Pure Energy Services Ltd.
TSX : PSV

Pure Energy Services Ltd.

March 08, 2007 18:52 ET

Pure Energy-2006 Fourth Quarter and Year End Summarized MD&A and Financial Statements

CALGARY, ALBERTA--(CCNMatthews - March 8, 2007) - Pure Energy Services Ltd (TSX:PSV):

Overview

The Corporation is an oilfield services company and currently conducts operations in the Western Canadian Sedimentary Basin ("Canadian Operations"), and in the Rocky Mountain region of the United States ("US Operations") through its wholly-owned subsidiaries, Pure Energy Services (USA), Inc., Ross Wireline Services (2005) Ltd. and Motorworks Drilling Solutions Inc. and its partnership, Pure Energy Services Partnership (the "Partnership"). References to the "Corporation" in this MD&A refers to the Corporation and its subsidiaries and the Partnership. The Corporation currently has two operating segments, the Completion Services segment and the Drilling Services segment, which carry on business through various operating divisions. The Completion Services segment carries on business in both Canada and the United States. The Canadian Completion Services segment conducts operations in the Western Canadian Sedimentary Basin ("WCSB") and is comprised of the Production Testing division, the Logging and Perforating division, the Multiline division and the Pressure Transient Analysis division (the "Canadian Completion Services"). The US Completion Services segment conducts operations in the Rocky Mountain Region of the United States and is comprised of the Production Testing division, the Logging and Perforating division and the Fracturing division (the "US Completion Services"). The US Fracturing division commenced commercial operations in the fourth quarter of 2006. The Drilling Services segment conducts operations in the WCSB and is comprised of the Contract Drilling division and the Motorworks Rentals division.

Readers are cautioned that this MD&A contains certain forward-looking information. Please see "Forward-Looking Information" for a discussion concerning the use of such information in this MD&A.



Selected Consolidated Financial Information

---------------------------------------------------------------------------
Three Months ended
December 31, Year ended December 31,
($ millions, except
per share amounts) 2006 2005 2006 2005 2004
---------------------------------------------------------------------------
(unaudited) (unaudited)
Revenue $ 34.9 $ 35.3 $ 135.4 $ 100.5 $ 47.1
EBITDA (1) 6.3 10.8 27.7 23.8 8.7
Net income 2.8 5.7 13.0 10.8 2.5
Earnings per share
Basic $ 0.17 $ 0.47 $ 0.84 $ 0.99 $ 0.36
Diluted $ 0.17 $ 0.45 $ 0.81 $ 0.97 $ 0.36
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(1) EBITDA does not have a standardized meaning prescribed by GAAP.
Management believes that, in addition to net income, EBITDA is a useful
supplemental measure. EBITDA is provided as a measure of operating
performance without reference to financing decisions and income tax
impacts, which are not controlled at the operating management level.
Investors should be cautioned that EBITDA should not be construed as an
alternative to net income determined in accordance with GAAP as an
indicator of the Corporation's performance. The Corporation's method of
calculating EBITDA may differ from that of other corporations and
accordingly may not be comparable to measures used by other corporations.
Please refer to the "Non-GAAP Disclosure" for the reconciliation to net
income.

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As at December 31,
($ millions) 2006 2005 2004
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Total assets $ 190.2 $ 123.1 $ 64.6
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----------------------------------------------------------------------
Current liabilities $ 27.4 $ 13.9 $ 46.2
Long-term liabilities 25.7 33.7 2.6
Shareholders' equity 137.1 75.5 15.8
----------------------------------------------------------------------
Total liabilities and shareholders'
equity $ 190.2 $ 123.1 $ 64.6
----------------------------------------------------------------------
----------------------------------------------------------------------


Fourth Quarter Highlights

The Corporation's revenue for the quarter ended December 31, 2006 decreased 1% compared to the 2005 fourth quarter. EBITDA for the 2006 fourth quarter decreased 41% and net income decreased 51% as compared to the 2005 fourth quarter. Diluted earnings per share decreased by 62% compared to the 2005 fourth quarter.

WCSB activity levels experienced during the 2006 fourth quarter compared to the 2005 fourth quarter decreased significantly as indicated by a 25% decline in the Petroleum Services Association of Canada's ("PSAC") well count(1) and a 28% decline in the number of active rigs according to the Canadian Association of Oilwell Drilling Contractor's ("CAODC") rig count(2). The Canadian Completion Services segment results reflected this decline in activity with a 28% decline in overall job count and significant reductions in revenue and income before income taxes for this segment.

Reduced industry activity levels also impacted the Drilling Services segment as the Quintera Drilling division experienced a decline in rig utilization from 53% recorded during Q4 2005 to 33% recorded during Q4 2006. This decline in rig utilization also reduced the Drilling Segment's financial results for the quarter; however, the financial impact of the decline in rig utilization was largely offset by the impact of the growth in the drilling rig fleet. The Motorworks Rentals division significantly increased revenue as more rental equipment was deployed during the quarter; however, start up costs of the service facility negatively impacted this division's income before income taxes. Management expects the service facility to improve margins by increasing servicing activity and reducing expenses and turn-around time relating to motor servicing as the service facility becomes fully functional.

The US Rocky Mountain Region has not experienced a similar decline in activity with the Q4 2006 rig count(3) increasing 13% compared to the Q4 2005 rig count and the number of permits(4) issued during the 2006 fourth quarter was basically consistent with the number issued during the 2005 fourth quarter. The US Production Testing division experienced 25% growth in revenue; however, income before income taxes was still marginally lower compared to the 2005 fourth quarter. On a quarter-over-quarter sequential basis, the US Production Testing division's Q4 2006 revenue and income before income taxes are substantially higher than the Q3 2006 results.

The US Logging and Perforating division more than doubled the revenue generated during the 2006 third quarter; however, the division still recorded a small operating loss during the quarter. Management anticipates that the revenue growth for this division will continue as customer acceptance continues to strengthen and expects positive operating results during the first half of 2007.

The US Fracturing division commenced operations in December 2006 after experiencing significant equipment manufacturing delays. An operating loss was generated by this division during the 2006 fourth quarter; however, management is anticipating significant growth for this division during the first half of 2007 as growing customer acceptance combines with the delivery of the second fracturing crew and consistent deliveries of sand from the Corporation's sand supplier.

(1) Source - 2006 PSAC Canadian Drilling Activity Forecast January Update

(2) Source - CAODC Weekly Western Canada Drilling Rig Count

(3) Source - Baker Hughes Weekly Rotary Rig Count

(4) Source - Colorado Oil and Gas Conservation Commission, Wyoming Oil and Gas Conservation Commission and the Utah Division of Oil, Gas and Mining

2006 Highlights

The Corporation's revenue for the year ended December 31, 2006 increased 35%, EBITDA increased 17%, net income increased 21% and diluted earnings per share decreased by 16% compared to the year ended December 31, 2005.

The Corporation's 2006 annual results established new corporate records for revenue, EBITDA and net income. The 2006 capital budget has added significant equipment to the Corporation's fleet providing a solid platform for generating additional revenue in fiscal 2007. The 2006 first quarter experienced very strong industry activity and the Canadian Completion Services and Drilling Services segments experienced record financial results. The remainder of the year reflected weakening demand and lower year-over-year well counts resulting in lower than anticipated operating results for these segments.

The US Completion Services segment experienced significant growth in the Production Testing division with a 121% increase in average unit count and the commencement of operations for the Logging and Perforating division and the Fracturing division. Despite the revenue growth experienced by the US Production Testing division, the division produced lower margins during the second and third quarters largely as a result of an increase in training expenses and low utilization of the under-balanced drilling equipment, reducing its 2006 annual financial results. These challenges have largely been addressed and the 2006 fourth quarter financial results have significantly improved. Management expects these improvements to be maintained or further improved in 2007.

The commencement of operations for the US Logging and Perforating division and Fracturing division are significant milestones for the Corporation. A significant amount of hard work and effort have been put in to establish these divisions in the US Rocky Mountain Region despite experiencing significant delays and operating losses during 2006. Management is optimistic that the hard work and effort will pay off in 2007 and these divisions will be a major contributor to the Corporation's 2007 financial results.



Results of Operations

Three Months Ended December 31, 2006 Compared to the Three Months Ended
December 31, 2005

Canadian Completion Services

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Canadian Completion
Services
Financial Results Year-
Three months ended, Over-Year Change
($ thousands, December % of December % of
unaudited) 31, 2006 Revenue 31, 2005 Revenue $ Percentage
---------------------------------------------------------------------------
Revenue $ 19,904 100% $ 23,679 100% ($3,775) (16)%
Expenses
Operating 13,821 69.4% 14,137 59.7% (316) (2)%
Selling,
general and
administrative 1,277 6.4% 1,580 6.7% (303) (19)%
Depreciation
and
amortization 1,365 6.9% 1,548 6.5% (183) (12)%
Other income (38) (0.2)% (526) (2.2)% 488 (93)%

Income before
income taxes 3,479 17.5% 6,940 29.3% (3,461) (50)%
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Canadian Completion Services Revenue

Revenue for Canadian Completion Services decreased 16% in the 2006 fourth quarter compared to the same period in 2005 as a result of a slowdown in the demand for completion services, which was partially offset by a 17% increase in revenue per job. The Canadian Completion Services job count decreased by approximately 1,600 jobs or 28%, and was most prominent in the Production Testing and Logging and Perforating divisions. This decrease compares to the decline in industry activity as evidenced by the PSAC well count decline of 25%. An increase in average revenue per job was experienced in all three divisions, with the most significant increases occurring in the Multiline and Logging and Perforating divisions.

