ex99_1.htm

MANAGEMENT’S DISCUSSION AND ANALYSIS

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)	2011			2010			% Change			2011			2010			% Change

Revenue	$	345,325		$	261,828			31.9		$	870,675		$	634,964			37.1
EBITDA(1)		92,566			60,125			54.0			278,977			177,783			56.9
Net earnings (loss)		16,403			(69,418	)		n/m			81,963			(12,501	)		n/m
Cash provided by operations		176,312			143,001			23.3			293,634			163,625			79.5
Capital spending:
Upgrade capital expenditures		51,951			14,595			256.0			81,178			21,391			279.5
Expansion capital expenditures		61,943			7,089			773.8			97,516			7,776			1,154.1
Proceeds on sale		(3,349	)		(6,146	)		(45.5	)		(4,084	)		(7,299	)		(44.0	)

Net capital spending		110,545			15,538			611.4			174,610			21,868			698.5


Net earnings (loss) per share:
Basic		0.06			(0.25	)		n/m			0.30			(0.05	)		n/m
Diluted		0.06			(0.25	)		n/m			0.28			(0.05	)		n/m


Contract drilling rig fleet		360			351			2.6			360			351			2.6
Drilling rig utilization days:
Canada		4,200			3,684			14.0			16,742			13,889			20.5
United States		9,316			8,030			16.0			18,337			15,023			22.1
International		173			160			8.1			353			335			5.4
Service rig fleet		220			220			–			220			220			–
Service rig operating hours		46,533			52,637			(11.6	)		142,681			134,806			5.8
(1) See “ADDITIONAL GAAP MEASURES”.
n/m – calculation not meaningful.


Financial Position and Ratios
	June 30,		December 31,
(Stated in thousands of Canadian dollars, except ratios)		2011			2010

Working capital	$	377,056		$	458,003
Long-term debt(1)	$	806,416		$	804,494
Total long-term financial liabilities	$	831,055		$	834,813
Total assets	$	3,637,755		$	3,564,540
Long-term debt to long-term debt plus equity ratio(1)		0.29			0.29
(1) Net of unamortized debt issue costs.

Precision Drilling Corporation 1

MANAGEMENT’S DISCUSSION AND ANALYSIS

Management’s Discussion and Analysis for the three month and six month periods ended June 30, 2011 of Precision Drilling Corporation (“Precision” or the “Corporation”) prepared as at July 21, 2011 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 the Corporation’s 2010 Annual Report, Annual Information Form, the unaudited June 30, 2011 Consolidated Financial Statements and related notes and the cautionary statement regarding forward-looking information and statements on page 14 of this report.

Effective January 1, 2011, Precision Drilling Corporation began reporting its financial results in accordance with International Financial Reporting Standards (“IFRS”). The interim Consolidated Financial Statements and comparative information have been prepared in accordance with IFRS 1, “First-time Adoption of International Financial Reporting Standards”, and with International Accounting Standard 34, “Interim Financial Reporting”, as issued by the International Accounting Standards Board. Previously, the Corporation prepared its Interim and Annual Consolidated Financial Statements in accordance with Canadian Generally Accepted Accounting Principles. Please see additional discussion regarding IFRS later in this report and in the unaudited June 30, 2011 Consolidated Financial Statements.

SELECT FINANCIAL AND OPERATING INFORMATION

Precision’s revenue for the second quarter of 2011 was $345 million compared to $262 million for the same period of 2010. Precision reported net earnings of $16 million or $0.06 per diluted share for the three months ended June 30, 2011 compared to a net loss of $69 million or $0.25 per diluted share for the second quarter of 2010. Finance costs were $16 million this quarter compared with $52 million for the comparable period of 2010 while Precision recorded a foreign exchange gain for the current quarter of $1 million compared with a $26 million loss in the comparable quarter of 2010.

Earnings before finance charges, income taxes, depreciation and amortization and foreign exchange (“EBITDA”) were $93 million for the second quarter of 2011 compared to $60 million during the comparable period in 2010. Second quarter 2011 revenue and EBITDA were lower than the first quarter of 2011 due to the seasonality of oilfield service activity in Canada known as “spring break-up”. This is a time in Canada where heavy equipment cannot change locations due to road bans and normally occurs in March to June of each year. Spring break-up was extended this year due to significant rainfall.

In the Contract Drilling Services segment, average drilling rig revenue per day increased by US$3,347 to US$22,080 in Precision’s United States operations and by $2,199 to $18,461 in the Canadian operations in the second quarter of 2011 over the comparable quarter in 2010. Average revenue per day in the second quarter of 2011 also increased over the first quarter with increases of US$1,216 and $641 in the U.S. and Canadian operations, respectively.

For the six months ended June 30, 2011, Precision reported net earnings of $82 million or $0.28 per diluted share compared to net loss of $13 million or $0.05 per diluted share for the same period of 2010. Revenue for the first half of 2011 was $871 million compared to $635 million for the corresponding period of 2010. EBITDA totalled $279 million for the first half of 2011 compared to $178 million in the first half of 2010. Higher activity levels and improved pricing in the Contract Drilling Services and Completion and Production Services segments has led to the year-over-year improvement. Activity for Precision, as measured by drilling utilization days, increased 14% in Canada and 16% in the United States for the first six months of the year compared with the same period in 2010.

