10-Q 1 file1.htm


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006

                                       OR

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ___________ TO ___________

                        COMMISSION FILE NUMBER 000-51630

                              UNION DRILLING, INC.
             (Exact name of registrant as specified in its charter)

                 DELAWARE                                  16-1537048
       (State or other jurisdiction                     (I.R.S. Employer
     of incorporation or organization)               Identification Number)

             4055 INTERNATIONAL PLAZA
                     SUITE 610
                 FORT WORTH, TEXAS                                  76109
     (Address of principal executive offices)                    (Zip Code)

                                  817-735-8793
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

   Large accelerated filer [_] Accelerated filer [_] Non-accelerated filer [X]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes [_] No [X]

As of August 11, 2006, there were 21,332,192 shares of common stock, par value
$0.01 per share, of the registrant issued and outstanding.



                          PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                              UNION DRILLING, INC.
                           CONSOLIDATED BALANCE SHEETS



                                                                                 2006           2005
                                                                             ------------   ------------
                                                                              (UNAUDITED)

ASSETS:
CURRENT ASSETS:
   Cash and cash equivalents                                                 $    758,382   $  2,388,276
   Accounts receivable (net of allowance for doubtful accounts of $356,731
      and $313,436 at June 30, 2006 and December 31, 2005, respectively)       40,686,026     27,579,254
   Accounts receivable - related party                                                 --        481,657
   Inventories                                                                  1,194,536        860,208
   Prepaid expenses and deposits                                                2,511,595      4,930,431
   Deferred taxes                                                               5,240,334     10,542,730
                                                                             ------------   ------------
Total current assets                                                           50,390,873     46,782,556
Goodwill                                                                        5,362,070      5,424,793
Intangible assets (net of accumulated amortization of $337,500 and
   $202,500 at June 30, 2006 and December 31, 2005, respectively)               3,662,500      3,797,500
Property, buildings and equipment (net of accumulated depreciation of
   $55,985,167 and $46,250,906 at June 30, 2006 and
   December 31, 2005, respectively)                                           152,672,350    120,783,092
Other assets                                                                      544,762        700,409
                                                                             ------------   ------------
Total assets                                                                 $212,632,555   $177,488,350
                                                                             ============   ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
   Accounts payable                                                          $ 13,990,937   $  9,240,626
   Current portion of long-term obligations                                     2,259,409      2,013,956
   Current portion of other obligations                                         1,817,898      3,308,678
   Current portion of advances from customers                                     420,000      1,265,067
   Accrued expense and other liabilities                                        8,036,188      5,353,308
                                                                             ------------   ------------
Total current liabilities                                                      26,524,432     21,181,635
Revolving credit facility                                                      15,041,307             --
Long-term obligations                                                           5,445,709      5,812,028
Deferred taxes                                                                 17,903,178     17,916,781
Advances from customers                                                           138,605        138,605
                                                                             ------------   ------------
Total liabilities                                                              65,053,231     45,049,049
                                                                             ============   ============
STOCKHOLDERS' EQUITY:
   Common stock, par value $.01 per share; 75,000,000 shares
      authorized; 21,314,192 and 21,166,109 shares issued and outstanding
      at June 30, 2006 and December 31, 2005, respectively                        213,142        211,661
   Additional paid in capital                                                 135,088,950    133,381,395
   Retained earnings (deficit)                                                 12,277,232     (1,153,755)
                                                                             ------------   ------------
Total stockholders' equity                                                    147,579,324    132,439,301
                                                                             ------------   ------------
Total liabilities and stockholders' equity                                   $212,632,555   $177,488,350
                                                                             ============   ============


          See accompanying notes to consolidated financial statements.


                                        2



                              UNION DRILLING, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)



                                                  Three Months Ended           Six Months Ended
                                                       June 30,                    June 30,
                                              -------------------------   --------------------------
                                                  2006          2005          2006           2005
                                              -----------   -----------   ------------   -----------

REVENUES
Nonaffiliates                                 $58,815,646   $33,633,084   $115,394,297   $48,984,561
Related party                                          --     1,137,703             --     2,949,965
                                              -----------   -----------   ------------   -----------
   Total revenues                              58,815,646    34,770,787    115,394,297    51,934,526
                                              -----------   -----------   ------------   -----------
COST AND EXPENSES
Drilling operations                            37,494,053    26,023,233     72,462,069    38,809,565
Depreciation and amortization                   5,557,207     4,029,496     10,744,461     6,136,070
General and administrative                      5,133,331     2,876,452      9,834,185     4,851,222
                                              -----------   -----------   ------------   -----------
   Total cost and expenses                     48,184,591    32,929,181     93,040,715    49,796,857
                                              -----------   -----------   ------------   -----------
   Operating income                            10,631,055     1,841,606     22,353,582     2,137,669
Interest income (expense)                              11      (851,762)          (621)   (1,004,506)
Gain on sale of assets                            241,779        14,641        323,335        71,360
Other income                                       89,926        10,721        126,738        52,404
                                              -----------   -----------   ------------   -----------
   Income before income taxes                  10,962,771     1,015,206     22,803,034     1,256,927
Income tax expense                              4,503,285            --      9,372,047            --
                                              -----------   -----------   ------------   -----------
   Net income                                 $ 6,459,486   $ 1,015,206   $ 13,430,987   $ 1,256,927
                                              ===========   ===========   ============   ===========
Earnings per common share:
   Basic                                      $      0.30   $      0.06   $       0.63   $      0.09
                                              ===========   ===========   ============   ===========
   Diluted                                    $      0.30   $      0.06   $       0.62   $      0.08
                                              ===========   ===========   ============   ===========
Weighted-average common shares outstanding:
   Basic                                       21,213,705    16,226,591     21,190,038    14,686,301
                                              ===========   ===========   ============   ===========
   Diluted                                     21,611,700    16,711,125     21,585,427    15,170,870
                                              ===========   ===========   ============   ===========


          See accompanying notes to consolidated financial statements.


                                        3



                         UNION DRILLING, INC.
                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (UNAUDITED)



                                                                     SIX MONTHS ENDED
                                                                         JUNE 30,
                                                               ---------------------------
                                                                   2006           2005
                                                               ------------   ------------

OPERATING ACTIVITIES:
Net income                                                     $ 13,430,987   $  1,256,927
Adjustments to reconcile net income to net
   cash provided by operating activities:
   Depreciation and amortization                                 10,744,461      6,136,070
   Non-cash compensation expense                                    539,197             --
   Provision for doubtful accounts                                   90,000         62,500
   Gain on sale of fixed assets                                    (323,335)       (71,360)
   Provision for deferred taxes                                   7,410,806             --
   Excess tax benefits from share-based payment arrangements       (643,108)            --
Changes in operating assets and liabilities:
   Accounts receivable                                          (13,195,175)    (6,223,495)
   Accounts receivable - related party                              481,657      1,086,037
   Inventories                                                     (334,328)      (102,929)
   Prepaid and other assets                                         515,193        948,787
   Accounts payable                                               2,355,415      3,174,201
   Accrued expenses and other liabilities                         2,558,933      2,434,020
                                                               ------------   ------------
Cash flow provided by operating activities                       23,630,703      8,700,758
INVESTING ACTIVITIES:
Purchase of business                                                     --    (47,508,867)
Purchases of machinery and equipment                            (43,015,975)   (18,179,848)
Proceeds from sale of machinery and equipment                       840,591        148,813
                                                               ------------   ------------
Cash flow used in investing activities                          (42,175,384)   (65,539,902)
FINANCING ACTIVITIES:
Borrowings on line of credit                                    107,268,698     93,895,567
Repayments on line of credit                                    (92,227,391)   (56,121,447)
Cash overdrafts                                                   2,392,478             --
Borrowings to finance equipment purchases                         1,434,267      1,747,168
Repayments on capital leases and other debt                      (3,123,925)    (2,464,310)
Proceeds from exercise of options                                   562,715             --
Excess tax benefits from share-based payment arrangements           643,108             --
Repayments on term loan                                                  --     (2,053,038)
Issuance of common shares                                                --     19,920,007
Stock issuance costs                                                (35,984)            --
                                                               ------------   ------------
Cash flow provided by financing activities                       16,913,966     54,923,947
Foreign currency translation adjustment                                 821          4,163
                                                               ------------   ------------
Net decrease in cash                                             (1,629,894)    (1,911,034)
Cash and cash equivalents at beginning of period                  2,388,276      3,871,271
                                                               ------------   ------------
Cash and cash equivalents at end of period                     $    758,382   $  1,960,237
                                                               ============   ============


          See accompanying notes to consolidated financial statements.


