ex99_1.htm

MANAGEMENT’S DISCUSSION AND ANALYSIS

Management’s Discussion and Analysis for the three month period ended March 31, 2009 of Precision Drilling Trust (the “Trust” or “Precision”) prepared as at April 21, 2009 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 be read in conjunction with Precision’s 2008 Annual Report, Annual Information Form, the unaudited March 31, 2009 Consolidated Financial Statements and related notes and the cautionary statement regarding forward-looking information and statements on page 19 of this report.

SELECT FINANCIAL AND OPERATING INFORMATION
	Three months ended March 31,
(Stated in thousands of Canadian dollars, except per diluted unit amounts)	2009		2008		% Change

Revenue	$	448,445	$	342,689		30.9
EBITDA(1)		169,387		147,347		15.0
Net earnings		57,417		106,266		(46.0	)
Cash provided by operations		201,596		57,307		251.8
Capital spending		74,922		23,468		219.3
Distributions declared		6,408		49,046		(86.9	)
Net earnings per unit:
Basic		0.32		0.85		(62.4	)
Diluted		0.30		0.84		(64.3	)
Distributions declared per unit	$	0.04	$	0.39		(89.7	)

Contract drilling rig fleet		380		246		54.5
Drilling rig utilization days:
Canada		7,482		11,932		(37.3	)
United States		7,409		1,159		539.3
International		180		86		109.3
Service rig fleet		229		223		2.7
Service rig operating hours		64,854		111,995		(42.1	)

(1) EBITDA is a non-GAAP measure and is defined as net earnings adding back income taxes, interest expense and interest income, depreciation and amortization and foreign exchange. See page 15.

FINANCIAL POSITION AND RATIOS
	March 31,		December 31,		March 31,
(Stated in thousands of Canadian dollars, except ratios)	2009		2008		2008

Working capital	$	367,483	$	345,329	$	241,229
Working capital ratio		2.5		2.0		2.8
Long-term debt(1)	$	1,177,215	$	1,368,349	$	213,507
Total long-term financial liabilities	$	1,202,665	$	1,399,300	$	219,950
Total assets	$	4,853,916	$	4,833,702	$	1,919,945
Long-term debt to long-term debt plus equity ratio		0.31		0.37		0.13

(1) Excludes current portion of long-term debt and deducts net unamortized debt issue costs.

1 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 LY S I S

OVERVIEW

The Trust reported a 31% revenue increase and a 15% rise in earnings before interest, taxes, depreciation and amortization and foreign exchange ("EBITDA") for the first quarter of 2009 over the first quarter of 2008. Revenue for the first quarter of 2009 totaled $448 million compared to $343 million for the same period in 2008. EBITDA was $169 million for the first three months of 2009, an increase of $22 million over the first quarter of 2008. The increase in revenue and EBITDA is due to the acquisition in December 2008 of Grey Wolf, Inc ("Grey Wolf"), an onshore drilling contractor in the United States with 123 rigs. Precision reported net earnings of $57 million or $0.30 per diluted unit for the quarter ended March 31, 2009, a decrease of $49 million or 46% compared to $106 million or $0.84 per diluted unit in the first quarter of 2008. Earnings in the first quarter of 2009 were reduced by $70 million, for a $36 million increase in interest expense and an increase of $34 million in foreign exchange losses. Net earnings per unit were also reduced by a 56% increase in the weighted average diluted units outstanding.

Precision remains focused to reduce debt levels and strengthen its underlying capital structure and decisive steps have been taken to conserve cash and improve Precision's financial position. Precision reduced long-term debt by $221 million during the quarter and increased working capital by $22 million to $367 million as at March 31, 2009. Cash has been conserved through the indefinite suspension of cash distributions to unitholders and cost reduction measures that include personnel reductions and operating facility consolidation. Capitalization was strengthened by net proceeds of $207 million received on February 18, 2009 through the successful issuance of 46 million Trust units. Planned upgrade capital expenditures on existing equipment have been reduced however Precision intends to complete the remaining 10 new Super Series rigs from the 2008 rig build program.

As announced on April 20, 2009, Precision entered into a series of financing transactions to raise up to approximately $380 million which will be used to strengthen the Trust’s balance sheet by refinancing and restructuring the debt incurred in the acquisition of Grey Wolf. A summary of the financing transactions is set forth below:

■	The Trust has entered into an agreement with Alberta Investment Management Corporation (“AIMCo”), pursuant to which AIMCo has agreed to purchase by way of private placement:

•	$175 million aggregate principal amount of senior unsecured notes of Precision bearing interest at 10% per annum and having an eight-year life;

•	35,000,000 Trust units at a subscription price of $3.00 per Trust unit for gross proceeds of $105 million; and

•	15,000,000 purchase warrants of the Trust entitling AIMCo to acquire up to an additional 15,000,000 Trust units at a price of $3.22 per trust unit for a period of five years from the date of issue.

■	The Trust also intends to initiate a rights offering for up to approximately $103 million that will allow unitholders, including AIMCo, to purchase Trust units at a price of $3.00 per unit in their proportionate ownership share on the same terms as AIMCo.

The financing transactions will enable the repayment of Precision's unsecured bridge facility loans of $296 million (US$235 million) which bear interest at approximately 17% and allow Precision's secured facilities to be fully syndicated and thereby provide certainty to the cost of debt.