The Production Testing division's revenue and job count decreased 14% and 21%, respectively. The reduced activity levels were largely a result of the decline in industry activity and were partially offset by a 9% increase in average revenue per job. Average revenue per job increased as a result of price increases implemented in December 2005, a decrease in the number of standby days and an increase in repairs and maintenance chargebacks.

The Multiline division's revenue and job count decreased 9% and 30% respectively, which was offset by a 31% increase in average revenue per job. The higher average revenue per job was a result of an increase in the amount of work performed in the deep critical sour market, which typically experiences higher average revenue per job, combined with additional charges relating to new regulatory requirements. The decrease in job count is largely related to the slowdown in industry activity coupled with an increase in the amount of work performed in the deep critical sour market. Deep critical sour jobs require more preparation and planning relative to other multiline services on conventional wells; however, the decrease in job count is usually more than compensated for by the increase in revenue per job associated with deep critical sour work.

The Logging and Perforating division's revenue and job count decreased 22% and 38% respectively, which was also partially offset by a 25% increase in average revenue per job. The lower job count is largely a result of the decline in industry activity and less work performed for a major customer. Average revenue per job increased as a result of a decrease in revenue generated from a major customer which receives a volume discount, a significant increase in specialty logging pricing and the pricing impact from the shift towards oil directed drilling activity which typically experiences higher revenue per job relative to gas directed drilling activity.



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Canadian Completion Services 2006 Fourth Quarter 2005 Fourth Quarter
Unit Complement Average Ending Average Ending
---------------------------------------------------------------------------
Production Testing Division 44.7 46 36.7 37
Logging and Perforating Division 20 20 18 18
Multiline Division 16 16 16 16
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Canadian Completion Services Total 80.7 82 70.7 71
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Canadian Completion Services Income before Income Taxes

Canadian Completion Services income before income taxes decreased 50% in the 2006 fourth quarter compared to the same period in 2005 as a result of lower margins resulting from the decrease in revenue combined with decreases in the margin percentages experienced by the Production Testing and Logging and Perforating divisions. The 2006 fourth quarter results for the Multiline division were consistent with amounts recorded during the 2005 fourth quarter.

The Production Testing division's income before income taxes as a percentage of revenue decreased by approximately seven percentage points due to increased wages and benefits, additional repair and maintenance costs, an increase in unit expenses and higher subsistence and travel expenses.

The Logging and Perforating division's income before income taxes as a percentage of revenue decreased by approximately twelve percentage points primarily as a result of increases in salaries and repairs and maintenance expenses. Competitive pressures have caused the Corporation to increase field salary and bonuses in order to retain qualified wireline personnel.

The Multiline division's income before income taxes as a percentage of revenue for the 2006 fourth quarter was comparable to the results achieved during the same period in 2005. This division's results as a percentage of revenue has not significantly declined despite significantly lower industry activity levels experienced in the 2006 fourth quarter relative to the 2005 fourth quarter. This anomaly is largely a result of the significant increase in higher margin deep critical sour work performed during the 2006 fourth quarter.



US Completion Services

---------------------------------------------------------------------------
US Completion
Services
Financial Results Year-
Three months ended, Over-Year Change
($ thousands, December % of December % of
unaudited) 31, 2006 Revenue 31, 2005 Revenue $ Percentage
---------------------------------------------------------------------------
Revenue $ 7,269 100% $ 5,127 100% $ 2,142 42%
Expenses
Operating 5,916 81.4% 3,575 69.7% 2,341 65%
Selling,
general and
administrative 612 8.4% 233 4.5% 379 163%
Depreciation and
amortization 599 8.2% 123 2.4% 476 387%
Income before
income taxes 142 2.0% 1,196 23.3% (1,054) (88)%
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US Completion Services Revenue

Revenue for US Completion Services increased 42% in the 2006 fourth quarter compared to the same period in 2005 as a result of an increase in the Production Testing division's revenue and revenue generated by the Fracturing and Logging and Perforating divisions. The average rig count in the Rocky Mountain Region increased 13% indicating increased industry activity levels during the 2006 fourth quarter relative to the 2005 fourth quarter.

The Production Testing division's revenue and job count increased 25% and 27%, respectively. The job count increase was partially offset by a decrease in this division's average revenue per job. The 27% job count increase compares to the 13% increase in rig count and a 65% increase in unit capacity. Average revenue per job decreased as a result of a larger proportion of work performed under contract combined with an increase in the amount of work performed by the Grand Junction, Colorado base which has experienced lower revenue per job to date relative to the Evanston, Wyoming base.

The US Logging and Perforating division continued to gain customer acceptance during the 2006 fourth quarter as evidenced by the more than doubling of the revenue generated during the 2006 third quarter. Equipment utilization significantly increased during the quarter, but still has room to improve relative to management's expectations for this division. Management believes that the revenue growth in this division will continue to increase as customer acceptance continues to strengthen and synergies are developed with the Fracturing division.

The Fracturing division commenced commercial operations in December 2006. Significant equipment manufacturing delays have resulted in lower than expected results for the Fracturing division during 2006. Management has seen positive indications of customer acceptance to date and believes this customer acceptance, combined with the delivery of the second fracturing spread in February 2007 and the consistent delivery of fracturing sand from its supplier, will result in significant growth for the Fracturing division during the first half of 2007.



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US Completion Services 2006 Fourth Quarter 2005 Fourth Quarter
Unit Complement Average Ending Average Ending
---------------------------------------------------------------------------

Production Testing Division 21 21 12.7 13
Logging and Perforating Division 2 2 0 0
Fracturing Division(1) 0.3 1 0 0
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US Completion Services Total 23.3 24 12.7 13
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(1) - A fracturing spread is made up of several pieces of specialized
equipment.


US Completion Services Income before Income Taxes

US Completion Services income before income taxes decreased by $1.1 million in the 2006 fourth quarter as compared to the same period in 2005 as a result of increased administrative expenses associated with the growth of the US corporate office in Denver, and operating losses recorded by the Fracturing and Logging and Perforating divisions, which were partially offset by an increase in the Production Testing division's gross margin.

The US Production Testing division's gross margin increased 13% as a result of the margin produced by incremental revenue generated during the quarter. US administrative expenses have increased as a result of growth in the administrative infrastructure required to support the current and future growth of the US operations. An operating loss was recorded by the Fracturing division as it commenced commercial operations in December 2006 and encountered a low level of utilization during the month.

The US Logging and Perforating division's operating loss generated during the quarter was substantially lower than the 2006 third quarter operating loss as this division continues to gain customer acceptance and add to its revenue base. Management anticipates that the revenue growth expected for this division will produce positive gross margins during the first half of 2007.

Depreciation and amortization expense has increased as a result of the additional equipment deployed in US Completion Services in the 2006 fourth quarter coupled with amortization of the Fracturing and Logging and Perforating divisions' deferred pre-operating costs.



Drilling Services

---------------------------------------------------------------------------
Drilling Services
Financial Results Year-
Three months ended, Over-Year Change
($ thousands, December % of December % of
unaudited) 31, 2006 Revenue 31, 2005 Revenue
$ Percentage
---------------------------------------------------------------------------
Revenue $ 7,705 100% $ 6,470 100% $ 1,235 19%
Expenses
Operating 5,152 66.9% 3,651 56.4% 1,501 41%
Selling,
general and
administrative 475 6.2% 353 5.5% 122 35%
Depreciation and
amortization 265 3.4% 317 4.9% (52) (16)%
Other income (7) (0.1)% - (7)

Income before
income taxes 1,820 23.6% 2,149 33.2% (329) (15)%
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Drilling Services Revenue

Drilling Services revenue increased 19% in the 2006 fourth quarter compared to the same period in 2005 largely as a result of the significant growth of the Motorworks Rentals division.

Average drilling day rates increased approximately 7% during the 2006 fourth quarter relative to the 2005 fourth quarter. An average of 8.3 drilling rigs operated during the 2006 fourth quarter at an average utilization rate of 33% compared to an average of 5 drilling rigs operating during the fourth quarter of 2005 at an average utilization rate of 53%. Utilization levels decreased largely as a result of the industry activity slowdown experienced during the quarter. The Motorworks Rental division increased revenue by approximately 110% as a result of a significant increase in utilization and equipment capacity.



---------------------------------------------------------------------------
Drilling Services 2006 Fourth Quarter 2005 Fourth Quarter
Unit Complement Average Ending Average Ending
---------------------------------------------------------------------------
Drilling rigs 8.3 9 5.0 6
Mud motors 49.3 56 5.3 8
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Drilling Services Income before Income Taxes

Income before income taxes for the Drilling Services Segment decreased 15% in the 2006 fourth quarter compared to the same period in 2005. The decrease reflects the slowdown in industry drilling activity with both the Quintera Drilling and Motorworks Rental divisions experiencing decreases in income before taxes despite significant increases in equipment capacity.

The Quintera Drilling division experienced lower utilization rates during the quarter and, coupled with increases in fuel, repairs and maintenance and subsistence expenses, produced a 10% decrease in income before income taxes for the division.

The Motorworks Rental division experienced a decrease in gross margin as a result of higher repairs and maintenance expenses. The Motorworks Rentals division also incurred additional costs relating to opening its own service facility. This division can now service its own motors, and it is management's expectation that the service facility will start to generate positive results in the first half of 2007.



