income of $112.2 million, or $0.49 per share on a diluted basis, on revenues of $462.5 million for the six months ended June 30, 2006. The six-month 2006 results include the gain from insurance proceeds mentioned above along with a first quarter 2006 after-tax gain of $5.9 million ($0.03 per diluted share) from the sale of five rigs formerly held for refurbishment.

Subsequent to the end of the second quarter, Grey Wolf purchased two operating rigs from a privately owned exploration and production company. Concurrent with the purchase, the Company signed a term contract totaling 1,095 rig days for each of the rigs to provide drilling services to the seller. The cash purchase price for the two rigs, which were manufactured within the past 15 months, was $28.0 million, or approximately 80% of the current cost to build comparable rigs. Grey Wolf assumed operation of the rigs July 1, 2007, which are operating in East Texas. Both of the rigs are IDM 1,500 horsepower diesel electric SCR rigs capable of drilling to 18,000 feet.

Thomas Richards, Chairman, President and Chief Executive Officer commented, "Our second quarter results were solid despite the anticipated leveling off of rig activity and declines in spot market dayrates due to the influx of new rigs in the market. As new rigs enter the market, older rigs are displaced and idled, and over the past three months, we have seen the most competitive pressure on the smaller horsepower mechanical rigs."

Mr. Richards continued, "We believe the addition of high-end equipment to our fleet creates one avenue for ongoing growth of our Company. The recent two-rig acquisition is an example of this and the Company is in the process of constructing a 1,000 horsepower diesel electric SCR rig capable of drilling to 15,000 feet. The rig will be deployed under a two-year term contract and is expected to commence work in Colorado in the third quarter."

Mr. Richards concluded, "Our strategy is to own high quality rigs that address our customers' needs in the domestic land drilling markets and operate a substantial portion of these rigs under long-term contracts to reduce the impact of short-term market fluctuations. The addition of these three rigs is consistent with this strategy and augments our fleet in a financially prudent manner by adding over 2,900 rig days to our long-term daywork contracted days. This three rig addition will bring our total rig fleet to 124 by the end of the third quarter."

The Company is now marketing 123 rigs, with 70 of those working under daywork term contracts, 29 working under spot market daywork contracts and ten working under turnkey contracts. Grey Wolf averaged 104 rigs working in the second quarter of 2007. This compares with an average of 108 rigs working in the second quarter of 2006 and 110 rigs working during the first quarter of this year. Under daywork term contracts, the Company has approximately 10,700 rig days, or an average of 58 rigs, contracted for the remaining two quarters of 2007 and approximately 9,500 rig days or an average of 26 rigs committed in 2008. Current leading edge bid rates range from $14,000 to $22,000 per day without fuel or top drives.

The Company's earnings before interest expense, taxes, depreciation and amortization ("EBITDA") totaled $91.7 million in the second quarter of 2007 compared to $116.9 million for the first quarter 2007 and $111.7 million for the second quarter 2006. On a per-rig-day basis, EBITDA was $9,680 for the second quarter of 2007, $11,780 for the first quarter of 2007 and $11,398 for the second quarter of 2006. Turnkey EBITDA per rig day in the second quarter of 2007 was $12,541 and daywork EBITDA per rig day totaled $9,430.

Capital expenditures totaled $55.5 million in the second quarter of 2007 and $122.8 million for the first half of 2007. Based upon anticipated rig activity, capital expenditures for 2007 are projected to be $200 million to $210 million, including the cost of the three rigs mentioned above.

During the third quarter of 2007, the Company expects to average 104 to 106 rigs working with 8 to 10 of these rigs performing turnkey services. Average daywork EBITDA per day is expected to decrease by $600 to $800 in response to continued pressure on spot market dayrates. Depreciation expense of approximately $24.0 million, interest expense of approximately $3.5 million and an effective tax rate of approximately 37% are expected for the third quarter of 2007.