The financing transactions, coupled with the Trust's February 2009 unit offering, are expected to reduce Precision's blended interest rate, based upon current market rates, to approximately 8.4% from 10.8%, reduce Precision's cash interest expense by approximately $70 million on an annual basis, reduce the Trust’s overall leverage and advance the Trust’s objective of returning to an investment grade credit.

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 LY S I S

Revenue of $448 million in the first quarter was 31% higher than the prior year period. The increase was due to 2008 expansion initiatives through organic and acquisition growth in the United States onshore contract drilling rig market. Precision marketed an average United States fleet of 152 rigs during the first quarter of 2009 as compared to a fleet of 13 rigs in 2008. The mix of drilling rigs working under term contracts and on high performance well-to-well programs supported relatively strong average rig day rate results in the quarter. Revenue in Precision's Canadian Contract Drilling Services segment decreased by 30% while revenue declined 40% in the Canadian based Completion and Production Services segment.

The Trust reported total EBITDA for the first quarter of $169 million compared with $147 million for the first quarter of 2008. EBITDA is not a recognized financial measure under Generally Accepted Accounting Principles (“GAAP”) see “Non-GAAP Measures and Reconciliations” in this report. EBITDA margin, calculated as EBITDA as a percentage of revenues, was 38% for the first quarter of 2009 compared to 43% for the same period in 2008. The 5% decline in margin percentage was attributable to the pass through nature of field crew wage increases in the second half of 2008, significantly lower market pricing for new work and lower overall utilization in both operating segments. Precision's term contract position with customers, a highly variable operating cost structure and economies achieved through vertical integration of the supply chain served to limit the declines.

In the Contract Drilling Services segment Precision currently markets 380 contract drilling rigs, including 224 in Canada, 153 in the United States and three rigs in international locations and 100 drilling rig camps. Precision’s Completion and Production Services segment includes 229 services rigs, 29 snubbing units, 76 wastewater treatment units and a broad mix of rental equipment.

During the quarter an average of 83 drilling rigs worked in Canada and averaged 84 in the United States and Mexico totaling an average of 167 rigs working. This compares with an average of 134 rigs working in the fourth quarter of 2008 and 145 rigs in the first quarter a year ago which does not include Grey Wolf rigs for the pre-acquisition period.

Customer demand in North America commenced the year with the 2008 carry over impact of a weak and declining global economy and resulting low energy commodity prices. While oil pricing has recovered somewhat during the quarter, there remains considerable demand uncertainty for both oil and natural gas and this has triggered very low underlying customer demand for Precision's oilfield services. Accordingly, these factors have eroded oilfield services for a second consecutive quarter as evidenced by minimal spot market opportunities, pricing declines and low winter equipment utilization.

At the end of the quarter these conditions persist as the fundamentals for natural gas continue to show weakness through high storage and growth in domestic United States natural gas supply. The supply capacity was delivered through elevated drilling activity in many regions within the United States, including unconventional resource plays in Texas and Louisiana. A good portion of the production gains are subject to higher depletion rates and the recent steep decline in drilling is expected to eventually restore supply and demand balance.

Precision is focused on further diversification of its high performance, high value service offering as the market rebounds and debt levels are reduced. Expansion of operations into the United States land drilling market provided first quarter growth in the earnings base and cash flow continuity that offsets the seasonal nature of Precision's oilfield service business in Canada. Besides new rig deployments, no existing rigs were moved for customers between Canada and the United States. Outside Canada and the United States, there was no change in activity as Precision continued to operate two 3,000 horsepower drilling rigs in Mexico and have one idle rig in Chile. Precision will be opportunistic in deploying rigs to international markets with minimal new capital investment requirements and contracts that reward high value high performance services.

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

Financial summary for the three months ended March 31, 2009:

■

Precision lowered its debt to capitalization ratio from 0.37 to 0.31 with debt repayment from proceeds through an equity raise in February 2009. As at March 31, 2009 Precision had a cash balance of $130 million and in combination with access to its revolving credit facility, Precision continued to carry ample liquidity.

■	Revenue was $448 million, an increase of $106 million or 31% from the prior year quarter due to growth in Precision's United States operations offset by lower activity levels in Precision's Canadian operations and lower customer pricing for most of Precision's services.

■	General and administrative costs were $25 million, an increase of $6 million from the prior year due primarily to the growth in Precision's United States operations partially offset by lower accrued incentive compensation expense, personnel reductions and reduced discretionary expenses.

■	Interest expense was $39 million, an increase of $36 million from the prior year due to credit facilities entered into during the fourth quarter 2008 as the result of the acquisition growth in the United States contract drilling business.

■

Operating earnings were $93 million, a decrease of $31 million or 25% from the first quarter in 2008. Operating earnings were 21% of revenue, compared to 36% in 2008. Operating earnings margins were negatively impacted by declines in customer pricing for most Canadian divisions and foreign exchange losses arising from the translation of US dollar denominated debt.

■	Bad debt expense was $7 million as the allowance for doubtful accounts was increased to $13 million. Customer creditworthiness remains a top priority as low energy commodity prices are creating financial hardship for certain customers.

■	Nonrecurring expenses associated with a 14% reduction in Precision's office and shop workforce during the quarter was $3 million. Further measures have been taken to minimize operational and administrative costs to align cost structure with low customer demand levels.

■

In connection with the acquisition of Grey Wolf, Precision entered into credit facilities the majority of which are denominated in US dollars. During the quarter the Canadian dollar weakened by 3% as compared to the US dollar resulting in most of the foreign exchange loss on long-term monetary items of $35 million.

