Oil Services

1. Oil Services Presented by: Valérie Gibbs Rina Wang Rami Mustafa Warren Jiang

2. Presentation Outline • Overview of Oil Service Industry • Focus on Oil Drilling & Services • 3 Companies • Transocean Inc • Trinidad Drilling – Energy Services Income Trust • Precision Drilling Trust

4. Oil Drilling and Services: Consists of two major sectors: Oilfield Services and Contract Drillers. Each sector comprises several subsectors and areas of specialized expertise. Oilfield Services: • Assist in the drilling, evaluation, and completion of oil and gas well. These companies manufacture, maintain equipments, and provide related products and services. • In the past, the oilfield services sector was highly fragmented, with companies specializing in a handful of products or services. Today, many service companies participate in several market segments in order to offer a wide range of product and service. • The four major players are Schlumberger Ltd, Halliburton Co, Baker Hughes Inc, and Weatherford International Ltd.

5. Oil Drilling and Services Industry Contract Drillers: • Contract Drillers are hired by oil producers. • With the exception of Transocean, the contract drilling firms tend to be smaller than their counterparts in the oilfield services sectors. • The industry when through an intense shakeout stage in the 90’s as a result of low oil price: 1987 there was 700 US rig owners this number had dropped to 226 in 2005. • Contract drillers charge oil producers on a daily work rate, or footage rate. • Drilling contracts are awarded on a competitive bid basis. The companies compete primarily on the basis of price, quality of service, operational and safety performance, equipment suitability and availability, reputation, and technical expertise.

6. Oil Drilling and Services Industry Competition: • The contract drilling business is highly competitive with numerous industry participants. • The industry has experienced consolidation in the 90’s when oil prices went down but there is still room for more. • Recent mergers among oil and natural gas exploration and production companies have reduced the number of available customers. • Due to the high fixed cost nature of the business, in periods of market weakness drilling contractors have aggressively lowered day-rates to sustain equipment utilization and earnings have fallen sharply. • The intense price competition and cyclicality of the drilling industry, is marked by periods of low demand, excess rig availability and low day rates, can have a material adverse affect on the company’s operations. The contract drilling business is highly competitive with numerous industry participants.

7. Characteristics Oil Drilling & Services Industry Highly Skilled • The drilling industry is classified as highly skilled and labor intensive. • People with skills and expertise to operate drilling equipment are in high demand and cost a lot of money. Most oil and gas producers find it more cost-effective to hire this expertise from drilling companies. • As the industry moves from bust to boom, qualified employees are laid off are often unwilling to return. The lack of job security hinders the industry’s ability to retain experienced workers and to recruit new people. • Oil and gas producers set the minimum requirement on the number of inexperienced personnel they will permit to work on a rig, given the high opportunity costs that downtime caused by human error can generate. Investors Tips: Drilling companies need to keep their operating expenses in check in order to allow healthy spending in capital expenditure.

8. Characteristics Oil Drilling & Services Industry Research & Development • With accelerating decline rates in mature reservoirs around the world, oil and gas producers are facing a difficult job just to maintain existing production. Potential new reservoirs are often located in challenging geological locations, advance in technology are becoming critical to generating future production gains. In addition, companies are striving to come up with technologies that would be less damageable to the environment. • Newer Development: • Rapid Rig: speed up transport and rigging up • Subsea separation systems: separate hydrocarbons before they are sent to the surface, which saves time and improves overall recovery from the field. • Optical sensor technology

9. Characteristics Oil Drilling & Services Industry Highly Regulated • This industry is highly regulated with regards to environment and health and safety concerns • The federal, provinces, state, foreign and local laws and regulations controlling the discharge of hazardous wastes and relating to the protection of the environment affect the operations of all the drilling companies. These regulations address oil spill prevention and control and also significantly expands liability exposure across all segments of the oil and gas industry. Company failure to comply with these statutes and related regulations could result in civil or criminal enforcement action.

