EX-99.1 4 ex99_1.htm MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE PERIOD ENDED JUNE 30, 2009

Exhibit 99.1
MANAGEMENT’S DISCUSSION AND ANALYSIS
Management’s Discussion and Analysis for the three and six month periods ended June 30, 2009 of Precision Drilling Trust (the “Trust” or “Precision”) prepared as at July 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 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 2008 Annual Report, Annual Information Form, the unaudited June 30, 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 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(Stated in thousands of Canadian dollars, |  | Three months ended June 30, |  |  | Six months ended June 30, |
except per unit amounts) |  | 2009 |  |  | 2008 |  |  | % Change |  |  | 2009 |  |  | 2008 |  |  | % Change |
Revenue |  | $ | 209,597 |  |  | $ | 138,514 |  |  |  | 51.3 |  |  | $ | 658,042 |  |  | $ | 481,203 |  |  |  | 36.7 |
EBITDA(1) |  |  | 59,260 |  |  |  | 35,574 |  |  |  | 66.6 |  |  |  | 228,647 |  |  |  | 182,921 |  |  |  | 25.0 |
Net earnings |  |  | 57,475 |  |  |  | 21,739 |  |  |  | 164.4 |  |  |  | 114,892 |  |  |  | 128,005 |  |  |  | (10.2 | )
Cash provided by operations |  |  | 212,554 |  |  |  | 200,458 |  |  |  | 6.0 |  |  |  | 414,150 |  |  |  | 257,765 |  |  |  | 60.7 |
Capital spending |  |  | 88,436 |  |  |  | 29,201 |  |  |  | 202.9 |  |  |  | 157,416 |  |  |  | 51,366 |  |  |  | 206.5 |
Distributions declared |  |  | – |  |  |  | 49,045 |  |  |  | (100.0 | ) |  |  | 6,408 |  |  |  | 98,091 |  |  |  | (93.5 | )
Net earnings per unit:(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 0.23 |  |  |  | 0.16 |  |  |  | 43.8 |  |  |  | 0.51 |  |  |  | 0.95 |  |  |  | (46.3 | )
Diluted |  |  | 0.22 |  |  |  | 0.16 |  |  |  | 37.5 |  |  |  | 0.50 |  |  |  | 0.95 |  |  |  | (47.4 | )
Distributions declared per unit |  | $ | – |  |  | $ | 0.39 |  |  |  | (100.0 | ) |  | $ | 0.04 |  |  | $ | 0.78 |  |  |  | (94.9 | )
Contract drilling rig fleet |  |  | 388 |  |  |  | 248 |  |  |  | 56.5 |  |  |  | 388 |  |  |  | 248 |  |  |  | 56.5 |
Drilling rig utilization days: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Canada |  |  | 2,499 |  |  |  | 3,442 |  |  |  | (27.4 | ) |  |  | 9,981 |  |  |  | 15,374 |  |  |  | (35.1 | )
United States |  |  | 4,529 |  |  |  | 1,403 |  |  |  | 222.8 |  |  |  | 11,938 |  |  |  | 2,562 |  |  |  | 366.0 |
International |  |  | 182 |  |  |  | 57 |  |  |  | 219.3 |  |  |  | 362 |  |  |  | 143 |  |  |  | 153.1 |
Service rig fleet |  |  | 229 |  |  |  | 223 |  |  |  | 2.7 |  |  |  | 229 |  |  |  | 223 |  |  |  | 2.7 |
Service rig operating hours |  |  | 32,818 |  |  |  | 55,631 |  |  |  | (41.0 | ) |  |  | 97,672 |  |  |  | 167,626 |  |  |  | (41.7 | )

(1) EBITDA is a non-GAAP measure and is defined as earnings before interest, taxes, depreciation and amortization and foreign exchange. See “NON-GAAP MEASURES”.
(2) Net earnings per basic and diluted unit have been adjusted to reflect the rights offering completed in the second quarter of 2009. See note 10 to the unaudited consolidated financial statements.

FINANCIAL POSITION AND RATIOS |  |  |  |  |  |  |  |  |
|  | June 30, |  |  | December 31, |  |  | June 30, |
(Stated in thousands of Canadian dollars, except ratios) |  | 2009 |  |  | 2008 |  |  | 2008 |
Working capital |  | $ | 253,663 |  |  | $ | 345,329 |  |  | $ | 88,295 |
Working capital ratio |  |  | 2.6 |  |  |  | 2.0 |  |  |  | 1.8 |
Long-term debt (1) |  | $ | 868,933 |  |  | $ | 1,368,349 |  |  | $ | 104,948 |
Total long-term financial liabilities |  | $ | 893,769 |  |  | $ | 1,399,300 |  |  | $ | 113,671 |
Total assets |  | $ | 4,521,430 |  |  | $ | 4,833,702 |  |  | $ | 1,756,302 |
Long-term debt to long-term debt plus equity ratio |  |  | 0.24 |  |  |  | 0.37 |  |  |  | 0.07 |
(1) Excludes current portion of long-term debt and is net of 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
Precision Drilling Trust (the "Trust" or “Precision”) reported a 51% revenue increase and a 67% rise in earnings before interest, taxes, depreciation and amortization and foreign exchange ("EBITDA") for the second quarter of 2009 over the second quarter of 2008. Revenue for the second quarter of 2009 totaled $210 million compared to $139 million for the same period in 2008. EBITDA was $59 million for the second quarter of 2009, an increase of $24 million over the second 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 including two in Mexico. Precision reported net earnings of $57 million or $0.22 per diluted unit for the quarter ended June 30, 2009, an increase of $35 million or 164% compared to $22 million or $0.16 per diluted unit in the second quarter of 2008. Earnings in the second quarter of 2009 were reduced by a $43 million increase in finance charges. Earnings were increased in the quarter by a $74 million foreign exchange gain, or after-tax $0.20 per diluted unit. Net earnings per unit were impacted by the 119% increase in units outstanding in the one-year period ending June 30, 2009.
For the six months ended June 30, 2009, net earnings were $115 million or $0.50 per diluted unit, a decrease of $13 million or 10% compared to $128 million or $0.95 per diluted unit for the first half of 2008. Net earnings decreased due to increased financing charges and lower utilization rates throughout North America partially offset by growth in Precision’s rig fleet in the United States. Rig utilization days for the first six months of 2009 were 23% higher than the same period of 2008 due to growth in Precision’s United States operations. EBITDA for the first half of 2009 totaled $229 million, a 25% increase from $183 million for the first half of 2008.
During the first half of 2009, Precision remained focused on reducing debt levels and strengthening its capital structure and decisive steps were taken to conserve cash and improve Precision's financial position. Precision repaid long-term debt by $251 million during the quarter and working capital declined by $114 million to $254 million at June 30, 2009. Cash continues to be conserved through the indefinite suspension of cash distributions to unitholders and cost reduction measures that include personnel reductions and operating facility consolidation. Planned upgrade capital expenditures on existing equipment were significantly reduced and the remaining two new Super Series rigs from the 18 rig 2008 build program are near completion.
As announced on April 20, 2009, Precision entered into a series of financing transactions that raised approximately $380 million used to strengthen the Trust’s balance sheet by refinancing and restructuring debt incurred in the acquisition of Grey Wolf. A summary of the financing transactions is set forth below:

• | The Trust completed a transaction with Alberta Investment Management Corporation (“AIMCo”), pursuant to which AIMCo purchased 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 completed a rights offering for proceeds of $103 million that allowed unitholders to purchase Trust units at a price of $3.00 per Trust unit.

The financing transactions enabled the repayment of Precision's unsecured bridge facility loan of $296 million (US$235 million) which bore interest of 17% and allowed 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, substantially reduced Precision's blended interest rate to approximately 8.3%, reduced Precision's cash interest expense by approximately $70 million on an annual basis and reduced the Trust’s overall leverage.
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 $210 million in the second quarter was 51% 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 157 drilling rigs during the second quarter of 2009 as compared to a fleet of 17 drilling rigs in 2008 and quarterly revenue increased four-fold. Revenue in Precision's Canadian Contract Drilling Services segment decreased by 20% while revenue declined 46% in the Canadian based Completion and Production Services segment compared to the second quarter of 2008. The mix of drilling rigs under term contracts and on complex well-to-well programs supported relatively strong average rig dayrate results in the quarter.
The Trust reported total EBITDA for the second quarter of $59 million compared with $36 million for the second quarter of 2008. EBITDA is not a recognized financial measure under Generally Accepted Accounting Principles (“GAAP”) as discussed under “Non-GAAP Measures and Reconciliations” in this report. EBITDA margin, calculated as EBITDA as a percentage of revenues, was 28% for the second quarter of 2009 compared to 26% for the same period in 2008. The 2% EBITDA margin increase was attributable to higher revenue per operating day due to rig mix and margin from idle but contracted rigs in the United States offset by lower overall utilization in both operating segments. Consistent with the previous quarter, Precision's term contract position with customers, a highly variable operating cost structure and economies achieved through vertical integration of the supply chain and maintenance facilities served to limit the declines.
In the Contract Drilling Services segment Precision currently markets 388 contract drilling rigs, including 226 in Canada, 159 in the United States, three rigs in international locations and 99 drilling rig camps. Precision’s Completion and Production Services segment markets 229 service rigs, 29 snubbing units, 76 wastewater treatment units and a broad mix of rental equipment.
During the quarter an average of 25 drilling rigs worked in Canada, 50 in the United States and two in Mexico totaling 77 rigs working. This compares with an average of 167 rigs working in the first quarter of 2009 and 48 rigs in the second quarter a year ago. Canadian drilling activity was subject to seasonal slowdowns and very weak customer demand in the second quarter during the spring break-up period.
The first half of 2009 continued to reflect a weak and declining global economy and resulting low energy commodity prices. While oil pricing recovered somewhat during the quarter, there remains considerable demand uncertainty for both oil and natural gas and this triggered very low underlying customer demand for the industry and Precision's oilfield services. Accordingly, these factors have eroded oilfield services activity levels for a third consecutive quarter as evidenced by minimal spot market opportunities, pricing declines and low equipment utilization.
At the end of the quarter these conditions persist as the fundamentals for natural gas continue to show weakness through record high storage levels in the United States. The supply capacity was delivered through drilling activity peaking in 2008 in many regions within the United States, including unconventional resource plays in Texas and Louisiana. A significant portion of these wells, and the associated gas production gains, are subject to high depletion rates and the recent steep decline in drilling is expected to eventually result in supply reductions.
Precision is focused on further diversification of its high performance, high value service offering when the market rebounds and as debt levels are reduced. Expansion of operations in the United States land drilling market provided second quarter growth in EBITDA and cash flow continuity that offsets the seasonal nature of Precision's oilfield service business in Canada.
Besides new rig deployments in the quarter, 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 drilling rigs in Mexico and has one idle rig in Chile. Precision will be opportunistic in deploying rigs to international markets with moderate 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

Summary for the three months ended June 30, 2009:

• | The integration of the Grey Wolf acquisition in the United States has proceeded on schedule with implementation of a new organizational structure and financial systems. The roll-out of vertical business support through supply chain and equipment management is well underway for implementation during the second half of 2009.

• | Revenue was $210 million, an increase of $71 million or 51% from the prior year quarter due to growth in Precision's United States operations offset by seasonally lower activity levels in Precision's Canadian operations and lower customer pricing for most of Precision's services.

• | Operating earnings were $31 million, an increase of $9 million or 40% from the second quarter in 2008. Operating earnings were 15% of revenue, compared to 16% in 2008.

