An underreamer drill bit assembly including a pilot bit (82) and extendable underreaming arms (88) operatively connected to the pilot bit (82). The underreaming arms (88) have an extended position for underreaming, and a retracted position in which the overall diameter of the underreamer drill bit assembly is less than the inside diameter of the well casing, permitting the entire bit assembly to be withdrawn through the well casing. In another aspect of the invention, the bit assembly is operatively connected to a dual wall pipe assembly (12). A supply of compressed air is conducted through the annulus (24) of the dual wall pipe assembly (12) to a down hole pneumatic hammer (13). Exhaust air from the down hole hammer (13) is directed to the bit assembly for continuous removal of drilling debris through a central evacuation tube (43) of the dual wall pipe assembly.