ex99_2.htm

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”, “intend”, “plan”, “expect”, “believe”, “will”, “may”, “continue”, “project”, “potential” 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 following: that Precision sees continued customer interest in both new build rigs and upgrades to its current fleet; the deployment of new build drilling rigs by the end of the month and the delivery of additional rigs prior to the end of the year; Precision’s planned capital expenditures and anticipated uses of capital and the timing of such expenditures; that if low natural gas prices continue, Precision and the North American drilling industry could see a further reduction in demand for natural gas drilling; that reductions in natural gas directed drilling will continue to be largely offset by increases in oil and liquids rich natural gas drilling; and that there will be additional new build opportunities.

These forward-looking information and statements are based on certain assumptions and analysis made by the Corporation 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 Corporation’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 Corporation’s expectations. Such risks and uncertainties include, but are not limited to: fluctuations in the price and demand for oil, liquids and natural gas; fluctuations in the level of oil and natural gas exploration and development activities; fluctuations in the demand for contract drilling, well servicing and ancillary oilfield services; capital market liquidity available to fund customer drilling programs; availability of cash flow, debt and/or equity sources to fund the Corporation’s capital and operating requirements, as needed; the effects of seasonal and weather conditions on operations and facilities; the existence of competitive operating risks inherent in contract drilling, directional drilling, well servicing and ancillary oilfield services; general economic, market or business conditions; changes in laws or regulations; the availability of qualified personnel, management or other key inputs; currency exchange fluctuations; 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 Corporation will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Corporation 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 Corporation assumes no obligation to update publicly any such forward-looking information and statements, whether as a result of new information, future events or otherwise.

10 Management’s Discussion and Analysis

Interim Consolidated Statements of Financial Position (Unaudited)

	March 31,			December 31,
(Stated in thousands of Canadian dollars)	2012			2011

Assets
Current assets:
Cash	$	369,644		$	467,476
Accounts receivable		619,932			576,243
Inventory		10,818			7,163
Total current assets		1,000,394			1,050,882
Non-current assets:
Income tax recoverable		64,579			64,579
Property, plant and equipment		3,054,710			2,942,296
Intangibles		5,611			6,471
Goodwill		363,176			363,646
Total non-current assets		3,488,076			3,376,992
Total assets	$	4,488,470		$	4,427,874
Liabilities and Equity
Current liabilities:
Accounts payable and accrued liabilities	$	388,910		$	436,667
Income tax payable		24,251			3,786
Total current liabilities		413,161			440,453
Non-current liabilities:
Share based compensation (Note 7)		5,505			11,303
Provisions and other		16,203			16,121
Long-term debt (Note 3)		1,221,402			1,239,616
Deferred tax liabilities		591,347			587,790
Total non-current liabilities		1,834,457			1,854,830
Shareholders’ equity:
Shareholders’ capital (Note 5)		2,250,160			2,248,217
Contributed surplus		19,862			18,396
Retained earnings (deficit)		27,921			(83,160	)
Accumulated other comprehensive loss (Note 6)		(57,091	)		(50,862	)
Total shareholders’ equity		2,240,852			2,132,591
Total liabilities and shareholders’ equity	$	4,488,470		$	4,427,874

See accompanying notes to interim consolidated financial statements.

Precision Drilling Corporation 11

Interim Consolidated Statements of Earnings (Unaudited)

	Three months ended March 31,
(Stated in thousands of Canadian dollars, except per share amounts)	2012		2011
Revenue	$	640,066	$	525,350
Expenses:
Operating		356,586		304,325
General and administrative		37,906		34,614
Earnings before income taxes, other items and depreciation and amortization		245,574		186,411
Depreciation and amortization		74,824		63,319
Operating earnings		170,750		123,092
Other items:
Foreign exchange		5,367		3,332
Finance charges (Note 8)		21,920		42,528
Earnings before income taxes		143,463		77,232
Income taxes: (Note 4)
Current		22,839		1,140
Deferred		9,543		10,532
		32,382		11,672
Net earnings	$	111,081	$	65,560
Net earnings per share: (Note 9)
Basic	$	0.40	$	0.24
Diluted	$	0.39	$	0.23

See accompanying notes to interim consolidated financial statements.