• | Capital expenditures for the purchase of property, plant and equipment were $90 million in the second quarter, an increase of $59 million over the same period in 2008, and included $86 million on expansionary capital initiatives and $4 million on the upgrade of existing assets. During the quarter eight newly-built Super Series drilling rigs were added to the fleet under long-term customer contracts, three in Canada and five in the United States.

• | Financial charges were $45 million, an increase of $43 million from the prior year due to credit facilities entered into during the fourth quarter 2008 as a result of acquisition growth in the United States contract drilling market.

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

• | A significant portion of Precision’s secured credit facilities are denominated in US dollars. During the quarter Precision recorded a foreign exchange gain of $74 million primarily due to a weakening of the US dollar compared to the Canadian dollar and the effect on the financial statement translation of long-term monetary items.

• | General and administrative costs were $25 million an increase of $8 million from the prior year due primarily to growth in Precision's United States operations partially offset by personnel reductions and reduced discretionary expenses.

• | Bad debt expense was $4 million as the allowance for doubtful accounts was increased to $19 million. Creditworthiness remains a high priority as low energy commodity prices are creating financial hardship for certain customers.

• | Average revenue per utilization day for contract drilling rigs in the second quarter of 2009 compared to the same period in 2008 increased to US$24,817 per day from US$22,006 per day in the United States and from $15,924 in 2008 to $18,335 for Canada. The increase in revenue rates for the second quarter in the United States reflects the new rig mix associated with the acquisition, including turnkey operations. These figures include US$17 million in revenue generated from idle but contracted rigs associated with term customer contracts and US$6 million in revenue from early contract terminations on two rigs. Turnkey revenue was US$9 million generated from 142 utilization days. Within Precision’s Completion and Production Services segment, average hourly rates for service rigs were $604 in the second quarter of 2009 compared to $731 in the first quarter of 2009 and $649 for the second quarter of 2008.

• | Average operating costs per utilization day for drilling rigs increased in the second quarter of 2009 to US$14,405 per day from the prior year second quarter of US$10,331 per day in the United States and decreased marginally in Canada from $10,685 per day to $10,573 per day. Within Precision’s Completion and Production Services segment, average hourly operating costs for service rigs were $507 in the second quarter of 2009 compared to $453 in the second quarter of 2008. Costs were slightly lower on Canadian drilling rigs due to cost saving initiatives implemented in the quarter. Other cost escalations were primarily attributable to deeper capacity drilling rig mix and lower equipment activity to allocate fixed costs. In the United States the increase was also impacted by turnkey operations where there is a larger scope to drilling costs that the drilling contractor is responsible for providing, with a commensurate increase in revenue.

Summary for the six months ended June 30, 2009:

• | Precision lowered its debt to capitalization ratio from 0.37 to 0.24 with debt repayment of $472 million from proceeds through three equity raises in the first half of 2009 and cash flow from operations. As at June 30, 2009 Precision had a cash balance of $180 million and in combination with access to its US$260 million revolving credit facility, continued to carry ample liquidity.

• | Revenue was $658 million, an increase of $177 million or 37% from the prior year due to growth in Precision's United States operations offset by lower activity levels and lower customer pricing.

• | Operating earnings were $156 million, an increase of $11 million or 8% from 2008. Operating earnings were 24% of revenue, compared to 30% in 2008.

• | Capital expenditures for the purchase of property, plant and equipment were $165 million in the first half of 2009, an increase of $110 million over the same period in 2008, and included $147 million on expansionary capital initiatives and $18 million on the upgrade of existing assets. During the first six months 14 newly-built Super Series drilling rigs were added to the fleet under long-term customer contracts, seven in Canada and seven in the United States.

• | Financial charges were $84 million, an increase of $79 million from the prior year due to debt service and refinancing costs associated with acquisition growth late in the fourth 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

• | A significant portion of Precision’s secured credit facilities are denominated in US dollars. During the first half of the year Precision recorded a foreign exchange gain of $42 million primarily due to a weakening of the US dollar compared to the Canadian dollar and the effect on the translation of long-term monetary items.

• | General and administrative costs were $50 million, an increase of $14 million from the prior year due primarily to acquisition growth in Precision's United States operations partially offset by personnel reductions and reduced discretionary expenses.

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. For the second quarter of 2009 AECO natural gas spot prices averaged $3.46 per MMBtu, a decrease of 66% over the second quarter 2008 average of $10.22 per MMBtu. In the United States, Henry Hub natural gas spot prices averaged US$3.70 per MMBtu in the second quarter of 2009 a decrease of 67% over the second quarter 2008 average of US$11.37 per MMBtu. West Texas Intermediate crude oil averaged US$59.69 per barrel during the quarter compared to US$124.29 per barrel in the same period in 2008. The one-year forward price for North American natural gas was also lower, trading in a range of about $4.50 to $5.50 on Canadian and U.S. exchanges in the second quarter of 2009, compared to a range of about $9.00 to $13.00 in the same quarter of 2008.
OUTLOOK
The global economic recession, the tight and high-cost 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 experienced a period of significant decline in utilization. According to industry sources, as at July 10, 2009, the United States active land drilling rig count was down about 52% from the same period in the prior year while the Canadian drilling rig count was down about 57%.
With the decrease in utilization, the competitive pressure on all of Precision's service offerings intensified resulting in lower rates for services. In the United States there has been a recent leveling of rigs working and a seasonal increase in rigs working in Canada though significantly lower than the third quarter of 2008. Precision expects these low levels of utilization to persist into the third quarter of 2009 and potentially longer depending on natural gas prices. Customers have provided very little visibility for oilfield services in the fourth quarter of 2009. Precision expects EBITDA and EBITDA as a percentage of revenue to continue to decline from first half 2009 levels, though third quarter Canadian levels should be higher than second quarter 2009 levels as rigs are returned to service.
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 88 rigs under day work term contract in North America in the third quarter of 2009 and an average of 79 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 drilling rigs generate about 200 to 250 utilization days a year due to the seasonal nature of well access whereas in the United States Precision expects about 350 utilization days in most regions.
For all of 2009, Precision expects to have an average of approximately 92 rigs under term contract, with 56 rigs contracted in the United States, 34 in Canada and two in Mexico. For 2010, Precision expects to have an average of approximately 27 rigs in Canada under term contract and 32 in the United States and Mexico, for a total of 59 for the full year. For the calendar year of 2011, Precision expects an average of approximately 34 rigs to be generating revenue under existing term contracts, with 15 of these in Canada and 19 in the United States. Precision’s long-term contracts continue to be honoured by its customers and in some cases, term revisions have been negotiated within original economic terms. During the second quarter, Precision added six new term contracts for existing rig deployment expected during the second half of 2009 and early 2010 in the Marcellus shale play in the United States.
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