Corporate

---------------------------------------------------------------------------
Corporate Services Year-
Financial Results % of % of Over-Year Change
Three months ended, Consoli- Consoli-
($ thousands, December dated December dated
unaudited) 31, 2006 Revenue 31, 2005 Revenue $ Percentage
---------------------------------------------------------------------------
Expenses
Selling,
general and
administrative $ 1,873 5.4% $ 1,493 4.2% $ 380 25%
Depreciation 115 0.3% 42 0.1% 73 174%
Interest on
long-term debt 254 0.7% 99 0.3% 155 157%
Other interest 211 0.6% 320 0.9% (109) (34)%
Foreign exchange
(gain)/loss (533) (1.5)% 12 (545)

Loss before
income taxes (1,920) 5.5% (1,966) 5.6% (46) (2)%
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Corporate expenses for the 2006 fourth quarter decreased 2% compared to the 2005 fourth quarter relative to a 1% decrease in consolidated revenue for the same comparative periods. SG&A expenses increased $380,000 or 25%, primarily as a result of higher salaries and wages expenses, increased corporate and office expenses associated with the growth of the Corporation, and additional public company expenses. Stock based compensation expense increased by $133,000 and also contributed to the increase. The increase in SG&A expenses was offset by the foreign exchange gain recorded during the 2006 fourth quarter relating to the weakening of the Canadian dollar relative to the US dollar. Interest expense decreased as a result of lower debt balances carried during the 2006 fourth quarter compared to the 2005 fourth quarter.

Income Tax Expense

The fourth quarter income tax expense provision in 2006 decreased compared to the 2005 fourth quarter as a result of reduced operating income before income taxes. The current income tax recovery and the future income tax expense recorded during the quarter were primarily a result of the recovery of current income taxes paid in the United States in the prior year and the deferral of taxable income relating to the Canadian operations partnership, respectively. The effective tax rate during the quarter of 21.6% differs from the expected tax rate of 32.8% because of the non-deductible foreign exchange gain recorded during the quarter and a reduction to the future income tax expense due to substantively enacted tax rate changes.



Results of Operations

Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005

Canadian Completion Services

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Canadian Completion
Services
Financial Results Year-
Year ended, Over-Year Change
($ thousands) December % of December % of
31, 2006 Revenue 31, 2005 Revenue $ Percentage
---------------------------------------------------------------------------
Revenue $ 80,311 100% $ 71,687 100% $ 8,624 12%
Expenses
Operating 53,114 66.1% 46,943 65.5% 6,171 13%
Selling,
general and
administrative 6,259 7.8% 5,286 7.4% 973 18%
Depreciation
and amortization 4,935 6.1% 4,308 6.0% 627 15%
Other (income)
/expense 10 (569) (0.8)% 579

Income before
income taxes 15,993 20.0% 15,719 21.9% 274 2%
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Canadian Completion Services Revenue

Revenue for Canadian Completion Services increased 12% in 2006 compared to the previous year as a result of an increase in average revenue per job, which was partially offset by a decrease in utilization levels and a job count decrease of 4%.

The Production Testing division's revenue increased 16% in 2006 compared to the previous year as a result of a 10% increase in average revenue per job and a 6% increase in the number of jobs. The increase in job count was a result of a 5.9 unit increase in the average number of units operating during the year. The increase in average revenue per job was largely a result of pricing increases implemented during the 2005 fourth quarter.

The Multiline division's revenue increased 39% in 2006 compared to the previous year as a result of a significant increase in average revenue per job coupled with an increase in job count. The increase in job count was the result of a 3.0 unit increase in the average number of units operating during the year. The increase in average revenue per job was largely a result of an increase in the amount of work performed in the deep critical sour market which typically generates higher average revenue per job coupled with pricing increases implemented during 2005.

The Logging and Perforating division experienced a slight decrease in revenue as a result of a lower number of jobs performed during the year due to lower industry activity experienced during the last nine months of the year. The decrease in number of jobs was partially offset by an increase in average revenue per job of 27%. The increase in average revenue per job is the result of performing higher margin gauge work, transitioning to more oil related services as opposed to natural gas related services and a decrease in revenue generated from a major customer which receives a volume discount.

Canadian Completion Services Income before Income Taxes

Canadian Completion Services income before income taxes for the year increased marginally as a result of the increase in revenue being offset by small decreases in divisional gross margins and increases in SG&A and depreciation and amortization expenses. Strong first quarter results were gradually eroded during the next three quarters as industry activity levels declined relative to activity levels experienced during the last three quarters of 2005. The Multiline division was the one division that outperformed 2005 results largely as a result of a significant increase in higher margin deep critical sour work performed by this division.



US Completion Services

---------------------------------------------------------------------------
US Completion
Services
Financial Results Year-
Year ended, Over-Year Change
($ thousands) December % of December % of
31, 2006 Revenue 31, 2005 Revenue $ Percentage
---------------------------------------------------------------------------
Revenue $ 22,536 100% $ 13,267 100% $ 9,269 70%
Expenses
Operating 18,738 83.1% 9,311 70.2% 9,427 101%
Selling,
general and
administrative 2,021 9.0% 679 5.1% 1,342 198%
Depreciation
and amortization 1,812 8.0% 506 3.8% 1,306 258%
Other expense 2 2

Income/(loss)
before income
taxes (37) (0.2)% 2,771 20.9% (2,808)
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US Completion Services Revenue

Revenue for US Completion Services increased 70% in 2006 compared to the previous year primarily as a result of increased equipment capacity partially offset by a decrease in unit utilization and a 6% decrease in the average CAD/USD exchange rate. The average number of units operating in the US Rocky Mountain region increased from 8.1 units operating in fiscal 2005 to 19.3 units operating in fiscal 2006.

A small decrease in the average revenue per job experienced by the conventional production testing equipment was partially offset by the higher revenue per job generated by under-balanced drilling units which typically earn higher day rates as compared to conventional production testing equipment. The conventional production testing equipment average revenue per job decreased largely as a result of an increase in the volume of work performed under contract.

The commencement of commercial operations of both the US Logging and Perforating division and the Fracturing division in 2006 also contributed to the increase in revenue. Both divisions are in the early stages of commercial operations and did not contribute significant amounts of revenue during the year. Management anticipates that both divisions will continue to gain customer acceptance in the first half of 2007 and are expected to generate positive results to the US operations as a whole.

US Completion Services Income before Income Taxes

US Completion Services income before income taxes decreased from $2.8 million recorded during fiscal 2005 to basically break-even levels recorded during fiscal 2006. The decrease was largely a result of an increase in US administrative expenses relating to the current and future growth of the US operations, lower margins experienced in the Production Testing division, and operating losses recorded by both of the Logging and Perforating and Fracturing divisions. The lower Production Testing division's annual margin is largely a result of weaker margins experienced during the 2006 second and third quarters. This division experienced a significant increase in margins during the 2006 fourth quarter and expects these margins to be maintained or improved upon in the near future.

Depreciation and amortization expense increased as a result of the additional equipment deployed in the US in 2006 as compared to 2005 coupled with the amortization of the Fracturing and Logging and Perforating divisions' deferred pre-operating costs.



Drilling Services

---------------------------------------------------------------------------
Drilling Services
Financial Results Year-
Year ended, Over-Year Change
($ thousands) December % of December % of
31, 2006 Revenue 31, 2005 Revenue $ Percentage
---------------------------------------------------------------------------
Revenue $ 32,508 100% $ 15,539 100% $ 16,969 109%
Expenses
Operating 19,285 59.3% 9,341 60.1% 9,944 106%
Selling,
general and
administrative 1,615 5.0% 946 6.1% 669 71%
Depreciation
and amortization 1,289 4.0% 739 4.8% 550 74%
Other income (143) (0.4)% - 0.0% (143)

Income before
income taxes 10,462 32.2% 4,513 29.0% 5,949 132%
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Drilling Services Revenue

Drilling Services revenue increased 109% in 2006 compared to the previous year as a result of the significant increase in equipment capacity of both operating divisions coupled with a full year's operating results for the Motorworks Rentals division. The average number of drilling rigs operated during the year increased from 4.2 rigs in 2005 to 7.3 rigs in 2006. The Motorworks acquisition was effective November 1, 2005 and therefore contributed two months of revenue to the Drilling Services segment in 2005 as compared to twelve months of revenue in 2006. The Motorworks Rental division increased its fleet from an average number of 1.3 mud motors operating in 2005 to an average of 36.0 mud motors operating in 2006. In addition, Motorworks opened its own mud motor service facility in 2006.

Drilling Services Income before Income Taxes

Income before income taxes for Drilling Services increased 132% in 2006 compared to the previous year as a result of the significant increase in the Quintera Drilling division's revenue and the ability to gain operational leverage on the fixed component of field expenses combined with a significant increase in the Motorworks Rental division's income before income taxes. SG&A expenses decreased as a percentage of revenue from 6.1% in 2005 to 5.0% in 2006 as a result of the significant increase in revenue with SG&A expenses increasing at a slower rate. Depreciation and amortization expense increased as a result of the additional drilling rigs and rental equipment deployed during the year.