Interim Consolidated Statements of Comprehensive Income (Unaudited)

	Three months ended March 31,
(Stated in thousands of Canadian dollars)	2012			2011
Net earnings	$	111,081		$	65,560
Unrealized loss on translation of assets and liabilities
of operations denominated in foreign currency		(25,024	)		(26,808	)
Foreign exchange gain on net investment hedge with
U.S. denominated debt, net of tax		18,795			12,944
Comprehensive income	$	104,852		$	51,696

See accompanying notes to interim consolidated financial statements.

12 Interim Consolidated Financial Statements

Interim Consolidated Statements of Cash Flow (Unaudited)

	Three months ended March 31,
(Stated in thousands of Canadian dollars)	2012			2011
Cash provided by (used in):
Operations:
Net earnings	$	111,081		$	65,560
Adjustments for:
Long-term compensation plans		9,451			8,845
Depreciation and amortization		74,824			63,319
Foreign exchange		5,552			3,344
Finance charges		21,920			42,528
Income taxes		32,382			11,672
Other		171			199
Income taxes paid		(810	)		(565	)
Income taxes recovered		36			246
Interest paid		(7,260	)		(3,052	)
Interest received		392			241
Funds provided by operations		247,739			192,337
Changes in non-cash working capital balances		(85,299	)		(75,015	)
		162,440			117,322
Investments:
Business acquisitions, net of cash acquired		–			(33,143	)
Purchase of property, plant and equipment		(221,683	)		(64,800	)
Proceeds on sale of property, plant and equipment		5,079			735
Changes in income tax recoverable		–			(108,176	)
Changes in non-cash working capital balances		(38,111	)		(29,340	)
		(254,715	)		(234,724	)
Financing:
Repayment of long-term debt		–			(175,000	)
Premium paid on settlement of unsecured senior notes		–			(26,688	)
Debt issue costs		–			(3,839	)
Increase in long-term debt		–			200,000
Issuance of common shares on the exercise of options		1,172			436
Changes in non-cash working capital balances		–			(746	)
		1,172			(5,837	)
Effect of exchange rate changes on cash and cash equivalents		(6,729	)		(3,904	)
Decrease in cash and cash equivalents		(97,832	)		(127,143	)
Cash and cash equivalents, beginning of period		467,476			256,831
Cash and cash equivalents, end of period	$	369,644		$	129,688

See accompanying notes to interim consolidated financial statements.

Precision Drilling Corporation 13

Interim Consolidated Statements of Changes in Equity (Unaudited)

						Accumulated
						other
						comprehensive			Retained
(Stated in thousands of	Shareholders’		Contributed			loss			earnings			Total
Canadian dollars)	capital		surplus			(Note 6)			(deficit)			equity
Balance at January 1, 2012	$	2,248,217	$	18,396		$	(50,862	)	$	(83,160	)	$	2,132,591
Net earnings for the period		–		–			–			111,081			111,081
Other comprehensive loss for
the period		–		–			(6,229	)		–			(6,229	)
Share options exercised (Note 5)		1,713		(541	)		–			–			1,172
Issued on redemption of
non-management directors
DSUs		221		(221	)		–			–			–
Issued on waiver of right to
dissent by dissenting unitholder		9		(3	)		–			–			6
Share based compensation
expense		–		2,231			–			–			2,231
Balance at March 31, 2012	$	2,250,160	$	19,862		$	(57,091	)	$	27,921		$	2,240,852

						Accumulated other			Retained
(Stated in thousands of	Shareholders’		Contributed			comprehensive			earnings			Total
Canadian dollars)	capital		surplus			loss			(deficit)			equity

Balance at January 1, 2011	$	2,244,417	$	11,266		$	(46,220	)	$	(276,637	)	$	1,932,826
Net earnings for the period		–		–			–			65,560			65,560
Other comprehensive loss for
the period		–		–			(13,864	)		–			(13,864	)
Share options exercised		667		(231	)		–			–			436
Share based compensation
expense		–		2,193			–			–			2,193
Balance at March 31, 2011	$	2,245,084	$	13,228		$	(60,084	)	$	(211,077	)	$	1,987,151

See accompanying notes to interim consolidated financial statements.