As part of its ongoing net debt reduction plan, Precision expects to keep capital expenditures at low levels during 2009. Capital expenditures totaled $165 million in the first half 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 of which 14 were completed by the end of the second quarter.
With the recession negatively impacting energy demand and with increased onshore domestic production, the United States natural gas storage levels are at a record high level surpassing the five-year range as at July 10, 2009 and 26% higher than storage volumes a year ago. The 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 rigs drilling for natural gas. Precision expects the United States supply of natural gas to show significant declines in the near future as United States production has begun to level off according to the latest available data. Subject to demand, this should provide for higher commodity prices and support a recovery in drilling activity.
Despite the near term challenges, the future of the global oil and gas service industry remains promising. For Precision, 2009 represents an opportunity to demonstrate its value to customers through delivery of high performance, high value services that deliver low customer well costs and strong relative margins to Precision.
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) |  | 2009 |  |  | 2008 |  |  | % Change |  |  | 2009 |  |  | 2008 |  |  | % Change |
Revenue: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contract Drilling Services |  | $ | 185,226 |  |  | $ | 93,006 |  |  |  | 99.2 |  |  | $ | 575,105 |  |  | $ | 335,371 |  |  |  | 71.5 |
Completion and |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Production Services |  |  | 25,590 |  |  |  | 47,559 |  |  |  | (46.2 | ) |  |  | 88,565 |  |  |  | 152,279 |  |  |  | (41.8 | )
Inter-segment eliminations |  |  | (1,219 | ) |  |  | (2,051 | ) |  |  | 40.6 |  |  |  | (5,628 | ) |  |  | (6,447 | ) |  |  | 12.7 |
|  | $ | 209,597 |  |  | $ | 138,514 |  |  |  | 51.3 |  |  | $ | 658,042 |  |  | $ | 481,203 |  |  |  | 36.7 |
Operating earnings:(1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contract Drilling Services |  | $ | 43,520 |  |  | $ | 23,816 |  |  |  | 82.7 |  |  | $ | 161,052 |  |  | $ | 123,863 |  |  |  | 30.0 |
Completion and |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Production Services |  |  | (681 | ) |  |  | 8,810 |  |  |  | (107.7 | ) |  |  | 12,875 |  |  |  | 42,673 |  |  |  | (69.8 | )
Corporate and other |  |  | (11,801 | ) |  |  | (10,446 | ) |  |  | (13.0 | ) |  |  | (17,451 | ) |  |  | (21,376 | ) |  |  | 18.4 |
|  | $ | 31,038 |  |  | $ | 22,180 |  |  |  | 39.9 |  |  | $ | 156,476 |  |  | $ | 145,160 |  |  |  | 7.8 |
(1) Non-GAAP measure. See “NON-GAAP MEASURES”. |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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

(Stated in thousands of Canadian dollars, |  | Three months ended June 30, |  |  | Six months ended June 30, |
except where noted) |  | 2009 |  |  | 2008 |  |  | % Change |  |  | 2009 |  |  | 2008 |  |  | % Change |
Revenue |  | $ | 185,226 |  |  | $ | 93,006 |  |  |  | 99.2 |  |  | $ | 575,105 |  |  | $ | 335,371 |  |  |  | 71.5 |
Expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operating |  |  | 106,208 |  |  |  | 55,133 |  |  |  | 92.6 |  |  |  | 322,313 |  |  |  | 176,438 |  |  |  | 82.7 |
General and administrative |  |  | 12,064 |  |  |  | 5,615 |  |  |  | 114.9 |  |  |  | 30,343 |  |  |  | 11,460 |  |  |  | 164.8 |
EBITDA(1) |  |  | 66,954 |  |  |  | 32,258 |  |  |  | 107.6 |  |  |  | 222,449 |  |  |  | 147,473 |  |  |  | 50.8 |
Depreciation and amortization |  |  | 23,434 |  |  |  | 8,442 |  |  |  | 177.6 |  |  |  | 61,397 |  |  |  | 23,610 |  |  |  | 160.0 |
Operating earnings(1) |  | $ | 43,520 |  |  | $ | 23,816 |  |  |  | 82.7 |  |  | $ | 161,052 |  |  | $ | 123,863 |  |  |  | 30.0 |
Operating earnings as a percentage of revenue |  |  | 23.5 | % |  |  | 25.6 | % |  |  |  |  |  |  | 28.0 | % |  |  | 36.9 | % |  |  |  |
Drilling rig revenue per utilization day in Canada |  | $ | 18,335 |  |  | $ | 15,924 |  |  |  | 15.1 |  |  | $ | 18,487 |  |  | $ | 16,265 |  |  |  | 13.7 |
Drilling rig revenue per utilization day in the US(2) |  | US$ 24,817 |  |  | US$ | 22,006 |  |  |  | 12.8 |  |  | US$ 25,079 |  |  | US$ | 22,365 |  |  |  | 12.1 |