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 LY S I S

Operational summary for the three months ended March 31, 2009:

■

Capital expenditures for the purchase of property, plant and equipment were $75 million in the first quarter, an increase of $51 million over the same period in 2008. Capital spending for the first quarter of 2009 included $61 million on expansionary capital initiatives and $14 million on the upgrade of existing assets.

■	During the quarter six newly-built Super Series drilling rigs were added to the fleet under long-term customer contracts, four in Canada and two in the United States.

■

Average revenue per utilization day for contract drilling rigs increased in the first quarter of 2009 to US$25,154 per day from the prior year first quarter of US$22,802 per day in the United States and increased from $16,363 in 2008 to $18,537 for Canada in 2009. The increase in revenue rates for the first quarter in the United States reflects the new rig mix with the acquisition, including turnkey operations. These figures also include US$9 million in revenue generated from idle but contracted rigs associated with term customer contracts and US$5 million in revenue from an early contract termination for one rig. Turnkey revenue was US$30 million generated from 419 utilization days. Within Precision’s Completion and Production Services segment, average hourly rates for service rigs were $731 in the first quarter of 2009 compared to $736 in the fourth quarter of 2008.

■

Average operating costs per day for drilling rigs increased in the first quarter of 2009 to US$14,456 per day from the prior year first quarter of US$10,503 per day in the United States and $8,322 to $10,032 in Canada. Within Precision’s Completion and Production Services segment, average hourly operating costs for service rigs were $527 in the first quarter of 2009 compared to $492 in the first quarter of 2008. The cost escalations were primarily attributable to deeper capacity drilling rig mix, labour increases in the second half of 2008 and lower equipment activity to allocate fixed costs. In the United States the increase was also impacted by turnkey operations acquired in December 2008 whereby there is a larger scope to drilling costs that the drilling contractor is responsible to provide and revenue increases accordingly.

The Canadian 2009 winter drilling season was characterized by unseasonally low utilization for Precision and the industry as the industry. At the end of the quarter there were 863 drilling rigs registered with the Canadian Association of Oilwell Drilling Contractors ("CAODC"). In the United States the industry and Precision have been experiencing declining utilization as customer spending has been dramatically reduced because of lower oil and natural gas commodity prices.

Oil and natural gas prices during the first quarter of 2009 were significantly lower than a year ago. For the first quarter of 2009 AECO natural gas spot prices averaged $4.95 per MMBtu, a decrease of 37% over the first quarter 2008 average of $7.90 per MMBtu. In the United States, Henry Hub natural gas spot prices averaged US$4.55 per MMBtu in the first quarter of 2009 a decrease of 47% over the first quarter 2008 average of US$8.61 per MMBtu. West Texas Intermediate crude oil averaged US$43.21 per barrel during the quarter compared to US$97.79 per barrel in the same period in 2008. The one-year forward price for North American natural gas was also lower than the prior year comparable quarter, trading in a range of about $4.50 to $7.00 on Canadian and U.S. exchanges in the first quarter of 2009, compared to a range of about $7.00 to $10.50 in the same quarter of 2008.

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

OUTLOOK

The global economic recession, reduced liquidity in the capital markets and low oil and natural gas commodity prices continue to have a negative impact on the oilfield service industry. The drilling sector in both Canada and the United States is experiencing a period of significant decline in utilization. According to industry sources, as at April 3, 2009, the United States active land drilling rig count was down about 43% from the same period in the prior year while the Canadian drilling rig count was down about 40%. With decreasing utilization, the competitive pressure on all of Precision's service offerings intensifies resulting in lower rates for services. Precision expects this trend to continue into the second quarter of 2009 and potentially longer depending on commodity prices.

Precision has a strong portfolio of long-term customer contracts that help mitigate the effects of the current downturn. Precision expects to have an average of approximately 100 rigs under day work term contract in North America in the second quarter of 2009, an average of 90 rigs contracted for the third quarter of 2009 and 78 for the fourth quarter of 2009. These term contract totals include 17 rigs in the United States that are currently not working but receiving margin revenue from customers. In Canada, term contracted rigs generate about 200 to 250 utilization days a year due to the seasonal nature of well access whereas in the United States we expect about 350 utilization days in most regions. For all of 2009, Precision expects to have an average of approximately 94 rigs under term contract, with 56 rigs contracted in the United States, 36 in Canada and two in Mexico. For 2010, Precision expects to have an average of 29 rigs in Canada under term contract and 28 in the United States and Mexico, for a total of 57 for the full year. None of Precision’s long-term contracts have been terminated without appropriate payment, though certain contracted days have been moved between rigs to accommodate customer requests. One long-term contract was prepaid through the lump sum payment of US$5 million which was recognized as revenue during the first quarter of 2009.

As part of its ongoing debt reduction plan, Precision expects to keep capital expenditures at low levels during 2009. Capital expenditures totaled $75 million in the first quarter of 2009 and are expected to be approximately $210 million for the full year, with approximately $40 million for upgrade capital and $170 million for previously committed expansion capital. The expansion capital is for 16 new rigs to be placed into service in 2009 with the completion of the 2008 Super Series new build program. Six of those rigs were placed into service in the first quarter with the remaining ten to be deployed under term contracts, seven in the United States and three in Canada.