Revenue in the second quarter of 2011 was $83 million higher than the prior year period. The increase was mainly due to a year-over-year increase in rates and drilling utilization days in both Canada and the United States. Revenue in Precision's Contract Drilling Services segment increased by 33% while revenue increased 19% in the Completion and Production Services segment in the second quarter of 2011 compared to the prior year.

Precision Drilling Corporation 2

EBITDA margin (EBITDA as a percentage of revenue) was 27% for the second quarter of 2011 compared to 23% for the same period in 2010. The increase in EBITDA margin was primarily attributable to higher utilizations and higher average dayrates in both Canada and the United States in the second quarter of 2011 versus the prior year period. Precision's term contract position with customers, a highly variable operating cost structure and economies achieved through vertical integration of the supply chain continue to support EBITDA margins.

To align with the management of the operating divisions, Precision now considers the camp and catering division to be within the Completion and Production Services segment. Prior period numbers have been restated to reflect this change. In the Contract Drilling Services segment, Precision currently owns 362 contract drilling rigs, including 203 in Canada, 156 in the United States and three rigs in international locations. Precision’s Completion and Production Services segment includes 200 service rigs, 20 snubbing units, 83 wastewater treatment units, 82 drilling and base camps and a broad mix of rental equipment.

During the quarter, an average of 46 drilling rigs worked in Canada and 104 worked in the United States and Mexico totalling an average of 150 rigs. This compares with an average of 130 rigs in the second quarter a year ago.

Precision’s 2011 priorities are threefold:

1.	Deliver the High Performance, High Value level of reliable and repeatable services that customers require to drill the technically challenging wells of today’s unconventional resource play exploitation.

2.	Focus on North American organic growth. Precision’s 2010 new build rig program included nine rigs. All of these rigs are complete and working. Precision’s 2011 new build rig program currently stands at 30 rigs, all of which are expected to be contracted and delivered by mid-2012.

Improve financial flexibility, which provides the financial liquidity to be able to continue to seize opportunities to grow the Corporation. In addition to North American organic growth, Precision plans on pursuing both organic growth and acquisition opportunities in the directional drilling and international drilling arena during 2011. During the first quarter of 2011, Precision repaid its $175 million 10% senior unsecured notes and issued $200 million of senior unsecured notes with an eight year term, bearing interest at 6.5% annually. Also, late in the first quarter, Precision completed the acquisition of two directional drilling companies in the United States. These companies typically operate 10 to 14 directional drilling jobs, on a continuing basis bringing Precision’s total job capacity in North America to approximately 25 jobs.

As previously disclosed in the 2010 Management’s Discussion and Analysis and in Note 25 to the December 31, 2010 financial statements, certain Canadian tax authorities have reviewed prior period transactions and on February 9, 2011, the Corporation received a notice of reassessment from Canada Revenue Agency for $216 million relating to a transaction that occurred in the 2005 tax year. As a result of the reassessment, Precision was required to pay $108 million of the reassessed balance. Precision has appealed this reassessment as it vigorously defends what it believes to be a correct filing position related to this transaction. This appeal process could be lengthy and the ultimate outcome of the process is unknown.

Oil prices were higher and natural gas prices were essentially flat during the second quarter of 2011 compared with the year ago period. For the second quarter of 2011, West Texas Intermediate crude oil averaged US$102.55 per barrel, 32% higher when compared to US$77.88 per barrel in the same period in 2010. AECO natural gas spot prices averaged $3.88 per MMBtu, 1% lower than the second quarter 2010 average of $3.90 per MMBtu. In the United States, Henry Hub natural gas spot prices averaged US$4.35 per MMBtu in the second quarter of 2011, an increase of 1% over the second quarter 2010 average of US$4.31 per MMBtu.

Management's Discussion and Analysis 3

Summary for the three months ended June 30, 2011:

•

Operating earnings were $40 million and 12% of revenue, compared to $15 million and 6% of revenue in the second quarter of 2010. Operating earnings were positively impacted by the increase in activity and rates in all of Precision’s drilling operations while well servicing experienced a slight decrease in activity due to unusually wet weather in the western Canada sedimentary basin.

•

General and administrative expenses were $30 million, an increase of $7 million from the second quarter of 2010, primarily because incentive compensation costs tied to the price of Precision’s common share increased $4 million over the comparable quarter and incremental costs associated with increased activity.

•

Finance charges were $16 million, a decrease of $36 million from the second quarter of 2010 due to the lower overall interest rate on Precision’s debt and the second quarter of 2010 included finance charges of $25 million relating to the credit agreement amendment and higher amortization of debt issue costs of $8 million.