Corporate

---------------------------------------------------------------------------
Corporate Services Year-
Financial Results % of % of Over-Year Change
Year ended, Consoli- Consoli-
($ thousands) December dated December dated
31, 2006 Revenue 31, 2005 Revenue $ Percentage
---------------------------------------------------------------------------
Expenses
Selling,
general and
administrative $7,204 5.3% $4,719 4.7% $2,485 53%
Depreciation 413 0.3% 133 0.1% 280 211%
Interest on
long-term
debt 685 0.5% 99 0.1% 586 592%
Other
interest 211 0.2% 1,333 1.3% (1,122) (84)%
Foreign exhange
(gain)/loss (239) (0.2)% 188 0.2% (427)
Other income (206) (0.2)% (112) (0.1)% (94) 84%

Loss before
income taxes (8,068) 6.0% (6,360) 6.3% 1,708 27%
---------------------------------------------------------------------------


Corporate expenses for the year ended December 31, 2006 increased 27% compared to the year ended December 31, 2005, and relative to the 35% increase in consolidated revenue for the same comparative period. SG&A expenses increased $2.5 million or 53%, mainly as a result of higher salaries, corporate and office expenses associated with the growth of the Corporation and public company expenses. Stock based compensation expense of approximately $1.2 million (2005 - $0.4 million) also contributed to the increase. Interest expense decreased $0.5 million as a result of lower debt balances carried during fiscal 2006 as compared to fiscal 2005.

Income Tax Expense

Income tax expense decreased in 2006 as compared to fiscal 2005 as a result of Canadian Federal and Provincial income tax rate reductions which were substantively enacted in the 2006 second quarter. The current income tax recovery increased as a result of the recovery of current income taxes paid in the prior year relating to the US operations.



Capital Expenditures

---------------------------------------------------------------------------
Three months ended Year ended
December 31, December 31,
('000's) 2006 2005 2006 2005
---------------------------------------------------------------------------
Canadian Completion Services $ 1,321 $ 2,816 $ 8,841 $ 15,115
---------------------------------------------------------------------------
US Completion Services 4,980 8,023 33,260 17,994
---------------------------------------------------------------------------
Drilling Services 9,507 2,392 23,214 9,757
---------------------------------------------------------------------------
Corporate 259 498 1,288 939
---------------------------------------------------------------------------
Total Capital Expenditures $ 16,067 $ 13,729 $ 66,603 $ 43,805
---------------------------------------------------------------------------


The Canadian Completion Services 2006 capital expenditures represent the addition of nine production testing units and two logging and perforating units. A significant portion of a tenth production testing unit and other ancillary equipment are also included in the Canadian Completion Services 2006 capital expenditures.

The US Completion Services 2006 capital expenditures represent the addition of 8 production testing units, 2 logging and perforating units and 1 fracturing spread. A significant portion of a second fracturing spread and other ancillary equipment are also included in the US Completion Services 2006 capital expenditures.

The Drilling Services 2006 capital expenditures represent the addition of 2 single drilling rigs, 1 deeper double drilling rig and 48 mud motors. A significant portion of a second deeper double rig and other ancillary equipment are also included in the Drilling Services 2006 capital expenditures.

Liquidity and Capital Resources

Cash Provided by Operating Activities for the Three Months Ended December 31, 2006

Cash received for services performed and income tax refunds received exceeded cash payments related to operating expenses, interest expense and income taxes during the quarter ended December 31, 2006 by $6.1 million.

Cash Provided by Operating Activities for the Year Ended December 31, 2006

Cash received for services performed exceeded cash payments related to operating expenses, interest expense and income taxes during the year ended December 31, 2006 by $22.9 million.



Working Capital

-----------------------------------------------------------
As at As at
($ thousands) December 31, 2006 December 31, 2005
-----------------------------------------------------------
Current assets $ 36,734 $ 33,826
Current liabilities 27,429 13,955
-----------------------------------------------------------
Working capital $ 9,305 $ 19,871
-----------------------------------------------------------
-----------------------------------------------------------


The decrease in working capital was largely a result of the $13.9 million increase in the Corporation's operating loan combined with a $1.7 million decrease in cash, which were partially offset by increases in the current portion of the note receivable relating to the advancement of funds to a US sand supplier and small increases in other current asset balances.

The operating loan increase and cash decrease were largely a result of funding requirements for the Corporation's 2006 capital expenditure program and other investing activities.

Financing

The Corporation's primary sources of financing are bank debt and equity issuances. The Corporation has a $20.0 million revolving demand operating loan, a $50.0 million extendible revolving loan facility and a $5.0 million non-revolving term loan facility. The revolving demand operating loan is repayable upon demand. The extendible revolving loan facility is renewable annually at the option of the lender. If this facility is not extended, the amounts outstanding thereunder will be transferred to a four year term facility, repayable monthly. The non-revolving term loan facility is repayable monthly over 15 years.

Subsequent to year end the Corporation has increased the extendible term loan facility from $50.0 million to $60.0 million under the same terms and conditions as the existing facility, except the extension date of the facility is February 28, 2008.

On February 6, 2006, the Corporation completed an initial public offering of 3.125 million common shares for net proceeds of approximately $46 million. A portion of the net proceeds were used to repay the outstanding balance under the Corporation's extendible revolving loan facility with the balance remaining as cash.

As at March 8, 2007, the Corporation had 15,847,031 common shares and 1,561,360 stock options outstanding.

The Corporation, through the conduct of its operations, has undertaken certain contractual obligations. As at December 31, 2006, the Corporation's contractual obligations were as follows:



---------------------------------------------------------------------------
Payments Due by Period
---------------------------------------------------------------------------

Contractual Less than 1 1 - 3 4 - 5 After
Obligations ('000's) Total Year Years Years 5 Years
---------------------------------------------------------------------------
Long-term debt
obligations (1) $ 13,667 $ 521 $ 5,166 $ 4,980 $ 3,000
---------------------------------------------------------------------------
Purchase obligations 19,563 19,563 - - -
---------------------------------------------------------------------------
Operating leases 9,600 3,384 4,290 1,368 558
---------------------------------------------------------------------------
Total Contractual
Obligations $ 42,830 $ 23,468 $ 9,456 $ 6,348 $ 3,558
---------------------------------------------------------------------------

(1) Long-term debt obligations represent balances outstanding under the
extendible revolving loan facility and the non-revolving loan facility and
the obligations in the table above assumes the revolving facility is not
renewed in 2007.


Subsequent to December 31, 2006, the Corporation has entered into additional contractual obligations of $6.6 million relating to the acquisition and construction of property, plant and equipment.



Cash Requirements

--------------------------------------------------------------------------
As at December 31, 2006
--------------------------------------------------------------------------
Committed capital expenditures $ 29,570
--------------------------------------------------------------------------
Uncommitted capital expenditures 1,162
--------------------------------------------------------------------------
--------------------------------------------------------------------------

--------------------------------------------------------------------------
Remaining 2006 capital budget 30,732
--------------------------------------------------------------------------
2007 capital budget 14,518
--------------------------------------------------------------------------
--------------------------------------------------------------------------

--------------------------------------------------------------------------
2007 expected capital expenditures $ 45,250
--------------------------------------------------------------------------
--------------------------------------------------------------------------


As at December 31, 2006, the Corporation has an approved 2007 capital expenditure program of $14.5 million which funds are not committed, but are expected by management to be required to sustain the Corporation's capital assets.

The Corporation has committed to spend $29.6 million which represents the capital expenditures necessary to complete capital projects currently underway and provided for under the Corporation's 2006 capital expenditure program. The remaining $1.2 million is uncommitted and represents 2006 capital budget projects not yet started.

The Corporation has historically financed its capital expenditures with funds from operations, equity issuances and debt. As at December 31, 2006, the Corporation has available debt capacity of $41 million on its extendible revolving term loan facility. Subsequent to year end, the Corporation increased the available debt under the extendible revolving term loan facility by $10 million.

Outlook

Reduced industry activity levels experienced in Canada during the last half of 2006 negatively impacted the financial results of the Corporation's Canadian Completion Services and Drilling Services segments. The reduced industry activity levels are primarily a result of lower natural gas prices caused by historically high North American natural gas storage levels. Recently, significant reductions in the natural gas storage levels have been experienced and are approaching the rolling five year average. While this development is positive for industry activity levels, management does not expect an immediate response from the Corporation's customers. Many oil and gas producers likely require the additional cash flows resulting from higher gas prices to improve their financial position. Other oil and gas producers will likely take a wait-and-see approach to ensure the increase in natural gas prices continues and is sustainable. Management anticipates that the middle six months of 2007 will be financially challenging as reduced industry activity levels continue. The Canadian Completion Services and Drilling Services segments' experienced management teams and a conservative balance sheet puts the Corporation in a healthy position to weather the weaker activity levels expected for Canada and take advantage of any increases in activity as the downcycle plays itself out during 2007.

The US Rocky Mountain region has not experienced the reduction in industry activity levels experienced in the WCSB in 2006. Activity levels experienced to date in 2007 by the US Completion Services segment have been solid. Management has high expectations for the US Completion Services segment as it becomes the engine for growth for the Corporation in 2007. Management is confident that the Fracturing division will establish itself in the US Rocky Mountain region during the first half of the year because of its strong personnel, new equipment and its unique access to fracturing sand.

Non-GAAP Disclosure

EBITDA does not have a standardized meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other issuers. The following is a reconciliation of EBITDA, as used in this MD&A, to net income, being the most directly comparable measure calculated in accordance with GAAP.



---------------------------------------------------------------------------
Three Months ended
($ millions, except December 31, Year ended December 31,
per share amounts) 2006 2005 2006 2005 2004
---------------------------------------------------------------------------
(unaudited) (unaudited)
EBITDA $ 6.3 $ 10.8 $ 27.7 $ 23.8 $ 8.7
Deduct:
Depreciation and
amortization 2.3 2.0 8.5 5.7 3.6
Interest expense 0.4 0.4 0.9 1.4 0.8
Income taxes (1) 0.8 2.7 5.3 5.8 1.9
Net income (GAAP
financial measure) 2.8 5.7 13.0 10.9 2.4
---------------------------------------------------------------------------
(1) Income taxes consist of current income taxes and future income taxes.