With the recession negatively impacting energy demand, the United States natural gas storage levels are currently near the upper range of the five-year average and 35% higher than storage volumes a year ago. Canada exports over half its natural gas production to the United States and Precision's oilfield service businesses are highly dependent on associated customer economics. The view that North America has an oversupply of natural gas has driven gas prices lower. The recent increase in United States natural gas production, concerns over the declines in industrial gas consumption and the prospect of higher liquefied natural gas ("LNG") imports has overshadowed lower Canadian imports and the drop in active North American drilling rig count. Subject to demand clarity and LNG imports, Precision anticipates the supply decline from reduced drilling may begin to outpace demand reductions in late 2009, providing the catalyst for improved fundamentals to support a recovery in drilling activity.

Despite the near term challenges the future of the global oil and gas industry remains promising. For Precision, 2009 represents an opportunity to demonstrate our value to customers through delivery of high performance, high value services that deliver low customer well costs and strong relative margins to Precision.

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 LY S I S

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 March 31,
(Stated in thousands of Canadian dollars)	2009			2008			% Change

Revenue:
Contract Drilling Services	$	389,879		$	242,365			60.9
Completion and Production Services		62,975			104,720			(39.9	)
Inter-segment eliminations		(4,409	)		(4,396	)		(0.3	)
	$	448,445		$	342,689			30.9
EBITDA:(1)
Contract Drilling Services	$	155,495		$	115,215			35.0
Completion and Production Services		18,548			42,139			(56.0	)
Corporate and other		(4,656	)		(10,007	)		53.5
	$	169,387		$	147,347			15.0

(1) Non-GAAP measure. See page 15.

SEGMENT REVIEW OF CONTRACT DRILLING SERVICES

	Three months ended March 31,
(Stated in thousands of Canadian dollars, except where indicated)	2009			2008			% Change

Revenue	$	389,879		$	242,365			60.9
Expenses:
Operating		216,105			121,305			78.2
General and administrative		18,279			5,845			212.7
EBITDA:(1)		155,495			115,215			35.0
Depreciation		37,963			15,168			150.3
Foreign exchange		(424	)		(834	)		(49.2	)
Operating earnings(1)	$	117,956		$	100,881			16.9

Operating earnings as a percent of revenue		30.3 %			41.6 %
Drilling rig revenue per utilization day in Canada	$	18,537		$	16,363			13.3
Drilling rig revenue per utilization day in the US(2)	US$	25,154		US$	22,802			10.3

(1) Non-GAAP measure. See page 15.

(2) Includes revenue from idle but contracted rig days and a rig contract lump sum payout.

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

			Three months ended March 31,
	2009				2008
Drilling statistics:(1)	Precision		Industry (2)		Precision		Industry (2)

Number of drilling rigs (end of period)		224		869		231		893
Drilling rig operating days (spud to release)		6,599		28,244		10,504		45,336
Drilling rig operating day utilization		33 %		36 %		50 %		56 %
Number of wells drilled		793		3,025		1,450		5,126
Average days per well		8.3		9.3		7.2		8.7
Number of metres drilled (000s)		1,092		4,086		1,946		6,790
Average metres per well		1,377		1,351		1,342		1,325
Average metres per day		166		145		185		153

(1) Canadian operations only.

(2) CAODC and Precision – excludes non-CAODC rigs and non-reporting CAODC members.

In the Contract Drilling Services segment revenue for the first quarter increased by 61% to $390 million while EBITDA increased by 35% to $155 million compared to the same period in 2008. The increase in revenue and EBITDA was due to the acquisition of Grey Wolf in December, 2008.

Activity in North America was impacted by lower customer demand due to continued low natural gas and oil prices. Lower industry activity levels were partially mitigated by the organic growth of Precision's legacy United States business. As at the end of the quarter there were 153 Precision drilling rigs in the United States compared to 14 a year ago. Despite the decrease in utilization rates, drilling rig revenue per utilization day in Canada was up 13% over the prior year due to an increase in crew wages passed on to the customer and proportionately more activity from the Super Triple and Super Single™ rigs which typically receive a day rate premium. During the quarter 28% of the operating days by Precision in Canada were generated from rigs under contract. In the United States the average drilling utilization day rates for Precision remained relatively strong due to term contracted rigs, the lump sum payment associated with the early termination of a rig term contract and margin contributions from idle but contracted rigs. As at the end of the quarter in the United States there were 56 drilling rigs working under term contracts and another 17 rigs idle but contracted where Precision was receiving the margin payment only.

Drilling rig utilization days (spud to rig release plus move days) in Canada during the first quarter of 2009 were 7,482, a decrease of 37% compared to 11,932 in 2008. Drilling rig activity for Precision in the United States was 539% higher than the same quarter of 2008 due to the acquisition of Grey Wolf. In the prior year quarter Precision had one rig working in Latin America and realized a total of 86 utilization days as compared to 180 utilization days in the current quarter from operations in Mexico.

Precision's camp and catering division experienced an activity decrease of 34% over the prior year first quarter, consistent with the decline in drilling activity.

Operating expenses were 55% of revenue for the quarter compared to 50% for the prior year quarter. The increase was due to higher field crew wages and the mix of rigs working while lower equipment utilization increased daily operating costs associated with fixed cost overhead. On a per day basis, operating costs for the drilling rig division in Canada were 20% higher than the prior year quarter due to crew wage increases and the differences in rig mix as 2009 had more days realized from top drives and triple rigs. Operating costs in the United States were in line with expectations except for the expensing of an additional provision for bad debts of about US$5 million.