•

In November 2010, Precision designated its U.S. dollar denominated long-term debt as a hedge against its net investment in its United States operations. As a result, in the first half of 2011 the gain on translation of the U.S. denominated long-term debt is recognized in comprehensive income while in the comparative period it was recognized as an expense in the period. During the second quarter, the Canadian dollar weakened slightly in relation to the U.S. dollar giving rise to a foreign exchange gain of $1 million on the net U.S. dollar denominated monetary position held in the Canadian based operations.

•

Capital expenditures for the purchase of property, plant and equipment were $114 million in the second quarter, an increase of $92 million over the same period in 2010. Capital spending for the second quarter of 2011 included $62 million for expansion capital and $52 million for the maintenance and upgrade of existing assets.

•

Average revenue per utilization day for contract drilling rigs increased in the second quarter of 2011 to US$22,080 from the prior year second quarter of US$18,733 in the United States and increased in Canada to $18,461 in the second quarter of 2011 from $16,262 for the second quarter of 2010. The increase in revenue rates for the second quarter in Canada and the United States reflects a greater proportion of Tier 1 and Tier 2 rigs working and the pricing leverage of higher overall industry utilization compared to the prior year quarter. In the United States, for the second quarter of 2011, 80% of Precision’s working rigs were working under term contracts compared to 51% in the 2010 comparative period. Turnkey revenue for the second quarter of 2011 was US$22 million compared with US$20 million in 2010. Within Precision’s Completion and Production Services segment, average hourly rates for service rigs were $643 in the second quarter of 2011 compared to $604 in the second quarter of 2010.

•

Average operating costs per utilization day for drilling rigs increased in the second quarter of 2011 to US$13,110 from the prior year second quarter of US$12,626 in the United States and increased from $10,200 in 2010 to $11,897 in Canada. The cost increase in the United States was primarily due to a labour rate increase that became effective in December 2010. The cost increase in Canada was primarily due to a labour rate increase that became effective in the fourth quarter of 2010 and higher repairs and maintenance costs in preparation for an expected busy second half of the year. Within Precision’s Completion and Production Services segment, average hourly operating costs for service rigs increased to $559 in the second quarter of 2011 as compared to $505 in the second quarter of 2010 primarily due to a labour rate increase and higher repairs and maintenance costs. Typically labour rate increases are recovered in dayrate increases.

Summary for the six months ended June 30, 2011:

•	Revenue for the first half of 2011 was $871 million an increase of 37% from the 2010 period.

•	Operating earnings were $163 million, an increase of $83 million or 103% from 2010. Operating earnings were 19% of revenue in 2011 compared to 13% in 2010.

Precision Drilling Corporation 4

•

Capital expenditures for the purchase of property, plant and equipment were $179 million in the first half of 2011, an increase of $150 million over the same period in 2010. Capital spending for 2011 to date included $98 million for expansion capital and $81 million for the maintenance and upgrade of existing assets.

•

Finance charges were $59 million, a decrease of $22 million from the first half of 2010 due to lower interest costs and lower amortization of debt issue costs. During 2011 Precision refinanced a portion of long-term debt which resulted in a charge of $27 million for the make-whole premium under the previously outstanding $175 million 10% senior unsecured notes while 2010 includes a loss on settlement resulting from credit amendments.

•	General and administrative costs were $65 million an increase of $16 million over the first half of 2010 primarily because of the increased accruals for stock-based compensation in 2011.

OUTLOOK

Precision has a strong portfolio of long-term customer contracts that provides a base level of activity and revenue. Precision expects to have an average of approximately 124 rigs committed under term contracts in North America in the third quarter of 2011, an average of 110 rigs contracted for the fourth quarter of 2011 and 87 for the first quarter of 2012. In Canada, term contracted rigs normally generate 250 utilization days per rig year due to the seasonal nature of well access, whereas in the United States they generate about 365 utilization days per rig year in most regions.

For 2011, based on current drilling rig contracts, Precision has an average of 39 rigs in Canada under term contract, 75 in the United States and two in Mexico. For 2012, Precision currently has term contracts in place for an average of 67 rigs, with 38 in Canada and 29 in the United States and Mexico. Since the first quarter 2011 earnings release in April 2011, Precision has added term contracts that increased the average for 2011 from 99 rigs to 116 rigs working under term contract and from 44 to 67 rigs under term contract for 2012.

Capital expenditures are expected to be approximately $841 million for 2011, of which $179 million was expended during the first half of 2011. The 2011 total includes $141 million for sustaining and infrastructure expenditures and is based upon currently anticipated activity levels for 2011. Additionally, $484 million is slated for expansion capital and includes the cost to complete the drilling rigs from the 2010 new build rig program and the new build rigs for 2011. The total capital expenditures also include an estimated $216 million to upgrade 15 to 20 rigs in 2011 and to purchase long lead time items for the Corporation’s capital inventory. These long lead time items include top drives, masts and engines, that can be used for North American or international new build rig opportunities and rig tier upgrades. Precision expects that the $841 million will be split $755 million for the Contract Drilling segment and $86 million for the Completion and Production Services segment. An additional $183 million of capital expenditures is expected to carry forward to 2012 to complete the 2011 new build rig program.

