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Grey Wolf Inc. (GW)

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Grey Wolf Inc. (GW) Wednesday, November 15th, 2006 Background Founded In 1978 Head Quarters In Houston, TX Other Locations (Colorado, Wyoming and Louisiana) Board 7 ... – PowerPoint PPT presentation

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Title: Grey Wolf Inc. (GW)


1
Grey Wolf Inc. (GW)
Wednesday, November 15th, 2006
2
Background
  • Founded In 1978
  • Head Quarters In Houston, TX
  • Other Locations (Colorado, Wyoming and
    Louisiana)
  • Board
  • 7 Members (Active w/ company For 5 years or
    longer)
  • Board of Directors Staggered
  • Executive
  • 6 Officers
  • CEO Salary/Bonus 1.02 M, Options
    Exercised 4.6 M
  • Officers Average Salary/Bonus 301.5 K
  • Officers Average Options Exercised 151.5K
  • Insiders Hold 14.51

3
Operations
  • What is their Business?
  • Provide oil and gas land drilling services
  • Industry Oil and Gas Drilling and Exploration
  • Highly Cyclical, Peaks at severe weather
    conditions
  • Overall market demand for natural gas has
    increased

4
Operations
  • Divisions
  • -Ark-La-Tex
  • -Gulf Coast
  • -South Texas
  • -Rocky Mountain
  • -Mid-Continent District

5
Contracts
  • Contracts through competitive bidding or as
    result of negotiations with customers
  • 3 Major Types
  • Day-work - low risk/lower returns
  • Footage - middle risk/adequate returns
  • Turnkey - high risk/higher returns
  • of Revenues
  • Day-work 80.41
  • Turnkey 19.59
  • Early Termination Fees

6
Customers/Suppliers
  • Independent producers and major oil and natural
    gas companies.
  • No one customer accounts for more than 10
    revenues
  • Customer retention ratio/ yearly turnover
  • Customer relationships
  • Supplier relationships

7
Competitors
  • Helmerich Payne Inc. (HP)
  • 2.6 Billion Market Cap
  • Nabors Industries Ltd. (NBR)
  • 9.5 Billion Market Cap
  • Patterson-UTI Energy Inc. (PTEN)
  • 4.0 Billion Market Cap
  • 331.6 total market cap
  • GW- 1.3 Billion
  • http//biz.yahoo.com/p/123mktd.html

8
Financial Ratios
9
Pros/Cons
  • Pros
  • Highly experienced management
  • 100 Million common stock repo
  • Low P/E, P/B multiples
  • Cons
  • Industry is cyclical/Uncertainty
  • Future market demand for natural gas
  • Risks associated with business

10
Industry Outlook - Natural Gas
  • Market Demand Expectations/Growth
  • Short-term factors
  • Weather
  • Fuel Switching
  • US Economy
  • Long-term factors
  • Residential Demand
  • 1.5 growth per year from 2002-2010
  • 0.9 growth per year from 2011-2025
  • Commercial
  • 1.7 growth per year from 2002-2025
  • Industrial Demand
  • 1.2 growth per year from 2002-2025
  • Electric Generation Demand
  • 1.8 growth per year from 2002-2025
  • Transportation Sector
  • 3 of total Natural Gas Market

11
DCF Model Assumptions
12
DCF Model - Calculations
  • Discount rate (wacc) 6.42
  • DCF(FCFF) 2,272,228,000
  • Mkt Value of Debt 363,100,000
  • DCF(FCFE) 1,909,128,000
  • DCF 9.98/sh
  • Current Price 7.10/sh

13
GW Recent Trends
  • Overall demand for land drilling services
  • Recently increasing shown with increase in rig
    count
  • Day rates received for services provided
  • Continually increasing
  • Higher rates more sustainable with drilling rigs
    1000 HP
  • Level of demand for turnkey/footage services
  • Historically has been at an all-time low
  • Demand for deep versus shallow drilling services
  • Deep drilling services prove highly profitable
    over shallow areas
  • Record drilling levels in the past few years
  • Despite no recent significant increases in
    overall gas production levels

14
Conclusion
  • Recommendation Hold
  • Company Outlook Neutral
  • Risks
  • Sales variability (day-rates), uncertainty
  • Industry Cyclicality
  • Operational Risks
  • Minimize cyclical trends
  • Improve operational cost margins

15
QA
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