Grey Wolf, Inc. Announces Operating Results for the Quarter Ended March 31, 2008

Grey Wolf, Inc. ("Grey Wolf” or the "Company”) (AMEX:GW) reported net income of $31.3 million, or $0.15 per share on a diluted basis, for the three months ended March 31, 2008 compared with net income of $58.6 million, or $0.27 per share on a diluted basis, for the first quarter of 2007. Revenues for the first quarter of 2008 were $201.5 million compared with revenues for the first quarter of 2007 of $242.0 million. "Grey Wolf delivered positive financial results in the first quarter of 2008,” commented Thomas P. Richards, Chairman, President and Chief Executive Officer. "U.S. land rig supply has outpaced demand for several quarters which has dampened year-over-year results. However, our first quarter daywork EBITDA per day declined only slightly from the fourth quarter of 2007. Even though daywork revenue per day decreased quarter over quarter, our experienced personnel were able to keep operating costs contained, a focus which continues at Grey Wolf. For the second quarter of 2008 to date, Grey Wolf is averaging 104 rigs working, which is higher than the two previous quarters.” The Company reported total earnings before interest expense, income taxes, depreciation and amortization ("EBITDA”) of $81.9 million in the first quarter of 2008, compared to $84.4 million for the previous quarter and $116.9 million for the first quarter of 2007. On a per-rig-day basis, EBITDA was $8,958 for the first quarter of 2008, $8,916 for the fourth quarter of 2007 and $11,780 for the first quarter of 2007. Turnkey EBITDA per rig day in the first quarter was $13,642 and daywork EBITDA per rig day totaled $8,627. The Company’s turnkey business added $8.2 million, or 10%, of total EBITDA for the first quarter of 2008. "The outlook for the remainder of 2008 is very good,” continued Mr. Richards. "As the second quarter unfolds, we are seeing additional demand for our services and stacked rigs are expected to return to work. As rig demand is improving, there has been an uptick in leading edge dayrates, which now range from $15,000 to $21,000 per day, without fuel and top drives. Customer interest in long-term contracts and renewals is increasing as well, reflecting their confidence in commodity prices.” "Grey Wolf continues to seek ways to enhance shareholder value,” Mr. Richards added. "These efforts include expanding and upgrading our fleet, a part of which is the planned deployment in the Rocky Mountains in the second and third quarters of 2008 of our two built-for-purpose Production and Drilling System Rig (PaDSRigTM) units. These rigs provide customers the capability to drill multiple wells from a single pad location, enhance production efficiency and reduce mobilization costs.” "We also are focused on diversifying into new drilling markets and exploring acquisitions and complementary business models. We recently moved a rig under a one-year contract to North Dakota to drill in the Bakken resource play, which is a new market for Grey Wolf,” Mr. Richards said. Grey Wolf currently markets 121 drilling rigs with 106 rigs under contract today. Of the 106 rigs working, 54 are working under daywork term contracts, 46 are working under spot market daywork contracts and six are working under turnkey contracts. Grey Wolf averaged 100 rigs working in the first quarter of 2008. This compares with an average of 103 rigs working in the fourth quarter of 2007 and 110 rigs working during the first quarter of 2007. Under daywork term contracts, the Company has approximately 14,300 days, or an average of 52 rigs, contracted for the remaining three quarters of 2008 and approximately 10,400 days, or an average of 29 rigs, committed in 2009. Capital expenditures totaled $46.1 million in the first quarter of 2008. Capital expenditures for 2008 are projected to be $150 million to $160 million. During the second quarter of 2008, the Company expects to average 104 to 106 rigs working with six to eight of these rigs performing turnkey services. In addition, average daywork EBITDA per rig day is expected to decrease by $500 to $700. This expected decrease is due to the costs associated with returning stacked rigs to work during the second quarter and a reduction in the average daywork dayrate for term contracts that were recently renewed. Depreciation expense of approximately $27.0 million, interest expense of approximately $2.8 million and an effective tax rate of approximately 38% are expected for the second quarter of 2008. As announced on April 21, 2008, Grey Wolf entered into a definitive merger agreement with Basic