Forward-Looking Statements

Certain statements in this MD&A may constitute "forward-looking information" which involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Corporation, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. When used in this MD&A, such information uses such words as "may", "would", "could", "will", "intend", "expect", "believe", "plan", "anticipate", "estimate" and other similar terminology. This information reflects the Corporation's current expectations regarding future events and operating performance and speaks only as of the date of this MD&A. Forward-looking information involves significant risks and uncertainties, should not be read as a guarantee of future performance or results, and will not necessarily be an accurate indication of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking information, including, but not limited to, the factors discussed below. Although the forward-looking information contained in this MD&A is based upon what management of the Corporation believes are reasonable assumptions, the Corporation cannot assure investors that actual results will be consistent with this forward-looking information. This forward-looking information is provided as of the date of this MD&A, and, subject to applicable securities laws, the Corporation assumes no obligation to update or revise such information to reflect new events or circumstances.

In particular, this MD&A contains forward-looking information pertaining to the following: capital expenditure programs; financing of the Corporation's activities including capital expenditures, supply and demand for oilfield services and industry activity levels, commodity prices, dependence on suppliers, dependence on personnel, collection of accounts receivable, expectations regarding market prices and costs, expansion of services in Canada and the United States and competitive conditions.

The Corporation's actual results could differ materially from those anticipated in the forward-looking information as a result of the following factors: general economic conditions in Canada and the United States; demand for oilfield services during drilling and completion of oil and natural gas wells; volatility in market prices for oil and natural gas and the effect of this volatility on the demand for oilfield services generally; competition; liabilities and risks, including environmental liabilities and risks, inherent in oil and natural gas operations; sourcing, pricing and availability of raw materials, consumables, component parts, equipment, suppliers, facilities, and skilled management, technical and field personnel; ability to integrate technological advances and match advances of competition; availability of capital; uncertainties in weather and temperature affecting the duration of the oilfield service periods and the activities that can be completed; changes in legislation and the regulatory environment, including uncertainties with respect to implementing the Kyoto Protocol; and the other factors considered under "Business Risks".




Consolidated Financial Statements and Notes to the Financial Statements

Consolidated Balance Sheet

(As at December 31, Unaudited, stated in thousands) 2006 2005
--------------------------------------------------------------------------
Assets

Current assets
Cash $ - $ 1,699
Accounts receivable 31,153 30,564
Inventory 1,339 486
Income taxes recoverable 736 297
Deposits and prepaid expenses 1,175 780
Current portion of note receivable (Note 5) 2,331 -
--------------------------------------------------------------------------
36,734 33,826
Note receivable (Note 5) 4,662 -
Property, plant and equipment (Note 6) 144,467 86,596
Intangible assets (Note 7) 3,156 1,483

Goodwill 1,230 1,230
--------------------------------------------------------------------------

$ 190,249 $ 123,135
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current liabilities
Operating loan (Note 8) $ 13,853 $ -
Accounts payable and accrued liabilities 13,055 13,267
Current portion of long-term debt (Note 9) 521 688
--------------------------------------------------------------------------
27,429 13,955
Long term debt (Note 9) 13,146 25,609
Future income taxes (Note 10) 12,531 8,080

Shareholders' equity

Share capital (Note 11) 106,002 58,554
Contributed surplus (Note 11(e)) 1,585 427
Retained earnings 29,556 16,510
--------------------------------------------------------------------------
137,143 75,491
--------------------------------------------------------------------------
Commitments and contingencies (Notes 6 & 13)
Subsequent events (Notes 6 & 9)
--------------------------------------------------------------------------

$ 190,249 $ 123,135
--------------------------------------------------------------------------
--------------------------------------------------------------------------

See accompanying notes to the consolidated financial statements.


Consolidated Income Statement

(Unaudited, stated in thousands, Three months ended Years ended
except per share amounts) December 31, December 31,
--------------------------------------------------------------------------
2006 2005 2006 2005
--------------------------------------------------------------------------
Revenue $ 34,878 $ 35,276 $ 135,355 $ 100,493

Expenses
Operating 24,889 21,363 91,136 65,595
Selling, general and
administrative 4,236 3,659 17,100 11,630
Depreciation and
amortization 2,344 2,030 8,449 5,686
Interest on long-term debt 254 99 685 99
Other interest 211 320 211 1,333
Foreign exchange loss (gain) (533) 12 (239) 188
Other income (45) (526) (337) (681)
--------------------------------------------------------------------------

31,356 26,957 117,005 83,850

--------------------------------------------------------------------------
Income before income taxes 3,522 8,319 18,350 16,643

Income taxes (recovery)
Current (772) 840 (522) (437)
Future 1,533 1,823 5,826 6,263
--------------------------------------------------------------------------
761 2,663 5,304 5,826

--------------------------------------------------------------------------
Net income for the period 2,761 5,656 13,046 10,817

Retained earnings, beginning
of period 26,795 10,874 16,510 5,752

Premium on redemption of
shares - (20) - (59)
--------------------------------------------------------------------------

Retained earnings, end of
period $ 29,556 $ 16,510 $ 29,556 $ 16,510
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Earnings per share
Basic $ 0.17 $ 0.47 $ 0.84 $ 0.99
Diluted $ 0.17 $ 0.45 $ 0.81 $ 0.97
--------------------------------------------------------------------------
--------------------------------------------------------------------------

See accompanying notes to the consolidated financial statements.



Consolidated Cash Flow Statement


(Unaudited, stated in Three months ended Years ended
thousands) December 31, December 31,
---------------------------------------------------------------------------
2006 2005 2006 2005
---------------------------------------------------------------------------
Cash provided by (used in)
Operating activities
Net income for the period $ 2,761 $ 5,656 $ 13,046 $ 10,817
Items not involving cash:
Depreciation and
amortization 2,344 2,030 8,449 5,686
Future income tax expense 1,533 1,823 5,826 6,263
Stock-based compensation 329 195 1,171 423
Gain on sale of equipment (45) (526) (131) (575)
Unrealized foreign exchange
loss (gain) (339) 15 (277) 143
Gain on sale of marketable
securities - - - (106)
---------------------------------------------------------------------------
6,583 9,193 28,084 22,651
Changes in non-cash working
capital (474) (5,573) (5,189) (14,761)
---------------------------------------------------------------------------
6,109 3,620 22,895 7,890

Investing activities
Purchases of property, plant
and equipment (16,067) (13,729) (66,603) (43,805)
Note receivable - - (6,697) -
Intangible asset expenditures (569) - (2,356) -
Proceeds from the sale of
equipment 80 2,519 677 2,838
Business acquisitions - 85 - (1,948)
Proceeds from the sale of
marketable securities - - - 159
Changes in non-cash working
capital on investing
activities 379 (1,204) 2,732 2,633
---------------------------------------------------------------------------
(16,177) (12,329) (72,247) (40,123)

---------------------------------------------------------------------------

Financing activities
Operating loan 6,104 (1,211) 13,853 (5,744)
Issuance of long-term debt 4,000 27,297 9,000 27,297
Repayment of long-term debt (83) (1,000) (21,631) (1,000)
Issue of share capital, net
of issue costs 47 12,451 46,431 45,998
Demand loans - (27,838) - (30,973)
Return of paid-up capital - - - (1,468)
Redemption of shares - (30) - (178)
---------------------------------------------------------------------------
10,068 9,669 47,653 33,932

---------------------------------------------------------------------------

Increase (decrease) in cash - 960 (1,699) 1,699

Cash, beginning of period - 739 1,699 -
---------------------------------------------------------------------------

Cash, end of period $ - $ 1,699 $ - $ 1,699
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Supplemental information (Note 17)

See accompanying notes to the consolidated financial statements.


PURE ENERGY SERVICES LTD.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2006 and 2005

(Unaudited, stated in thousands, except per share amounts)

1. Nature of operations

Pure Energy Services Ltd. (the "Corporation") is incorporated under the Business Corporations Act (Alberta) and provides completion and drilling related oilfield services to oil and gas exploration and development entities in the Western Canadian Sedimentary Basin and the U.S. Rocky Mountain region.

2. Significant accounting policies

The following is a summary of significant accounting policies used in the preparation of these consolidated financial statements:

(a) Basis of presentation

These consolidated financial statements include the accounts of the Corporation and its subsidiaries and partnership, all of which are wholly-owned.

(b) Inventory

Inventory consists of parts and operating supplies which are stated at the lower of cost, on a specifically identified basis, and net realizable value.

(c) Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is calculated after providing for estimated salvage values at a rate which is expected to depreciate the cost of the asset over its estimated useful life. The methods and rates applied are:



------------------------------------------------------------------------
------------------------------------------------------------------------
Assets Method Rate
------------------------------------------------------------------------

Buildings declining balance 6%
Drilling rig equipment unit of production based on 3,650 days
Drilling rental equipment straight-line 10 years
Completion services equipment straight-line 7 to 10 years
Furniture and fixtures declining balance 20% to 30%
Automotive equipment declining balance 30%
Leasehold improvements straight-line 5 years
------------------------------------------------------------------------
------------------------------------------------------------------------


Completion services equipment, drilling rig equipment and drilling rental equipment is depreciated to an expected residual value of 20% of the original cost.

Management bases the estimate of the useful life and salvage value of property, plant and equipment on expected utilization, technological change and effectiveness of maintenance programs. Although management believes the estimated useful lives of the Corporation's property, plant and equipment are reasonable, it is possible that changes in estimates could occur which may affect the expected useful lives.