Demand remains very strong for additional Tier 1 Super Series rigs for both Canada and the United States. Precision believes that customer demand, specifically for customers operating in the Bakken, Eagle Ford and Permian Basin, will result in additional new build rig opportunities throughout 2011. Oil plays in Canada, such as the Cardium, Viking and heavy oil, will provide the additional opportunities for new build rigs during the year. Precision continues to see attractive opportunities to upgrade lower tier rigs.

To date in 2011, there has been substantially higher drilling activity in Canada and the United States than in the prior year. Precision believes that oil directed drilling demand will continue to lead rig counts higher in North America. There is also increased liquidity in the capital markets as well as higher oil commodity prices which are providing some of Precision’s customers with the cash flow to increase drilling programs. According to industry sources, as at July 15, 2011, the United States active land drilling rig count was up about 20% from the same point in the prior year while the Canadian drilling rig count had increased about 8%. With the year-over-year improvements in rig utilization, there have been recent improvements in spot market dayrates charged to customers in both Canada and in the United States. The improvements in dayrates in Canada and the United States are expected to hold, and possibly improve, for the remainder of 2011.

Management's Discussion and Analysis 5

Natural gas production in the United States has remained strong despite reduced drilling activity over the last two years. The United States natural gas storage levels as at July 15, 2011 were 2% below the five-year average and 7% below storage levels of a year ago. This also strongly influences Canadian activity since Canada exports a significant portion of its natural gas production to the United States. The increase in oil and liquids rich natural gas drilling in areas like the Permian Basin, Bakken and Eagle Ford have been strong and the United States oil rig count as at July 15, 2011 was 73% higher than it was a year ago. Precision has more equipment working in oil related plays than at any time in the last 20 years, while approximately 35% of Precision’s active rig count is drilling for natural gas targets.

With high storage levels, consistent production and the view that North America has an oversupply of natural gas, gas prices have remained at relatively low levels. To date, customer changes in natural gas drilling plans are reflected in a decline in the rig count targeting dry gas plays. If low natural gas prices continue, Precision and the North American drilling industry could see a further reduction in demand for natural gas drilling. With the current demand for oil and liquids rich natural gas drilling, Precision believes further reductions in natural gas directed drilling would continue to be mostly offset by increases in oil and liquids rich natural gas drilling.

Precision is encouraged by the recent strong activity levels in our business and is excited about the second half of the year, which we believe represents an opportunity to demonstrate our value to customers by providing High Performance, High Value services that deliver low customer well costs and strong margins to Precision.

SEGMENTED FINANCIAL RESULTS

To align with the management of the operating divisions, Precision now considers the camp and catering division to be within the Completion and Production Services segment. Precision views its corporate segment as a support function that provides assistance to more than one segment. Beginning with the first quarter of 2011 Precision has included United States based corporate costs, previously included in Contract Drilling Services, in the Corporate and Other segment. Prior period numbers have been restated to reflect these changes. Precision’s operations are reported in two segments; the Contract Drilling Services segment includes the drilling rig, directional drilling, oilfield supply and manufacturing divisions; and the Completion and Production Services segment includes the service rig, snubbing, rental, camp and catering and wastewater treatment divisions.

	Three months ended June 30,									Six months ended June 30,
(Stated in thousands of Canadian dollars)	2011			2010			% Change			2011			2010			% Change

Revenue:
Contract Drilling Services	$	298,482		$	223,770			33.4		$	724,509		$	528,590			37.1
Completion and
Production Services		47,578			40,027			18.9			151,807			113,179			34.1
Inter-segment eliminations		(735	)		(1,969	)		(62.7	)		(5,641	)		(6,805	)		(17.1	)
	$	345,325		$	261,828			31.9		$	870,675		$	634,964			37.1

EBITDA(1)
Contract Drilling Services	$	104,169		$	68,711			51.6		$	276,719		$	181,567			52.4
Completion and
Production Services		8,233			5,168			59.3			42,684			24,613			73.4
Corporate and other		(19,836	)		(13,754	)		44.2			(40,426	)		(28,397	)		42.4
	$	92,566		$	60,125			54.0		$	278,977		$	177,783			56.9
(1) See “ADDITIONAL GAAP MEASURES”.

Precision Drilling Corporation 6

SEGMENT REVIEW OF CONTRACT DRILLING SERVICES
(Stated in thousands of Canadian dollars,				Three months ended June 30,					Six months ended June 30,
except where indicated)	2011			2010			% Change		2011			2010			% Change

Revenue	$	298,482		$	223,770			33.4	$	724,509		$	528,590			37.1
Expenses:
Operating		187,379			148,138			26.5		431,078			331,470			30.1
General and administrative		6,934			6,921			0.2		16,712			15,553			7.5
EBITDA(1)		104,169			68,711			51.6		276,719			181,567			52.4
Depreciation and amortization		45,946			38,363			19.8		100,473			81,968			22.6
Operating earnings(1)	$	58,223		$	30,348			91.9	$	176,246		$	99,599			77.0

Operating earnings as
a percentage of revenue		19.5	%		13.6	%				24.3	%		18.8	%
Drilling rig revenue per
utilization day in Canada	$	18,461		$	16,262			13.5	$	17,981		$	15,678			14.7
Drilling rig revenue per utilization
day in the United States(2)	US$	22,080		US$	18,733			17.9	US$	US$ 21,451		US$	18,721			14.6

(1)	See “ADDITIONAL GAAP MEASURES”.