14 Interim Consolidated Financial Statements

Notes to Interim Consolidated Financial Statements (Unaudited)

(Tabular amounts are stated in thousands of Canadian dollars except share numbers and per share amounts)

NOTE 1. DESCRIPTION OF BUSINESS

Precision Drilling Corporation (“Precision” or the “Corporation”) is incorporated under the laws of the Province of Alberta, Canada and is a provider of contract drilling and completion and production services primarily to oil and natural gas exploration and production companies in Canada and the United States. The address of the registered office is 800, 525 – 8th Avenue S.W., Calgary, Alberta, Canada, T2P 1G1.

NOTE 2. BASIS OF PRESENTATION

(a) Statement of compliance

These condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board and interpretations of the International Financial Reporting Interpretations Committee. These condensed interim consolidated financial statements were prepared using accounting policies and methods of their application consistent with those used in the preparation of the Corporation’s consolidated audited annual financial statements for the year ended December 31, 2011. The condensed interim consolidated financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated audited financial statements of the Corporation as at and for the year ended December 31, 2011.

These condensed interim consolidated financial statements were approved by the Board of Directors on April 25, 2012.

(b) Seasonality

Precision has operations that are carried on in Canada which represent approximately 49% (2011 – 47%) of consolidated total assets as at March 31, 2012 and 61% (2011 – 63%) of consolidated revenue for the three months ended March 31, 2012. The ability to move heavy equipment in Canadian oil and natural gas fields is dependent on weather conditions. As warm weather returns in the spring, the winter’s frost comes out of the ground rendering many secondary roads incapable of supporting the weight of heavy equipment until they have thoroughly dried out. The duration of this “spring break-up” has a direct impact on Precision’s activity levels. In addition, many exploration and production areas in northern Canada are accessible only in winter months when the ground is frozen hard enough to support equipment. The timing of freeze up and spring break-up affects the ability to move equipment in and out of these areas. As a result, late March through May is traditionally Precision’s slowest time in this region.

NOTE 3. LONG-TERM DEBT

	March 31,			December 31,
	2012			2011

Secured revolving credit facility	$	–		$	–
Unsecured senior notes:
6.625% senior notes due 2020 (US$650.0 million)		649,415			661,050
6.5% senior notes due 2021 (US$400.0 million)		399,640			406,800
6.5% senior notes due 2019		200,000			200,000
		1,249,055			1,267,850
Less net unamortized debt issue costs		(27,653	)		(28,234	)
	$	1,221,402		$	1,239,616

At March 31, 2012 no mandatory principal repayments are required in the next five years.

Precision Drilling Corporation 15

NOTE 4. INCOME TAXES

The provision for income taxes differs from that which would be expected by applying statutory Canadian income tax rates. A reconciliation of the difference at March 31 is as follows:


	Three months ended March 31,

	2012			2011
Earnings before income taxes	$	143,463		$	77,232
Federal and provincial statutory rates		25%			27%

Tax at statutory rates	$	35,866		$	20,853
Adjusted for the effect of:
Non-deductible expenses		1,098			1,324
Non-taxable capital gains		(170	)		(16	)
Income taxed at lower rates		(8,887	)		(10,943	)
Taxes related to prior years		1,899			–
Other		2,576			454
Income tax expense	$	32,382		$	11,672

NOTE 5. SHAREHOLDER'S CAPITAL

Issued
Common shares	Number		Amount
Balance, December 31, 2011		276,081,797	$	2,248,217
Options exercised – cash consideration		179,414		1,172
– reclassification from contributed surplus		–		541
Issued on redemption of non-management directors DSU’s		26,337		221
Issued on waiver of right to dissent by dissenting unitholder		840		9
Balance, March 31, 2012		276,288,388	$	2,250,160