                                        4



                              UNION DRILLING, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                   (UNAUDITED)



                                                               Additional      Retained
                                                                 Paid In       Earnings
                                           Common Stock          Capital      (Deficit)        Total
                                      ---------------------   ------------   -----------   ------------
                                        Shares         $
                                      ----------   --------

Balance at December 31, 2005          21,166,109   $211,661   $133,381,395   $(1,153,755)  $132,439,301
Non-cash compensation                         --         --        539,197            --        539,197
Stock issuance costs                          --         --        (35,984)           --        (35,984)
Exercise of stock options and
   related tax benefits of $643,108      148,083      1,481      1,204,342            --      1,205,823
Net income                                    --         --             --    13,430,987     13,430,987
                                      ----------   --------   ------------   -----------   ------------
Balance at June 30, 2006              21,314,192   $213,142   $135,088,950   $12,277,232   $147,579,324
                                      ==========   ========   ============   ===========   ============


          See accompanying notes to consolidated financial statements.


                                        5



                              UNION DRILLING, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business and Principles of Consolidation

Union Drilling, Inc. ("Union" or "the Company") is engaged in the business of
onshore contract drilling and related services. The accompanying unaudited
consolidated financial statements include the accounts of Union Drilling, Inc.
and its wholly owned subsidiaries after the elimination of all significant
intercompany balances and transactions. The interim period consolidated
financial statements, including the notes thereto, have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation have
been included. The results for interim periods are not necessarily indicative of
results for a full year.

The condensed consolidated balance sheet at December 31, 2005, has been derived
from the audited financial statements of Union Drilling, Inc. at that date, but
does not include all of the information and footnotes required by GAAP for
complete financial statements. These interim period consolidated financial
statements should be read in conjunction with the consolidated financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2005.

Stock-based Compensation

Effective January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123(R), "Share-Based Payment, revised 2004" ("SFAS No. 123R"). The
Company adopted the standard by using the modified prospective method provided
for under SFAS No. 123R. SFAS No. 123R, which revised SFAS No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"), requires that the cost resulting
from all share-based payment transactions be measured at fair value and
recognized in the financial statements. For the three and six months ended June
30, 2006, the Company has recorded total stock-based compensation expense of
$270,527 ($184,341 net of tax) and $528,106 ($372,822, net of tax),
respectively. The consolidated statements of income for the three and six months
ended June 30, 2005, have not been restated to reflect stock-based compensation
expense in accordance with SFAS No. 123R.

The tax benefit realized from stock options exercised during the six months
ended June 30, 2006 is included as a cash inflow from financing activities on
the consolidated statement of cash flows.

The fair value of option grants during the three months ended June 30, 2006 was
determined using the Black-Scholes option valuation model. The key input
variables used in valuing the options were: risk-free interest rates of
approximately 4.82%; dividend yield of zero; stock price volatility of 49.6%;
and expected term of 5 years.

The risk-free interest rate is the implied yield available for zero-coupon U.S.
government issues with a remaining term equal to the expected life of the
options.

The expected lives of the options are determined based on the Company's
expectations of individual option holders' anticipated behavior and the term of
the option.

The Company has not paid out dividends historically; thus, the dividend yield is
estimated at zero percent.


                                        6



Volatility is based upon price performance of a peer company, as the Company
does not have a sufficient historical price base to determine potential
volatility over the term of the issued options.

Prior to the implementation of SFAS No. 123R, the Company accounted for
stock-based compensation under SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure" ("SFAS No. 148"), and the
disclosure-only provisions of SFAS No. 123. SFAS No. 123 permitted the Company
to continue accounting for stock-based compensation as set forth in APB Opinion
No. 25, "Accounting for Stock Issued to Employees", provided the Company
disclosed the pro forma effect on net income and earnings per share of adopting
the full provisions of SFAS No. 123. Accordingly, the Company continued to
account for stock-based compensation under APB Opinion No. 25 and provided the
required pro forma disclosures.

The following table illustrates the effect on net income and income per share if
the Company had applied the fair value recognition provisions of SFAS No. 123 to
employee stock-based awards prior to January 1, 2006:



                                                                  Three Months     Six Months
                                                                     Ended           Ended
                                                                 June 30, 2005   June 30, 2005
                                                                 -------------   -------------

Net income, as reported                                            $1,015,206      $1,256,927
Less:  Total stock-based compensation expense determined under
   fair value method for all awards                                   575,969         627,509
                                                                   ----------      ----------
Pro forma net income                                               $  439,237      $  629,418
                                                                   ==========      ==========
Basic and diluted income per share:
Basic, as reported                                                 $     0.06      $     0.09
Diluted, as reported                                               $     0.06      $     0.08
Basic, pro forma                                                   $     0.03      $     0.04
Diluted, pro forma                                                 $     0.03      $     0.04


The effects of applying SFAS No. 123 in this pro forma disclosure may not be
representative of the effects on reported net income for future periods.

Other comprehensive income

For all periods reported, other comprehensive income equals net income.

Recent accounting pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes -
an interpretation of FASB Statement No. 109." FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in an enterprise's financial
statements in accordance with SFAS No. 109. This interpretation prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. This interpretation is effective for fiscal years beginning after
December 31, 2006. We do not expect the adoption of FIN 48 to have a material
impact on our financial position or results of operations.

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3"
("SFAS No. 154"). This statement changes the requirements for the accounting for
and reporting of a change in accounting principle. SFAS No. 154 requires
retrospective application to prior periods' financial statements of changes in
accounting principle and is limited to direct effects of the change. This
statement became effective for the Company on January 1, 2006, and has not had a
material effect on the Company's financial position or results of operations.


                                        7


2. ACQUISITIONS

Effective April 1, 2005, the Company acquired substantially all of the drilling
assets (the drilling business) of SPA Drilling L.P. The aggregate cash purchase
price for the drilling assets was $20,320,000. This acquisition provided the
Company with a foothold in the North Texas market. Since the acquisition of
these assets, the Company has purchased an additional six rigs for a total of
$16.7 million, the majority of which will be utilized in the North Texas market.

Also, effective April 1, 2005, the Company acquired all the outstanding stock of
Thornton Drilling Company. The aggregate purchase price of approximately
$29,197,000 (including transaction costs of approximately $269,000) consisted of
common shares valued at approximately $2,000,000 and $26,928,000 in cash. The
transaction has been accounted for as a purchase. The purchase price has been
allocated to the assets acquired and liabilities assumed based upon their
respective fair market values. The fair market value of the property and
equipment was determined by an independent appraisal. The fair market values of
the identified intangible assets were determined by an independent valuation and
will be amortized to expense over the estimated useful lives. The excess of the
purchase price over the fair value of assets acquired and liabilities assumed in
the acquisition of approximately $5,362,000 is classified as goodwill. The
allocation of the assets acquired and liabilities assumed of Thornton Drilling
Company are as follows (in thousands):

                                Amount
                               -------
Current assets                 $ 5,465
Property and equipment          20,765
Identified intangible assets     4,000
Goodwill                         5,362
Deferred tax asset               2,129
Other long-term assets             113
Current liabilities             (1,744)
Deferred tax liabilities        (6,893)
                               -------
                               $ 29,197
                               =======

The following pro forma information gives effect to the Thornton Drilling
Company acquisition and the purchase of the drilling business of SPA Drilling,
L.P. as though they were effective as of the beginning of 2005. Pro forma
adjustments primarily relate to additional depreciation, amortization and
interest costs. The information reflects our historical data and historical data
from these acquired businesses. The pro forma data may not be indicative of the
results we would have achieved had we completed these acquisitions on January 1,
2005, or that we may achieve in the future. The pro forma financial information
should be read in conjunction with the accompanying historical financial
statements.

                                             Pro Forma
                                         Six Months Ended
                                           June 30, 2005
                             -------------------------------------
                             (in thousands, except per share data)
Total revenues                              $66,255
Net income                                  $ 2,070
Earnings per common share:
Basic                                       $  0.11
Diluted                                     $  0.10

The fair market values of identified intangible assets were determined by an
independent valuation and certain intangible assets will be amortized to expense
over the estimated useful lives. Customer relations are amortized over their
estimated benefit period of 20 years. Intangibles related to the non-compete
agreement are amortized over the period of the non-compete agreement of five
years, which assumes the named executive remains with the company for the full
term of his employment agreement. Depreciation and amortization includes
amortization of intangibles of $67,500 and $135,000, respectively, for the three
and six months ended June 30, 2006.


                                        8



The total cost and accumulated amortization of intangible assets related to our
2005 acquisition are as follows:

                            June 30,    December 31,
                              2006          2005
                           ----------   ------------
Customer relations         $2,200,000    $2,200,000
Non compete agreement         800,000       800,000
Trade name                  1,000,000     1,000,000
                           ----------    ----------
Intangible assets           4,000,000     4,000,000
                           ----------    ----------
Customer relations           (137,500)      (82,500)
Non compete agreement        (200,000)     (120,000)
                           ----------    ----------
Accumulated amortization     (337,500)     (202,500)
                           ----------    ----------
Intangible assets (net)    $3,662,500    $3,797,500
                           ==========    ==========

3. RELATED-PARTY TRANSACTIONS

During 2005, the Company entered into contract arrangements with Triana Energy,
Inc. and Columbia Natural Resources, which was purchased by Triana in August
2003, and sold by Triana Energy, Inc. in December 2005. The Company's former
Vice Chairman of the Board of Directors is the Chief Executive Officer of Triana
Energy, Inc. Effective December 31, 2005, the Chief Executive Officer of Triana
Energy, Inc. resigned as the Vice Chairman of the Board of Directors and as a
Director. During the three and six months ended June 30, 2005, the Company had
revenues related to transactions with Columbia Natural Resources and Triana
Energy, Inc. of $1,137,703 and $2,949,965, respectively. At December 31, 2005,
the Company had accounts receivable from Columbia Natural Resources and Triana
Energy, Inc. of $481,657.