10. Characteristics Oil Drilling & Services Industry Oil and Gas Price Dependent • Oil and natural gas prices influence drilling activity, each to various degrees. • Gas-directed rig counts tend to lag natural gas prices by several month while oil-directed rig counts tend not to be influenced by short-term swings in oil prices. Pullbacks in oil drilling take some time because oil contracts tend to be long-term in nature and are not as sensitive to commodity price. • Nevertheless, oil drilling and services companies are the first to feel the effects of increased or decrease in the industry spending. If oil prices rise, oil services and drilling companies are first on the scene when companies decide to start exploring. We can usually see large expansions in the industry during the peaks of energy cycles.

13. Oil Prices vs. Oil Services Index Source: Philadelphia Stock Exchange: OSX Source: International Energy Association 2002-2006 1994-2006

14. Oil Prices continued… Crude oil price is an important factor when investing in the oil industry. Global Supply and Demand • The growth in demand from emerging markets such as China and India, the conflict in the middle east, the many storms and hurricanes had recently help crude oil prices reach an all time high. • When the news came that demand would turn out to be weaker than expected and that inventories level were higher, it pushed crude oil prices in a downward spiral. • OPEC, who control and influence the oil supply by member countries, announced oil supply cut for the coming months. Oil price stated raising again. • Regardless, the expectations for long-term of high crude oil prices are indicative of the difficulties that oil and gas producers are likely to face in meeting future global demand.

15. World Oil Demand & Supply • Source: International Energy Association

16. Crude Oil Prices & World Events

18. Characteristics Oil Drilling & Services Industry Capital Intensive • Drilling equipments is very expensive to buy and maintain. In order to remain competitive, drilling companies need to maintain and upgrade their rigs. • Once a rig is ordered, its lengthy construction time keeps it off the market for about 3years. • Rigs have an economical life of more than 25 years. • There are two main categories of drilling rigs: those that work on land and those that work offshore. Investor tips: When analyzing drilling companies, take a close look at their rig fleet: age, quality, depth ability.

19. Oil Drilling and Services Industry Onshore & Offshore • The upcycle or boom in land drilling which began in March-April 2002 was in its late stage until the recent drop in oil price slowed down the market. • A large number of rigs were added to the market within the past two years but since a sizable number of rigs were retired because they had reach the end of their economic life the total fleet did not increase as much as expected. • This marginal increase along with the drop in oil price is therefore seen as a potential threat to the previous dayrate gains. • There are two varieties of land rigs: rotary and cable tool

20. Oil Drilling and Services Industry Onshore & Offshore • Categorized as tight supply and strong demand. • At the end of July, offshore dayrates was still a seller’s market especially in the golf of Mexico where drillers had started to leave too often confronted to the damaging hurricanes. • The number of offshore rigs has almost double from 2005 to2006. One reason for that was the advancing age of worldwide mobile drilling rig fleet. On May 2006 the average age for the existing jackup fleet was 24 years; for the semisubmersible fleet 23 years; and for drillship fleet, 18 years • Skyrocketing dayrates have certainly played a major factor in attracting new investment to the offshore drilling industry. Investors tips: A high number of the rigs currently under construction or in order are being built by companies on speculation.

21. As of June 16, 2006, the worldwide fleet utilization rate was 92.6 % versus 85% one year earlier. • In the Europe & Mediterranean Sea alone the utilization was 98.1%. • These high utilization rate work to the advantage of contract drillers in increasing dayrates.

22. Oil Drilling and Services Industry Other Key Factors: • Location: For contract drillers, the location of their drilling rigs is of prime importance. Land rigs tend to remain domiciled within a particular region and/or country. Offshore rigs are often relocated based on market demand. • Types of Contract: Drillers are generally paid according to one of three methods: a footage contract, a daywork contract, or a turnkey contract. The contract determines a driller’s prospects for future revenue growth. • Length of Contract: Its good to know when the company’s current contract expire, how many will expire within the next 12 months and how many rigs are locked in for three years or longer. There are advantages and disadvantages to both, long and short-term contract.

23. Source: Standard & Poor

24. Oil Drilling and Services Industry Substitute Products • BioFuel: • Biofuel plants are relatively small, inexpensive and can be brought on stream fairly quickly. • Can be blended with conventional transportation fuels or used directly. • High oil prices, energy supply security concerns, limited spare refinery capacity and target for GHG emissions reductions have led to a surge in biofuel activity. Growth of 14% for ethanol and 80% for biodiesel were observed in 2005. Production forecasted to double by 2011 • Biodfuels are renewable, can improve vehicle performance, and contribute to energy security.