(d) Intangible assets

Intangible assets are recorded at cost. Amortization is provided using the methods and rates indicated below based on the assets' estimated useful lives as follows:



-------------------------------------------------------------------
-------------------------------------------------------------------
Assets Method Rate
-------------------------------------------------------------------

Customer relationships straight-line 10 years
Non-competition agreement straight-line 3 years
Trade name straight-line 10 years
Pre-operating expenditures straight-line 5 years
-------------------------------------------------------------------
-------------------------------------------------------------------


(e) Deferred financing costs

All costs incurred in connection with the raising of equity financing are capitalized until such time that the financing is completed or abandoned. When an equity financing is completed, the associated expenditures is charged to share capital as a cost of issuing shares. If an equity financing is abandoned, the associated costs will be charged to operations.

(f) Goodwill

Goodwill represents the excess of the purchase price for business acquisitions over the fair value of the net assets acquired. Goodwill is allocated as of the date of the business acquisition to the Corporation's reporting units that are expected to benefit from the synergies of the business combination. Goodwill is not amortized, but is tested for impairment at least annually. The impairment test is carried out in two steps. In the first step, the carrying amount of the reporting unit is compared with its fair value. When the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not to be impaired and performance of the second step of the impairment test is unnecessary. The second step compares the implied fair value of the reporting unit's goodwill with its carrying amount to measure the amount of the impairment loss, if any. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in an amount equal to the excess. There were no indications of impairment during fiscal 2006 and 2005.

(g) Income taxes

Income taxes are calculated using the asset and liability method of accounting for income taxes. Under the asset and liability method, future income tax assets and liabilities are recognized for the future income tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future income tax assets and liabilities are measured using enacted or substantively enacted income tax rates expected to apply when the asset is realized or the liability settled. The effect on future income tax assets and liabilities of a change in income tax rates is recognized in income in the period that substantive enactment or actual enactment occurs. The computation of the provision for income taxes involves tax interpretations, regulations and legislation that are continually changing.

(h) Stock-based purchase plan

The Corporation had instituted a stock based purchase plan to allow and encourage employees and other eligible participants to acquire common shares of the Corporation. The plan was administered by the Board of Directors, who determined those allowed to participate, the number of common shares they were to be offered, the price of the common shares, and the timeframe in which the offer would remain open. During fiscal 2005, the plan was discontinued.

(i) Stock-based compensation plan

The Corporation has a stock-based compensation plan as outlined in Note 11(c). The Corporation accounts for stock options using the Black-Scholes option pricing model. Under this method, all stock options issued under the stock-based compensation plan generate an expense to the Corporation based on the expected future benefit to the holder as determined by the difference between the exercise price and the share price on the date of grant as impacted by the vesting period of the options, the potential price volatility, the length of the option period and other valuation factors. The expense is recognized over the vesting period of the options. When stock options are exercised, the proceeds together with the amount recorded in contributed surplus are recorded in share capital.

(j) Revenue recognition

The Corporation recognizes revenue at the time the product is provided or service is performed on a daily, hourly or job basis. Revenue is not recognized before there is persuasive evidence that an arrangement exists, delivery has occurred or the service has been provided, the rate is fixed and determinable, and the collection of outstanding amounts is considered probable. The Corporation considers persuasive evidence to exist when a formal contract is signed or customer acceptance is obtained. Contract terms do not include a provision for post-service obligations.

(k) Long-lived assets

Long-lived assets, which include property, plant and equipment and intangible assets, are tested for impairment annually, or more frequently as circumstances require. Indications of impairment include items such as an ongoing lack of profitability and significant changes in technology. When an indication of impairment is present, the Corporation tests for impairment by comparing the carrying value of the asset to its net recoverable amount. If the carrying amount is greater than the net recoverable amount, the asset is written down to its estimated fair value. There were no indications of impairment during fiscal 2006 and 2005.

(l) Foreign currency translation

The Corporation's United States subsidiary is considered financially and operationally dependent on the Corporation and is therefore classified as an integrated foreign operation for which the temporal method is used to translate its financial statements. Under this method, monetary assets and liabilities are translated at the rate of exchange in effect at the balance sheet date, non-monetary items are translated at historical exchange rates and revenue and expenses are translated at the average exchange rate for the month in which the transaction occurred. Exchange gains or losses are included in the determination of net income.

(m) Earnings per share

Basic earnings per share is calculated using the weighted average number of common shares outstanding during the year. Under the treasury stock method, diluted net earnings per share is calculated based on the weighted average number of shares issued and outstanding during the year, adjusted by the total of the additional common shares that would have been issued assuming exercise of all stock options with exercise prices at or below the average market price for the year, offset by the reduction in common shares that would be re-purchased with the exercise proceeds.

(n) Use of estimates

The financial statements are prepared in accordance with Canadian generally accepted accounting principles (GAAP). Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates.

(o) Comparative figures

Certain comparative figures have been reclassified to conform to the presentation adopted in the current year.

3. Accounting pronouncements

The CICA has issued two new accounting standards: Section 3855, Financial Instruments -- Recognition and Measurement; and Section 1530 -- Comprehensive Income. The Corporation will adopt these standards, which are summarized below, effective January 1, 2007:

(a) Section 3855, Financial Instruments -- Recognition and Measurement describes the standards for recognizing and measuring financial instruments on the balance sheet and the standards for reporting gains and losses in the financial statements. Financial assets classified as loans and receivables and financial liabilities classified as other liabilities have to be measured initially at fair value. Management will be reporting on and recording the net impact resulting from the adoption of this accounting standard in the 2007 first quarter.

(b) Section 1530, Comprehensive Income incorporates the addition of a statement entitled "Consolidated Statement of Comprehensive Income" to the Corporation's Consolidated Statement of Income and Retained Earnings. Comprehensive Income consists of net income plus "other comprehensive income". Other comprehensive income will include gains or losses resulting from the adoption of Section 3855 as outlined above. Accumulated other comprehensive income will be presented separately in shareholder's equity.

4. Business acquisitions

(a) On November 1, 2005, the Corporation acquired all of the issued and outstanding shares of Motorworks Drilling Solutions Inc., a private company involved in the oilfield equipment rentals business. The Corporation paid $1,333 consisting of one hundred and eleven thousand common shares of the Corporation, for the acquisition. The results of operations have been included in the consolidated financial statements from the date of acquisition. The acquisition has been accounted for using the purchase method whereby the purchase price is allocated to the net assets acquired based on their fair values.

(b) On May 1, 2005, the Corporation acquired all of the business assets of Ross Wireline Services Ltd., a private company involved in the wireline services business. The Corporation paid consideration of $3,203 consisting of cash and the issuance of one hundred and thirty thousand common shares of the Corporation, for the acquisition. The results of operations have been included in the consolidated financial statements from the date of acquisition. The acquisition has been accounted for using the purchase method whereby the purchase price is allocated to the net assets acquired based on their fair values.



The purchase price of the above acquisitions has been allocated as follows:

---------------------------------------------------------------------------
---------------------------------------------------------------------------

Motorworks
Drilling Solutions Ross Wireline
Inc. Services Ltd. Total
---------------------------------------------------------------------------

Net assets acquired:
Non-cash working capital
(deficiency) $ (84) $ 3 $ (81)
Drilling equipment 675 - 675
Wireline equipment - 1,700 1,700
Intangible assets 390 754 1,144
Goodwill 484 746 1,230
Future income tax liability (217) - (217)
---------------------------------------------------------------------------
1,248 3,203 4,451

Cash 85 - 85

---------------------------------------------------------------------------
$ 1,333 $ 3,203 $ 4,536
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Consideration given:
Cash $ - $ 2,033 $ 2,033
Common shares issued 1,333 1,170 2,503

---------------------------------------------------------------------------
$ 1,333 $ 3,203 $ 4,536
---------------------------------------------------------------------------
---------------------------------------------------------------------------


5. Note receivable

The Corporation has advanced $6,000 USD on a secured, non-interest bearing basis to a US sand supplier pursuant to the terms of a Fracturing Sand Agreement. Under the terms of the Agreement, the Corporation is entitled to receive a discounted price on fracturing sand as well as an assured supply of fracturing sand during the initial term of the Agreement. The note is receivable in twelve quarterly installments of $500 USD commencing March 2007. Security is comprised of a mortgage and security agreement covering certain real property and equipment owned by the borrower.



--------------------------------------------------------------------------
2006 2005
--------------------------------------------------------------------------

Note receivable ($6,000 USD) $ 6,993 $ -
Less: current portion (2,331) -
--------------------------------------------------------------------------
$ 4,662 $ -
--------------------------------------------------------------------------
--------------------------------------------------------------------------



6. Property, plant and equipment

--------------------------------------------------------------------------
--------------------------------------------------------------------------
Accumulated Net Book
2006 Cost Depreciation Value
--------------------------------------------------------------------------

Land $ 1,403 $ - $ 1,403
Buildings 6,670 847 5,823
Drilling Services equipment 39,478 1,729 37,749
Completion Services equipment 86,857 13,612 73,245
Furniture and fixtures 5,271 2,345 2,926
Automotive 3,700 1,580 2,120
Assets under construction 20,857 - 20,857
Leasehold improvements 436 92 344
--------------------------------------------------------------------------
$164,672 $ 20,205 $ 144,467
--------------------------------------------------------------------------
--------------------------------------------------------------------------


--------------------------------------------------------------------------
--------------------------------------------------------------------------
Accumulated Net Book
2005 Cost Depreciation Value
--------------------------------------------------------------------------

Land $ 953 $ - $ 953
Buildings 5,734 530 5,204
Drilling Services equipment 21,855 613 21,242
Completion Services equipment 53,106 8,526 44,580
Furniture and fixtures 3,937 1,405 2,532
Automotive 2,680 1,199 1,481
Assets under construction 10,549 - 10,549
Leasehold improvements 82 27 55
--------------------------------------------------------------------------
$ 98,896 $ 12,300 $ 86,596
--------------------------------------------------------------------------
--------------------------------------------------------------------------


As at December 31, 2006, the Corporation has obligations totaling approximately $19,563 (2005 -$22,700) relating to the construction of property, plant and equipment.