William R. Ziegler, a member of our board of directors through March 31, 2006,
is a partner of Satterlee Stephens Burke & Burke LLP, legal counsel for the
Company. During the three months ended March 31, 2006, legal fees related to
transactions with Satterlee Stephens Burke & Burke LLP were $49,985. During the
three and six months ended June 30, 2005, legal fees were $143,555. At December
31, 2005, the Company had no outstanding accounts payable to Satterlee Stephens
Burke & Burke LLP.

4. ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

                                    June 30,    December 31,
                                      2006          2005
                                  -----------   ------------

Billed receivables                $31,697,233    $20,829,400
Unbilled receivables                9,345,524      7,063,290
                                  -----------    -----------
Total receivables                  41,042,757     27,892,690
Allowance for doubtful accounts      (356,731)      (313,436)
                                  -----------    -----------
Net receivables                   $40,686,026    $27,579,254
                                  ===========    ===========

Unbilled receivables represent recorded revenue that is billable by the Company
at future dates based on contractual payment terms, and is anticipated to be
billed and collected in the quarter following the balance sheet date.


                                        9



5. PROPERTY, BUILDINGS AND EQUIPMENT

Major classes of property, buildings and equipment are as follows:

                                        June 30,     December 31,
                                          2006           2005
                                      ------------   ------------
Land                                  $  1,010,432   $    967,432
Buildings                                1,357,622        978,489
Drilling equipment                     164,827,987    135,617,519
Vehicles                                 6,750,986      5,949,101
Furniture and fixtures                     127,180         37,977
Computer equipment                         628,885        595,702
Leasehold improvements                      78,175         78,175
Construction in progress                33,876,250     22,809,603
                                      ------------   ------------
                                       208,657,517    167,033,998
Less accumulated depreciation          (55,985,167)   (46,250,906)
                                      ------------   ------------
                                      $152,672,350   $120,783,092
                                      ============   ============

Property, buildings and equipment include capitalized interest of $724,291 and
$307,254 as of June 30, 2006 and December 31, 2005, respectively.

6. ACCRUED EXPENSES AND OTHER LIABILITIES

A detail of accrued expenses and other liabilities is as follows:

                                June 30,    December 31,
                                  2006          2005
                               ----------   ------------
Accrued payroll and bonus      $3,261,008    $2,709,219
Accrued workers compensation    3,245,657     1,312,214
Other                           1,529,523     1,331,875
                               ----------    ----------
                               $8,036,188    $5,353,308
                               ==========    ==========

7. REVOLVING CREDIT FACILITY AND LONG-TERM OBLIGATIONS

The Company entered into a Revolving Credit and Security Agreement with PNC
Bank, as agent for a group of lenders, dated March 31, 2005, which matures on
March 30, 2009, and subsequently amended on April 19, August 15, and October 5,
2005, which provides for a borrowing base equal to the lesser of $60,000,000 or
the sum of 85% of eligible receivables and 75% of the liquidation value of
eligible rig fleet equipment. There is a $7,500,000 sublimit for letters of
credit. Amounts outstanding under the revolving credit facility bear interest at
either (i) the higher of the Federal Funds Open Rate plus one half of 1.00% or
the base commercial lending rate of the agent for the lenders (8.25% at June 30,
2006) or (ii) LIBOR plus 2.00% (7.5085% at June 30, 2006). As of June 30, 2006,
approximately $15,041,000 million was outstanding under the Revolving Credit and
Security Agreement. As of December 31, 2005, the Company had no outstanding
loans under this revolving credit facility. As of June 30, 2006 and December 31,
2005, $3.2 million of the total capacity has been utilized to support the
Company's letter of credit requirement.

The Revolving Credit and Security Agreement is secured by substantially all of
our assets, with certain exceptions, and contains affirmative and negative
covenants and provides for events of default that are typical for an agreement
of this type. Among the affirmative covenants are requirements to maintain a
specified tangible net worth (initially


                                       10



$43 million) and a fixed charge coverage ratio of 1.10 to 1.00. Among the
negative covenants are restrictions on major corporate transactions, capital
expenditures, payment of dividends, incurrence of indebtedness, and amendments
to our organizational documents. Net capital expenditures (excluding
acquisitions) were limited to $45 million in 2005 and $10 million in subsequent
years, but those amounts are increased by permitted equity issuance proceeds and
the unused amounts can be carried over to the next fiscal year. Among the events
of default are a change in control and any change in our operations or
condition, which has a material adverse effect. As of June 30, 2006, the Company
was in compliance with all debt covenants.

In addition, the Company has entered into various equipment-specific financing
agreements with several third-party financing institutions. The terms of these
agreements range from 36 to 60 months. As of June 30, 2006 and December 31,
2005, the total outstanding balance under these arrangements, including
principal and interest, was $8,510,979 and $8,757,891, respectively. The
interest rate on these borrowings ranges from 3.5% to 7.5%.

8. COMMITMENTS AND CONTINGENCIES

Due to the nature of our business, we are, from time to time, involved in
routine litigation or subject to disputes or claims related to our business
activities, including workers' compensation claims and employment-related
disputes. In the opinion of our management, none of such pending litigation,
disputes or claims against us will have a material adverse effect on our
financial condition, results of operations or cash flow from operations, and
there is only a remote possibility that any such matter will require any
additional loss accrual.

In December 2005, the Company entered into a contract with National Oilwell
Varco, L.P. ("NOV"), to acquire three rigs and related equipment for an
aggregate purchase price of $24 million. In November 2005, Union had paid NOV
$250,000 toward the purchase price of such equipment. In December 2005, the
Company made a further downpayment of $6,936,500 on the first three rigs. Also
in December 2005, the Company paid $1 million to NOV for an option to acquire an
additional three rigs and related equipment for an aggregate purchase price of
$25.2 million. On April 27, 2006, the Company exercised this option and entered
into a purchase and sale agreement with NOV for the additional three rigs. The
$1 million previously paid by the Company for the option to purchase the rigs
will be applied against the purchase price of the rigs. All six rigs, which are
capable of horizontal and underbalanced drilling, are scheduled for delivery
during 2006.

The Company signed a lease for its corporate office relocation in Fort Worth,
Texas, commencing on April 1, 2006. The total commitment cost of the 48 month
lease is approximately $611,000, including the abatement of the first six months
rent.

9. STOCKHOLDERS' EQUITY

At June 30, 2006, the number of authorized shares of common and preferred stock
was 75,000,000 and 100,000 shares, respectively, of which 21,314,192 and zero
were outstanding, and 2,616,225 and zero were reserved for future issuance.

On October 6, 2005, the Company effected a stock dividend of 1.6325872 shares
for each outstanding share of common stock. All common stock prices and amounts
impacted by the dividend have been retroactively adjusted. Certain share
calculations resulting in fractional amounts have been truncated.


                                       11



10. EARNINGS PER COMMON SHARE

The following table presents a reconciliation of the numerators and denominators
of the basic earnings per share and diluted earnings per share computations as
required by SFAS No. 128:



                                          Three Months Ended           Six Months Ended
                                               June 30,                    June 30,
                                      -------------------------   -------------------------
                                          2006          2005          2006          2005
                                      -----------   -----------   -----------   -----------

Net income                            $ 6,459,486   $ 1,015,206   $13,430,987   $ 1,256,927
                                      ===========   ===========   ===========   ===========
Weighted average shares outstanding    21,213,705    16,226,591    21,190,038    14,686,301
Incremental shares from assumed
   conversion of stock options            397,995       484,534       395,388       484,569
                                      -----------   -----------   -----------   -----------
Weighted average and assumed
   incremental shares                  21,611,700    16,711,125    21,585,426    15,170,870
                                      ===========   ===========   ===========   ===========
Earnings per share:
   Basic                              $      0.30   $      0.06   $      0.63   $      0.09
                                      ===========   ===========   ===========   ===========
   Diluted                            $      0.30   $      0.06   $      0.62   $      0.08
                                      ===========   ===========   ===========   ===========


Basic earnings per share have been computed by dividing net income by weighted
average shares outstanding.

Diluted earnings per share have been computed by dividing net income by weighted
average shares outstanding and assumed incremental shares from assumed
conversion of stock options.