Despite the drop in activity and increased pressure on day rates, EBITDA margin in contract drilling remained relatively strong due to term contracted rigs and cost containment efforts.

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 LY S I S

Depreciation in the Contract Drilling Services segment increased from the prior year due to the increase in activity in the United States with the acquisition of Grey Wolf and the increase in carrying value of the Grey Wolf rigs to fair market value on acquisition. Both the United States and Canada contract drilling operations use the unit of production method of calculating depreciation.

SEGMENT REVIEW OF COMPLETION AND PRODUCTION SERVICES

	Three months ended March 31,
(Stated in thousands of Canadian dollars, except where indicated)	2009			2008			% Change

Revenue	$	62,975		$	104,720			(39.9	)
Expenses:
Operating		42,065			59,281			(29.0	)
General and administrative		2,362			3,300			(28.4	)
EBITDA(1)		18,548			42,139			(56.0	)
Depreciation		4,993			8,276			(39.7	)
Foreign exchange gain		(6	)		(2	)		200.0
Operating earnings(1)	$	13,561		$	33,865			(60.0	)

Operating earnings as a percent of revenue		21.5	%		32.3	%
Number of service rigs (end of period)		229			223			2.7
Service rig operating hours		64,854			111,995			(42.1	)
Service rig operating hour utilization		31	%		55	%
Service rig revenue per operating hour	$	731		$	743			(1.6	)
(1) Non-GAAP measure. See page 15.

In the Completion and Production Services segment revenue for the first quarter decreased by 40% from 2008 to $63 million while EBITDA declined by 56% to $19 million. The decrease in revenue is attributed to the decline in industry activity as customers reduced spending in response to lower commodity prices.

Service rig activity declined 42% from the prior year period, with the service rig fleet generating 64,854 operating hours in the first quarter of 2009 compared with 111,995 hours in 2008 for utilization of 31% and 55%, respectively. The reduction was a result of lower service rig demand due to decreased drilling activity and spending on production maintenance of existing wells. New well completions accounted for 32% of service rig operating hours in the first quarter compared to 36% in the same quarter in 2008. There were 4,439 well completions in Canada in the first quarter, an 11% decline from 4,980 wells in the same quarter in 2008.

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

Average service revenue per operating hour decreased $12 per hour over the prior year which represents EBITDA margin compression given labour cost increases of about $30 per hour during the fourth quarter of 2008.

Higher variable operating expenses, fixed costs spread over a lower activity base and lower revenue rates led to an increase in operating expenses as a percent of revenue from 57% in the first quarter of 2008 to 67% for the same period in 2009. Operating costs per operating hour have increased over the comparable period in 2008 due primarily to increased wages and maintenance costs.

Depreciation in the Completion and Production Services segment in the first quarter of 2009 was 40% lower than the prior year period due to lower equipment utilization.

SEGMENT REVIEW OF CORPORATE AND OTHER

Corporate and other expenses decreased by 53% to $5 million in the first quarter of 2009 compared to $10 million in the same period of 2008. The decrease was primarily due to the difference in employee incentive compensation expense.

OTHER ITEMS

Net interest expense of $39 million for the first quarter of 2009 was up substantially on the prior year comparative. The increase is attributable to interest associated with the new credit facilities resulting from the acquisition of Grey Wolf.

The Trust had a non-cash foreign exchange loss of $32 million during the first quarter of 2009 due to the decline in the Canadian dollar versus the United States dollar, in which the majority of the Trust's credit facilities are denominated.

The Trust’s effective tax rate on earnings before income taxes for the first three months of 2009 was a tax recovery of 7% compared to a 13% expense for the same period in 2008. The income tax recovery is primarily a result of tax deductions available in excess of tax earnings. 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 and due to a portion of the Trust's taxable income being taxed at lower rates than the Canadian corporate tax rate.

At March 31, 2009 Precision reported goodwill of $858 million of which $573 million relates to the United States contract drilling business unit. With specific reference to goodwill impairment, Precision will continue to monitor the business climate for a significant adverse change from December 31, 2008 and may test for impairment during 2009, between customary annual tests.

LIQUIDITY AND CAPITAL RESOURCES

In connection with the acquisition of Grey Wolf, Precision entered into a new US$1.2 billion senior secured credit facility (the "Secured Facility") with a syndicate of lenders that is guaranteed by the Trust and is comprised of US$800 million of term loans and a US$400 million revolving facility (the "Revolver"). Precision also entered into a US$400 million unsecured credit facility with certain of the lenders (the "Unsecured Facility" and, together with the Secured Facility, the "Credit Facilities") that is also guaranteed by the Trust. The Credit Facilities funded the cash portion of the acquisition and refinanced the pre-closing Precision bank debt and certain pre-closing debt obligations of Grey Wolf.

In order to complete a successful syndication of the Secured Facility, the lenders are entitled, prior to May 22, 2009 and in consultation with Precision, to change certain of the terms of the Revolver and Term Loan A including, to implement, within certain limits, additional increases in interest rates, original issue discounts and/or upfront fees, reallocate up to US$250 million between the Term Loan A Facility and the Term Loan B Facility, reallocate up to

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 LY S I S

US$150 million between the Secured Facility and the Unsecured Facility and amend certain covenants, financial ratio tests and other provisions for portions of the Secured Facility. During the quarter US$69 million of long-term debt was reallocated from the Term Loan A Facility to the Term Loan B Facility resulting in an additional $13 million in original issue discount fees.