Subsequent to the year end, the Corporation has committed to spend an additional $6,600 (2005 -$2,600) relating to the acquisition and construction of property, plant and equipment.



7. Intangible assets

--------------------------------------------------------------------------
--------------------------------------------------------------------------
Accumulated Net Book
2006 Cost Amortization Value
--------------------------------------------------------------------------

Customer lists $ 850 $ 122 $ 728
Non-competition agreement 161 89 72
Trade name 134 23 111
Pre-operating expenditures 2,356 111 2,245
--------------------------------------------------------------------------
$ 3,501 $ 345 $ 3,156
--------------------------------------------------------------------------
--------------------------------------------------------------------------


--------------------------------------------------------------------------
--------------------------------------------------------------------------
Accumulated Net Book
2005 Cost Amortization Value
--------------------------------------------------------------------------

Customer lists $ 850 $ 37 $ 813
Non-competition agreement 161 36 125
Trade name 134 9 125
Financing costs 420 - 420
--------------------------------------------------------------------------
$ 1,565 $ 82 $ 1,483
--------------------------------------------------------------------------
--------------------------------------------------------------------------


The pre-operating expenditures relate to the start-up of new businesses and are recorded at cost, net of incidental revenues. These expenditures have been deferred and will be amortized over a period of five years upon commencement of commercial operations of the related business venture. The Corporation began amortization of the pre-operating expenditures relating to the Logging and Perforating division and Fracturing division in the United States during June 2006 and December 2006, respectively, as commercial operations had commenced.

The customer lists, non-competition agreement and trade name were acquired as part of business acquisitions completed during fiscal 2005 (See Note 4).

The financing costs consist of legal and accounting expenses relating to the Corporation's initial public offering of shares. These costs, net of the related future tax benefits, were charged to share capital during fiscal 2006 upon completion of the initial public offering (See Note 11b).

8. Operating loan

The Corporation has access to a $20,000 revolving demand operating loan. Advances are available at either the bank's prime rate plus 0.5% or subject to availability at the bank's Bankers' Acceptance rate plus 1.75%, or in combination. The loan is secured by a general security agreement.

On March 2, 2007, the Corporation amended its loan agreement to allow for US dollar advances under the operating loan with interest at the bank's US base rate plus 0.5% per annum.

9. Long term debt

The Corporation has a $50,000 extendible revolving term loan facility and a $5,000 non-revolving term loan facility. Advances under the extendible revolving term loan facility are available at one of the bank's prime rate plus 0.5%, or subject to availability, either at the bank's Bankers' Acceptance rate plus 1.75% or the bank's fixed rate, or in combination. The extendible revolving facility is extendible annually at the bank's option. The current extension date of this facility is November 30, 2007. Should this facility not be extended, outstanding amounts will be repayable monthly over a four-year term. The loan is secured by a general security agreement.

The non-revolving term loan facility has been advanced at the bank's prime rate plus 0.75% and is repayable monthly over fifteen years. The loan is secured by mortgages covering all of the Corporation's property.



---------------------------------------------------------------------------
---------------------------------------------------------------------------
2006 2005
---------------------------------------------------------------------------

Extendible revolving term loan facility $ 9,000 $ 21,297
Non-revolving term loan facility 4,667 5,000
Less current portion (521) (688)
---------------------------------------------------------------------------
$ 13,146 $ 25,609
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Required principal repayments for long term debt are as follows:

---------------------------------------------------------------------------
---------------------------------------------------------------------------
Year ended December 31,
---------------------------------------------------------------------------

2007 $ 521
2008 2,583
2009 2,583
2010 2,584
2011 2,396
Thereafter 3,000
---------------------------------------------------------------------------
---------------------------------------------------------------------------


On March 2, 2007, the Corporation amended its loan agreement, increasing the extendible revolving term loan facility from $50,000 to $60,000 under the same terms and conditions as the existing facility, except the extension date of the facility is February 28, 2008.

10. Income taxes

Income tax expense differs from the amount that would be computed by applying the effective federal and provincial statutory income tax rates of 32.8% (2005 -- 33.8%) to income before income taxes and is reconciled as follows:



-------------------------------------------------------------------------
-------------------------------------------------------------------------
Years ended December 31, 2006 2005
-------------------------------------------------------------------------

Expected income tax expense $ 6,024 $ 5,629
Non-deductible expenses 182 415

Stock-based compensation 384 143
Non-taxable portion of capital gains (17) (83)
Reduction of future income tax balances due to
substantively enacted income tax rate changes (1,305) (35)
Other 36 (243)

-------------------------------------------------------------------------
Provision for income taxes $ 5,304 $ 5,826
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The income tax effect of temporary differences that give rise to
significant portions of the future income tax assets and liabilities are
presented below:

--------------------------------------------------------------------------
--------------------------------------------------------------------------
2006 2005
--------------------------------------------------------------------------

Future income tax liabilities
Property, plant and equipment $ 9,696 $ 5,678
Intangible assets 833 213
Operations of a partnership with a different tax year 8,592 6,026

Future income tax assets
Non-capital losses (4,948) (1,259)
Deferred expenditures (51) (1,746)
Share issue costs (1,591) (832)

--------------------------------------------------------------------------
$ 12,531 $ 8,080
--------------------------------------------------------------------------
--------------------------------------------------------------------------

The Corporation has non-capital losses that can be used to reduce future
taxable income in Canada of $12,030 (2005 - $3,722) and the United States
of $2,719 (2005 - $nil). These losses expire as follows:

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-------------------------------------------------------------------------

Year of expiry Canada United States Total
-------------------------------------------------------------------------

2015 $ 6,609 $ - $ 6,609
2026 5,421 2,719 8,140
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$ 12,030 $ 2,719 $ 14,749
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11. Share capital

(a) Authorized

An unlimited number of common shares

(b) Issued

------------------------------------------------------------------------
------------------------------------------------------------------------
Number of
Shares Amount
------------------------------------------------------------------------
(000's)
Balance, December 31, 2004 7,282 $ 10,026

Private placements 5,174 49,318
Business acquisitions (Note 4) 241 2,503
Purchase of property, plant and equipment 13 155
Exercise of options
cash consideration received 7 40
reclassified from contributed surplus 6
Return of paid-up capital (1,468)
Redeemed during the year (28) (119)
Share purchase loan repayment 130
Issuance costs, net of future
income tax benefits of $1,034 (2,037)
------------------------------------------------------------------------

Balance, December 31, 2005 12,689 58,554

Initial public offering 3,125 50,000
Exercise of options
cash consideration received 33 213
reclassified from contributed surplus 13
Issuance costs, net of future
income tax benefits of $1,423 (2,778)
------------------------------------------------------------------------
Balance, December 31, 2006 15,847 $ 106,002
------------------------------------------------------------------------
------------------------------------------------------------------------


On February 6, 2006, the Corporation completed its initial public offering (the "IPO") of shares and commenced trading on the Toronto Stock Exchange. The IPO consisted of the issuance of three million one hundred and twenty-five thousand common shares at $16 per share for gross proceeds of $50,000.

On January 31, 2005 the Corporation paid a return of paid-up capital of $1,468 to its shareholders.

During 2005, a share purchase loan to an officer of the Corporation in the amount of $130 was repaid in full.

(c) Stock options

The Corporation has reserved one million five hundred and eighty-five thousand common shares as at December 31, 2006 (2005 -- one million two hundred and sixty-nine thousand) for issuance under a stock option plan for officers, directors, employees, and service providers of the Corporation. The maximum number of shares reserved for issuance under the stock option plan or any other stock option or share purchase plan or other securities based compensation arrangements of the Corporation shall not exceed 10% of the total number of outstanding common shares.

Options to purchase common shares may be granted by the Board of Directors to directors, officers, employees, and service providers of the Corporation. With the exception of one option grant, the options vest one third on each of the first, second, and third anniversary dates of the grant date on a cumulative basis and have a maximum term of five to ten years.

The Corporation calculates the fair value of its options using the Black-Scholes option pricing model. The following weighted average assumptions were used to determine the fair value of options on the date of grant:



--------------------------------------------------------------------
--------------------------------------------------------------------

Risk free interest rate 4.41%
Expected life 5 years
Maximum life 5 to 10 years
Vesting period 3 years
Expected dividend $nil per share
Expected share price volatility 19.66%
Pre-vesting employee exit rate 3.36%
--------------------------------------------------------------------
--------------------------------------------------------------------


The average fair value of options granted in 2006 was determined to be $6.77 per option (2005 -$1.54) using the Black-Scholes option pricing model. The compensation cost to the Corporation for the years ending December 31, 2006 and 2005 was $1,171 and $423, respectively.