11. MANAGEMENT COMPENSATION

Stock option plans

The Company has two stock option plans, the 2005 Stock Option Plan and the
Amended and Restated 2000 Stock Option Plan. Under each plan, 1,579,552 shares
have been authorized for awards of stock options. As of June 30, 2006, 554,275
options have been granted under the 2005 Stock Option Plan and 1,404,401 options
have been granted under the Amended and Restated 2000 Stock Option Plan. In
addition, 132,958 options were granted outside the plans in 1999. Options
typically vest in four equal annual installments from the grant date and expire
on the tenth anniversary of the grant date.

A summary of stock option activity for the six months ended June 30, 2006 is as
follows:



                                                                Weighted
                                                   Weighted     Average
                                         Number     Average     Remaining      Aggregate
                                           of      Exercise   Contractual      Intrinsic
                                         Shares      Price    Term in Years      Value
                                       ---------   --------   -------------   -----------

Outstanding at December 31, 2005       1,541,380    $ 7.21
Granted                                   22,500    $14.38
Exercised                               (148,083)   $ 3.80
                                       ---------    ------
Outstanding at June 30, 2006           1,415,797    $ 7.68         6.87       $10,168,001
                                       =========    ======         ====       ===========
Options exercisable at June 30, 2006     657,497    $ 3.54         4.81       $ 7,443,433
                                       =========    ======         ====       ===========



                                       12



Total unamortized stock-based compensation was $2,708,183 at June 30, 2006, and
will be recognized over the weighted average service period of 2.58 years.

The weighted average fair value of options granted during the period is $6.97.
The total fair value of options vested during the period is $828,326.

Cash received from exercise of options during the six months ended June 30, 2006
was $562,715. New shares are issued to satisfy options exercised. The total
intrinsic value of options exercised during the period is $1,637,798.

Employee benefit plan

The Company has a 401(k) employee benefit plan covering substantially all of its
employees. Company contributions to the plan are discretionary. The Company made
employee matching contributions of $63,541 and $127,093 during the three and six
months ended June 30, 2006, respectively.

Contingent management compensation

Certain members of the Company management and certain other participants have
been awarded rights to participate in the proceeds associated with the
appreciation in value ultimately associated with dispositions of the Company's
shares by Union Drilling Company LLC (UDC). In order to receive benefits from
this arrangement, the fair market value of the Company's shares held by UDC must
exceed certain threshold amounts.

The Company management participants in this arrangement are to receive benefits
as a result of UDC's sale, distribution or disposition of Company shares and the
related recognition of a gain in excess of the threshold amount. These rights
may be repurchased from these individuals at fair market value, which includes
consideration of the threshold amount in the determination of that value, upon
termination of their employment by the Company.

At June 30, 2006 and December 31, 2005, the threshold amounts were $27.8 million
and $26.5 million, respectively. These amounts are determined based upon cash
invested in UDC (and invested by UDC in the Company's stock) plus a compounded
annual return of 10% less cash returned to investors. During the three and six
months ended June 30, 2006, $10,554 and $11,091, respectively, of compensation
costs was recognized as a result of the fair value of the assets owned by UDC
exceeding the threshold. This amount is classified as general and administrative
expense.

The defined group of participants in this arrangement would be entitled to up to
22.5% of the value realized in excess of the threshold amount. Members of
Company management are entitled to approximately 4% of the 22.5%.

12. INCOME TAXES

Income tax expense for the three and six months ended June 30, 2006 was
$4,503,285 and $9,372,047, respectively, which is an effective rate of 41.1% of
pre-tax book income. This rate was calculated using estimated full year pre-tax
book income, adjusted for permanent book/tax differences associated with
non-cash compensation expense and meals and entertainment expense. There was no
required tax provision for the three and six months ended June 30, 2005 due to
the use of a valuation reserve associated with a net operating loss carryforward
which approximated $24.8 million at December 31, 2005.

13. SUBSEQUENT EVENT

On July 20, 2006, the Company paid its final installment and took delivery of
the first of the six NOV rigs. The rig is currently being placed into service in
the Fort Worth Basin.

The Company has signed a multi-year contract with a customer that involves
moving the rigs currently employed in the Rockies to eastern Arkansas for
drilling in the Fayetteville Shale. This move will begin in late 2006, after the
rigs fulfill their contractual responsibilities in the Rockies.


                                       13



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

Statements we make in the following discussion that express a belief,
expectation or intention, as well as those which are not historical fact, are
forward-looking statements that are subject to risks, uncertainties and
assumptions. Our actual results, performance or achievements, or industry
results, could differ materially from those we express in the following
discussion as a result of a variety of factors, including general economic and
business conditions and industry trends, the continued strength or weakness of
the contract land drilling industry in the geographic areas in which we operate,
decisions about onshore exploration and development projects to be made by oil
and gas companies, the highly competitive nature of our business, our future
financial performance, including availability, terms and deployment of capital,
the continued availability of qualified personnel, and changes in, or our
failure or inability to comply with, government regulations, including those
relating to the environment. See Item 1A Risk Factors of our Form 10-K for the
year ended December 31, 2005.

COMPANY OVERVIEW

Union Drilling Inc. provides contract land drilling services and equipment,
primarily to natural gas producers in the U.S. In addition to our drilling rigs,
we provide the drilling crews and most of the ancillary equipment needed to
operate our drilling rigs. We commenced operations in 1997 with 12 drilling rigs
and related equipment acquired from a predecessor that was providing contract
drilling services under the name "Union Drilling." Through a combination of
acquisitions and new rig construction, we have increased the size of our fleet
to 71 land drilling rigs, of which 64 are marketed and seven are stacked. We
have focused our operations in selected natural gas production regions in the
United States. We do not invest in oil and natural gas properties. The drilling
activity of our customers is highly dependent on the current price of oil and
natural gas.

In response to rising demand from our customers for equipment that is capable of
efficiently drilling wells in unconventional natural gas formations, we
completed several transactions in 2005 and the first six months of 2006 that
enhanced our ability to serve these markets. In April 2005, we acquired Thornton
Drilling Company, which owned a fleet of 12 rigs and leased an additional rig
operating in the Arkoma Basin, and eight rigs from SPA Drilling L.P., five of
which are targeting the Barnett Shale formation in the Fort Worth Basin. In June
2005 and August 2005, we acquired six more rigs, five of which target the
Barnett Shale formation in the Fort Worth Basin. In the first six months of
2006, we purchased two rigs that are being utilized in the Fayetteville Shale in
eastern Arkansas. These transactions substantially expanded our unconventional
natural gas contract drilling operations beyond our traditional markets in the
Appalachian Basin and the Rocky Mountains. In addition to these acquisitions,
over the past three years we have purchased seven newly constructed rigs and
have devoted significant capital expenditures to upgrade other rigs in our fleet
for underbalanced and horizontal drilling. These investments have positioned our
fleet to capitalize on our customers' rapidly growing unconventional resource
exploration and development activity.

A significant performance measurement in our industry is rig utilization. We
compute rig utilization rates by dividing revenue days by total available days
during a period. Total available days are the number of calendar days during the
period that we have owned the rig. Revenue days for each rig are days when the
rig is earning revenues under a contract, which is generally a period from the
date the rig begins moving to the drilling location until the rig is released
from the contract.


                                       14



For the three and six months ended June 30, 2006 and 2005, our marketed rig
utilization, revenue days and average total number of rigs were as follows:

                                 Three Months Ended   Six Months Ended
                                      June 30,             June 30,
                                 ------------------   ----------------
                                     2006    2005      2006     2005
                                    -----   -----      -----   -----
Marketed rig utilization rates       76.1%   58.8%      76.5%   53.4%
Revenue days                        4,375   3,137      8,699   4,708
Average total number of rigs         70.3    63.7       70.0    53.3

The reasons for the increase in the number of revenue days in 2006 over 2005 are
the increase in size of our rig fleet and the improvement in our overall rig
utilization rate due to improved market conditions. A significant factor
contributing to the growth in the number of rigs and revenue days was the
aforementioned 2005 acquisitions.

We devote substantial resources to maintaining and upgrading our rig fleet.
During 2005, we removed certain rigs from service to perform upgrades. In the
short term, these actions resulted in fewer revenue days and slightly lower
utilization; however, in the long term, we believe the upgrades will help the
marketability of the rigs and improve their operating performance. We are
currently performing or have recently performed, between contracts or as
necessary, safety and equipment upgrades to various rigs in our fleet.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

REVENUE AND COST RECOGNITION - We generate revenue principally by drilling wells
for natural gas producers on a contracted basis under daywork or footage
contracts, which provide for the drilling of single or multiple well projects.
Revenues on daywork contracts are recognized based on the days worked at the
dayrate each contract specifies. Mobilization fees are recognized, in all
material respects, as the related drilling services are provided. We recognize
revenues on footage contracts based on the footage drilled for the applicable
accounting period. Expenses are recognized based on the costs incurred during
that same accounting period.

At June 30, 2006, our contract drilling work in progress totaled approximately
$9.3 million, and approximately $7.1 million at December 31, 2005, all of which
relates to the revenue recognized but not yet billed on daywork and footage
contracts in progress at June 30, 2006 and December 31, 2005, respectively. The
change is due primarily to the increase in the number of rigs working.

