ex99_2.htm

MANAGEMENT’S DISCUSSION AND ANALYSIS

Management’s Discussion and Analysis for the three and six month periods ended June 30, 2008 of Precision Drilling Trust (the "Trust" or "Precision") prepared as at July 22, 2008 focuses on the unaudited Consolidated Financial Statements and related notes and pertains to known risks and uncertainties relating to the oilfield services sector. This discussion should not be considered all inclusive as it does not include all changes regarding general economic, political, governmental and environmental events. This discussion should be read in conjunction with Precision’s 2007 Annual Report, Annual Information Form, the unaudited June 30, 2008 Consolidated Financial Statements and related notes and the cautionary statement regarding forward-looking information and statements on page 17 of this report.

SELECT FINANCIAL AND OPERATING INFORMATION

(Stated in thousands of Canadian dollars,	Three months ended June 30,							Six months ended June 30,
except per diluted unit amounts)	2008		2007		% Change			2008		2007		% Change

Revenue	$	138,514	$	122,005		14		$	481,203	$	532,547		(10	)
Operating earnings(1)		22,047		27,074		(19	)		146,285		205,253		(29	)
Net earnings		21,739		25,722		(15	)		128,005		183,789		(30	)
Cash provided by operations		200,458		229,073		(12	)		257,765		385,371		(33	)
Net capital spending		29,201		50,710		(42	)		51,366		105,284		(51	)
Distributions declared		49,045		56,591		(13	)		98,091		128,273		(24	)
Per diluted unit information:
Net earnings		0.17		0.20		(15	)		1.02		1.46		(30	)
Distributions declared	$	0.39	$	0.45		(13	)	$	0.78	$	1.02		(24	)

Contract Drilling Rig Fleet		248		247		–			248		247		–
Operating days (spud to release):
Canada		3,066		3,175		(3	)		13,570		14,960		(9	)
United States		1,227		352		249			2,243		499		349
International		54		–		n/m			124		–		n/m
Completion and
Production Service Rig Fleet		223		238		(6	)		223		238		(6	)
Operating hours in Canada		55,631		52,680		6			167,626		185,091		(9	)

(1) Non-GAAP measure; see "NON-GAAP MEASURES AND RECONCILIATIONS".
n/m - calculation not meaningful
FINANCIAL POSITION AND RATIOS
	June 30,		December 31,			June 30,
(Stated in thousands of Canadian dollars, except ratios)	2008			2007		2007

Working capital	$	88,295		$	140,374	$	77,729
Working capital ratio		1.8			2.1		1.8
Long-term debt	$	104,948		$	119,826	$	51,937
Total assets	$	1,756,302		$	1,763,477	$	1,629,942
Long-term debt to long-term debt plus equity ratio		0.07			0.08		0.04

P R E C I S I O N D R I L L I N G T R U S T 1

OVERVIEW

The Trust reported net earnings of $22 million or $0.17 per diluted unit for the quarter ended June 30, 2008, a decrease of $4 million or 15% compared to $26 million or $0.20 per diluted unit in the second quarter of 2007. The decrease in net earnings was primarily attributable to higher year over year incentive compensation expense accruals of $9 million as 2007 was in a $4 million expense recovery position. The 2008 second quarter results were as anticipated. Precision's strategy to diversify into the United States drilling market generated strong revenue and earnings growth and served to offset Canadian price weakness carried over from 2007. Customer pricing trends in Canada began to improve in 2008 due to strengthening industry fundamentals associated with higher natural gas pricing. Precision's Canadian equipment activity in the second quarter essentially held at prior year levels with stronger customer demand in 2008 held at bay due to weather conditions.

For the six months ended June 30, 2008, net earnings were $128 million or $1.02 per diluted unit, a decrease of $56 million or 30% compared to $184 million or $1.46 in the first half of 2007. The decrease in net earnings was due to lower first quarter industry demand and pricing for both operating segments in Canada and was partially mitigated by new market growth. During the first half, geographical diversification outside Canada strengthened as drilling rig operating days grew by 374% over the first half of 2007 with 19 rigs operating in the United States and one rig in Latin America as at June 30, 2008.

Revenue in the second quarter was 14% higher than the prior year period at $139 million, increasing 18% in the Contract Drilling Services segment and 6% in the Completion and Production Services segment. Revenue in Precision's United States operation grew 17% over the first quarter of 2008 and 198% over the same quarter in the prior year. In Canada, Precision realized a slight decrease in operating activity in the Contract Drilling Services segment while activity in the Completion and Production Services segment was moderately higher.

Precision's high-performance, high-value customer service offering advanced since the first quarter of 2008 through developments that included the following:

•	Growth in the United States accelerated with seven rig moves from Canada representing fleet expansion of 50%.

•	The 2007 Super Series drilling rig build program is finished, with three Super Single™ rigs commissioned for work in Alberta's oil sands region.

•

The 2008 Super Series 19 drilling rig build program is comprised of ten Super Single™ rigs and nine Super Triple rigs. Seven rigs are under long-term customer contracts with advanced customer discussion or letters of intent on the remainder. Of the seven contracted rigs, three are for the United States and four are for the Canadian market.