Energy Services, Inc. ("Basic Energy Services”), a major well site services provider. The merger is expected to create a diverse energy services company with expanded growth opportunities through enhanced scale, broader geographic reach, balanced commodity exposure and expanded service offerings. The transaction is anticipated to close in the third quarter of 2008, subject to shareholder and regulatory approvals, the receipt of financing proceeds and other customary conditions. Grey Wolf has scheduled a conference call May 1, 2008 at 8:00 a.m. CT to discuss first quarter 2008 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 (800) 954-0645 domestically or (212) 231-2900 internationally ten to fifteen minutes prior to the starting time. The reservation number is 21380208. A replay of the conference call will be available by telephone from 10:00 a.m. CT on May 5, 2008 until 10:00 a.m. CT on May 7, 2008. The telephone number for the replay of the call is (800) 633-8284 domestically or (402) 977-9140 internationally and the access code is 21380208. The call will be available for replay through the Grey Wolf website beginning on May 5, 2008 and continuing for approximately two weeks. 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 fleet of 121 drilling rigs, which will increase to 123 with the addition of two new rigs in 2008. 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: the proposed merger with Basic Energy Services (the "merger”), demand for the Company’s services, deployment of rigs, excessive rig supply in the market, the benefits of term contracts, 2008 rig activity, average daywork EBITDA per day, dayrates, projected depreciation, projected tax rate and interest expense, expected new rig cost and delivery schedule, 2008 financial results and projected capital expenditures in 2008. These forward-looking statements are subject to risks and uncertainties, 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, the overall level of drilling activity in our market areas, required approvals by stockholders and regulatory agencies of the merger, the possibility that the anticipated benefits from the merger cannot be fully realized, and the possibility that costs or difficulties related to integration of the two companies party to the merger will be greater than expected. Please refer to reports filed with the Securities and Exchange Commission by Grey Wolf and Basic Energy Services for additional information concerning risk factors that could cause actual results to differ materially from these forward-looking statements. Additional Information and Where to Find It In connection with the proposed mergers, a registration statement of Horsepower Holdings, Inc. ("Holdings”), which will include proxy statements of Basic Energy Services and Grey Wolf and other materials, will be filed with the Securities and Exchange Commission. INVESTORS AND SECURITY HOLDERS ARE URGED TO CAREFULLY READ THE REGISTRATION STATEMENT AND THE PROXY STATEMENT/PROSPECTUS AND THESE OTHER MATERIALS REGARDING THE PROPOSED TRANSACTION WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT BASIC ENERGY SERVICES, GREY WOLF, HOLDINGS AND THE PROPOSED TRANSACTION. Investors and security holders may obtain a free copy of the registration statement and the proxy statement/prospectus when they are available and other documents containing information about Basic Energy Services and Grey Wolf, without charge, at the SEC’s web site at www.sec.gov, Basic Energy Service’s web site at www.basicenergyservices.com, and Grey Wolf’s web site at www.gwdrilling.com. Copies of the registration statement and the proxy statement/prospectus and the SEC filings that will be incorporated by reference therein may also be obtained for free by directing a request to either Investor Relations, Basic Energy Services, Inc., (432) 620-5510 or to Investor Relations, Grey Wolf, Inc., (713) 435-6100. Participants in the Solicitation Basic Energy Services and Grey Wolf and their respective directors, officers and certain other members of management may be deemed to be participants in the solicitation of proxies from their respective stockholders in respect of the mergers. Information about these persons can be found in Grey Wolf’s proxy statement relating to its 2008 annual meetings of stockholders as filed with the SEC on April 8, 2008. Information concerning beneficial ownership of Basic Energy Services stock by its directors and certain of its executive officers is included in its Form 10-K/A filed on April 29, 2008 and subsequent statements of changes in beneficial ownership on file with the SEC. Additional information about the interests of such persons in the solicitation of proxies in respect of the mergers will be included in the registration statement and the joint proxy statement/prospectus to be filed with the SEC in connection with the proposed transaction.   