ACCOUNTS RECEIVABLE - We evaluate the creditworthiness of our customers based on
their financial information, if available, information obtained from major
industry suppliers and past experiences with customers. In some instances, we
require new customers to establish escrow accounts or make prepayments. We
typically invoice our customers at 30 day intervals during the performance of
daywork contracts and upon completion of the daywork contract. Footage contracts
are invoiced upon completion of the contract. Our contracts generally provide
for payment of invoices in 30 days. We established an allowance for doubtful
accounts of approximately $357,000 at June 30, 2006 and approximately $313,000
at December 31, 2005. Any allowance established is subject to judgment and
estimates made by management. We determine our allowance by considering a number
of factors, including the length of time trade accounts receivable are past due,
our previous loss history, our assessment of our customers' current abilities to
pay obligations to us and the condition of the general economy and the industry
as a whole. We write off specific accounts receivable when they become
uncollectible.

ACCRUED EXPENSES - Our other accrued expenses as of June 30, 2006 and December
31, 2005 included accruals of approximately $3.2 million and $1.3 million,
respectively, for costs under our workers' compensation insurance. We have a
deductible of $100,000 per covered accident under our workers' compensation
insurance. Our insurance policy requires us to maintain a letter of credit to
cover payments by us of that deductible. As of June 30, 2006, we satisfied this
requirement with a $3.2 million letter of credit with our bank and our borrowing
capacity under our revolving credit agreement with our bank has been reduced by
the same amount collateralizing such letter of credit. We accrue for these costs
as claims are incurred based on cost estimates established for each claim by the
insurance companies providing the administrative services for processing the
claims, including an estimate for incurred but not


                                       15



reported claims, estimates for claims paid directly by us, our estimate of the
administrative costs associated with these claims and our historical experience
with these types of claims. In addition, we accrue on a monthly basis the
estimated workers compensation premium payable to the two states (West Virginia
and Ohio) that are considered monopolistic.

STOCK-BASED COMPENSATION - Effective January 1, 2006, the Company adopted
Statement of Financial Accounting Standards No. 123(R), "Share-Based Payment,
revised 2004" ("SFAS No. 123R"). The Company adopted the standard by using the
modified prospective method provided for under SFAS No. 123R. SFAS No. 123R,
which revised Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"), requires that the cost resulting
from all share-based payment transactions be measured at fair value and
recognized in the financial statements. For the three and six months ended June
30, 2006, the Company has recorded total stock-based compensation expense of
$270,527 ($184,341 net of tax) and $528,106 ($372,822, net of tax),
respectively. The remaining estimated pretax amortization on these outstanding
options of approximately $2.7 million will be recognized through April 2, 2010.
The consolidated statements of income for the three and six months ended June
30, 2005, has not been restated to reflect stock-based compensation expense in
accordance with SFAS No. 123R. During both the three and six months ended June
30, 2006, 154,664 options vested and 148,083 options were exercised. New shares
are issued to satisfy options exercised.

The fair value of option grants during the three months ended June 30, 2006 was
determined using the Black-Scholes option valuation model. The key input
variables used in valuing the options were: risk-free interest rates of
approximately 4.82%; dividend yield of zero; stock price volatility of 49.6%;
and expected term of five years. During both the three and six months ended June
30, 2005, 527,754 options were granted.

The risk-free interest rate is the implied yield available for zero-coupon U.S.
government issues with a remaining term equal to the expected life of the
options.

The expected lives of the options are determined based on the Company's
expectations of individual option holders anticipated behavior and the term of
the option.

The Company has not paid out dividends historically; thus, the dividend yield is
estimated at zero percent.

Volatility is based upon price performance of a peer company, as the Company
does not have a sufficient historical price base to determine potential
volatility over the term of the issued options.

Prior to the implementation of SFAS No. 123R, the Company accounted for
stock-based compensation under SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure" ("SFAS No. 148"), and the
disclosure-only provisions of SFAS No. 123. SFAS No. 123 permitted the Company
to continue accounting for stock-based compensation as set forth in APB Opinion
No. 25, "Accounting for Stock Issued to Employees," provided the Company
disclosed the pro forma effect on net income and earnings per share of adopting
the full provisions of SFAS No. 123. Accordingly, the Company continued to
account for stock-based compensation under APB Opinion No. 25 and provided the
required pro forma disclosures.

RESULTS OF OPERATIONS

Our operations consist of drilling natural gas wells for our customers under
either daywork or footage contracts. Contract terms we offer generally depend on
the complexity and risk of operations, the on site drilling conditions, the type
of equipment used and the anticipated duration of the work to be performed. Our
contracts generally provide for the drilling of a single well or series of wells
and typically permit the customer to terminate on short notice.

The current demand for drilling rigs greatly influences the types of contracts
we are able to obtain. As the demand for rigs increases, daywork rates move up
and we are able to switch primarily to daywork contracts.


                                       16



STATEMENTS OF OPERATIONS ANALYSIS

The following table provides selected information about our operations for the
three and six months ended June 30, 2006 and 2005 (in thousands).



                                                Three Months Ended    Six Months Ended
                                                      June 30,             June 30,
                                                ------------------   ------------------
                                                   2006      2005      2006       2005
                                                 -------   -------   --------   -------

Drilling revenues                                $58,816   $34,771   $115,394   $51,935
                                                 =======   =======   ========   =======
Drilling operations expenses                     $37,494   $26,023   $ 72,462   $38,810
                                                 =======   =======   ========   =======
Depreciation and amortization                    $ 5,557   $ 4,029   $ 10,744   $ 6,136
General and administrative expense                 5,133     2,876      9,834     4,851
Interest expense                                      --      (852)        (1)   (1,005)
Other income and gain on sale of fixed assets        332        25        450       124
Revenue days during period                         4,375     3,137      8,699     4,708
                                                 =======   =======   ========   =======
Drilling revenue per revenue day                 $13,444   $11,084   $ 13,265   $11,031
Drilling cost per revenue day                    $ 8,570   $ 8,296   $  8,330   $ 8,243
Rig utilization rates                               76.1%     58.8%      76.5%     53.8%
Average number of rigs during the period            70.3      63.7       70.0      53.3


DRILLING REVENUES. Our contract drilling revenues grew by approximately $24.0
million, or 69%, in the three months ended June 30, 2006 compared to the same
period in 2005. $16.6 million of the increase was due to an increase in revenue
days, where revenue days increased by 1,238 days. In addition, the average
revenue per revenue day increased by $2,360 per day. The improvement in average
revenue per revenue day was a result of increases in our contract rates due to
stronger demand for our drilling services.

For the six months ended June 30, 2006, contract drilling revenues increased by
approximately $63.5 million, or 122%, compared to the six months ended June 30,
2005. This increase was primarily a result of the acquisitions of Thornton
Drilling Company and the assets of SPA Drilling, L.P. on April 1, 2005. The
revenues from these acquisitions during the first quarter of 2006 accounted for
$29.2 million of the revenue increase. The balance of the increase of $34.3
million was due to an increase in revenue days, where revenue days increased by
1,936 days. In addition, the average revenue per revenue day increased by $1,948
per day. The improvement in average revenue per revenue day was a result of
increases in our contract rates due to stronger demand for our drilling
services.

DRILLING OPERATIONS EXPENSES. Our contract drilling costs in the three months
ended June 30, 2006 grew by approximately $11.5 million, or 44% compared to the
three months ended June 30, 2005. The increase was related to higher revenues,
however these expenses did not increase at the same rate as revenue due to
improvement in overall drilling margins associated with higher contract rates.

Contract drilling costs increased $33.7 million during the first six months of
2006 compared to the first six months of 2005. This increase, as with the
increase in revenues discussed above, is largely due to the drilling operations
expenses related to Thornton Drilling Company and SPA Drilling, L.P.
acquisitions, which accounted for $17.4 million of the increase during the first
quarter of 2006. The remaining increase is primarily due to the increase in the
number of revenue days during which drilling services were being provided.


DEPRECIATION AND AMORTIZATION. Our depreciation and amortization expense in the
three and six months ended June 30, 2006 increased by approximately $1.5
million, or 38%, and $4.6 million, or 75%, respectively, as compared to the same
periods in 2005, primarily as a result of the capital spending during the last
six months of 2005 and the first


                                       17



six months of 2006 for rig purchases and capital equipment upgrades. In
addition, $2.6 million of the increase for the six month period is attributable
to depreciation expense during the first quarter of 2006 related to the assets
acquired on April 1, 2005.

GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative expenses
increased by approximately $2.3 million, or 78%, during the three months ended
June 30, 2006 compared to the three months ended June 30, 2005. The increase is
due primarily to approximately $1.1 million in higher personnel expense
(including approximately $270,000 of non-cash compensation, primarily related to
the implementation of SFAS No. 123R on January 1, 2006), additional professional
and consulting costs of approximately $593,000 as a result of becoming a public
company in November 2005, increased insurance costs of approximately $259,000
related to the 2005 acquisitions and $257,000 related to the corporate office
relocation.