2 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S

•

On July 18, 2008 Precision entered into an agreement to acquire six service rigs from Rick's Well Servicing Ltd., a private company, for approximately $16 million. The assets are positioned in south-eastern Saskatchewan and south-western Manitoba and strengthen Precision's capabilities in those oil regions.

•

Precision has previously expressed continuing interest to acquire Grey Wolf, Inc. ("Grey Wolf") following the termination of Grey Wolf's Merger Agreement with another party. Following the termination of its Merger Agreement, Grey Wolf announced a review of strategic alternatives to maximize shareholder value. Precision respects the process Grey Wolf is undertaking and continues to carry significant interest in an acquisition. Grey Wolf is the fourth largest onshore drilling contractor in the United States with a fleet of 122 drilling rigs.

Precision remains focused on customer service and earnings margins. In the quarter the operating earnings margin was 16% compared to 22% for the same period in 2007. Before the impact of incentive compensation expense, margins held at prior year levels due to high United States margins, internal manufacturing and consumable supply distribution cost control and Precision's spot market revenue discipline. Margins were supported by Precision's highly variable operating cost structure and pricing discipline as Precision had a limited amount of low day rate spot market work.

In the Western Canada Sedimentary Basin ("WCSB"), Precision experienced higher customer demand over the comparative year quarter due to a significant improvement in the underlying fundamentals of the oil and gas industry. Generally, drilling programs by producers were established in the fourth quarter of 2007 amid modest natural gas fundamentals and general uncertainty around Alberta's changing royalty structure. With the significant improvement in natural gas pricing through the first six months of 2008, producers have begun to accelerate drilling plans but the impact of spring break-up and wet weather delayed any significant uplift in activity.

Average customer pricing for Precision's services in Canada stabilized, down only 4% for drilling rigs and 5% for service rigs from the second quarter of 2007. Pricing declines were attributable to lower pricing entering the year as a result of the competitive bidding environment and equipment availability from 2007. While rates are down from the prior year, relative to the first quarter of 2008, the average operating day rate for drilling rigs and well servicing remained consistent when normalized for first quarter winterization revenue.

Average customer pricing for Precision's operations in the United States held strong as all drilling rigs are under term contracts. An increasing active industry rig count and a rising trend toward directional and horizontal drilling programs continued to provide opportunities for high-performing, versatile drilling rigs.

Early in 2008 Precision reentered the international onshore drilling market with a one rig operation in Latin America and realized 54 operating days in the second quarter. Precision continued to evaluate global opportunities in select regions not restricted by non-compete obligations and is positioning for global markets in anticipation of the expiration of these provisions on August 31, 2008.

Precision initially estimated 2008 capital spending to be $370 million but now forecasts to spend $290 million, with $75 million for upgrade capital and $215 million for expansion capital. The remaining $80 million relates to expansion capital expected to be carried forward to 2009 for a total estimated expansion capital carry forward of $130 million. The deferral of capital to 2009 is primarily the result of contracting out the partial construction of five rigs and rig deliveries remain as planned. All 19 new Super Series drillings rigs are expected to be contracted with customers before completion. Up to five rigs from the 2008 program are expected to be completed in 2008 with most of the remaining rigs in the first half of 2009.

P R E C I S I O N D R I L L I N G T R U S T 3

Financial and operational information for the three months ended June 30, 2008:

•	Precision maintained a strong financial position with working capital of $88 million, long-term debt of $105 million and a long-term debt to long-term debt plus equity ratio of 0.07.

•	Revenue was $139 million, an increase of $17 million or 14% from the prior year quarter due primarily to growth in the United States.

•

General and administrative costs were $17 million, an increase of $7 million from the prior year due primarily to differences associated with incentive compensation plan expenses and increased professional fees. During 2007 declining financial performance led Precision to recover previously recorded long-term performance incentive accruals.

•

Operating earnings were $22 million, a decrease of $5 million or 19% from the second quarter in 2007 or 16% of revenue, compared to 22% in 2007. Operating earnings margins were negatively impacted by declines in customer pricing for most Canadian divisions, differences associated with incentive compensation offset by growth in the United States where margins were strong.

4 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S

•	Capital expenditures for the purchase of property, plant and equipment were $31 million, a decrease of $21 million over the same period in 2007. Capital spending for the second quarter of 2008 included $22 million on expansionary capital initiatives and $9 million on the upgrade of existing assets.

•	During the quarter Precision moved five rigs from Canada to the United States under term contracts. At the end of the quarter, Precision had 19 drilling rigs in the United States, an increase of seven from December 31, 2007.

Financial and operational information for the six months ended June 30, 2008:

•	Revenue was $481 million, a decrease of $51 million or 10% from the prior year period due to lower activity levels in Precision's Canadian operations during the first quarter and lower customer pricing for most of Precision's services offset by growth in the United States.

•	General and administrative costs were $36 million, an increase of $11 million from the prior year due primarily to differences associated with incentive compensation plan expenses and increased professional fees.