(1) Non-GAAP measure. See “NON-GAAP MEASURES”.
(2) Includes revenue from idle but contracted rig days and rig contract lump sum payouts.
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

|  |  |  |  | Three months ended June 30, |  |  |  |
|  | 2009 |  |  | 2008 |
Canadian drilling statistics:(1) |  | Precision |  |  | Industry (2) |  |  | Precision |  |  | Industry (2) |
Number of drilling rigs (end of period) |  |  | 226 |  |  |  | 868 |  |  |  | 228 |  |  |  | 886 |
Drilling rig operating days (spud to release) |  |  | 2,272 |  |  |  | 8,367 |  |  |  | 3,066 |  |  |  | 15,744 |
Drilling rig operating day utilization |  |  | 11 | % |  |  | 11 | % |  |  | 15 | % |  |  | 19 | %
Number of wells drilled |  |  | 289 |  |  |  | 782 |  |  |  | 413 |  |  |  | 1,568 |
Average days per well |  |  | 7.9 |  |  |  | 10.7 |  |  |  | 7.4 |  |  |  | 10.0 |
Number of metres drilled (000s) |  |  | 504 |  |  |  | 1,274 |  |  |  | 602 |  |  |  | 2,444 |
Average metres per well |  |  | 1,744 |  |  |  | 1,629 |  |  |  | 1,457 |  |  |  | 1,559 |
Average metres per day |  |  | 222 |  |  |  | 152 |  |  |  | 196 |  |  |  | 155 |

|  |  |  |  | Six months ended June 30, |  |  |  |
|  | 2009 |  |  | 2009 |
Canadian drilling statistics:(1) |  | Precision |  |  | Industry (2) |  |  | Precision |  |  | Industry (2) |
Number of drilling rigs (end of period) |  |  | 226 |  |  |  | 868 |  |  |  | 228 |  |  |  | 886 |
Drilling rig operating days (spud to release) |  |  | 8,871 |  |  |  | 36,611 |  |  |  | 13,570 |  |  |  | 61,082 |
Drilling rig operating day utilization |  |  | 22 | % |  |  | 23 | % |  |  | 32 | % |  |  | 38 | %
Number of wells drilled |  |  | 955 |  |  |  | 3,753 |  |  |  | 1,863 |  |  |  | 6,694 |
Average days per well |  |  | 9.3 |  |  |  | 9.8 |  |  |  | 7.3 |  |  |  | 9.1 |
Number of metres drilled (000s) |  |  | 1,596 |  |  |  | 5,315 |  |  |  | 2,548 |  |  |  | 9,234 |
Average metres per well |  |  | 1,671 |  |  |  | 1,416 |  |  |  | 1,368 |  |  |  | 1,379 |
Average metres per day |  |  | 180 |  |  |  | 145 |  |  |  | 188 |  |  |  | 151 |

(1) Canadian operations only.
(2) 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 of 2009 increased by 99% to $185 million while EBITDA increased by 108% to $67 million compared to the same period in 2008. The increase in revenue and EBITDA was due to acquisition growth 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 offset by the growth and term contract positioning of Precision's rig fleet. Drilling rig revenue per utilization day in Canada was up 15% over the prior year due to a greater percentage of contracted rig days compared to prior year and proportionately more activity from the Super Triple and Super Single™ rigs which typically receive a day rate premium. During the quarter 57% of Precision’s utilization days in Canada and 79% of the utilization days in the United States were generated from rigs under term contract. In the United States the average drilling utilization day rates for Precision remained relatively strong due to term contracted rigs, the lump sum payments associated with the early termination of two rig contracts and margin contributions from idle but contracted rigs. As at the end of the quarter in the United States there were 40 drilling rigs working under term contracts and another 17 idle but contracted rigs where Precision was receiving the margin payment only.
Drilling rig utilization days (spud to rig release plus move days) in Canada during the second quarter of 2009 were 2,499, a decrease of 27% compared to 3,442 in 2008. Drilling rig activity for Precision in the United States was 223% higher than the same quarter of 2008 due to the acquisition in December, 2008. In the prior year quarter Precision had one drilling rig working in Latin America and realized a total of 57 utilization days as compared to 182 utilization days in the current quarter from operations in Mexico.
Precision's camp and catering division experienced an activity decrease of 44% over the prior year second quarter as demand for base camp and traditional rig camps fell with the overall decline in oilfield service activity in western Canada.
P R E C I S I O N D R I L L I N G T R U S T 9

Operating expenses were 57% of revenue for the quarter compared to 59% for the prior year quarter. The decrease was due to proportionately higher activity in the United States than Canada where activity in the second quarter is impacted by spring break-up. On a per day basis, operating costs for the drilling rig division in Canada were 1% lower than the prior year quarter due to cost containment measures. Operating costs percentage in the United States was marginally higher due to rig mix, an additional provision for bad debts of about $4 million and higher state commodity taxes.
Despite the drop in activity and increased pressure on day rates, EBITDA margins in contract drilling improved from prior year due to term contracts, management control over costs and efforts to minimize the erosion of drilling rig day rates.
Depreciation in the Contract Drilling Services segment increased from the prior year due to the increase in activity in the United States and the increase in carrying value of rigs to fair market value on acquisition. The segment applies the unit of production method in calculating rig depreciation expense.
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