(2)	Includes revenue from idle but contracted rig days and lump sum payouts.

				Three months ended June 30,

	2011						2010
Canadian onshore drilling statistics:(1)	Precision			Industry(2)			Precision			Industry(2)

Number of drilling rigs (end of period)		202			800			200			806
Drilling rig operating days (spud to release)		3,780			15,884			3,388			14,918
Drilling rig operating day utilization		21	%		22	%		18	%		20	%
Number of wells drilled		396			1,426			317			1,160
Average days per well		9.5			11.1			10.7			12.9
Number of metres drilled (000s)		622			2,754			645			2,461
Average metres per well		1,570			1,931			2,035			2,122
Average metres per day		165			173			190			165

				Six months ended June 30,

	2011						2010
Canadian onshore drilling statistics:(1)	Precision			Industry(2)			Precision			Industry(2)

Number of drilling rigs (end of period)		202			800			200			806
Drilling rig operating days (spud to release)		14,906			63,345			12,499			53,314
Drilling rig operating day utilization		41	%		44	%		34	%		37	%
Number of wells drilled		1,487			5,033			1,257			4,724
Average days per well		10.0			12.6			9.9			11.3
Number of metres drilled (000s)		2,342			9,265			2,169			8,334
Average metres per well		1,575			1,841			1,726			1,764
Average metres per day		157			146			174			156

(1)	Canadian operations only.

(2)	Canadian Association of Oilwell Drilling Contractors (“CAODC”) and Precision – excludes non-CAODC rigs and non-reporting CAODC members.

	2011				2010
United States onshore drilling statistics:(1)	Precision		Industry(2)		Precision		Industry(2)

Average number of active land rigs for quarters ended:
March 31		100		1,695		78		1,297
June 30		102		1,803		88		1,464
Year to date average		101		1,749		83		1,380

(1)	United States lower 48 operations only.

(2)	Baker Hughes rig counts.

Management's Discussion and Analysis 7

Contract Drilling Services segment revenue for the second quarter of 2011 increased by 33% to $298 million and EBITDA increased by 52% to $104 million compared to the same period in 2010. The increase in revenue and EBITDA was due to the higher drilling rig activity and higher average rates per day for both Canada and the United States.

Activity in North America was impacted by increased customer demand for oil related drilling activity as a result of higher global oil prices. In the second quarter, drilling rig revenue per utilization day in Canada was up 14% over the prior year as a result of increased rates for rigs working on well-to-well contracts. During the quarter, 33% of Precision’s utilization days in Canada were generated from rigs under term contract compared with 36% in 2010 while in the United States 80% of utilization days were generated from rigs under term contract as compared to 51% in the prior year period. At the end of the quarter, Precision had 79 drilling rigs working under term contracts in the United States and 36 in Canada.

Drilling rig utilization days in Canada (drilling days plus move days) during the second quarter of 2011 were 4,200, an increase of 14% compared to 3,684 in 2010. Drilling rig utilization days for Precision in the United States were 16% higher than the same quarter of 2010 due to increased customer demand with the majority of the additional activity coming from oil and liquids rich natural gas related plays. On average, Precision had two rigs working in Mexico during the second quarter of 2011 the same as the corresponding quarter of 2010.

Contract Drilling Services segment operating costs were 63% of revenue for the quarter which is three percentage points lower than the prior year period. On a per day basis, operating costs for the drilling rig division in Canada were above the prior year because of an increase in crew wage expense effective October 2010. Operating costs for the quarter in the United States on a per day basis were up from the comparable period in 2010 due to a crew wage increase effective December 2010 and higher repair and maintenance costs.

Quarterly depreciation in the Contract Drilling Services segment increased 20% from the prior year due to the increase in activity in both Canada and the United States and $2 million of depreciation in 2011 recorded on idle contract drilling assets. Both the United States and Canadian contract drilling operations use the unit of production method of calculating depreciation.

SEGMENT REVIEW OF COMPLETION AND PRODUCTION SERVICES

(Stated in thousands of Canadian dollars,	Three months ended June 30,									Six months ended June 30,
except where indicated)	2011			2010			% Change			2011			2010			% Change

Revenue	$	47,578		$	40,027			18.9		$	151,807		$	113,179			34.1
Expenses:
Operating		35,930			32,578			10.3			101,462			83,754			21.1
General and administrative		3,415			2,281			49.7			7,661			4,812			59.2
EBITDA(1)		8,233			5,168			59.3			42,684			24,613			73.4
Depreciation and amortization		5,083			4,758			6.8			12,154			11,435			6.3
Operating earnings(1)	$	3,150		$	410			668.4		$	30,530		$	13,178			131.7

Operating earnings as
a percentage of revenue		6.6	%		1.0	%					20.1	%		11.6	%

Well servicing statistics:(2)
Number of service rigs
(end of period)		220			220			–			220			220			–
Service rig operating hours		46,533			52,637			(11.6	)		142,681			134,806			5.8
Service rig operating
hour utilization		23	%		26	%					36	%		34	%
Service rig revenue per
operating hour	$	643		$	604			6.5		$	695		$	626			11.0

(1)	See “ADDITIONAL GAAP MEASURES”.