•

Operating earnings were $146 million, a decrease of $59 million or 29% from the first half of 2007 or 30% of revenue, compared to 39% in 2007. Operating earnings margins were negatively impacted by declines in customer pricing for most Canadian divisions and differences associated with incentive compensation offset by growth in the United States where margins were strong.

•	Capital expenditures for the purchase of property, plant and equipment were $55 million, a decrease of $54 million over the same period in 2007. Capital spending for the first half of 2008 included $43 million on expansionary capital initiatives and $12 million on the upgrade of existing assets.

•

During March 2008 Precision paid $55 million to a provincial taxing authority, due to the reassessment of income taxes relating to tax filing positions taken in prior periods. The reassessments have been recorded as long-term receivables. The income tax related portion of the reassessments is $36 million and was included in the $300 million tax contingent liability note disclosed in the December 31, 2007 financial statements. Precision is in the process of challenging these reassessments.

The increase in natural gas and oil prices has raised expectations for higher drilling activity in Canada and the United States. AECO natural gas spot prices averaged $10.22 per MMBtu in the second quarter of 2008, an increase of 44% over the second quarter 2007 average of $7.09 per MMBtu. In the United States, Henry Hub natural gas spot prices averaged US$11.37 per MMBtu in the second quarter of 2008, an increase of 51% over the second quarter 2007 average of US$7.51 per MMBtu. West Texas Intermediate crude oil averaged US$124.29 per barrel during the quarter compared to US$64.99 per barrel in the same period in 2007. The one-year forward price for North American natural gas improved, trading in a range of about $9.00 to $13.00 on Canadian and U.S. exchanges in the second quarter of 2008, compared to a range of about $7.00 to $9.00 in the same quarter of 2007.

OUTLOOK

For Precision in Canada, the second half of 2008 carries opportunity for seasonally adjusted higher drilling and service levels compared to the first six months of 2008. On July 11, 2008 U.S. natural gas underground storage inventories were 14% below the prior year level and 2% lower than the five year average. Lower storage levels have propelled natural gas prices in the spot and forward markets to levels not seen since the Gulf of Mexico hurricanes in 2005. This trend is positive since Canada exports over half of its natural gas production to the United States and Precision's oilfield service businesses are highly dependent on associated customer economics.

P R E C I S I O N D R I L L I N G T R U S T 5

The outlook indicators for 2008 have turned positive for the WCSB. Favourable commodity prices have positively impacted the cash flow of Precision's customers and should result in a more robust drilling and servicing environment for the remainder of 2008 and into 2009. While some already have, we expect many more customers to revisit their capital programs in the coming months and adjust their 2008 budgets with an upward bias. Active rig counts in British Columbia and Saskatchewan are higher than prior year. While Alberta remains at prior year levels, the most recent Alberta government land sale generated a sharp increase in proceeds; an early indicator that industry economics support higher well licensing and drilling levels.

As activity rises, field labour will be a challenge for the oilfield service industry. Precision activated its recruitment, training and orientation processes in the second quarter and is well positioned to attract and retain field personnel.

Precision continues geographic diversification to the United States and international markets leveraging its Canadian reputation for high-performance, high-value onshore drilling services for oil and natural gas exploration and development. Precision's strategy is focused on value-based high-performance services where customers recognize and reward superior performance. This presents Precision with significant opportunity to displace low performing rigs, especially in technically demanding unconventional drilling applications. A greater proportion of wells drilled in North America are seeking unconventional oil and natural gas reserves and due to the complexity of these programs, high performance drilling rigs and services are required. The delineation between underperforming rigs and high performing, highly mobile, well designed rigs with exceptional crews continues to emerge.

Precision remains focused on United States expansion and the August 31, 2008 expiry of non-compete provisions creates international diversification opportunities. Precision's growth strategy lies within its organic new rig construction program, acquisition opportunities and leveraging its competitive strengths in people, systems and equipment. As a drilling contractor operating one of the world's largest and safest fleets, Precision has a unique business model. A suite of complimentary well site businesses, integrated system support and employee depth provides Precision with a strong foundation for oilfield service sector consolidation.

SEGMENTED FINANCIAL RESULTS

Precision’s operations are reported in two segments. The Contract Drilling Services segment includes the drilling rig, camp and catering, oilfield supply, and manufacturing divisions. The Completion and Production Services segment includes the service rig, snubbing, rental, and wastewater treatment divisions.

	Three months ended June 30,									Six months ended June 30,
(Stated in thousands of Canadian dollars)	2008			2007			% Change			2008			2007			% Change

Revenue:
Contract Drilling Services	$	93,006		$	78,829			18.0		$	335,371		$	359,724			(6.8	)
Completion and
Production Services		47,559			44,978			5.7			152,279			178,184			(14.5	)
Inter-segment eliminations		(2,051	)		(1,802	)		(13.8	)		(6,447	)		(5,361	)		(20.3	)
	$	138,514		$	122,005			13.5		$	481,203		$	532,547			(9.6	)

Operating earnings:(1)
Contract Drilling Services	$	23,695		$	24,013			(1.3	)	$	124,576		$	156,748			(20.5	)
Completion and
Production Services		8,808			8,954			(1.6	)		42,673			60,769			(29.8	)
Corporate and other		(10,456	)		(5,893	)		(77.4	)		(20,964	)		(12,264	)		(70.9	)
	$	22,047		$	27,074			(18.6	)	$	146,285		$	205,253			(28.7	)
(1) Non-GAAP measure; see "NON-GAAP MEASURES AND RECONCILIATIONS".