Three Months Ended March 31, 2008   2007 (In thousands except per share amounts) (Unaudited) Revenues $ 201,522 $242,013 Costs and expenses: Drilling operations 113,508 120,953 Depreciation and amortization 27,759 21,414 General and administrative 8,612 7,399 (Gain) loss on the sale of assets 38 (53) Total costs and expenses 149,917 149,713 Operating income (loss) 51,605 92,300 Other income (expense): Interest income 2,487 3,159 Interest expense (3,337) (3,492) Other income (expense), net (850) (333) Net income before income taxes 50,755 91,967 Income taxes expense: Current 13,128 26,980 Deferred 6,304 6,409 Total income tax expense (benefit) 19,432 33,389 Net income applicable to common shares $ 31,323 $ 58,578 Net income per common share: (1) Basic $ 0.18 $ 0.32 Diluted $ 0.15 $ 0.27 Weighted average common shares outstanding: Basic 175,771 183,023 Diluted 219,332 226,577   Three Months Ended March 31, 2008 2007 Marketed Rigs at March 31 121 119 Average Rigs Working: Ark-La-Tex 25 26 Gulf Coast 23 25 South Texas 26 28 Rocky Mountain 10 14 Mexico 2 - Mid-Continent 14 17 Total Average Rigs Working (2) 100 110 (1) Please see "Computation of Earnings Per Share” included in this release. (2) For the week ended April 24, 2008, the Company averaged 104 rigs working. Operating data comparison for the three months ended March 31, 2008 and 2007. Three Months Ended March 31, 2008   Three Months Ended March 31,2007 Daywork Operations   Turnkey Operations   Total Daywork Operations   Turnkey Operations   Total (Dollars in thousands except averages per rig day worked) (Unaudited)   Rig days worked 8,533 604 9,137 9,302 619 9,921   Contract drilling revenue $ 172,344 $ 29,178 $ 201,522 $ 207,364 $ 34,649 $ 242,013 Drilling operating expenses (92,900 ) (20,608 ) (113,508 ) (99,863 ) (21,090 ) (120,953 ) General and administrative expenses (8,119 ) (493 ) (8,612 ) (6,958 ) (441 ) (7,399 ) Interest income 2,322 165 2,487 2,961 198 3,159 Gain (loss) on sale of assets   (36 )   (2 )   (38 )   38     15     53   EBITDA $ 73,611   $ 8,240   $ 81,851   $ 103,542   $ 13,331   $ 116,873     Average per rig day worked: Contract drilling revenue $ 20,197 $ 48,308 $ 22,056 $ 22,292 $ 55,976 $ 24,394 EBITDA $ 8,627 $ 13,642 $ 8,958 $ 11,131 $ 21,536 $ 11,780 Reconciliation of Earnings before interest expense, income taxes, depreciation and amortization (EBITDA) to net income applicable to common shares (in thousands) (Unaudited)           Three Months Ended Year Ended March31, 2008 December31, 2007 March31, 2007 December31, 2007 December31, 2006 Earnings before interest expense, income taxes, depreciation and amortization $ 81,851 $ 84,401 $ 116,873 $ 376,668 $ 431,975 Depreciation and amortization (27,759 ) (29,195 ) (21,414 ) (97,361 ) (74,010 ) Interest expense (3,337 ) (3,459 ) (3,492 ) (13,910 ) (13,614 )   Total income tax expense   (19,432 )   (17,729 )   (33,389 )   (95,505 )   (124,400 )   Net income applicable to common shares $ 31,323   $ 34,018   $ 58,578   $ 169,892   $ 219,951     March 31, 2008   December 31, 2007 (Unaudited) (In thousands) Condensed Balance Sheet Data:   Cash and cash equivalents $ 286,569 $ 247,701 Restricted cash 847 847 Other current assets   185,011   194,948 Total current assets 472,427 443,496 Net property and equipment 755,472 737,944 Other assets   31,808   26,530 Total assets $ 1,259,707 $ 1,207,970     Current liabilities $ 120,371 $ 104,692 Contingent convertible senior notes 275,000 275,000 Other long-term liabilities 17,064 18,126 Deferred income taxes 157,153 150,643 Shareholders’ equity   690,119   659,509 Total liabilities and equity $ 1,259,707 $ 1,207,970 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 March 31, 2008   2007 Numerator: Net income $ 31,323 $ 58,578   Add interest expense on contingent convertible senior notes, net of related tax effects: (1) 1,887 2,074     Adjusted net income – diluted $ 33,210 $ 60,652   Denominator: Weighted average number of shares outstanding – basic 175,771 183,023   Effect of dilutive securities: Options-treasury stock method 476 691 Restricted stock 628 406 Contingent convertible senior notes (1) 42,457 42,457       Weighted average common shares outstanding – diluted   219,332   226,577   Earnings per share: Basic $ 0.18 $ 0.32 Diluted $ 0.15 $ 0.27 (1) Please see our latest 10-K for a description of our contingent convertible notes.