On February 18, 2009 the Trust issued 46 million Trust units at US$3.75 per unit for gross proceeds of $217 million and proceeds net of fees and expenses of $207 million. The proceeds were used to repurchase the outstanding convertible notes assumed in conjunction with the Grey Wolf acquisition. The Grey Wolf convertible notes had a provision whereby upon the occurrence of a change in control the acquirer was required to provide holders of the notes with an offer to purchase all or a portion of their notes at the principal amount plus accrued but unpaid interest to the date of purchase, payable in cash. All of the note holders with the exception of US$10,000 exercised the repurchase option.

As at March 31, 2009 the Credit Facilities carry a blended interest rate of approximately 11% per annum before original issue discounts and upfront fees. Pursuant to the required quarterly repayment terms of the term loan facilities, on March 31, 2009 Precision repaid $13 million of outstanding principal.

The loans under the Unsecured Facility initially mature on December 23, 2009, and, to the extent unpaid on that date, will be converted into exchange notes that will mature on December 23, 2016 provided that the loans will not be converted to exchange notes if an event of default has occurred under the Unsecured Facility or the Secured Facility or certain other conditions are not satisfied.

The terms of the documents governing the Credit Facilities contain provisions that in the event of default or in liquidation scenario ensures that the lenders have priority as to payment over the unitholders in respect to the assets and income of the Trust and its subsidiaries. Amounts due and owing to the lenders under the Credit Facilities must be paid before any distributions can be made to unitholders. This relative priority of payments could result in a temporary or permanent interruption of distributions to unitholders.

As at March 31, 2009, approximately $1,104 million was outstanding under the Secured Facility and approximately $296 million was outstanding under the Unsecured Facility.

Subsequent to quarter end, Precision announced a series of financing transactions to raise up to approximately $380 million which will be used to strengthen the Trust’s balance sheet by refinancing and restructuring the debt incurred in the acquisition of Grey Wolf. The financing transactions will enable the repayment of Precision's unsecured bridge facility loans of $296 million (US$235 million) which bear interest at approximately 17% and allow Precision's secured facilities to be fully syndicated and thereby provide certainty to the cost of debt.

The financing transactions, coupled with the Trust's February 2009 unit offering, are expected to reduce Precision's blended interest rate, based upon current market rates, to approximately 8.4% from 10.8%, reduce Precision's cash interest expense by approximately $70 million on an annual basis, reduce the Trust’s overall leverage and support the Trust’s objective of returning to an investment grade credit.

In 2009 the Trust generated cash from continuing operations of $202 million and issued trust units for proceeds, net of fees and non-cash working capital, of $207 million. The cash generated was used to purchase property plant and equipment net of disposal proceeds and related non-cash working capital of $81 million, repay long-term debt of $221 million and pay additional fees associated with the debt of $15 million, and make cash distributions to unitholders of $27 million leaving an increase in the cash balance as at March 31, 2009 of $68 million.

As at March 31, 2009 the Trust had a long-term debt to long-term debt plus equity ratio of 0.31 compared to 0.13 as at the comparable period in 2008 and 0.37 as at December 31, 2008. The significant increase over the prior year is due to the additional debt arising from the acquisition of Grey Wolf. Precision has made debt reduction a priority and is employing initiatives to deleverage from current levels.

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

In addition to the Secured Facility and Unsecured Facility, Precision also has uncommitted operating facilities which total approximately $25 million equivalent and are utilized for working capital management and the issuance of letters of credit.

During the first quarter of 2009, working capital increased by $22 million to $367 million as Precision realized higher activity and corresponding revenue in the current quarter compared to the fourth quarter of 2008.

DISTRIBUTIONS

Upon Precision’s 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 (together “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. The Trust considers these factors on a monthly basis in determining future distributions. In the first quarter of 2009 cash distributions declared were $6 million or $0.04 per diluted unit, a decrease of $43 million or $0.35 per diluted unit from the previous year.

On February 9, 2009 Precision announced the suspension of cash distributions for an indefinite period for distributions to be paid after February 17, 2009. The suspension of cash distributions was taken in response to lower financial operating performance at the start of 2009 and allowed Precision to increase debt repayment capability and balance sheet strength.

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.

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 LY 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)	2008									2009

Quarters ended	June 30			September 30			December 31			March 31

Cash provided by continuing operations	$	200,458		$	3,241		$	82,904		$	201,596
Deduct:
Purchase of property, plant and equipment for
upgrade capital		(8,864	)		(17,270	)		(30,506	)		(13,760	)
Purchase of property plant and equipment for
expansion initiatives		(22,480	)		(58,187	)		(68,804	)		(61,162	)
Add:
Proceeds on the sale of property, plant and
equipment		2,143			1,879			5,115			5,942
Standardized distributable cash(1)		171,257			(70,337	)		(11,291	)		132,616
Unfunded long-term incentive plan compensation		(2,166	)		93			(559	)		2,524
Distributable cash from continuing operations(1)	$	169,091		$	(70,244	)	$	(11,850	)	$	135,140
Cash distributions declared	$	49,045		$	49,046		$	53,522		$	6,408

Per diluted unit information:
Cash distributions declared	$	0.39		$	0.39		$	0.39		$	0.04
Standardized distributable cash(1)	$	1.36		$	(0.56	)	$	(0.09	)	$	0.67
Distributable cash from continuing operations(1)	$	1.34		$	(0.56	)	$	(0.09	)	$	0.69