6 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S

SEGMENT REVIEW OF CONTRACT DRILLING SERVICES

(Stated in thousands of Canadian dollars,	Three months ended June 30,							Six months ended June 30,
except where indicated)	2008			2007	% Change			2008			2007		% Change

Revenue	$	93,006	$	78,829		18.0		$	335,371		$	359,724		(6.8	)
Expenses:
Operating		55,133		44,623		23.6			176,438			174,111		1.3
General and administrative		5,615		3,669		53.0			11,460			9,826		16.6
Depreciation		8,442		6,112		38.1			23,610			18,722		26.1
Foreign exchange		121		412		(70.6	)		(713	)		317		(324.9	)
Operating earnings(1)	$	23,695	$	24,013		(1.3	)	$	124,576		$	156,748		(20.5	)

Operating earnings as
a percentage of revenue		25.5%		30.5%					37.1%			43.6%
Drilling rig revenue per
operating day in Canada	$	17,877	$	18,656		(4.2	)	$	18,428		$	20,419		(9.8	)
(1) Non-GAAP measure; see "NON-GAAP MEASURES AND RECONCILIATIONS".

P R E C I S I O N D R I L L I N G T R U S T 7

Canadian drilling statistics for the three month period ended June 30:
	2008				2007
	Precision		Industry (1)		Precision		Industry (1)

Number of drilling rigs (end of period)		228		886		242		878
Drilling rig operating days (spud to release)		3,066		15,744		3,175		13,343
Drilling rig operating day utilization		15%		19%		14%		17%
Number of wells drilled		413		1,568		411		1,677
Average days per well		7.4		10.0		7.7		8.0
Number of metres drilled (000s)		602		2,444		572		2,295
Average metres per well		1,457		1,559		1,392		1,369
Average metres per day		196		155		180		172
Canadian drilling statistics for the six month period ended June 30:

	2008				2007
	Precision		Industry (1)		Precision		Industry (1)

Number of drilling rigs (end of period)		228		886		242		878
Drilling rig operating days (spud to release)		13,570		61,082		14,960		58,749
Drilling rig operating day utilization		32%		38%		34%		38%
Number of wells drilled		1,863		6,694		2,139		7,638
Average days per well		7.3		9.1		7.0		7.7
Number of metres drilled (000s)		2,548		9,234		2,714		9,680
Average metres per well		1,368		1,379		1,269		1,267
Average metres per day		188		151		181		165

(1) Canadian Association of Oilwell Drilling Contractors ("CAODC") and Precision – excludes non-CAODC rigs and non-reporting CAODC members.

In the Contract Drilling Services segment, revenue for the second quarter increased by 18% to $93 million while operating earnings decreased by 1% to $24 million compared to the same period in 2007. Revenue growth in Precision's United States operation was partially offset by lower pricing in Canadian operations. Activity in the WCSB was at low levels as wet weather restricted access to drilling locations.

For the second quarter, average drilling operating day rates for Precision in Canada stabilized, declining 4% to $17,877 compared to the second quarter of 2007 as low demand and high industry rig capacity carried over from 2007 fostered a competitive pricing market. The operating day rates in the comparative quarter of 2007 were stronger as rates carried forward from robust demand in 2006.

Drilling rig operating days, spud to rig release, in Canada during the second quarter of 2008 were 3,066 a decrease of 3% compared to 3,175 in 2007. Drilling rig activity for Precision in the United States was 249% higher than the same quarter of 2007 as the average number of rigs operating during the second quarter of 2008 was 17 compared to five in the prior year quarter. During the quarter Precision's Latin America based drilling rig realized a total of 54 operating days with completion of a second well.

During the second quarter, Precision's geographical diversification outside Canada continued as five drilling rigs were moved to the United States from Canada, all under term contracts. The total number of Precision drilling rigs operating in the United States at the end of the quarter was 19. During the quarter Precision recorded 1,227 operating days in the United States which represented a three-fold increase over the second quarter of 2007 and 211 more operating days than the first quarter of 2008. Precision's United States based drilling rigs are all working under term contracts and had a combined utilization rate including move days near 100%. Drilling activity in the United States is not subject to seasonal fluctuations to the same extent experienced in Canada.

8 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S

Precision's camp and catering division experienced activity increases of 21% over the prior year second quarter with a greater number of days realized from larger base camp activity.

Operating expenses were 59% of revenue for the quarter compared to 57% for the prior year quarter. The increase was due to lower revenue per operating day in all of Precision's Canadian divisions without a corresponding drop in operating costs. On a per day basis, operating costs for the drilling rig division in Canada were 5% higher than the prior year quarter primarily due to employee benefit recoveries and repairs for preparing equipment in anticipation of increased activity in the second half of the year.