(2)	Now includes snubbing services. Comparative numbers have been restated to reflect this change.

Consolidated Financial Statements 8

Completion and Production Services segment revenue for the second quarter increased by 19% from the second quarter of 2010 to $48 million and EBITDA increased by 59% to $8 million. The increase in revenue and EBITDA is attributed primarily to the increase in rental equipment activity as customers increased spending in response to higher oil and natural gas liquids commodity prices and from the camp and catering division.

Well servicing and snubbing activity decreased 12% from the prior year period, with the fleet generating 46,533 operating hours in the second quarter of 2011 compared with 52,637 hours in the prior year quarter for utilization of 23% and 26%, respectively. The decrease was a result of lower service rig activity due to a prolonged spring breakup and flooding conditions, primarily in southeast Saskatchewan and Manitoba that severely limited service rig mobility and wellsite access. Approximately 96% of the second quarter service rig activity was oil related. New well completions were 54% lower than the prior year quarter and accounted for 6% of service rig operating hours in the second quarter compared to 12% in the same quarter in 2010. Precision's camp and catering division benefited from a 500-man base camp in Canada that was contracted until the end of the second quarter of 2011 and a 175-man base camp in Canada that is contracted to the end of 2011.

Average service rig revenue increased $39 per operating hour to $643 from the prior year period due to labour rate increases passed through to the customer.

Operating costs as a percentage of revenue decreased to 76% in the second quarter of 2011 from 81% in the same period of 2010. Higher repair and maintenance costs were incurred in the current period to prepare service rigs for higher activity that is anticipated to occur over the remainder of the year. Along with higher repair and maintenance costs, operating costs per service rig operating hour increased over the comparable period in 2010 due primarily to higher wages and higher fuel prices.

Depreciation in the Completion and Production Services segment in the second quarter of 2011 was 7% higher than the prior year due to a gain on disposal of assets in the camp and catering division in 2010. The well servicing division uses the unit of production method of calculating depreciation while the other operating divisions within the Completion and Production Services segment use the straight-line method.

SEGMENT REVIEW OF CORPORATE AND OTHER

Precision views its corporate segment as support functions that provide assistance to more than one segment. Beginning with the first quarter of 2011 Precision has included United States based corporate costs, which were previously in the Contract Drilling Services segment, in the corporate segment and restated prior period comparatives. The Corporate and other segment had an EBITDA loss of $20 million for the second quarter of 2011, $6 million higher than the prior year comparative period due to increased costs associated with share based performance incentive plans and incremental costs associated with increasing activity.

OTHER ITEMS

Net financial charges for the quarter were $16 million, a decrease of $36 million from the second quarter of 2010 due to the 2010 amendment of the terms of a then existing debt facility and the repayment of non-consenting holders which required the Corporation to record a charge of $25 million of debt issue costs, higher debt amortization costs in 2010 and a $4 million reduction in long-term debt interest expense.

The Corporation had a foreign exchange gain of $1 million during the second quarter of 2011 due to the strengthening of the Canadian dollar versus the U.S. dollar and the impact thereof on the net U.S. dollar denominated monetary position in the Canadian dollar based companies.

Precision’s effective tax rate on earnings before income taxes for the first half 2011 was 19%.

Management's Discussion and Analysis 9

LIQUIDITY AND CAPITAL RESOURCES

The oilfield services business is inherently cyclical in nature. Precision employs a disciplined approach to minimize costs through operational management practices and a variable cost structure, and to maximize revenues through term contract positions with a focus of maintaining a strong balance sheet. This operational discipline provides Precision with the financial flexibility to capitalize on strategic acquisitions and internal growth opportunities at all points in the business cycle.

Operating within a highly variable cost structure, Precision’s maintenance capital expenditures are tightly governed by and highly responsive to activity levels with additional cost savings leverage provided through Precision’s internal manufacturing and supply divisions. Expansion capital for new build rig programs require two to five year term contracts in order to mitigate capital recovery risk.

Liquidity remains sufficient as Precision had a cash balance of $207 million and the US$550 million senior secured revolver (“Secured Facility”) remains undrawn except for US$23 million in outstanding letters of credit as at June 30, 2011. In addition to the Secured Facility, Precision has available $40 million in operating facilities which are used for working capital management.

During June 2011, Precision entered into an amendment to its existing revolving credit facility which: (i) reduced the margins and rates applicable to interest rates and fees payable under the revolving credit facility; (ii) extended the maturity date of the revolving credit facility to November 17, 2015; (iii) increased the amount of unsecured indebtedness permitted to be incurred under the revolving credit facility; (iv) increased the consolidated senior debt to EBITDA ratio from 2.5:1 to 3:1 and (v) increased the consolidated total debt to EBITDA ratio from 3.5:1 to 4:1.