For the six month period ended June 30, 2006 compared to the six month period
ended June 30, 2005, general and administrative expenses increased by
approximately $5.0 million, or 103%, primarily due to $2.4 million increase in
employment costs (including approximately $528,000 non-cash compensation costs),
$595,000 in insurance costs, $985,000 in additional professional and consulting
costs and $357,000 for relocation costs. In addition, approximately $917,000 of
the increase is a result of first quarter 2006 general and administrative costs
associated with operations established to support the purchase of SPA Drilling
assets and the Thornton Drilling Company acquisition.

INTEREST EXPENSE. Interest expense decreased by approximately $852,000 and $1.0
million, respectively, for the three and six months ended June 30, 2006 compared
to the same periods in 2005. These decreases were due primarily to the higher
interest in 2005 related to the financing of the April 1, 2005 acquisitions, and
interest capitalized in 2006 related to capital spending.

OTHER INCOME AND GAIN ON SALE OF FIXED ASSETS. Other income and gain on sale of
fixed assets increased by approximately $306,000 and $326,000, respectively, for
the three and six months ended June 30, 2006 compared to the three and six
months ended June 30, 2005. During the second quarter of 2006, the Company
received insurance settlement proceeds of approximately $456,000 related to a
2004 rig accident, resulting in a gain of approximately $274,000.

TAXES. Our effective income tax rate of 41% for the three and six months ended
June 30, 2006 differs from the federal statutory rate of 34% due to related
state income taxes and permanent differences associated with meals and
entertainment (primarily for our direct service personnel) and non-cash
compensation. Permanent differences are costs included in results of operations
in the accompanying financial statements, which are not fully deductible for
federal income tax purposes. The three and six months ended June 30, 2005 has no
provision for income taxes due to the availability of net operating loss
carryforwards from previous years.

At December 31, 2005, we had domestic net operating loss carryforwards for
income tax purposes of approximately $24.8 million. These losses may be carried
forward for 20 years and will begin to expire in 2019. The state losses vary as
to carryforward period and will begin to expire in 2008, depending upon the
jurisdiction where applied. Based upon 2006 results and forecasted future
operations, we feel it is more likely than not that the amounts will be
realized.

LIQUIDITY AND CAPITAL RESOURCES

Sources of Capital Resources

Our rig fleet has grown from 12 rigs in 1997 to 71 rigs as of June 30, 2006. We
have financed this growth with a combination of debt and equity financing. We
plan to continue to grow our rig fleet. At June 30, 2006, our total debt to
total capital was approximately 16.7%. Due to the volatility in our industry, we
are reluctant to take on substantial additional debt in excess of the
approximately $41.7 million of remaining availability under our revolving credit
facility. However, our ability to continue funding our growth through the
issuance of shares of our common stock is uncertain, as our common stock is not
heavily traded and the market price for our common stock has been volatile in
recent periods.


                                       18



On April 1, 2005, we raised approximately $20 million, after expenses, through a
sale of shares of our common stock. These proceeds plus additional borrowing
under our revolving credit facility were used to fund the acquisitions of
Thornton Drilling Company, an Oklahoma-based drilling company which owned 12
drilling rigs and substantially all of the drilling assets (eight rigs) of SPA
Drilling L.P., a Texas-based drilling company.

On November 22, 2005, we also sold 4,411,765 shares of our common stock at
approximately $13.05 per share, net of underwriters' commissions, pursuant to a
public offering we registered with the Securities and Exchange Commission. The
net proceeds to Union, after expenses, of this sale were $55,379,482, and were
used primarily to repay indebtedness under our revolving credit facility.

We entered into a Revolving Credit and Security Agreement with PNC Bank, as
agent for a group of lenders, dated March 31, 2005, which matures on March 30,
2009, and subsequently amended on April 19, August 15, and October 5, 2005,
which provides for a borrowing base equal to the lesser of $60,000,000 or the
sum of 85% of eligible receivables and 75% of the liquidation value of eligible
rig fleet equipment. The agent may, in the exercise of its reasonable business
judgment, increase or decrease those percentage advance rates against eligible
receivables and liquidation value. The liquidation value of eligible rig fleet
equipment is determined annually (or semi-annually in certain circumstances) by
an independent appraisal, with adjustments for acquisitions and dispositions
between appraisals. There is a $7,500,000 sublimit for letters of credit.
Amounts outstanding under the revolving credit facility bear interest at either
(i) the higher of the Federal Funds Open Rate plus 1/2 of 1% or PNC Bank's base
commercial lending rate (8.25% at June 30, 2006) or (ii) LIBOR plus 2.00%
(7.5085% at June 30, 2006). Those rates may increase by up to 0.50% for LIBOR
loans or up to 0.25% for domestic rate loans if our fixed charge coverage ratio
falls below certain targets.

Interest on outstanding loans is due monthly for domestic rate loans and at the
end of the relevant interest period for LIBOR loans. All outstanding principal
and interest is due at maturity on March 30, 2009. As of June 30, 2006, we had a
loan balance of approximately $15.0 million under the Revolving Credit and
Security Agreement, and an additional $3.2 million of the total capacity has
been utilized to support our letter of credit requirement. To date, the
revolving credit facility has been used to pay for rig acquisitions and for
working capital requirements. If we repay and terminate the obligations under
the Revolving Credit and Security Agreement, we would be liable for a prepayment
penalty.

The Revolving Credit and Security Agreement is secured by substantially all of
our assets, with certain exceptions, and contains affirmative and negative
covenants and provides for events of default that are typical for an agreement
of this type. Among the affirmative covenants are requirements to maintain a
specified tangible net worth (initially $43 million) and a fixed charge coverage
ratio of 1.10 to 1.00. Among the negative covenants are restrictions on major
corporate transactions, capital expenditures, payment of dividends, incurrence
of indebtedness, and amendments to our organizational documents. Net capital
expenditures (excluding acquisitions) were limited to $45 million in 2005 and
$10 million in subsequent years, but those amounts are increased by permitted
equity issuance proceeds and the unused amounts can be carried over to the next
fiscal year. Among the events of default are a change in control and any change
in our operations or condition, which has a material adverse effect.

USES OF CAPITAL RESOURCES

Effective April 1, 2005, the Company acquired all of the capital stock of
Thornton Drilling Company, an Oklahoma-based drilling company, which owned 12
drilling rigs. Also, effective the same date, the Company acquired substantially
all of the drilling assets (eight rigs) of SPA Drilling L.P., a Texas-based
drilling company. The total purchase price for these businesses was $49,517,419.
These acquisitions were financed by a new $50,000,000 revolving line of credit
with PNC Bank, as agent for a group of lenders, (subsequently amended - see
above), and collateralized by substantially all of the assets of the Company.
The previous debt facilities were both retired at that time. In addition, the
Company also received an equity infusion of approximately $20,000,000 from
private investors. Also, the seller of Thornton Drilling Company received
approximately $2,000,000 in stock of Union Drilling Inc. as part of the
transaction. The funding of these transactions occurred on April 1, 2005.

In June 2005 and August 2005, the Company entered into agreements to purchase
six additional rigs for a total of $16,650,000.


                                       19



In the fourth quarter of 2005, the Company acquired two new top head drive rigs
for approximately $1,700,000.

In December 2005, the Company entered into a contract with National Oilwell
Varco L.P. ("NOV") to acquire three rigs and related equipment for an aggregate
purchase price of $24 million. In November 2005, Union had paid NOV $250,000
toward the purchase price of such equipment. In December 2005, the Company made
a further downpayment of $6,936,500 on the first three rigs. Also in December
2005, the Company paid $1 million to NOV for an option to acquire an additional
three rigs and related equipment for an aggregate purchase price of $25.2
million. In April 2006, the Company exercised this option and entered into a
purchase and sale agreement with NOV for the additional three rigs, making a
down payment of $6,545,825. The $1 million previously paid by the Company for
the option to purchase the rigs will be applied against the purchase price of
the rigs. All six rigs, which are capable of horizontal and underbalanced
drilling, are scheduled for delivery during 2006.

In the first six months of 2006, the Company acquired two rigs for deployment in
the Fayetteville Shale play in eastern Arkansas for a total purchase price of
$8.8 million. In addition, capital expenditures were made to maintain our
current fleet and refurbish existing equipment.

For the three and six months ended June 30, 2006, the additions to our property
and equipment consisted of the following:

                                       Three Months     Six Months
                                          Ended           Ended
                                      June 30, 2006   June 30, 2006
                                      -------------   -------------
Land                                   $        --     $    43,000
Buildings                                       --          83,950
Drilling and well service equipment     21,096,611      41,193,412
Vehicles                                   615,573       1,568,958
Furniture and fixtures                      43,541          89,204
Computer equipment                          15,574          37,450
                                       -----------     -----------
                                       $21,771,299     $43,015,974
                                       ===========     ===========

Working Capital

Our working capital decreased $1.7 million to $23.9 million at June 30, 2006
from $25.6 million at December 31, 2005. Our current ratio, which we calculate
by dividing our current assets by our current liabilities, was 1.9 at June 30,
2006 compared to 2.21 at December 31, 2005.