NOTE 6. ACCUMULATED OTHER COMPREHENSIVE LOSS

									Accumulated
		Unrealized			Foreign exchange					other
	foreign currency				gain (loss) on net				comprehensive
	translation losses				investment hedge					loss

Balance, December 31, 2011		$	(27,987	)		$	(22,875	)		$	(50,862	)
Other comprehensive loss			(25,024	)			18,795				(6,229	)
Balance, March 31, 2012		$	(53,011	)		$	(4,080	)		$	(57,091	)

16 Notes to Interim Consolidated Financial Statements

NOTE 7. SHARE BASED COMPENSATION PLANS

Liability classified plans

													Non-
				Restricted						Share			Management
	Deferred			Share			Performance			Appreciation			Director’s
	Share Units			Units (a)			Share Units (a)			Rights (b)			DSU (c)		Total
Balance, December 31, 2011	$	762		$	12,529		$	25,250		$	1,693		$	–	$	40,234
Expensed (recovered) during
the period		(44	)		684			5,368			(334	)		219		5,893
Payments		(718	)		(6,008	)		(17,435	)		(1	)		–		(24,162	)
Balance, March 31, 2012	$	–		$	7,205		$	13,183		$	1,358		$	219	$	21,965
Current	$	–		$	4,517		$	10,585		$	1,358		$	–	$	16,460
Long-term		–			2,688			2,598			–			219		5,505
	$	–		$	7,205		$	13,183		$	1,358		$	219	$	21,965

(a) Restricted Share Units and Performance Share Units

Precision has two cash settled share based incentive plans for officers and other eligible employees. Under the Restricted Share Unit (“RSU”) incentive plan shares granted to eligible employees vest annually over a three year term. Vested shares are automatically paid out in cash at a value determined by the fair market value of the shares as at the vesting date. Under the Performance Share Unit (“PSU”) incentive plan shares granted to eligible employees vest at the end of a three-year term. Vested shares are automatically paid out in cash in the first quarter following the vested term at a value determined by the fair market value of the shares at the vesting date and based on the number of performance shares held multiplied by a performance factor that ranges from zero to two times. The performance factor is based on Precision’s share price performance compared to a peer group over the three-year period. For performance shares granted in 2010, Precision’s Board of Directors has the discretion to reduce the plan payout by half if Precision’s average return on capital does not exceed 10% over the three year term.

(b) Share Appreciation Rights

A summary of the activity under the share appreciation rights plan is presented below:

					Range of		Weighted Average
				Exercise Price				Exercise Price
Share Appreciation Rights	Outstanding				(US $)			(US $)		Exercisable
Outstanding at December 31, 2011		705,688			$	9.26 – 17.92		$	14.83		705,688
Exercised		(721	)			9.26 – 9.59			9.45
Outstanding at March 31, 2012		704,967			$	9.26 – 17.92		$	14.84		704,967

Effective January 1, 2012 Precision instituted a new deferred share unit plan for non-management directors whereby fully vested deferred share units are granted quarterly based upon an election by the non-management director to receive all or a portion of their compensation in deferred share units. These deferred share units are redeemable in cash or an equal number of common shares any time after the director’s retirement. The granting of common shares is solely at Precision’s discretion. Non-management directors can receive a lump sum payment or two separate payments anytime up until December 15 of the year following retirement. If the non-management director does not specify a redemption date, the deferred share units will be redeemed on a single date six months after retirement. The cash settlement amount is based upon the weighted average trading price for Precision’s shares on the Toronto Stock Exchange for the five days immediately prior to payout.