Depreciation in the Contract Drilling Services segment increased from the prior year due to a higher cost base for working rigs and activity growth in the United States.

SEGMENT REVIEW OF COMPLETION AND PRODUCTION SERVICES

P R E C I S I O N D R I L L I N G T R U S T 9

(Stated in thousands of Canadian	Three months ended June 30,							Six months ended June 30,
dollars, except where indicated)	2008		2007		% Change			2008		2007		% Change

Revenue	$	47,559	$	44,978		5.7		$	152,279	$	178,184		(14.5	)
Expenses:
Operating		32,713		29,085		12.5			91,994		97,312		(5.5	)
General and administrative		1,992		2,068		(3.7	)		5,292		5,253		0.7
Depreciation		4,044		4,861		(16.8	)		12,320		14,844		(17.0	)
Foreign exchange		2		10		(80.0	)		–		6		(100.0	)
Operating earnings(1)	$	8,808	$	8,954		(1.6	)	$	42,673	$	60,769		(29.8	)
Operating earnings as a
percentage of revenue		18.5%		19.9%					28.0%		34.1%
Service rig revenue per operating hour	$	649	$	681		(4.7	)	$	712	$	771		(7.7	)

	Three months ended June 30,							Six months ended June 30,
Well servicing statistics:	2008		2007		% Change			2008		2007		% Change
Number of service rigs (end of period)		223		238		(6.3	)		223		238		(6.3	)
Service rig operating hours		55,631		52,680		5.6			167,626		185,091		(9.4	)
Service rig operating hour utilization		27%		24%					41%		43%
(1) Non-GAAP measure; see "NON-GAAP MEASURES AND RECONCILIATIONS".

In the Completion and Production Services segment, revenue for the second quarter increased 6% from 2007 to $48 million while operating earnings remained consistent at $9 million. The increase in revenue is attributed to an increase in industry activity, particularly in oil producing regions, offset by a moderate decrease in average service rates which occurred in the fourth quarter of 2007 as a result of a competitive pricing environment.

Service rig activity increased 6% from the prior year period, with the fleet generating 55,631 operating hours in the second quarter of 2008 compared with 52,680 hours in 2007 for utilization of 27% and 24%, respectively. The increase was a result of higher production work in oil producing regions in the WCSB and the performance of completion work from wells drilled in the first quarter of 2008. New well completions accounted for 20% of service rig operating hours in the second quarter compared to 17% in the same quarter in 2007.

Service rig revenue per operating hour decreased slightly over the prior year as rates declined in 2007 due to reduced demand resulting in a more competitive pricing environment.

Higher variable operating expenses and lower revenue rates led to an increase in operating expenses as a percent of revenue from 65% in the second quarter of 2007 to 69% for the same period in 2008. On a per operating hour basis, costs for the service rig division increased 3% over the same quarter in 2007 primarily due to the rising cost of fuel.

Depreciation in the Completion and Production Services segment in the second quarter of 2008 was 17% lower than the prior year period due to losses on disposal of equipment in 2007.

SEGMENT REVIEW OF CORPORATE AND OTHER

Corporate and other expenses increased by 77% to $10 million in the second quarter of 2008 compared to $6 million in the same period of 2007. The increase was primarily due to the difference in employee incentive compensation expense and increased professional fees. In 2007, as a result of financial performance, Precision recorded a recovery of long-term incentive accruals expensed in prior periods.

10 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S

OTHER ITEMS

Net interest expense of $2 million for the second quarter of 2008 was in line with the prior year.

The Trust’s effective tax rate on earnings before income taxes for the second quarter of 2008 was negative 9% compared to positive 8%, before rate reductions, for the same period in 2007. The income tax recovery is primarily a result of estimated higher income to be distributed to unitholders, not subject to tax in the Trust. The effective tax rate for the six month periods ended June 30, 2008 and June 30, 2007 was 10%. Compared to a corporate tax rate, the low effective tax rate is primarily the result of the income trust structure shifting all or a portion of the income tax burden of the Trust to its unitholders.

LIQUIDITY AND CAPITAL RESOURCES

Precision's liquidity and solvency position remained strong as long-term debt exceeded working capital by only $17 million as at June 30, 2008 compared to working capital exceeding long-term debt by $21 million as at December 31, 2007. The change in financial position primarily resulted from cash payments associated with prior period income tax reassessments of $55 million and lower operating earnings partially offset by reduced distributions and lower capital spending.

During the first half of 2008 Precision generated cash from continuing operations of $258 million. The cash was used to purchase property, plant and equipment net of disposal proceeds and related non-cash working capital of $48 million, make cash distributions to unitholders of $118 million, net repayment of long-term debt of $15 million, repay bank indebtedness of $14 million and pay assessed income taxes and interest of $55 million leaving a cash balance of $7 million.

The first six months of 2008 were further highlighted by the following financial developments:

•	The Trust declared monthly distributions to unitholders of $0.13 per diluted unit for aggregate distributions declared of $98 million or $0.78 per diluted unit.

•	Long-term debt decreased by $15 million from December 31, 2007 to $105 million for a long-term debt to long- term debt plus equity ratio of 0.07.

