Double-digit earnings, revenue growth lift Tulsa-based Unit stock to

Journal Record, The (Oklahoma City), May 7, 2008 by Kirby Lee Davis

Unit Corp. stock hit a record high Tuesday following double- digit growth in the Tulsa energy company's first-quarter revenue and income, meeting or beating Wall Street estimates.

"What a day, huh?" said M. Jake Dollarhide, chief executive of Longbow Asset Management Co., whose clients invest in Unit stock.

"This was a stock that was really struggling in the middle of last year, when all the Conocos and Devons were getting kudos from the Street," he said. "I don't think they were getting full attention for their performance."

Unit's first-quarter net income rose 19.5 percent to $77.1 million, or $1.65 per diluted share, from $64.5 million, or $1.39, the prior year. That beat the $1.61 forecast by analysts surveyed by Zacks Investment Research, and equaled the estimate from Thomson Financial.

Revenue increased 15.9 percent to $321.4 million from $277.3 million.

Net cash provided by operations rose 23 percent to $158.8 million.

That lifted the New York Stock Exchange listing as high as $69.02 before closing Tuesday up $2.90 to $68.10, far above its 52-week high - and previous record - of $65.65.

"It's just confirmation that our operating plan is being recognized in the investment community," said Unit Treasurer and Chief Financial Officer David T. Merrill, "and just more incentive for all of our employees to continue to make a difference and continue to contribute to the growth of the company."

Trading volume totaled 1.3 million shares, more than four times its daily average.

"I think Unit could continue to be strong for the rest of the year," said Dollarhide. "I think they're just getting started."

Although drilling rig utilization rates and average operating margins fell in the three months ended March 31, reflecting market trends the Tulsa company's contract drilling segment endured through much of 2007, Unit President and Chief Executive Officer Larry Pinkston suggested the second quarter promised further improvement.

"We believe that in the next 30 to 60 days, the demand for drilling rigs in the 800- to 2,000-horsepower range should increase," he said Tuesday, pointing out Unit's average rig utilization rate in that range had risen to 91 percent from 86 percent at March 31. "We believe that by the end of the second quarter, our utilization rate for these drilling rigs will reach approximately 96 percent.

"Since the 800- to 2,000-horsepower range makes up 64 percent of our drilling rig fleet, and with our utilization rates in that horsepower range currently increasing, it puts us in a good position for increasing dayrates and rig utilization rates for our fleet," he said.

Unit also recorded more balanced revenue streams in the first quarter, with contract drilling comprising 46 percent, exploration and production accounting for 40 percent, and the midstream unit kicking in 14 percent.

Pinkston singled out two strong factors in the E&P segment - a 15- percent increase in overall production and 31-percent growth in commodity prices - as prime contributors to Unit's improved quarter, along with a 4-percent increase in the number of drilling rigs working, to 100.6, and higher daily processed and liquids sold volumes by midstream operations.

"I believe we are taking all the necessary steps to meet and exceed our annual goals for each of our segments," he said.

Pinkston summarized Unit's quarterly results with several segment positives.

"Our contract drilling segment continues to grow and keep its utilization rate steady for its drilling rig fleet, which has been between 78 percent to 81 percent for the past year," he said. "Importantly, our drilling rigs are in great demand to drill more wells for our customers and for our own account."

Pinkston said Unit's exploration and production segment is on track to drill 280 wells this year.

"Our mid-stream segment's operations not only complement our exploration and production segment, but it enables Unit Corp. to capture another level of margin further downstream," he said. "We are excited at how the mid-stream segment is growing and building on its strategic position in the Arkoma and Mid-Continent Basins."