During March 2011, Precision issued $200 million aggregate principal amount of 6.5% senior unsecured notes due 2019 in a private placement. The net proceeds and cash on hand were in effect used to repay the $175 million 10% senior unsecured notes. The total repayment of approximately $204 million included the $175 million in principal, accrued interest and a make-whole premium. The make-whole premium of $27 million was a charge to earnings in the first quarter of 2011.

During November 2010, Precision closed an offering of US$650 million aggregate principal amount of 6.625% senior unsecured notes due 2020 (the “Unsecured Notes”) in a private placement. Net proceeds from the Unsecured Notes offering were used to repay in full the outstanding indebtedness under the Corporation’s then existing term loan A and term loan B credit facilities. At that time, the outstanding balance under the term loan A credit facility was approximately US$263 million and the outstanding balance under the term loan B credit facility was approximately US$318 million. In conjunction with the closing of the Unsecured Notes offering, Precision terminated its existing secured credit facilities and entered into US$550 million Secured Facility which expires in 2013. Subject to certain conditions, the new Secured Facility may be increased by an additional US$100 million.

As at June 30, 2011, the Corporation was in compliance with the covenants under the Secured Facility and expects to remain in compliance with such covenants and have complete access to credit lines during the remainder of 2011.

The current blended cash interest cost of Precision’s debt is approximately 6.6% compared to 7.3% as at December 31, 2010.

In November 2010 Precision designated its U.S. dollar denominated long-term debt as a hedge of its investment in its United States operations. To be accounted for as a hedge, the foreign currency denominated long-term debt must be designated and documented as such and must be effective at inception and on an ongoing basis.

Consolidated Financial Statements 10

QUARTERLY FINANCIAL SUMMARY
(Stated in thousands of Canadian dollars, except per share amounts)
	2010 (IFRS)					2011 (IFRS)
Quarters ended	September 30		December 31			March 31		June 30

Revenue	$	359,152	$	435,537		$	525,350	$	345,325
EBITDA(1)		112,607		144,518			186,411		92,566
Net earnings (loss):		56,286		(250	)		65,560		16,403
Per basic share		0.21		–			0.24		0.06
Per diluted share		0.20		–			0.23		0.06
Funds provided by operations(1)		126,811		133,903			192,337		70,766
Cash provided by operations		67,575		75,064			117,322		176,312

	2009 (CGAAP)(2)					2010 (IFRS)
Quarters ended	September 30		December 31			March 31		June 30

Revenue	$	253,337	$	286,067		$	373,136	$	261,828
EBITDA(1)		85,739		92,615			117,658		60,125
Net earnings (loss):		71,696		(24,885	)		56,917		(69,418	)
Per basic share		0.26		(0.09	)		0.21		(0.25	)
Per diluted share		0.25		(0.09	)		0.20		(0.25	)
Funds provided by operations(1)		59,134		123,728			102,759		40,692
Cash provided by operations		19,948		70,631			20,624		143,001

(1)	See “ADDITIONAL GAAP MEASURES”.

(2)	Financial information prepared under Canadian Generally Accepted Accounting Principles (CGAAP) applicable at that time.

ADDITIONAL GAAP MEASURES

Precision uses certain additional GAAP measures that are not defined terms under IFRS to assess performance and believes these measures provide useful supplemental information to investors. The following are the measures Precision uses in assessing performance.

EBITDA

Management believes that in addition to net earnings (loss), earnings before finance charges, income taxes, depreciation and amortization and foreign exchange (“EBITDA”), as derived from information reported in the Consolidated Statements of Earnings (Loss), 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 or how depreciation and amortization charges affect results.

Operating Earnings

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

Management's Discussion and Analysis 11

Funds Provided by Operations

Management believes that in addition to cash provided by operations, funds provided by operations, as reported in the Consolidated Statements of Cash Flow is a useful supplemental measure as it provides an indication of the funds generated by Precision’s principal business activities prior to consideration of working capital, which is primarily made up of highly liquid balances.

The following table provides a reconciliation of funds provided by operations to cash provided by operations.

	Three months ended June 30,				Six months ended June 30,
(Stated in thousands of Canadian dollars)	2011		2010		2011		2010

Funds provided by operations	$	70,766	$	40,692	$	263,103	$	143,451
Add:
Changes in non-cash working capital balances		105,546		102,309		30,531		20,174

Cash provided by operations	$	176,312	$	143,001	$	293,634	$	163,625

ACCOUNTING POLICIES

On January 1, 2011, Precision adopted International Financial Reporting Standards (“IFRS”) using a transition date of January 1, 2010. The financial statements for the three and six month periods ended June 30, 2011 and comparative financial information have been prepared in accordance with IFRS 1, “First-time Adoption of International Financial Reporting Standards” and with International Accounting Standard 34, “Interim Financial Reporting.” Previously, Precision prepared its financial statements in accordance with Canadian generally accepted accounting principles (“Previous GAAP”).