25. Sources: International Energy Association

27. Precision Drilling

28. Agenda • Company Info • Management • Company History & WCSB • Business Segments • Financial Analysis • Financial Reports – Q3 2006 & 2005 • Recommendation

29. Stock Today

30. Stock Price (3 year)

31. Stock Price (1 year)

32. Company Snapshot • Incorporated in 1969 in Alberta. • Reorganized into a Trust on Nov 7, 2005. • Stock traded on TSE (PD.UN, PD.U) and NYSE (PDS) • Current cash distribution: $0.31/unit/month

33. Management • Hank B. Swartout- Chairman of the Board and CEO • U. of Wyoming – BS. - Hons. Pet.Eng • Founder of Precision Drilling • Gene C. Stahl- President and Chief Operating Officer • Joint Precision Drilling in 1993 • Previous experience in marketing and communication • Doung J. Strong– CFO • 12 years experience with Precision • Darren J. Ruhr– VP, Corporate Svc and Corporate Secretary • Joint Precision in 1997 • Experience in corporate infrastructure and information technology

34. Management (cont’d)

35. Trustees

36. Business Strategy • Focus on our Target Zero safety culture initiatives to eliminate workplace incidents. • Continue to develop and enhance our employee recruitment and retention initiatives. • Continue to upgrade equipment with a focus on keeping customer needs and regulatory requirements in mind. • Retain a high quality, diverse fleet of rigs and service offerings. • Maintain a flexible business that is responsive to market conditions and competitive pressures. • Take advantage of technological advances where markets dictate. • Focus on growth opportunities that will further enhance and diversify our service offerings.

37. Company History • Early years • 1951 - 1984 • Acquisition and Growth • 1987 – 1995 • Number of rigs grow from 3 to 83, with 8 slant rigs • Diversification • 1996 – 2000 • New business in Oilfield Supply, Energy Service areas • Reorganized and formed Precision Drilling Limited Partnership (Canadian-based) and Precision Drilling International • Number of rigs increase to over 200. • Incorporation and World Expansion • 2001 – 2005 • Operated in Canada, Mexico, onshore Europe and Southeast Asia. • Trust Conversion • Sold Energy Services and international divisions to Weatherford (August) • Nov 7th, 2005, reorganized its remaining Canadian operations into an income trust • Currently operates 229 drilling rigs, 239 service rigs and 26 snubbing units • Focus on the Western Canada Sedimentary Basin (WCSB)

38. Western Canada Sedimentary Basin (WCSB)

39. WCSB • 1.4 million sq.km (including S.W. Manitoba, S. Saskatchewan (10%), Alberta (75%), N.E. BC (15%) and the S.W. corner of the Northwest Territories). • Contains one of the world's largest reserves of petroleum and natural gas, also has huge reserves of coal. • 770 drilling rigs, 24,805 wells being drilled at the end of 2005 • 75% new wells completions in 2005 are natural gas • Est. +100 drilling rigs until June 2007

40. WCSB - GAS • Mix of deep gas and shallow gas • 75% natural gas wells drilled in 2005 were shallow gas • Quick and easy finds • Relative rapid declines in production rate • Deep gas next – deep drilling rigs • currently providing 20 % of NA supply • (est) will satisfy 75% of incremental U.S. gas demand (National Energy Board))

41. WCSB - OIL • oil sands - surface mining methods and in situ recovered methods • heavy oil • conventional oil

42. Business Segments • Contract Drilling Services • Completion and Production Services

43. Contract Drilling Services • 71% of 2005 Revenue • Focus on drilling in WCSB • Started drilling in Texas in June 2006 • Has the largest drilling rig fleet in Canada • Operates 230 drilling rigs = 30% of the industry

44. Completion and Production Services • Canada’s leading provider of well servicing, snubbing services and oilfield rentals. • Has the largest fleet of well servicing rigs in Canada. • Operates 237 service rigs = 24% of the industry

47. Financial Analysis

48. Historical Charts • Revenue

49. Historical Charts • Operating Earnings

50. Historical Charts • Capital Expenditure