	2007						2008

Quarters ended	June 30			September 30			December 31			March 31

Cash provided by continuing operations	$	229,073		$	20,270		$	78,474		$	57,307
Deduct:
Purchase of property, plant and equipment for
upgrade capital		(8,602	)		(10,544	)		(9,241	)		(2,814	)
Purchase of property plant and equipment for
expansion initiatives		(44,238	)		(30,382	)		(28,264	)		(20,654	)
Add:
Proceeds on the sale of property, plant and
equipment		2,130			1,273			1,236			1,303
Standardized distributable cash(1)		178,363			(19,383	)		42,205			35,142
Unfunded long-term incentive plan compensation		4,167			3,685			(1,817	)		469
Distributable cash from continuing operations(1)	$	182,530		$	(15,698	)	$	40,388		$	35,611
Cash distributions declared	$	56,591		$	49,046		$	69,166		$	49,046

Per diluted unit information:
Cash distributions declared	$	0.45		$	0.39		$	0.55		$	0.39
Standardized distributable cash(1)	$	1.42		$	(0.15	)	$	0.33		$	0.28
Distributable cash from continuing operations(1)	$	1.45		$	(0.12	)	$	0.32		$	0.28

(1) Non-GAAP measure. See page 15.

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

	Three months ended		Three months ended		Year ended
	March 31,		March 31,		December 31,
(stated in thousands of Canadian dollars)	2009		2008		2008

Cash provided by continuing operations (A)	$	201,596	$	57,307	$	343,910
Net earnings (B)	$	57,417	$	106,266	$	302,730
Distributions declared (C)	$	6,408	$	49,046	$	224,688

Excess of cash provided by continuing operations
over distributions declared (A-C)	$	195,188	$	8,261	$	119,222
Excess of net earnings from operating activities over
distributions declared (B-C)	$	51,009	$	57,220	$	78,042

Precision has initiated a number of cost reduction and cash generation plans designed to strengthen its capability to reduce long-term debt and improve its underlying credit quality and capital structure. The near-term management strategy involves retaining funds from available distributable cash to repay debt, finance required upgrade capital expenditures as well as financing working capital needs. Planned asset growth will generally be financed through existing debt facilities or cash retained from continuing operations.

QUARTERLY FINANCIAL SUMMARY
(Stated in thousands of Canadian dollars,
except per diluted unit amounts)			2008				2009

Quarters ended	June 30		September 30		December 31		March 31

Revenue	$	138,514	$	285,639	$	335,049	$	448,445
EBITDA(1)		35,574		118,82		134,795		169,387
Earnings from continuing operations:		21,739		82,349		92,376		57,417
Per basic unit		0.17		0.65		0.72		0.32
Per diluted unit		0.17		0.65		0.71		0.30
Net earnings:		21,739		82,349		92,376		57,417
Per basic unit		0.17		0.65		0.72		0.32
Per diluted unit		0.17		0.65		0.71		0.30
Cash provided by continuing operations		200,458		3,241		82,904		201,596
Distributions declared	$	49,045	$	49,046	$	77,551	$	6,408
			2007				2008

Quarters ended	June 30		September 30		December 31		March 31

Revenue	$	122,005	$	227,928	$	248,726	$	342,689
EBITDA(1)		39,825		92,068		103,351		147,347
Earnings from continuing operations:		25,722		69,702		89,329		106,266
Per basic unit		0.20		0.55		0.71		0.85
Per diluted unit		0.20		0.55		0.71		0.84
Net earnings:		25,722		72,658		89,329		106,266
Per basic unit		0.20		0.58		0.71		0.85
Per diluted unit		0.20		0.58		0.71		0.84
Cash provided by continuing operations		229,073		20,270		78,474		57,307
Distributions declared	$	56,591	$	49,046	$	99,348	$	49,046

(1) Non-GAAP measure. See page 15.

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 LY S I S

NON-GAAP MEASURES

Precision uses certain measures that are not recognized under Canadian generally accepted accounting principles to assess performance and believes these non-GAAP measures provide useful supplemental information to investors. Following are the non-GAAP measures Precision uses in assessing performance.

EBITDA

Management believes that in addition to net earnings, EBITDA as derived from information reported in the Consolidated Statements of Retained Earnings (Deficit) 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, the impact of foreign exchange, how the results are taxed, how funds are invested or how non-cash depreciation and amortization charges affect results.

The following table provides a reconciliation of net earnings under GAAP, as disclosed in the Consolidated Statement of Earnings and Retained Earnings (Deficit), to EBITDA.

	Three months ended March 31,
(Stated in thousands of Canadian dollars)	2009			2008

EBITDA	$	169,387		$	147,347
Add (deduct):
Depreciation and amortization		(43,949	)		(24,367	)
Foreign exchange gain (losses)		(32,491	)		1,258
Interest:
Long-term debt		(38,698	)		(2,235	)
Other		(63	)		(46	)
Income		91			85
Income taxes		3,140			(15,776	)
Net earnings	$	57,417		$	106,266

Operating earnings

Management believes that in addition to net earnings, operating earnings as reported in the Consolidated Statements of Earnings and Retained Earnings (Deficit) 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.