Our operations have historically generated sufficient cash flow to meet our
requirements for debt service and equipment expenditures (excluding major
business acquisitions). The significant improvement in cashflow from operating
activities for the six months ended June 30, 2006 over the six months ended June
30, 2005 is primarily due to the $12.2 million improvement in net earnings, plus
the approximate $4.6 million increase in depreciation and amortization expense
and the utilization of our deferred tax asset of $7.4 million. We believe our
cash generated by operations and our ability to borrow the currently unused
portion of our line of credit and letter of credit facility of approximately
$41.7 million, which takes into account reductions for approximately $3.2
million of outstanding letters of credit as of June 30, 2006, should allow us to
meet our routine financial obligations for the foreseeable future.


                                       20



The changes in the components of our working capital were as follows:

                                June 30,    December 31,
                                  2006          2005          Change
                              -----------   ------------   -----------
Cash and cash equivalents     $   758,382    $ 2,388,276   $(1,629,894)
Receivables                    40,686,026     28,060,911    12,625,115
Inventories                     1,194,536        860,208       334,328
Prepaid expenses                2,511,595      4,930,431    (2,418,836)
Deferred taxes                  5,240,334     10,542,730    (5,302,396)
                              -----------    -----------   -----------
CURRENT ASSETS                 50,390,873     46,782,556     3,608,317
                              -----------    -----------   -----------
Accounts payable               13,990,937      9,240,626     4,750,311
Current debt                    4,077,307      5,322,634    (1,245,327)
Current portion of advances
   from customers                 420,000      1,265,067      (845,067)
Accrued expenses                8,036,188      5,353,308     2,682,880
                              -----------    -----------   -----------
CURRENT LIABILITIES            26,524,432     21,181,635     5,342,797
                              -----------    -----------   -----------
WORKING CAPITAL               $23,866,441    $25,600,921   $(1,734,480)
                              ===========    ===========   ===========

The increase in our receivables at June 30, 2006 from December 31, 2005 was due
primarily to the increase in revenue days during the second quarter of 2006,
compared to the fourth quarter of 2005, as well as an improvement in utilization
and revenue rates.

Substantially all our prepaid expenses at June 30, 2006 and December 31, 2005
consisted of prepaid insurance. The decrease in prepaid expenses from December
31, 2005 was due to $2.4 million amortization of prepaid insurance during the
six months ended June 30, 2006 and approximately $900,000 of collections on
non-trade receivables in the first quarter of 2006, partially offset by $1.1
million of insurance premiums paid in 2006.

The decrease in the deferred tax asset is due to the use of some of the net
operating loss carryforward.

The increase in payables at June 30, 2006 from December 31, 2005 was primarily
due to higher supplies, repairs and capital expenditures resulting from the
increase in the size of our drilling rig fleet.

The total increase in accrued expenses at June 30, 2006 from December 31, 2005
was due to the growth in payroll, workers compensation and other costs which can
be attributed to additional employee headcount. In addition, we have incurred
other expenses associated with being a public company, such as consulting fees
related to Sarbanes-Oxley and additional legal and audit fees.

Historically, we have not been required to make income tax payments due to net
operating loss ("NOL") carryforwards, however, due to the expected utilization
of those NOL's in 2006, we made an estimated tax payment of $3.2 million in the
second quarter of 2006.


                                       21



LONG-TERM DEBT

Our long-term debt at June 30, 2006 and December 31, 2005 consisted of the
following:

                                         June 30,    December 31,
                                           2006          2005
                                       -----------   ------------
Notes payable for equipment financed     7,705,118      7,825,984
Less current installments               (2,259,409)    (2,013,956)
                                       -----------    -----------
                                       $ 5,445,709    $ 5,812,028
                                       ===========    ===========

CONTRACTUAL OBLIGATIONS

In December 2005, the Company entered into a contract with National Oilwell
Varco, L.P. ("NOV"), to acquire three rigs and related equipment for an
aggregate purchase price of $24 million. In November 2005, Union had paid NOV
$250,000 toward the purchase price of such equipment. In December 2005, the
Company made a further downpayment of $6,936,500 on the first three rigs. On
April 27, 2006, pursuant to an option agreement between the Company and NOV,
dated December 8, 2005, the Company exercised its option to purchase an
additional three rigs from NOV for an aggregate purchase price of $25.2 million
and entered into a purchase and sale agreement with NOV, making a down payment
of $6,545,825. The Company paid $1 million for the option to purchase the rigs,
which will be applied against the purchase price of the rigs. All six rigs are
scheduled for delivery during 2006.

The Company signed a lease for its corporate office relocation in Fort Worth,
Texas, commencing on April 1, 2006. The total commitment cost of the 48 month
lease is approximately $611,000, including the abatement of the first six months
rent.

INFLATION

As a result of the relatively low levels of inflation during the past two years,
inflation did not significantly affect our results of operations in any of the
periods reported.

OFF BALANCE SHEET ARRANGEMENTS

We do not currently have any off balance sheet arrangements.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes -
an interpretation of FASB Statement No. 109." FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in an enterprise's financial
statements in accordance with SFAS No. 109. This interpretation prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. This interpretation is effective for fiscal years beginning after
December 31, 2006. We do not expect the adoption of FIN 48 to have a material
impact on our financial position or results of operations.

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3"
("SFAS No. 154"). This statement changes the requirements for the accounting for
and reporting of a change in accounting principle. SFAS No. 154 requires
retrospective application to prior periods' financial statements of changes in
accounting principle and is limited to direct effects of the change. This
statement became effective for the Company on January 1, 2006, and has not had a
material effect on our financial position or results of operations.


                                       22



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to market risk exposure related to changes in interest rates on
our revolving credit facility, which provides for interest on borrowings under
the facility at a floating rate. At June 30, 2006, we had approximately $15.0
million outstanding debt on our revolving credit facility. An increase or
decrease of 1% in the interest rate would have a corresponding decrease or
increase in our net income of approximately $150,000 annually.

ITEM 4. CONTROLS AND PROCEDURES

(A)  EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.

Our disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934 (the "Exchange Act")), which we refer to as
disclosure controls, are controls and procedures that are designed with the
objective of ensuring that information required to be disclosed in our reports
filed under the Exchange Act, such as this quarterly report, is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. Disclosure controls are
also designed with the objective of ensuring that such information is
accumulated and communicated to our management, including the Chief Executive
Officer and the Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure. There are inherent limitations to the
effectiveness of any control system. A control system, no matter how well
conceived and operated, can provide only reasonable assurance that its
objectives are met. No evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within our company have
been detected.

As of June 30, 2006, an evaluation was carried out under the supervision and
with the participation of our management, including the Chief Executive Officer
and the Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls. Based upon that evaluation, the Chief
Executive Officer and the Chief Financial Officer concluded that, as of such
date, the design and operation of these disclosure controls were effective to
accomplish their objectives at the reasonable assurance level.

(B)  CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.

No change in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal
quarter ended June 30, 2006 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.


                                       23



                           PART II. OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Annual Meeting of Stockholders was held on June 8, 2006. The proposals were
adopted by the margins indicated:

     1)   Election of Directors: The following directors were elected for
          varying terms:

                    Term
                 Expiration           Nominee              For       Withheld
                 ----------   ----------------------   ----------   ---------
     Class I        2007      T.J. Glauthier           17,738,306     307,573
     Class I        2007      Howard I. Hoffen         17,740,864     305,015
     Class II       2008      Thomas M. Mercer         17,738,756     307,123
     Class II       2008      Thomas H. O'Neill, Jr.   17,688,316     357,563
     Class II       2008      Gregory D. Myers         13,485,449   4,560,430
     Class III      2009      John J. Moon             13,485,449   4,560,430
     Class III      2009      M. Joseph McHugh         17,737,906     307,973

     2)   Ratification of the selection of Ernst & Young, LLP as the independent
          auditors of the Company for the fiscal year ending December 31, 2006.

                  For               Against            Abstain
              ----------            -------            -------
              17,897,390            130,250             18,238

ITEM 6. EXHIBITS

The following exhibits are filed as part of this report or incorporated by
reference herein:

EXHIBIT
 NUMBER    DESCRIPTION
-------    -----------
3.1     -- Amended and Restated Certificate of Incorporation of Union
           (incorporated by reference to Exhibit 3.1 to our Quarterly Report on
           Form 10-Q (File No. 000-51630) filed on May 12, 2006).

3.2     -- Amended and Restated Bylaws of Union (incorporated by reference to
           Exhibit 3.2 to our Quarterly Report on Form 10-Q (File No. 000-51630)
           filed on May 12, 2006).