Grey Wolf has scheduled a conference call August 2, 2007 at 8:00 a.m. CT to discuss second quarter 2007 results. The call will be web cast live on the Internet through the Investor Relations page on the Company's website at:

http://www.gwdrilling.com/

To participate by telephone, call [phone] domestically or [phone] internationally ten to fifteen minutes prior to the starting time. The reservation number is 21342926. A replay of the conference call will be available by telephone from 10:00 a.m. CT on August 2, 2007 until 10:00 a.m. CT on August 4, 2007. The telephone number for the replay of the call is [phone] domestically or [phone] internationally and the access code is 21342926. The call will be available for replay through the Grey Wolf website for approximately two weeks after the conclusion of the call.

This press release contains forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. The specific forward-looking statements cover our expectations and projections regarding: demand for the Company's services; deployment of rigs; excessive rig supply in the market, the benefits of term contracts; third quarter 2007 rig activity, average daywork EBITDA per day, dayrates, projected depreciation, projected tax rate and interest expense; expected new rig delivery schedule; projected capital expenditures in 2007 and projected returns on new build rigs. These forward-looking statements are subject to a number of important factors, many of which are beyond our control, that could cause actual results to differ materially, including oil and natural gas prices and trends in those prices, the pricing and other competitive policies of our competitors, uninsured or under-insured casualty losses, cost of insurance coverage, increasing rig supply, changes in interest rates, unexpected costs under turnkey drilling contracts, weather conditions, and the overall level of drilling activity in our market areas. Please refer to our 2006 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2007 for additional information concerning risk factors that could cause actual results to differ materially from these forward-looking statements.

Grey Wolf, Inc., headquartered in Houston, Texas, is a leading provider of turnkey and contract oil and gas land drilling services in the best natural gas producing regions in the United States with a current drilling rig fleet of 123, which will increase to 124 by the end of the third quarter of 2007.

Three Months Ended Six Months Ended June 30, June 30, 2007 2006 2007 2006 (In thousands, except per share amounts) (Unaudited) Revenues $227,520 $239,590 $469,533 $462,469 Costs and expenses: Drilling operations 132,307 129,285 253,260 252,145 Depreciation and amortization 22,397 18,199 43,811 35,347 General and administrative 7,159 5,862 14,558 11,179 Gain on the sale of assets (76) (22) (129) (9,537) Gain on insurance proceeds -- (4,159) -- (4,159) Total costs and expenses 161,787 149,165 311,500 284,975 Operating income (loss) 65,733 90,425 158,033 177,494 Other income (expense): Interest income 3,593 3,065 6,752 5,181 Interest expense (3,438) (3,367) (6,930) (6,636) Other income (expense), net 155 (302) (178) (1,455) Net income (loss) before income taxes 65,888 90,123 157,855 176,039 Income taxes expense (benefit): Current 17,307 28,398 44,287 57,298 Deferred 6,873 3,810 13,282 6,577 Total income tax expense (benefit) 24,180 32,208 57,569 63,875 Net income applicable to common shares $41,708 $57,915 $100,286 $112,164 Net income per common share: Basic $0.23 $0.30 $0.55 $0.58 Diluted $0.19 $0.25 $0.46 $0.49 Weighted average common shares outstanding: Basic 183,009 192,475 183,016 192,508 Diluted 226,734 236,748 226,655 236,374 Three Months Ended June 30, 2007 2006 Marketed Rigs at June 30 120 112 Average Rigs Working: Ark-La-Tex 25 23 Gulf Coast 24 24 South Texas 27 28 Rocky Mountain 13 16 Mexico -- -- Mid Continent 15 17 Total Average Rigs Working (2) 104 108 (1) Please see "Computation of Earnings Per Share" included in this release. (2) For the week ending July 26, 2007, the Company averaged 104 rigs working.

Operating data comparison for the three months ended June 30, 2007 and 2006.