•	Working capital decreased $52 million during the six months to $88 million as Precision realized lower activity and corresponding operating results in the first half of 2008 compared to 2007 year end and certain income tax liabilities.

P R E C I S I O N D R I L L I N G T R U S T 11

DISTRIBUTIONS

Upon conversion to an income trust effective November 7, 2005 the Trust adopted a policy of making monthly distributions to holders of Trust units and holders of exchangeable LP units ("unitholders"). Precision has a legal entity structure whereby the trust entity, Precision Drilling Trust, effectively must flow its taxable income to unitholders pursuant to its Declaration of Trust. Distributions, including special distributions, may be declared in cash or "in-kind" or a combination of both and reduced, increased or suspended entirely depending on the operations of Precision, the performance of its assets, or legislative changes in tax laws. The actual cash flow available for distribution to unitholders is a function of numerous factors, including the Trust’s: financial performance; debt covenants and obligations; working capital requirements; upgrade and expansion capital expenditure requirements for the purchase of property, plant and equipment; and number of units outstanding.

In June 2007 the Government of Canada's Bill C-52 Budget Implementation Act 2007 was enacted and included legislative provisions that impose a tax on certain distributions from publicly traded specified investment flow-through ("SIFT") trusts at a rate equal to the applicable federal corporate tax rate plus a provincial SIFT tax factor. With enacted federal tax rate reductions, the combined SIFT tax will be 29.5% in 2008, reducing to 25% in 2012. Precision will be a SIFT trust on the earlier of January 1, 2011 or the first day after it exceeds the normal growth guidelines announced by the federal Department of Finance on December 15, 2006.

Key factors for consideration in determining actual cash flow available for distribution, in an historical context, are disclosed within the consolidated statements of cash flow. In calculating distributable cash Precision makes the following adjustments to cash provided by continuing operations:

•	Deducts the purchase of property, plant and equipment for upgrade capital as the minimum reinvestment required to maintain current operating capacity;

•	Deducts the purchase of property, plant and equipment for expansion initiatives to grow capacity;

•	Adds the proceeds on the sale of property, plant and equipment capital which are incidental transactions occurring within the normal course of operations; and

•	Deducts long-term incentive plan changes as an unfunded liability resulting from the operating activities in the current period with payments beginning March 2009.

12 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S

A quarterly two-year reconciliation of distributable cash from continuing operations follows:

(Stated in thousands of Canadian dollars, except per diluted unit amounts)		2007						2008
Quarters ended	September 30			December 31				March 31			June 30

Cash provided by continuing operations		$	20,270		$	78,474		$	57,307		$	200,458
Deduct:
Purchase of property, plant and equipment for
upgrade capital			(10,544	)		(9,241	)		(2,814	)		(8,864	)
Purchase of property plant and equipment for
expansion initiatives			(30,382	)		(28,264	)		(20,654	)		(22,480	)
Add:
Proceeds on the sale of property, plant and
equipment			1,273			1,236			1,303			2,143
Standardized distributable cash(1)			(19,383	)		42,205			35,142			171,257
Unfunded long-term incentive plan compensation			3,685			(1,817	)		469			(2,166	)
Distributable cash from continuing operations(1)		$	(15,698	)	$	40,388		$	35,611		$	169,091
Cash distributions declared		$	49,046		$	69,166		$	49,046		$	49,045

Per diluted unit information:
Cash distributions declared		$	0.39		$	0.55		$	0.39		$	0.39
Standardized distributable cash(1)		$	(0.15	)	$	0.33		$	0.28		$	1.36
Distributable cash from continuing operations(1)		$	(0.12	)	$	0.32		$	0.28		$	1.34

		2006							2007
Quarters ended	September 30			December 31				March 31				June 30

Cash provided by continuing operations		$	74,952		$	154,233			$	156,298			$	229,073
Deduct:
Purchase of property, plant and equipment for
upgrade capital			(24,503	)		(26,122	)			(17,583	)			(8,602	)
Purchase of property plant and equipment for
expansion initiatives			(55,876	)		(46,211	)			(38,119	)			(44,238	)
Add:
Proceeds on the sale of property, plant and
equipment			4,251			3,742				1,128				2,130
Standardized distributable cash(1)			(1,176	)		85,642				101,724				178,363
Unfunded long-term incentive plan compensation			(5,262	)		(10,192	)			2,461				4,167
Distributable cash from continuing operations(1)		$	(6,438	)	$	75,450			$	104,185			$	182,530
Cash distributions declared		$	116,785		$	116,912			$	71,682			$	56,591
Per diluted unit information:
Cash distributions declared		$	0.93		$	0.93			$	0.57			$	0.45
Standardized distributable cash(1)		$	(0.01	)	$	0.68			$	0.81			$	1.42
Distributable cash from continuing operations(1)		$	(0.05	)	$	0.60			$	0.83			$	1.45
(1) Non-GAAP measure; see "NON-GAAP MEASURES AND RECONCILIATIONS".

P R E C I S I O N D R I L L I N G T R U S T 13

The quarterly distributable cash calculation over the past two years demonstrates the wide variances from quarter to quarter and highlights the need to consider seasonal and economic conditions for cumulative quarters to assess performance and the reasonableness of distributions.

