Abstract: A method of drilling a subterranean formation includes positioning a drill string in a well bore in the subterranean formation. The drill string includes a hammer bit, a bend in a housing of the drill string, and a guidance system that determines inclination and azimuth of at least a portion of the drill string in the well bore. Once positioned in the well bore, the hammer bit is caused to repeatedly strike the end of the well bore while rotating about an axis of the hammer bit thereby drilling the subterranean formation and forming a new length of the well bore in the subterranean formation. The orientation of the bend of the drill string in the well bore is controlled based on the determined inclination and azimuth such that the hammer bit drills the new length of the well bore substantially horizontally in the subterranean formation.