Three Months Ended Three Months Ended June 30, 2007 June 30, 2006 Daywork Turnkey Total Daywork Turnkey Total Operations Operations Operations Operations (1) (1) (Dollars in thousands except averages per rig day worked) (Unaudited) Rig days worked 8,715 761 9,476 8,679 1,120 9,799 Contract drilling revenues $186,225 $41,295 $227,520 $178,253 $61,337 $239,590 Drilling operating expenses (100,762) (31,545) (132,307) (89,935) (39,350) (129,285) General and administrative expenses (6,659) (500) (7,159) (5,213) (649) (5,862) Interest income 3,303 290 3,593 2,714 351 3,065 Gain on sale of assets 72 4 76 19 3 22 Gain on insurance proceeds -- -- -- 3,675 484 4,159 EBITDA $82,179 $9,544 $91,723 $89,513 $22,176 $111,689 Average per rig day worked: Contract drilling revenue $21,368 $54,264 $24,010 $20,538 $54,765 $24,450 EBITDA 9,430 12,541 9,680 10,314 19,800 11,398 (1) Turnkey operations include the results from turnkey and footage contracts. Operating data comparison for the six months ended June 30, 2007 and 2006. Six Months Ended Six Months Ended June 30, 2007 June 30, 2006 Daywork Turnkey Total Daywork Turnkey Total Operations Operations Operations Operations (1) (1) (Dollars in thousands except averages per rig day worked) (Unaudited) Rig days worked 18,017 1,380 19,397 17,386 2,200 19,586 Current drilling revenues $393,589 $75,944 $469,533 $342,620 $119,849 $462,469 Drilling operating expenses (200,625) (52,635) (253,260) (174,416) (77,729) (252,145) General and administrative expenses (13,617) (941) (14,558) (9,954) (1,225) (11,179) Interest income 6,264 488 6,752 4,596 585 5,181 Gain on sale of assets 110 19 129 8,487 1,050 9,537 Gain on insurance proceeds -- -- -- 3,675 484 4,159 EBITDA $185,721 $22,875 $208,596 $175,008 $43,014 $218,022 Average per rig day worked: Contract drilling revenue $21,845 $55,032 $24,206 $19,707 $54,477 $23,612 EBITDA 10,308 16,576 10,754 10,066 19,552 11,132 (1) Turnkey operations include the results from turnkey and footage contracts. Reconciliation of Earnings before interest expense, taxes, depreciation and amortization (EBITDA) to net income (loss) applicable to common shares (In thousands) (Unaudited) Three Months Ended Six Months Ended June 30, March 31, June 30, June 30, June 30, 2007 2007 2006 2007 2006 Earnings before interest expense, taxes, depreciation, and amortization $91,723 $116,873 $111,689 $208,596 $218,022 Depreciation and amortization (22,397) (21,414) (18,199) (43,811) (35,347) Interest expense (3,438) (3,492) (3,367) (6,930) (6,636) Total income tax (expense) /benefit (24,180) (33,389) (32,208) (57,569) (63,875) Net income (loss) applicable to common shares $41,708 $58,578 $57,915 $100,286 $112,164 June 30, December 31, 2007 2006 (Unaudited) (In thousands) Condensed Balance Sheet Data: Cash and cash equivalents $291,729 $229,773 Restricted cash 837 817 Other current assets 197,727 221,256 Total current assets 490,293 451,846 Net property and equipment 696,068 608,136 Other assets 16,969 27,002 Total assets $1,203,330 $1,086,984 Current liabilities $138,258 $147,082 Contingent convertible senior 275,000 275,000 notes Other long term liabilities 15,272 9,877 Deferred income taxes 143,859 121,231 Shareholders' equity 630,941 533,794 Total liabilities and equity $1,203,330 $1,086,984 Computation of Earnings Per Share (In thousands, except per share amounts) (Unaudited) A reconciliation of the numerators and denominators of the basic and diluted earnings per share computation is as follows: Three Months Ended Six Months Ended June 30, June 30, 2007 2006 2007 2006 Numerator: Net income $41,708 $57,915 $100,286 $112,164 Add interest expense on contingent convertible senior notes, net of related tax effects (1) 2,059 2,035 4,135 3,937 Adjusted net income -- diluted $43,767 $59,950 $104,421 $116,101 Denominator: Weighted average number of shares outstanding -- basic 183,009 192,475 183,016 192,508 Effect of dilutive securities: Options -- treasury stock method 740 1,204 715 1,048 Restricted stock 528 612 467 361 Contingent convertible senior notes (1) 42,457 42,457 42,457 42,457 Weighted average common shares outstanding -- diluted 226,734 236,748 226,655 236,374 Earnings Per Share: Basic $0.23 $0.30 $0.55 $0.58 Diluted $0.19 $0.25 $0.46 $0.49 (1) Please see our latest quarterly report on Form 10-Q for a description of our contingent convertible notes.