For the quarter ended June 30, 2008 cash provided by operations was $200 million, a decrease of $29 million from the 2007 second quarter. The decrease was due primarily to the reduction in operating earnings in the current quarter compared to the prior year and a lower cash realization of non-cash working capital balances of $25 million.

The Canadian drilling industry is subject to seasonality with activity and earnings peaking during the winter months in the fourth and first quarters. As temperatures rise in the spring, the ground thaws and becomes unstable. Government road bans can restrict activity at any time but are most typical for spring break-up during the second quarter before equipment is able to move for summer drilling programs. As a result, in combination with economic cycles, Precision’s operating and financial results can vary significantly by quarter. Working capital is typically at its highest level at the end of the first quarter when accounts receivable increases from winter activity and tends to be at its lowest during the second quarter. The change in the non-cash working capital balance has a direct impact on cash provided by operations.

	Six months ended			Six months ended			Year ended
		June 30,			June 30,		December 31,
(Stated in thousands of Canadian dollars)		2008			2007			2007

Cash provided by continuing operations (A)		$	257,765		$	385,371		$	484,115
Net earnings (B)		$	128,005		$	183,789		$	345,776
Distributions declared (C)		$	98,091		$	128,273		$	276,667

Excess of cash provided by continuing operations
over distributions declared (A-C)		$	159,674		$	257,098		$	207,448

Excess of net earnings from operating activities
over distributions declared (B-C)		$	29,914		$	55,516		$	69,109

The Trust maintained a strong financial position and had sufficient debt facilities to manage short-term funding needs as well as planned equipment additions. Part of the debt management strategy involves retaining sufficient funds from available distributable cash to finance upgrade capital expenditures as well as working capital needs. Planned asset growth will generally be financed through existing debt facilities or cash retained from continuing operations. Precision renewed its $700 million three-year revolving syndicated loan facility during the second quarter. Tenure has been renewed for most of the facility and certain pricing terms were amended. A $150 million accordion clause was added, enabling Precision to increase the size of the facility under certain conditions.

Periodically, Precision enters into cash generating transactions that are outside the normal course of operations and, while such transactions increase the cash available for distribution, Precision does not rely on these sources of cash for distributions.

14 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S

QUARTERLY FINANCIAL SUMMARY
(Stated in thousands of Canadian dollars, except per diluted unit amounts) 2007							2008
Quarters ended	September 30			December 31			March 31		June 30

Revenue		$	227,928		$	248,726	$	342,689	$	138,514
Operating earnings(1)			73,402			77,696		124,238		22,047
Earnings from continuing operations			69,702			89,329		106,266		21,739
Per diluted unit			0.55			0.71		0.84		0.17
Net earnings			72,658			89,329		106,266		21,739
Per diluted unit			0.58			0.71		0.84		0.17
Cash provided by continuing operations			20,270			78,474		57,307		200,458
Distributions declared		$	49,046		$	99,348	$	49,046	$	49,045

		2006					2007
Quarters ended	September 30			December 31			March 31		June 30

Revenue		$	349,558		$	328,049	$	410,542	$	122,005
Operating earnings(1)			142,431			132,396		178,179		27,074
Earnings from continuing operations			133,552			126,474		158,067		25,722
Per diluted unit			1.06			1.01		1.26		0.20
Net earnings			139,667			127,436		158,067		25,722
Per diluted unit			1.11			1.01		1.26		0.20
Cash provided by continuing operations			74,952			154,233		156,298		229,073
Distributions declared		$	116,785		$	141,435	$	71,682	$	56,591
(1) Non-GAAP measure; see "NON-GAAP MEASURES AND RECONCILIATIONS".

NON-GAAP MEASURES AND RECONCILIATIONS

Precision uses both Generally Accepted Accounting Principles ("GAAP") and non-GAAP measures to assess performance and believes the non-GAAP measures provide useful supplemental information to investors. Following are the non-GAAP measures Precision uses in assessing performance:

•

Operating Earnings: Management believes that in addition to net earnings as reported in the Consolidated Statements of Earnings and Deficit, operating earnings is a useful supplemental measure as it provides an indication of the results generated by Precision’s principal business activities prior to consideration of how those activities are financed or how the results are taxed.

The following table provides a reconciliation of net earnings under GAAP as disclosed in the Consolidated Statements of Earnings and Deficit to operating earnings.

	Three months ended June 30,						Six months ended June 30,
(Stated in thousands of Canadian dollars)		2008			2007			2008			2007

Net earnings		$	21,739		$	25,722		$	128,005		$	183,789
Add (deduct):
Income taxes			(1,779	)		(251	)		13,997			17,422
Interest:
Long-term debt			2,109			1,649			4,344			4,179
Other			53			31			99			58
Income			(75	)		(77	)		(160	)		(195	)
Operating earnings		$	22,047		$	27,074		$	146,285		$	205,253

P R E C I S I O N D R I L L I N G T R U S T 15

•

Standardized Distributable Cash, Distributable Cash from Continuing Operations, Standardized Distributable Cash per Diluted Unit and Distributable Cash from Continuing Operations per Diluted Unit: Management believes that in addition to cash provided by continuing operations, standardized distributable cash and distributable cash from continuing operations are useful supplemental measures. They provide an indication of the funds available for distribution to unitholders after consideration of the impacts of capital expenditures and long-term unfunded contractual operational obligations.