	Three months ended March 31,
(Stated in thousands of Canadian dollars)	2009			2008

Operating earnings	$	92,947		$	124,238
Add (deduct):
Interest:
Long-term debt		(38,698	)		(2,235	)
Other		(63	)		(46	)
Income		91			85
Income taxes		3,140			(15,776	)
Net earnings	$	57,417		$	106,266

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 obligations.

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

Precision’s method of calculating these measures may differ from other entities and, accordingly, may not be comparable to measures used by other entities. Investors should be cautioned 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, 2009 the Trust adopted new Canadian accounting standards relating to goodwill and intangible assets (Section 3064). Section 3064 establishes standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. This new section did not have a significant impact on the consolidated financial statements.

INTERNATIONAL FINANCIAL REPORTING STANDARDS

Precision will be required to report its financial results in accordance with International Financial Reporting Standards (“IFRS”) from January 1, 2011, the changeover date set by the CICA Accounting Standards Board. Precision has established a Project Team and Steering Committee to oversee the transition to IFRS. A preliminary assessment of impacts of IFRS on the financial reporting process has been completed. The key areas identified that affect financial reporting under IFRS for Precision are:

■	Capital asset componentization

■	Financial statement format and disclosure

■	Provisions

■	Asset impairments

■	IFRS 1 - first time adoption

Detailed project plans with significant activities and key milestones for the above mentioned key areas have been prepared. A preliminary list of capital asset components for the drilling rig division has been prepared and is currently being reviewed by management. Potential changes to the capitalization and depreciation policy have been identified. Potential cash generating units for purposes of assessing impairment have been identified and are currently being finalized by management. Available IFRS 1 elections are being evaluated for impact to the business processes and financial statements at transition date.

The impact on financial statements is being assessed and Precision expects to have draft financial statements prepared in the fourth quarter of 2009.

16 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 LY S I S

A summary of significant activities and deadlines within the plan along with their current status is as follows:

KEY ACTIVITY		DEADLINES/MILESTONES		STATUS AT MARCH 31, 2009

Financial statement preparation:

■	Identify differences in Canadian	■	Ready for complete IFRS	■	For the five Key areas identified
	GAAP/IFRS accounting policies		reporting in 2011 financial year		for conversion, detailed
■	Select entity’s continuing IFRS		including comparative financial		differences documented and
	policies		statements for 2010 financial year		project plans prepared
■	Select entity’s IFRS 1 choices			■	Identified accounting policy choices
					and IFRS elections are currently
■	Develop financial statement format				being evaluated for potential
■	Quantify IFRS 1 disclosures for				business process and financial
	2010				statement impact

Infrastructure:

■	Determine and develop IFRS	■	Ready for transition at January 1,	■	IFRS training delivered to IFRS
	expertise needed at all levels		2010 and IFRS reporting at Q1,		project team and key
	within the entity		2011		stakeholders within Precision
■	Determine and implement	■	Ready for parallel processing of	■	IT impact assessment completed
	information technology changes		2010 general ledger		and system configuration changes
	needed to be fully IFRS compliant				to commence Q3 2009

Business policy assessment:

■	Identify impact on financial	■	If needed, renegotiate/redefine	■	Identification of GAAP related
	covenants and renegotiate/redefine		covenants by end of Q3, 2010		covenants underway
	as needed	■	Update compensation plans by	■	Impact of IFRS conversion on
■	Identify impact on compensation		Q4, 2010		compensation plans and
	plans and change as required	■	Renegotiate and amend customer		customer and supplier contracts
■	Evaluate impact on customer and		and supplier contracts by Q3,		will be assessed in Q3, 2009
	supplier contracts		2010 if needed

Control environment:

■	Assess impact on design and	■	Update business process and IT	■	Identification of material process
	effectiveness of internal control		controls documentation by end of		changes underway
	over financial reporting		Q4, 2010
■	Assess impact on design and	■	Update CEO/CFO certifications
	effectiveness of disclosure		process by end of Q4, 2010 for
	controls and procedures		SOX 302

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

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 March 31, 2009 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 March 31, 2009.

During the quarter ended March 31, 2009 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. On December 23, 2008 Precision acquired Grey Wolf and began consolidating the operations from that date. Based on the proximity of this acquisition to the March 31, 2009 quarter end management has excluded this business from its evaluation of the effectiveness of internal controls. The revenue attributable to this business represented approximately 42% of Precision's consolidated total and its total assets represented approximately 56% of the consolidated total assets as at March 31, 2009.

18 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 LY S I 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”, "estimate", "propose", "plan", “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, but are not limited to: the number of rigs under daywork term contracts in Canada, the United States and Mexico; the global economic crisis and its impact on operations; the decline rate on newly drilled wells; the potential rebound in land drilling activity; the integration of Precision and Grey Wolf; the potential for goodwill impairment; commodity prices; the timing of completion of rigs in the 2008 rig build program; statements as to the demand for Precision's services; the anticipated impact of AIMCo’s investment on Precision’s existing credit facilities; the timing and ultimate outcome of the proposed rights offering and the general effect of the private placement and rights offering on the Trust and Precision; and the impact of certain accounting changes on Precision.

These forward-looking information and 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; the current global financial crisis and the dislocation in the credit markets; 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 seasonal and 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; failure to realize anticipated synergies in the Grey Wolf acquisition; failure to complete the private placement or proposed rights offering, the possibility of a reduced take up under the rights offering and any failure to obtain any required regulatory approvals; 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 news release 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. Readers are therefore cautioned not to place undue reliance on such forward-looking information and statements. 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 19