Precision Drilling Corporation 17

Equity settled plans

(d) Option plan

A summary of the activity under the option plan is presented below:

								Weighted
		Options				Range of		Average			Options
Canadian share options	Outstanding				Exercise Price			Exercise Price		Exercisable
Outstanding as at December 31, 2011			3,267,571			$	5.22 – 14.50	$	8.45			1,008,305
Granted			1,087,600				10.67 – 10.67		10.67
Exercised			(142,544	)			5.85 – 10.44		6.00
Forfeitures			(11,735	)			5.85 – 14.50		11.54
Outstanding as at March 31, 2012			4,200,892			$	5.22 – 14.50	$	9.10			1,589,889

								Weighted
						Range of		Average
		Options				Exercise Price		Exercise Price			Options
U.S. share options		Outstanding				(US $)		(US $)			Exercisable
Outstanding as at December 31, 2011			1,886,552			$	4.95 – 15.21	$	8.61			396,188
Granted			816,700				10.74 – 10.74		10.74
Exercised			(36,870	)			4.95 – 10.55		8.65
Forfeitures			(42,240	)			4.95 – 15.21		10.58
Outstanding as at March 31, 2012			2,624,142			$	4.95 – 15.21	$	9.24			783,898

The per option weighted average fair value of the share options granted during 2012 was $4.85 estimated on the grant date using the Black-Scholes option pricing model with the following assumption: average risk-free interest rate 1%, average expected life of four years, expected forfeiture rate of 5% and expected volatility of 59%. Included in net earnings for the three months ended March 31, 2012 is an expense of $2.2 million (2011 – $2.0 million).

NOTE 8. FINANCE CHARGES

	Three months ended March 31,

	2012			2011
Interest:
Long-term debt	$	21,283		$	15,021
Other		49			31
Income		(400	)		(187	)
Amortization of debt issue costs		988			721
Loss on settlement of debt facilities		–			26,942
Finance charges	$	21,920		$	42,528

18 Notes to Interim Consolidated Financial Statements

NOTE 9. PER SHARE AMOUNTS

The following tables reconcile the net earnings and weighted average shares outstanding used in computing basic and diluted earnings per share:

	Three months ended March 31,

	2012		2011
Net earnings – basic and diluted	$	111,081	$	65,560

(Stated in thousands)		2012		2011
Weighted average shares outstanding – basic		276,113		275,711
Effect of share warrants		10,529		10,704
Effect of stock options and other equity compensation plans		1,406		1,440
Weighted average shares outstanding – diluted		288,048		287,855

NOTE 10. SEGMENTED INFORMATION

The Corporation operates primarily in Canada and the United States, in two industry segments; Contract Drilling Services and Completion and Production Services. Contract Drilling Services includes drilling rigs, directional drilling, procurement and distribution of oilfield supplies, and manufacture, sale and repair of drilling equipment. Completion and Production Services includes service rigs, snubbing units, coil tubing services, oilfield equipment rental, camp and catering services, and wastewater treatment units.

			Completion
	Contract		and					Inter-
	Drilling		Production		Corporate			segment
Three months ended March 31, 2012	Services		Services		and Other			Eliminations			Total
Revenue	$	531,066	$	111,085	$	–		$	(2,085	)	$	640,066
Operating earnings		160,221		31,170		(20,641	)		–			170,750
Depreciation and amortization		67,335		8,034		(545	)		–			74,824
Total assets		3,546,803		509,026		432,641			–			4,488,470
Goodwill		251,037		112,139		–			–			363,176
Capital expenditures		198,468		21,534		1,681			–			221,683

			Completion
	Contract		and					Inter-
	Drilling		Production		Corporate			segment
Three months ended March 31, 2011	Services		Services		and Other			Eliminations			Total
Revenue	$	426,027	$	104,229	$	–		$	(4,906	)	$	525,350
Operating earnings		118,023		27,380		(22,311	)		–			123,092
Depreciation and amortization		54,527		7,071		1,721			–			63,319
Total assets		2,920,266		446,506		276,078			–			3,642,850
Goodwill		197,587		112,139		–			–			309,726
Capital expenditures*		55,649		8,927		224			–			64,800