Precision’s IFRS accounting policies are provided in Note 3 to the Interim Consolidated Financial Statements while Note 4 provides reconciliations between Precision’s 2010 Previous GAAP results and the 2010 IFRS results. The reconciliations include the Consolidated Statement of Financial Position as at January 1, 2010, June 30, 2010 and December 31, 2010, the Consolidated Statements of Earnings and Consolidated Statements of Comprehensive Income for the three and six month periods ended June 30, 2010 and for the year ended December 31, 2010.

The following table provides a summary reconciliation of Precision’s Previous GAAP results to results as restated under IFRS:

(Stated in thousands of Canadian dollars)				2010									Year 2010
Quarters ended	March 31			June 30			September 30			December 31

Net earnings – Previous GAAP	$	62,017		$	(66,547	)	$	61,078		$	5,543		$	62,091
IFRS addition (deduction):
Depreciation and amortization(1)		(6,673	)		(5,624	)		(7,064	)		(8,023	)		(27,384	)
Stock based compensation(2)		(745	)		1,131			10			(871	)		(475	)
Income tax(3)		2,318			1,622			2,262			3,101			9,303

Net earnings - IFRS	$	56,917		$	(69,418	)	$	56,286		$	(250	)	$	43,535

(1)

Under Previous GAAP Precision principally viewed a drilling rig as a single asset with an overall useful life and depreciated that asset on a unit of production method over that life. IFRS more explicitly defines what constitutes a separate and identifiable asset. Under IFRS each part of a capital item with a cost that is significant in relation to the total is depreciated separately and significant items can only be added together if they have similar useful lives and therefore the same depreciation rate. As a result of this componentization depreciation expense as calculated under IFRS for 2010 has increased.

(2)

The main difference under IFRS, in particular after the conversion to a corporation, results from the cash settled share appreciation rights plan (“SAR”). Under Previous GAAP these rights were recorded based on the intrinsic value method which uses the balance sheet date share price to value the associated liability. IFRS requires the use of an option pricing model to fair value the SAR. The differences in methodology resulted in a change to compensation expense.

(3)	Income tax changes are the result of the tax effect of the changes in depreciation and the cash settled share appreciation rights plan.

Consolidated Financial Statements 12

Accounting Policy Changes under IFRS

The following discussion outlines the significant difference between Precision’s Previous GAAP accounting policies and those applied under IFRS. IFRS policies have been retrospectively applied except where specific IFRS 1 optional and mandatory exemptions permitted to have the standard applied on a prospective basis.

Business Combinations

As permitted under IFRS 1 Precision has elected to apply IFRS retrospectively to all business combinations that occurred on or after December 23, 2008. Changes from the application of IFRS 3 Business Combinations on the Grey Wolf acquisition (the only acquisition to be restated) resulted in $590 million less purchase consideration, acquisition-related costs of $22 million to be expensed, intangible asset valued at $69 million to be recognized and amortized over its estimated life and reduced deferred tax by $26 million related to an intangible asset which was fully amortized under IFRS in 2009.

Under Previous GAAP, purchase consideration was valued based on Precision’s share price on the date at which the acquisition was announced while under IFRS it is valued based on the share price on the date at which the acquisition closed. The additional intangible asset to be recognized under IFRS related to the purchased name which Precision did not intend to use in the long term and is fully amortized during 2009 under IFRS. Under IFRS negative goodwill acquired on a business combination is recognized in income on the acquisition date. The goodwill adjustment was restated for foreign exchange translation as at December 31, 2009 resulting in a Canadian dollar reduction of carrying value of $75 million. The net effect was to eliminate the goodwill originally recorded under Previous GAAP and therefore goodwill as at January 1, 2010 related to the Grey Wolf acquisition was nil.

Fair Value Accounting for Capital Assets

In accordance with IFRS 1, Precision elected to fair value select rigs in the United States and Canada. The fair value election for certain rigs resulted in a downward adjustment to the carrying value of $146 million. For the remaining property, plant and equipment, historical records were built from inception of Precision using principles of IAS 16 Property Plant and Equipment. This resulted in a decrease in the carrying value of Property, Plant and Equipment of $115 million. The adjustments to the carrying value resulted in a decrease to deferred tax liability of $85 million.

Cash Settled Share Appreciation Rights Plan

Precision has a cash settled share appreciation rights plan (“SAR”) which under Previous GAAP is recorded based on the intrinsic value method which uses the balance sheet date share price to value the associated liability. IFRS requires the use of an option pricing model to fair value the SAR.

Borrowing Costs

Under Previous GAAP, Precision expensed borrowing costs as incurred. At the date of transition, Precision elected to capitalize borrowing costs only in respect of qualifying assets for which the commencement date for capitalization was on or after the date of transition. There was no effect to Precision’s financial statements as a result of this election as there were no qualifying assets at the transition date or subsequent thereto.

Foreign Exchange

As permitted by IFRS 1, Precision has elected to deem all foreign currency translation adjustments included in accumulated other comprehensive loss prior to the date of transition to be nil.

Income Tax

Deferred income taxes have been adjusted to reflect the tax effect arising from the differences between IFRS and previous GAAP.

Management's Discussion and Analysis 13