4.1     -- Specimen Stock Certificate for the common stock, par value $0.01 per
           share, of Union (incorporated by reference to Exhibit 4.1 to our
           Registration Statement on Form S-1 (File No. 333-127525) filed on
           August 15, 2005).

10.1*   -- Amended and Restated 2000 Stock Option Plan of Union (incorporated by
           reference to Exhibit 10.1 to our Registration Statement on Form S-1
           (File No. 333-127525) filed on August 15, 2005).

10.2*   -- Form of stock option agreements under the Amended and Restated 2000
           Stock Option Plan (incorporated by reference to Exhibit 10.2 to our
           Registration Statement on Form S-1 (File No. 333-127525) filed on
           August 15, 2005).

10.3*   -- Stock Option Plan and Agreement, dated May 13, 1999, by and between
           Union and Christopher Strong (incorporated by reference to Exhibit
           10.3 to our Registration Statement on Form S-1 (File No. 333-127525)
           filed on August 15, 2005).

10.4*   -- 2005 Stock Option Plan of Union (incorporated by reference to Exhibit
           10.4 to our Registration


                                       24



           Statement on Form S-1 (File No. 333-127525) filed on August 15,
           2005).

10.5*   -- Form of stock option agreements under the 2005 Stock Option Plan
           (incorporated by reference to Exhibit 10.5 to our Registration
           Statement on Form S-1 (File No. 333-127525) filed on August 15,
           2005).

10.6    -- Form of Stockholders Agreement by and among Union and certain of its
           direct and indirect stockholders (incorporated by reference to
           Exhibit 10.6 to Amendment No. 2 to our Registration Statement on Form
           S-1 (File No. 333-127525) filed on October 18, 2005).

10.7    -- Revolving Credit and Security Agreement, dated March 31, 2005,
           between Union the lenders signatory thereto and PNC Bank, as agent
           for the lenders, together with the First Amendment dated April 19,
           2005 (incorporated by reference to Exhibit 10.7 to our Registration
           Statement on Form S-1 (File No. 333-127525) filed on August 15,
           2005).

10.8    -- Stock Purchase Agreement, dated as of March 31, 2005, by and between
           Union and Richard Thornton, the sole stockholder of Thornton Drilling
           Company (incorporated by reference to Exhibit 10.8 to our
           Registration Statement on Form S-1 (File No. 333-127525) filed on
           August 15, 2005).

10.9    -- Registration Rights Agreement, dated as of March 31, 2005, between
           Union and Richard Thornton (incorporated by reference to Exhibit 10.9
           to our Registration Statement on Form S-1 (File No. 333-127525) filed
           on August 15, 2005).

10.10*  -- Employment Agreement, dated as of March 31, 2005, between Union and
           Richard Thornton (incorporated by reference to Exhibit 10.10 to our
           Registration Statement on Form S-1 (File No. 333-127525) filed on
           August 15, 2005).

10.11   -- Stock Purchase Agreement, dated as of March 31, 2005, by and between
           Union, Steven A. Webster, Wolf Marine S.A. and William R. Ziegler
           (incorporated by reference to Exhibit 10.11 to our Registration
           Statement on Form S-1 (File No. 333-127525) filed on August 15,
           2005).

10.12   -- Option and Asset Purchase and Sale Agreement dated as of February 28,
           2005 between Thornton Drilling Company and SPA Drilling, LP;
           Amendment No. 1 to Purchase and Sale Agreement between Thornton
           Drilling Company and SPA Drilling, LP; and Assignment and Assumption
           Agreement between Thornton Drilling Company and Union Drilling Texas,
           LP. (incorporated by reference to Exhibit 10.12 to Amendment No. 4 to
           our Registration Statement on Form S-1 (File No. 333-127525) filed on
           November 7, 2005).

10.13   -- Asset Purchase Agreement, dated May 31, 2005, between C and L
           Services, LP and Union Drilling Texas, LP. (incorporated by reference
           to Exhibit 10.13 to our Registration Statement on Form S-1 (File No.
           333-127525) filed on August 15, 2005).

10.14   -- Forms of Indemnification Agreement with Union directors and certain
           of its officers (incorporated by reference to Exhibit 10.14 to
           Amendment No. 2 to our Registration Statement on Form S-1 (File No.
           333-127525) filed on October 18, 2005).

10.15   -- Second Amendment, dated August 15, 2005, to the Revolving Credit and
           Security Agreement between Union, the lenders signatory thereto and
           PNC Bank, as agent for the lenders (incorporated by reference to
           Exhibit 10.15 to Amendment No. 1 to our Registration Statement on
           Form S-1 (File No. 333-127525) filed on September 28, 2005).

10.16   -- Asset Purchase Agreement, dated August 12, 2005, between C and L
           Services, LP and Union Drilling Texas, LP. (incorporated by reference
           to Exhibit 10.16 to Amendment No. 1 to our Registration Statement on
           Form S-1 (File No. 333-127525) filed on September 28, 2005).

10.17   -- Third Amendment, dated October 5, 2005, to the Revolving Credit and
           Security Agreement between Union, the lenders signatory thereto and
           PNC Bank, as agent for the lenders (incorporated by reference to
           Exhibit 10.17 to Amendment No. 2 to our Registration Statement on
           Form S-1 (File No. 333-127525) filed on October 18, 2005).

10.18   -- Option to purchase drilling rigs from National Oilwell Varco
           (incorporated by reference to Exhibit 10.18 to Amendment No. 4 to our
           Registration Statement on Form S-1 (File No. 333-127525) filed on
           November 7, 2005).

10.19   -- Purchase and Sale Agreement, dated December 8, 2005, between Union
           and National-Oilwell, L.P., relating to the purchase of three
           drilling rigs (incorporated by reference to Exhibit 10.1 to our Form
           8-K (File No. 000-51630) filed on December 13, 2005).

10.20   -- Option Agreement, dated December 8, 2005, between Union and
           National-Oilwell, L.P.,


                                       25



           relating to the purchase of three drilling rigs (incorporated by
           reference to Exhibit 10.2 to our Form 8-K (File No. 000-51630) filed
           on December 13, 2005).

10.21   -- Assets Purchase Agreement, dated December 19, 2005, between Permian
           Drilling Corporation and Maverick Oil and Gas, Inc., (incorporated by
           reference to Exhibit 10.1 to our Form 8-K (File No. 000-51630) filed
           on February 3, 2006).

10.22   -- Agreement Regarding Assignment and Assumption of Rights and
           Obligations under Assets Purchase Agreement, dated January 30, 2006,
           between Maverick Oil and Gas, Inc. and Thornton Drilling Company;
           (incorporated by reference to Exhibit 10.1 to our Form 8-K (File No.
           000-51630) filed on February 3, 2006).

10.23   -- Addendum to Assets Purchase Agreement and Letter Agreement, dated
           January 30, 2006, between Permian Drilling Corporation, Maverick Oil
           and Gas, Inc. and Thornton Drilling Company, (incorporated by
           reference to Exhibit 10.1 to our Form 8-K (File No. 000-51630) filed
           on February 3, 2006).

10.24   -- Purchase and Sale Agreement dated April 21, 2006 between Union and
           National-Oilwell, L.P., relating to the purchase price of three
           drilling rigs (incorporated by reference to Exhibit 10.2 to our Form
           8-K (File No. 000-51630) filed on May 2, 2006).

21.1    -- List of Subsidiaries (incorporated by reference to Exhibit 21.1 to
           our Form 10-K (File No. 000-51630) filed on March 28, 2006).

31.1    -- Certification of Chief Executive Officer Pursuant to Section 302 of
           the Sarbanes-Oxley Act of 2002 filed herewith.**

31.2    -- Certification of Chief Financial Officer Pursuant to Section 302 of
           the Sarbanes-Oxley Act of 2002 filed herewith.**

32.1    -- Certification of Chief Executive Officer Pursuant to 18 U.S.C.
           Section 1350, as adopted pursuant to Section 906 of the
           Sarbanes-Oxley Act of 2002 filed herewith.**

32.2    -- Certification of Chief Financial Officer Pursuant to 18 U.S.C.
           Section 1350, as adopted pursuant to Section 906 of the
           Sarbanes-Oxley Act of 2002 filed herewith.**

----------
*    Management contract or compensatory plan or arrangement.

**   This certification is being furnished solely to accompany this Quarterly
     Report pursuant to 18 U.S.C. Section 1350, and is not being filed for
     purposes of Section 18 of the Securities Exchange Act of 1934, as amended,
     and is not to be incorporated by reference to any filing of the Company,
     whether made before or after the date hereof, regardless of any general
     incorporation language in such filing.


                                       26



                                    SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                        UNION DRILLING, INC.


                                        /s/ Dan E. Steigerwald
                                        ----------------------------------------
                                        Dan E. Steigerwald
                                        Vice President, Chief Financial Officer,
                                        Treasurer and Secretary
                                        (Principal Financial and Accounting
                                        Officer)

Dated: August 11, 2006


                                       27