Pioneer Drilling Company has agreed to purchase an Oilwell 840E 1500 HP diesel electric rig from Drilling Structures International, Inc. for approximately $5.5 million. The rig, rated to 18,000 feet, will be comprised of primarily new equipment with some components refurbished to like-new condition. The mast and substructure are a new DSI/Pioneer design developed to move and rig up quickly without sacrificing stability to handle the 750,000-pound hook load capacity. Pioneer will provide drill pipe, drill collars, blowout preventers and handling tools. The rig has a multi-well commitment beginning in September 2002.
Michael E. Little, Pioneer Drilling's Chairman and Chief Executive Officer, stated, "We are extremely excited about this new design for the mast and substructure on this rig. It will be of a similar premium quality to our other 18,000 foot SCR rigs; however, we believe it could be our least expensive and quickest rig to move. A tremendous amount of research and thought went into the design."
Also, Pioneer announced the funding of an additional $10 million by WEDGE Energy Services, L.L.C. in exchange for $10 million in principal amount of a 6.75% Convertible Subordinated Debenture with an effective conversion rate of $5.00 per share. The transaction was accomplished by an agreement between Pioneer and WEDGE under which WEDGE agreed to provide the additional $10 million in financing and to cancel a previously issued debenture in the principal amount of $18 million, convertible at $4.00 per share, in exchange for $28 million in new 6.75% Convertible Subordinated Debentures. The new debentures are convertible into 6.5 million shares of common stock at $4.31 per share, which is a pro-rata blending of the $5.00 conversion rate of the new $10 million financing and the $4.00 conversion rate of the $18 million debenture being cancelled. In order to reduce Pioneer's interest obligations, $3 million of the $10 million additional financing will not be drawn down until on or before September 30, 2002. Unlike the cancelled debenture, which was not callable by Pioneer, the new debentures are callable at a scheduled premium. Pioneer will use $7 million of the proceeds to pay down bank debt and $3 million for the purchase of drilling equipment. If WEDGE were to convert the new debentures it would own approximately 61 percent of Pioneer's outstanding common stock.
Pioneer Drilling Company provides contract land drilling services to independent and major oil and gas operators drilling wells in central, south and east Texas. The Company's fleet consists of 22 land drilling rigs that drill in depth ranges between 10,000-18,000 feet, with three additional 1500 HP SCR land rigs scheduled to be added in September 2002, November 2002 and January 2003.