* Excludes business acquisitions

Precision Drilling Corporation 19

The Corporation’s operations are carried on in the following geographic locations:

							Inter-
							segment
Three months ended March 31, 2012	Canada		United States		International		Eliminations			Total
Revenue	$	392,234	$	245,952	$	4,755	$	(2,875	)	$	640,066
Total assets		2,216,831		2,077,556		194,083		–			4,488,470

							Inter-
							segment
Three months ended March 31, 2011	Canada		United States		International		Eliminations			Total
Revenue	$	332,619	$	187,055	$	6,035	$	(359	)	$	525,350
Total assets		1,709,726		1,881,997		51,127		–			3,642,850

20 Notes to Interim Consolidated Financial Statements

Shareholder Information

STOCK EXCHANGE LISTINGS

Shares of Precision Drilling Corporation are listed on the Toronto Stock Exchange (“TSX”) under the trading symbol PD and on the New York Stock Exchange (“NYSE”) under the trading symbol PDS.

Q1 2012 TRADING PROFILE

Toronto (TSX: PD)

High: $12.72

Low: $9.38

Close: $10.02

Volume Traded: 89,054,889

New York (NYSE: PDS)

High: US$12.89

Low: US$9.27

Close: US$10.03

Volume Traded: 112,799,149

TRANSFER AGENT AND REGISTRAR

Computershare Trust Company of Canada

Calgary, Alberta

TRANSFER POINT

Computershare Trust Company NA

Denver, Colorado

ACCOUNT QUESTIONS

Precision’s Transfer Agent can help you with a

variety of shareholder related services, including:

- Change of address

- Lost share certificates

- Transfer of shares to another person

- Estate settlement

You can contact Precision’s Transfer Agent at:

Computershare Trust Company of Canada

100 University Avenue, 9th Floor, North Tower Toronto, Ontario, Canada

M5J 2Y1

Telephone: 1-800-564-6253

(toll free in Canada and the United States)

1-514-982-7555

(international direct dialing)

Email: service@computershare.com

ONLINE INFORMATION

To receive news releases by email, or to view this interim report online, please visit Precision’s website at www.precisiondrilling.com and refer to the Investor Relations section. Additional information relating to Precision, including the Annual Information Form, Annual Report and Management Information Circular has been filed with SEDAR and is available at www.sedar.com.

100 University Avenue

9th Floor, North Tower

Toronto, Ontario, Canada

M5J 2Y1

Precision Drilling Corporation 21

CORPORATE INFORMATION

HEAD OFFICE

Precision Drilling Corporation

800, 525 - 8th Avenue SW

Calgary, Alberta, Canada T2P 1G1

Telephone: 403-716-4500

Facsimile: 403-264-0251

Email: info@precisiondrilling.com

www.precisiondrilling.com

DIRECTORS

William T. Donovan

Brian J. Gibson

Robert J. S. Gibson

Allen R. Hagerman, FCA

Stephen J.J. Letwin

Kevin O. Meyers

Patrick M. Murray

Kevin A. Neveu

Frederick W. Pheasey

Robert L. Phillips

OFFICERS

Kevin A. Neveu

President and

Chief Executive Officer

Joanne L. Alexander

Senior Vice President, General

Counsel and Corporate Secretary

Niels Espeland

President, International Operations

Doug B. Evasiuk

Senior Vice President,

Sales and Marketing

Kenneth J. Haddad

Senior Vice President,

Business Development

Robert J. McNally

Executive Vice President and

Chief Financial Officer

Darren J. Ruhr

Senior Vice President,

Corporate Services

Gene C. Stahl

President, Drilling Operations

Douglas J. Strong

President, Completion and

Production Services

LEAD BANK

Royal Bank of Canada

Calgary, Alberta

AUDITORS

KPMG LLP

Calgary, Alberta

22 Corporate Information

Precision Drilling Corporation

Suite 800, 525 – 8th Avenue SW

Calgary, Alberta, Canada T2P 1G1

Telephone: 403.716.4500

Email: info@precisiondrilling.com