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Rating Action:

Moody's rates Pioneer Drilling's notes B3, CFR B2

24 Feb 2010

Approximately $250 million of debt affected (new rating)

New York, February 24, 2010 -- Moody's Investors Service assigned a B3 first-time rating to Pioneer Drilling Company's (Pioneer) proposed $250 million senior unsecured notes due 2018 and a B2 Corporate Family Rating (CFR). Proceeds from the note offering will be used to reduce approximately $240 million of the $258 million of debt under the company's $325 million senior secured revolving credit facility. Additionally, Moody's assigned a SGL-3 Speculative Grade Liquidity rating. The outlook is stable. The ratings are subject to review of final documentation.

"Pioneer's proposed note offering will refinance existing debt, lengthen debt maturities and improve liquidity," commented Francis J. Messina, Moody's Vice-President/Senior Analyst.

Pioneer's B2 CFR rating is supported by seasoned management, a high quality drilling rig asset base, geographic diversification and operating risk diversification across most active basins, and a good historical track record. In addition to drilling services, Pioneer's production services division provides well services and includes 74 workover rigs, 65 wireline units, and diverse fishing and rental tool service offering. Pioneer's rating also reflects the cyclicality and difficult market conditions of the onshore land rig sub-sector which is prone to intense volatility. The company is exposed to the mature North American land drilling market and the inherent volatility of the natural gas industry, which is expected to remain weak over the next twelve to eighteen months. However, as oil prices have recovered more quickly, we expect Pioneer to focus more of its fleet on the oil plays. In addition, to continue to benefit from this opportunity, Pioneer may need to increase capital expenditures to upgrade more of its rigs as the market increasingly focuses on unconventional drilling.

Pioneer's SGL-3 rating reflects adequate liquidity over the next four quarters primarily due to pro forma availability on its $325 million senior secured revolver maturing August 31, 2012, which will reduce to $225 million upon successful completion of the $250 million notes offering and giving effect to a new amendment to Pioneer's senior secured revolving credit facility. The facility will be secured by substantially all domestic assets, including equity interests in subsidiaries except Pioneer Services Holdings. The amended facility has financial covenants that include asset coverage and borrowing base calculations if senior leverage is over 2.25x. Senior debt excludes unsecured and subordinated debt. Pro forma for the offering, Moody's estimates senior debt at $14 million, absent any significant increases in capital spending. Additionally, if senior leverage is greater than 2.5x, there is a limitation on capital expenditures.

The stable outlook is based on an expectation that Pioneer restrains its capital expenditures and operating costs to levels largely in line with its operating cash flow while achieving its growth targets. The outlook could also be pressured or the ratings downgraded if the company were to significantly increase debt and/or outspend its operating cash flow above its current range.

The ratings for the senior unsecured notes reflect both the overall probability of default of the company, to which Moody's assigns a PDR of B2, and a loss given default of LGD 5, 72%. The B3 rating of the senior unsecured notes reflects their position in Pioneer's capital structure, including the subordination to all first lien senior secured creditors and guarantees of existing and future subsidiaries.

The principal methodology used in rating Pioneer was Moody's Global Oilfield Services Industry Rating Methodology published in December 2009. The methodology is available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Pioneer Drilling Company, headquartered in San Antonio, Texas, provides land contract drilling services as well as production services to independent and major oil and gas exploration and production companies.

New York
Steven Wood
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Francis J. Messina
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's rates Pioneer Drilling's notes B3, CFR B2
No Related Data.
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