(Stated in thousands of Canadian dollars, |  | Three months ended June 30, |  |  | Six months ended June 30, |
except where noted) |  | 2009 |  |  | 2008 |  |  | % Change |  |  | 2009 |  |  | 2008 |  |  | % Change |
Revenue |  | $ | 25,590 |  |  | $ | 47,559 |  |  |  | (46.2 | ) |  | $ | 88,565 |  |  | $ | 152,279 |  |  |  | (41.8 | )
Expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operating |  |  | 20,463 |  |  |  | 32,713 |  |  |  | (37.4 | ) |  |  | 62,528 |  |  |  | 91,994 |  |  |  | (32.0 | )
General and administrative |  |  | 2,110 |  |  |  | 1,992 |  |  |  | 5.9 |  |  |  | 4,471 |  |  |  | 5,292 |  |  |  | (15.5 | )
EBITDA(1) |  |  | 3,017 |  |  |  | 12,854 |  |  |  | (76.5 | ) |  |  | 21,566 |  |  |  | 54,993 |  |  |  | (60.8 | )
Depreciation and amortization |  |  | 3,698 |  |  |  | 4,044 |  |  |  | (8.6 | ) |  |  | 8,691 |  |  |  | 12,320 |  |  |  | (29.5 | )
Operating earnings(1) |  | $ | (681 | ) |  | $ | 8,810 |  |  |  | (107.7 | ) |  | $ | 12,875 |  |  | $ | 42,673 |  |  |  | (69.8 | )
Operating earnings as a percentage of revenue |  |  | (2.7 | %) |  |  | 18.5 | % |  |  |  |  |  |  | 14.5 | % |  |  | 28.0 | % |  |  |  |
Number of service rigs (end of period) |  |  | 229 |  |  |  | 223 |  |  |  | 2.7 |  |  |  | 229 |  |  |  | 223 |  |  |  | 2.7 |
Service rig operating hours |  |  | 32,818 |  |  |  | 55,631 |  |  |  | (41.0 | ) |  |  | 97,672 |  |  |  | 167,626 |  |  |  | (41.7 | )
Service rig operating hour utilization |  |  | 16 | % |  |  | 27 | % |  |  |  |  |  |  | 24 | % |  |  | 41 | % |  |  |  |
Service rig revenue per operating hour |  | $ | 604 |  |  | $ | 649 |  |  |  | (6.9 | ) |  | $ | 689 |  |  | $ | 712 |  |  |  | (3.2 | )

(1) Non-GAAP measure. See “NON-GAAP MEASURES”.
In the Completion and Production Services segment, revenue for the second quarter decreased by 46% from 2008 to $26 million while EBITDA declined by 77% to $3 million. The decrease in revenue and margins is attributed to the decline in industry activity as customers reduced spending in response to sharply lower oil and natural gas commodity prices.
Service rig activity declined 41% from the prior year period, with the service rig fleet generating 32,818 operating hours in the second quarter of 2009 compared with 55,631 hours in 2008 for utilization of 16% and 27%, 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 7% of service rig operating hours in the second quarter compared to 20% in the same quarter in 2008. There were 1,504 well completions in Canada in the second quarter, a 52% decline from 3,148 wells in the same quarter in 2008.
Average service rig revenue decreased $45 per operating hour over the prior year which represents EBITDA margin compression given labour cost increases of about $25 per operating 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 69% in the second quarter of 2008 to 80% for the same period in 2009. Operating costs per operating hour increased over the comparable period in 2008 due primarily to increased wages and lower activity.
Depreciation in the Completion and Production Services segment in the second quarter of 2009 was 9% lower than the prior year period due to lower equipment utilization.
SEGMENT REVIEW OF CORPORATE AND OTHER
Corporate and other expenses increased by 13% to $12 million in the second quarter of 2009 compared to $10 million in the same period of 2008. The increase was primarily associated with expanded United States operations.
P R E C I S I O N D R I L L I N G T R U S T 11

OTHER ITEMS
Net financing charges of $45 million for the second quarter of 2009 were $43 million higher than the prior year. Included in financing charges is $17 million for the amortization of deferred financing costs. With the repayment of the unsecured bridge facility $10 million of the capitalized financing costs associated with this facility were expensed in the quarter. The increase in interest expense is attributable to higher long-term debt associated with the acquisition of Grey Wolf. During the second quarter, Precision entered into interest rate agreements that effectively fixed the overall effective interest rate at current levels on most of the term debt in the secured credit facility for the remaining term and scheduled debt repayment.
The Trust’s effective tax rate on earnings before income taxes for the first six months of 2009 was a tax recovery of 0.3% compared to a 9.9% 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 can also be 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 June 30, 2009 Precision reported goodwill of $813 million of which $529 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 2008 acquisition of Grey Wolf, a subsidiary of the Trust entered into a new senior secured credit facility (the "Secured Facility") with a syndicate of lenders that is guaranteed by the Trust and was comprised of term loans and a revolving facility (the "Revolver"). Precision also entered into an unsecured bridge 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.
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 $209 million. The proceeds were used to repurchase the outstanding convertible notes assumed in conjunction with the Grey Wolf acquisition. All of the note holders with the exception of US$10,000 exercised the repurchase option.
In April, Precision announced a series of financing transactions that raised approximately $380 million which was used to strengthen the Trust’s balance sheet by refinancing and restructuring the debt incurred in the acquisition of Grey Wolf. The financing transactions enabled the repayment of Precision's Unsecured Facility loans of $296 million (US$235 million) which bore interest at 17% and allowed Precision's Secured Facility to be fully syndicated and thereby provide certainty to the cost of debt. Precision issued $175 million of unsecured notes with an eight-year life requiring no principal payments for the first five years, and reduced the available Revolver capacity to US$260 million in conjunction with the closing of these financing transactions.
The financing transactions, coupled with the Trust's February 2009 unit offering, reduced Precision's blended interest rate to approximately 8.3%, reduced Precision's cash interest expense by approximately $70 million on an annual basis and reduced the Trust’s overall leverage.
The terms of the documents governing the Secured Facility 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 Secured Facility 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.
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

As at June 30, 2009, approximately $889 million was outstanding under the Secured Facility and approximately $175 million was outstanding under the unsecured notes.
During the first half of 2009 the Trust generated cash from continuing operations of $414 million and issued Trust units for net proceeds of $414 million. The cash generated was used to purchase property plant and equipment net of disposal proceeds and related non-cash working capital of $179 million, repay long-term debt of $472 million, pay additional finance charges of $21 million, and make cash distributions to unitholders of $27 million leaving a cash increase at June 30, 2009 of $118 million.
As at June 30, 2009 the Trust had a long-term debt to long-term debt plus equity ratio of 0.24 compared to 0.07 as at the comparable period in 2008 and 0.37 at December 31, 2008. The significant increase over the prior year period is due to the additional debt arising from the acquisition of Grey Wolf. Precision has made net debt reduction a priority and is employing initiatives to deleverage from current levels.
In addition to the Secured Facility, Precision has a $25 million operating facility which is utilized for working capital management and the issuance of letters of credit.
During the second quarter of 2009, working capital decreased by $114 million to $254 million as Precision realized lower activity and corresponding operating results in the current quarter compared to the first quarter of 2009.
DISTRIBUTIONS
Precision converted to an income trust in 2005 as the Canadian tax rules of the day allowed the market to place a higher value for unitholders on the flow-through structure than the traditional corporate structure. In light of legislated and proposed changes, the oilfield service sector outlook and resulting financial operating performance and loan covenants the Trust continues to examine whether the current structure is optimal for Precision’s business strategy and in the best interests of unitholders.
On February 9, 2009 the Trust 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.