Precision’s method of calculating these non-GAAP measures may differ from other entities and, accordingly, may not be comparable to measures used by other entities. Investors should be cautioned, however, that these measures should not be construed as an alternative to measures determined in accordance with GAAP as an indicator of Precision’s performance.

CHANGES IN ACCOUNTING POLICIES

Effective January 1, 2008 the Trust adopted new Canadian accounting standards relating to inventories (Section 3031) and capital disclosures (Section 1535). Section 3031 requires inventories to be measured at the lower of cost or net realizable value and the reversal of previously recorded write downs to realizable value when the circumstances that caused the write down no longer exist. This new standard did not have a material impact on the Trust's financial statements for the period ended June 30, 2008. Section 1535 requires the Trust to provide additional quantitative and qualitative information regarding its objectives, policies and processes for managing its capital.

Effective for fiscal years starting on or after January 1, 2011, Canadian Publicly Accountable Enterprises must report financial information using International Financial Reporting Standards ("IFRS"). During the six month period ended June 30, 2008 Precision has initiated the transition process with an identification and assessment of the primary differences that would have an impact on Precision and has commenced the planning for the conversion.

Although many elements of Canadian GAAP and IFRS are similar, Precision expects its transition to IFRS to take considerable effort.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in reports filed with, or submitted to, securities regulatory authorities is recorded, processed, summarized and reported within the time periods specified under Canadian and United States securities laws. The information is accumulated and communicated to management, including the principal executive officer and principal financial and accounting officer, to allow timely decisions regarding required disclosure.

As of June 30, 2008 an evaluation was carried out, under the supervision of and with the participation of management, including the principal executive officer and principal financial and accounting officer, of the effectiveness of Precision’s disclosure controls and procedures as defined under the rules adopted by the Canadian securities regulatory authorities and by the United States Securities and Exchange Commission. Based on that evaluation, the principal executive officer and principal financial and accounting officer concluded that the design and operation of Precision’s disclosure controls and procedures were effective as at June 30, 2008.

During the quarter ended June 30, 2008 there have been no changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, Precision’s internal control over financial reporting.

16 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS

Certain statements contained in this report, including statements that contain words such as "could", "should", "can", "anticipate", "expect", "believe", "will", "may" and similar expressions and statements relating to matters that are not historical facts constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and "forward-looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995 (collectively "forward-looking information and statements").

In particular, forward-looking information and statements include: new drilling rigs are expected to be contracted with customers before completion; stronger than expected natural gas prices in 2008 should positively impact customer cash flows and provide incentive to drill and service oil and natural gas wells; expected consummation of the agreement to acquire six service rigs; estimates that $290 million of the total capital will be incurred in 2008 with $130 million carried forward to 2009; as many as five rigs from the 2008 program are expected to be completed in 2008 with the remaining rigs to be completed in 2009; opportunity in the second half of 2008 for higher drilling and service levels; as activity rises field labour will be a challenge for the oilfield service industry; improvement in commodity prices is expected to alleviate downward pricing pressure; sustained period of higher prices required to instill enough producer confidence to increase drilling activity; that unconventional drilling applications will require high performance drilling rigs; expecting customers to revisit their drilling programs in the second half and adjust their 2008 budgets with an upward bias; that industry economics support higher well licensing and drilling levels; expiry of non-compete provisions creates international diversification opportunities; planned asset growth will generally be financed through existing debt facilities or cash retained from continuing operations, all of which are stated under the headings "Overview" and "Outlook" of this report.

These statements include, but are not limited to, statements as to seasonal and weather conditions affecting the Canadian oil and natural gas industry and the demand for Precision’s services. These statements are based on certain assumptions and analysis made by the Trust in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances. However, whether actual results, performance or achievements will conform to the Trust’s expectations and predictions is subject to a number of known and unknown risks and uncertainties which could cause actual results to differ materially from the Trust’s expectations. Such risks and uncertainties include, but are not limited to: fluctuations in the price and demand for oil and natural gas; fluctuations in the level of oil and natural gas exploration and development activities; fluctuations in the demand for well servicing, contract drilling and ancillary oilfield services; the effects of weather conditions on operations and facilities; the existence of competitive operating risks inherent in well servicing, contract drilling and ancillary oilfield services; general economic, market or business conditions; changes in laws or regulations, including taxation, environmental and currency regulations; the lack of availability of qualified personnel or management; and other unforeseen conditions which could impact the use of services supplied by Precision.

Consequently, all of the forward-looking information and statements made in this report are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Trust will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Trust or its business or operations. Except as may be required by law, the Trust assumes no obligation to update publicly any such forward-looking information and statements, whether as a result of new information, future events or otherwise.

P R E C I S I O N D R I L L I N G T R U S T 17