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

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 |  | September 30 |  |  | December 31 |  |  | March 31 |  |  | June 30 |
Cash provided by continuing operations |  | $ | 3,241 |  |  | $ | 82,904 |  |  | $ | 201,596 |  |  | $ | 212,554 |
Deduct: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Purchase of property, plant and equipment for upgrade capital |  |  | (17,270 | ) |  |  | (30,506 | ) |  |  | (13,760 | ) |  |  | (4,040 | )
Purchase of property plant and equipment for expansion initiatives |  |  | (58,187 | ) |  |  | (68,804 | ) |  |  | (61,162 | ) |  |  | (86,283 | )
Add: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Proceeds on the sale of property, plant and equipment |  |  | 1,879 |  |  |  | 5,115 |  |  |  | 5,942 |  |  |  | 1,887 |
Standardized distributable cash(1) |  |  | (70,337 | ) |  |  | (11,291 | ) |  |  | 132,616 |  |  |  | 124,118 |
Unfunded long-term incentive plan compensation |  |  | 93 |  |  |  | (559 | ) |  |  | 2,524 |  |  |  | (442 | )
Distributable cash from continuing operations |  | $ | (70,244 | ) |  | $ | (11,850 | ) |  | $ | 135,140 |  |  | $ | 123,676 |
Cash distributions declared |  | $ | 49,046 |  |  | $ | 53,522 |  |  | $ | 6,408 |  |  | $ | – |
Per diluted unit information: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash distributions declared |  | $ | 0.39 |  |  | $ | 0.39 |  |  | $ | 0.04 |  |  | $ | – |
Standardized distributable cash (1)(2) |  | $ | (0.52 | ) |  | $ | (0.08 | ) |  | $ | 0.63 |  |  | $ | 0.48 |
Distributable cash from continuing operations(1)(2) |  | $ | (0.52 | ) |  | $ | (0.08 | ) |  | $ | 0.64 |  |  | $ | 0.48 |

(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 |  | $ | (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)(2) |  | $ | (0.14 | ) |  | $ | 0.31 |  |  | $ | 0.26 |  |  | $ | 1.27 |
Distributable cash from continuing operations(1)(2) |  | $ | (0.12 | ) |  | $ | 0.30 |  |  | $ | 0.26 |  |  | $ | 1.25 |

(1) | Non-GAAP measure. See “NON-GAAP MEASURES”.

(2) | Distributable cash calculations per diluted unit have been adjusted to reflect the rights offering completed in the second quarter of 2009. See note 10 to the unaudited consolidated financial statements.

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

|  | Six months ended |  |  | Six months ended |  |  | Year ended |
|  | June 30, |  |  | June 30, |  |  | December 31, |
(Stated in thousands of Canadian dollars) |  | 2009 |  |  | 2008 |  |  | 2008 |
Cash provided by continuing operations (A) |  | $ | 414,150 |  |  | $ | 257,765 |  |  | $ | 343,910 |
Net earnings (B) |  | $ | 114,892 |  |  | $ | 128,005 |  |  | $ | 302,730 |
Distributions declared (C) |  | $ | 6,408 |  |  | $ | 98,091 |  |  | $ | 224,688 |
Excess of cash provided by continuing operations over distributions declared (A-C) |  | $ | 407,742 |  |  | $ | 159,674 |  |  | $ | 119,222 |
Excess of net earnings from operating activities over distributions declared (B-C) |  | $ | 108,484 |  |  | $ | 29,914 |  |  | $ | 78,042 |

Precision has initiated a number of cost reduction and cash generation plans designed to strengthen its capability to reduce net 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 and fund required capital expenditures and finance 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 |  | September 30 |  |  | December 31 |  |  | March 31 |  |  | June 30 |
Revenue |  | $ | 285,639 |  |  | $ | 335,049 |  |  | $ | 448,445 |  |  | $ | 209,597 |
EBITDA(1) |  |  | 118,820 |  |  |  | 134,795 |  |  |  | 169,387 |  |  |  | 59,259 |
Earnings from continuing operations: |  |  | 82,349 |  |  |  | 92,376 |  |  |  | 57,417 |  |  |  | 57,475 |
Per basic unit(2) |  |  | 0.61 |  |  |  | 0.67 |  |  |  | 0.30 |  |  |  | 0.23 |
Per diluted unit(2) |  |  | 0.61 |  |  |  | 0.66 |  |  |  | 0.27 |  |  |  | 0.22 |
Net earnings: |  |  | 82,349 |  |  |  | 92,376 |  |  |  | 57,417 |  |  |  | 57,475 |
Per basic unit(2) |  |  | 0.61 |  |  |  | 0.67 |  |  |  | 0.30 |  |  |  | 0.23 |
Per diluted unit(2) |  |  | 0.61 |  |  |  | 0.66 |  |  |  | 0.27 |  |  |  | 0.22 |
Cash provided by continuing operations |  |  | 3,241 |  |  |  | 82,904 |  |  |  | 201,596 |  |  |  | 212,554 |
Distributions declared |  | $ | 49,046 |  |  | $ | 77,551 |  |  | $ | 6,408 |  |  | $ | – |

|  | 2007 |  |  | 2008 |
Quarters ended |  | September 30 |  |  | December 31 |  |  | March 31 |  |  | June 30 |
Revenue |  | $ | 227,928 |  |  | $ | 248,726 |  |  | $ | 342,689 |  |  | $ | 138,514 |
EBITDA(1) |  |  | 92,068 |  |  |  | 103,351 |  |  |  | 147,347 |  |  |  | 35,574 |
Earnings from continuing operations: |  |  | 69,702 |  |  |  | 89,329 |  |  |  | 106,266 |  |  |  | 21,739 |
Per basic unit(2) |  |  | 0.52 |  |  |  | 0.66 |  |  |  | 0.79 |  |  |  | 0.16 |
Per diluted unit(2) |  |  | 0.52 |  |  |  | 0.66 |  |  |  | 0.79 |  |  |  | 0.16 |
Net earnings: |  |  | 72,658 |  |  |  | 89,329 |  |  |  | 106,266 |  |  |  | 21,739 |
Per basic unit(2) |  |  | 0.54 |  |  |  | 0.66 |  |  |  | 0.79 |  |  |  | 0.16 |
Per diluted unit(2) |  |  | 0.54 |  |  |  | 0.66 |  |  |  | 0.79 |  |  |  | 0.16 |
Cash provided by continuing operations |  |  | 20,270 |  |  |  | 78,474 |  |  |  | 57,307 |  |  |  | 200,458 |
Distributions declared |  | $ | 49,046 |  |  | $ | 99,348 |  |  | $ | 49,046 |  |  | $ | 49,045 |

(1) | Non-GAAP measure. See “NON-GAAP MEASURES”.

(2) | Earnings per basic and diluted unit has been adjusted to reflect the rights offering completed in the second quarter of 2009. See note 10 to the unaudited consolidated financial statements.

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

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 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, 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 June 30, |  |  | Six months ended June 30, |
(Stated in thousands of Canadian dollars) |  | 2009 |  |  | 2008 |  |  | 2009 |  |  | 2008 |
EBITDA |  | $ | 59,260 |  |  | $ | 35,574 |  |  | $ | 228,647 |  |  | $ | 182,921 |
Add (deduct): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | (28,222 | ) |  |  | (13,394 | ) |  |  | (72,171 | ) |  |  | (37,761 | )
Foreign exchange |  |  | 74,060 |  |  |  | (133 | ) |  |  | 41,569 |  |  |  | 1,125 |
Financing charges |  |  | (44,881 | ) |  |  | (2,087 | ) |  |  | (83,551 | ) |  |  | (4,283 | )
Income taxes |  |  | (2,742 | ) |  |  | 1,779 |  |  |  | 398 |  |  |  | (13,997 | )
Net earnings |  | $ | 57,475 |  |  | $ | 21,739 |  |  | $ | 114,892 |  |  | $ | 128,005 |

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, the impact of foreign exchange or how the results are taxed. Operating earnings as calculated by Precision was changed in the quarter and it now excludes the effects of foreign exchange. The revised calculation is a better reflection of results from operations without consideration as to how results were impacted by foreign exchange.
The following table provides a reconciliation of net earnings under GAAP, as disclosed in the Consolidated Statement of Earnings and Retained Earnings (Deficit), to operating earnings.

|  | Three months ended June 30, |  |  | Six months ended June 30, |
(Stated in thousands of Canadian dollars) |  | 2009 |  |  | 2008 |  |  | 2009 |  |  | 2008 |
Operating earnings |  | $ | 31,038 |  |  | $ | 22,180 |  |  | $ | 156,476 |  |  | $ | 145,160 |
Add (deduct): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange |  |  | 74,060 |  |  |  | (133 | ) |  |  | 41,569 |  |  |  | 1,125 |
Financing charges |  |  | (44,881 | ) |  |  | (2,087 | ) |  |  | (83,551 | ) |  |  | (4,283 | )
Income taxes |  |  | (2,742 | ) |  |  | 1,779 |  |  |  | 398 |  |  |  | (13,997 | )
Net earnings |  | $ | 57,475 |  |  | $ | 21,739 |  |  | $ | 114,892 |  |  | $ | 128,005 |

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.
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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 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 AcSB. 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; and

• | IFRS 1 - first time adoption

Detailed project plans with significant activities and key milestones for the above mentioned key areas have been prepared. A list of capital asset components for the drilling rig division has been prepared and is currently being reviewed by Precision's auditor. Potential changes to the capitalization and depreciation policy have been identified and the enterprise resource planning system. 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.
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A summary of significant activities and deadlines within the plan along with their current status is as follows:

KEY ACTIVITY | DEADLINES/MILESTONES | STATUS AT JUNE 30, 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
• | Develop financial statement format |  |  |  | and IFRS elections are currently
• | Quantify IFRS 1 disclosures for |  |  |  | being evaluated for potential
| 2010 |  |  |  | business process and financial
|  |  |  |  | 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
| information technology changes |  | 2010 general ledger |  | completed and team being put
| needed to be fully IFRS compliant |  |  |  | in place
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 |  |

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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, 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 June 30, 2009.
During the quarter ended June 30, 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 June 30, 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 43% of Precision's consolidated total and its total assets represented approximately 53% of the consolidated total assets as at June 30, 2009.
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 impact of cash conservation efforts, the number of rigs under daywork term contracts in Canada, the United States and Mexico; the global economic situation; persisting low rig utilization; continued declines in EBITDA and EBITDA as a percentage of revenue; the decline rate on newly drilled wells; overall natural gas supply declines and consequential effect on commodity prices; the potential rebound in land drilling activity and its impact on Precision’s asset utilization and rates; the integration of Precision and Grey Wolf; the potential for goodwill impairment; the timing of completion of rigs in the 2008 rig build program; and statements as to the demand for Precision's services; 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 situation 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; 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. 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.
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