A summary of the status of the Corporation's stock option plan as at
December 31, 2006 and 2005 and changes during the years then ended is
presented below:

--------------------------------------------------------------------------
--------------------------------------------------------------------------
2006 2005
--------------------------------------------------------------------------
Weighted Weighted
average average
exercise exercise
Options price Options price
--------------------------------------------------------------------------
(000's) (000's)
Outstanding at the
beginning of the year 1,216 $ 8.46 311 $ 6.00
Granted 348 20.07 947 9.22
Exercised (33) 6.45 (7) 6.00
Forfeited (40) 13.88 (35) 7.87
--------------------------------------------------------------------------
Outstanding at the end of the year 1,491 $ 11.07 1,216 $ 8.46
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Exercisable at the end of the year 467 $ 7.95 105 $ 6.00
--------------------------------------------------------------------------
--------------------------------------------------------------------------


The following table summarizes information about stock options outstanding
at December 31, 2006:

Options Outstanding Options Exercisable
---------------------------------------------------------------------------
Weighted
average Weighted Weighted
Range of exercise exercise average average
prices by year Number remaining exercise Number exercise
of grant outstanding life (years) price exercisable price
---------------------------------------------------------------------------
(000's) (000's)
$ 6.00 to $ 9.00 992 8.4 $ 7.90 418 $ 7.48

$11.87 to $15.95 240 7.7 12.18 48 12.00

$20.00 to $24.40 259 4.3 22.17 - -
---------------------------------------------------------------------------
$ 6.00 to $24.40 1,491 7.6 $ 11.07 467 $ 7.95
---------------------------------------------------------------------------
---------------------------------------------------------------------------


During fiscal 2005, options to acquire fifty thousand common shares at an exercise price of $nil were granted by the Corporation to an officer in connection with his offer of employment. The Corporation has reserved fifty thousand common shares for issuance pursuant to these options. Although these options were not granted pursuant to the stock option plan, they have terms that are generally consistent with options granted under such plan, except that they vest one half on each of the first and second anniversary dates of the grant date on a cumulative basis and have a maximum term of ten years. As at December 31, 2006, the average remaining life of these options was 8.4 years and twenty-five thousand of the options were exercisable.

(d) Escrow shares

As at December 31, 2006, the Corporation has two million one hundred and ten thousand shares (2005 -- nil) held in escrow that will be released over a period of time ranging from 180 days to three years from the date of closing of the initial public offering. During February 2007, seven hundred and seventy-three thousand shares were released from escrow.



(e) Contributed surplus

---------------------------------------------------------------------------
2006 2005
---------------------------------------------------------------------------

Balance, beginning of year $ 427 $ 10
Stock-based compensation expense 1,171 423
Reclassified to common shares upon the exercise of
options (13) (6)
---------------------------------------------------------------------------
Balance, end of year $ 1,585 $ 427
---------------------------------------------------------------------------
---------------------------------------------------------------------------


12. Earnings per share

---------------------------------------------------------------------------
---------------------------------------------------------------------------
2006 2005
---------------------------------------------------------------------------

Net income available to common shareholders $ 13,046 $ 10,817
Weighted average number of common shares 15,516 10,910

Basic earnings per share $ 0.84 $ 0.99
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Net income available to common shareholders $ 13,046 $ 10,817
Weighted average number of common shares 15,516 10,910
Dilutive effect of stock options 584 187
---------------------------------------------------------------------------

Diluted weighted average number of common shares 16,100 11,097

Diluted earnings per share $ 0.81 $ 0.97
---------------------------------------------------------------------------
---------------------------------------------------------------------------


13. Commitments and contingencies

The Corporation's obligations under various operating leases for office and warehouse facilities, office equipment, computers and automobiles are as follows:



-------------------------------------------------------------------------
-------------------------------------------------------------------------
Years ended December 31,
-------------------------------------------------------------------------

2007 $ 3,384
2008 2,759
2009 1,531
2010 831
2011 537
Thereafter 558


(a) The Corporation has guaranteed a five year rail car operating lease on behalf of a US sand supplier (see note 5), expiring August 2011. In the event that the US sand supplier defaults on its obligations under the operating lease, the Corporation would be required to make yearly lease payments of $1,010 ($864 USD) and would earn the exclusive right to manage the leased assets.

(b) The Corporation has guaranteed loans totaling $70 as at December 31, 2006 (2005 - $317) in relation to the Financial Assistance Program which assisted employees to acquire shares of the Corporation. The Financial Assistance Program has been terminated such that no additional loans will be made, or guarantees given, by the Corporation.

(c) The Corporation, through the performance of its services, is sometimes named as a defendant in litigation. The nature of these claims is usually related to personal injury or completed operations. The Corporation maintains a level of insurance coverage deemed appropriate by management and for matters for which insurance coverage can be maintained. The Corporation has no outstanding claims which would have a material adverse effect on the Corporation as a whole.

14. Related party transactions

(a) During fiscal 2006, the Corporation incurred and paid legal fees of $127 (2005 - $175) to an officer and former director. These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

(b) The Corporation has entered into a seven year operating lease, expiring May 2012, with a company controlled by an officer of the Corporation. Monthly lease payments are $11. This transaction is in the normal course of operations and is measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

15. Financial instruments

(a) Fair value of financial instruments

The carrying values of accounts receivable, deposits and prepaid expenses, operating loan and accounts payable and accrued liabilities approximate their fair value due to the relatively short period to maturity of the instruments. All loans with variable interest rates are considered by management to approximate fair value. The note receivable, including current portion, has a fair value of approximately $6.2 million as at December 31, 2006. The carrying value of the note receivable is not impaired as the difference between the book value and the fair value is considered to be a temporary decline.

(b) Credit risk

A substantial portion of the accounts receivable are with customers who are dependent upon the oil and gas industry, and are subject to normal industry credit risks. Sales to ten customers during fiscal 2006 amounted to approximately 50% (2005 - 49%) of total revenue.

(c) Interest rate risk

The Corporation manages its exposure to interest rate risk through a combination of fixed and variable rate borrowing facilities that are available if required. As at December 31, 2006, all of its borrowings were at variable rates.

(d) Exchange rate risk

The Corporation is exposed to exchange rate risk resulting from its assets and liabilities denominated in foreign currencies. Exchange gains or losses resulting from fluctuations in foreign exchange rates are charged to net income in the period that they occur. Management does not use any derivative instruments to hedge this risk.

16. Segmented information

The Corporation operates in two main industry segments which operate in two geographic areas. The segments are Completion Services and Drilling Services and provide the following services to oil and gas exploration and production companies:

- Completion Services provides logging and perforating, production testing, multi-line, fracturing and pressure transient analysis services which are performed on new and producing oil and gas wells; and

- Drilling Services provides contract drilling services and equipment rentals.



The segmented amounts are as follows:

--------------------------------------------------------------------------
--------------------------------------------------------------------------
Completion Drilling
Year ended December 31, 2006 Services Services Corporate Total
--------------------------------------------------------------------------

Revenue $ 102,847 $ 32,508 $ - $ 135,355
Income (loss) before income
taxes 15,956 10,462 (8,068) 18,350
Depreciation and
amortization 6,747 1,289 413 8,449
Capital expenditures (i) 42,106 23,213 1,284 66,603
Total assets 126,144 53,696 10,409 190,249
Goodwill 745 485 - 1,230
--------------------------------------------------------------------------
--------------------------------------------------------------------------


--------------------------------------------------------------------------
--------------------------------------------------------------------------
Completion Drilling
Year ended December 31, 2005 Services Services Corporate Total
--------------------------------------------------------------------------
Revenue $ 84,954 $ 15,539 $ - $ 100,493
Income (loss) before income
taxes 18,490 4,513 (6,360) 16,643
Depreciation and
amortization 4,814 739 133 5,686
Capital expenditures (i) 32,589 10,432 939 43,960
Total assets 87,858 29,760 5,517 123,135
Goodwill 745 485 - 1,230
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(i) Does not include property, plant and equipment acquired on
business acquisitions.



The Corporation operates in the following geographic locations:

--------------------------------------------------------------------------
--------------------------------------------------------------------------

Year ended December 31, 2006 Canada United States Total
--------------------------------------------------------------------------

Revenue $ 112,819 $ 22,536 $ 135,355
Income (loss) before income
taxes 18,387 (37) 18,350
Property, plant and equipment 94,271 50,196 144,467
Goodwill 1,230 - 1,230
--------------------------------------------------------------------------
--------------------------------------------------------------------------

--------------------------------------------------------------------------
--------------------------------------------------------------------------

Year ended December 31, 2005 Canada United States Total
--------------------------------------------------------------------------

Revenue $ 87,226 $ 13,267 $ 100,493
Income before income taxes 13,872 2,771 16,643
Property, plant and equipment 74,687 11,909 86,596
Goodwill 1,230 - 1,230
--------------------------------------------------------------------------
--------------------------------------------------------------------------


17. Supplemental cash flow information

---------------------------------------------------------------------------
---------------------------------------------------------------------------
2006 2005
---------------------------------------------------------------------------
Interest paid $ 826 $ 1,333
Income taxes paid (recovered) (113) 264
---------------------------------------------------------------------------
Components of change in non-cash working capital
balances:
Accounts receivable (589) (16,879)
Inventory (853) (162)
Income taxes recoverable (408) (735)
Prepaid expenses and deposits (395) 2,782
Accounts payable and accrued
liabilities (212) 2,866
(2,457) (12,128)

Change in non-cash working capital on investing
activities: 2,732 2,633
---------------------------------------------------------------------------

Change in non-cash working capital on operating
activities: $ (5,189) $ (14,761)
---------------------------------------------------------------------------

Contact Information

  • Pure Energy Services Ltd.
    Kevin Delaney
    President and CEO
    (403) 262-4000
    (403) 262-4005 (FAX)
    Email: kdelaney@pure-energy.ca
    or
    Pure Energy Services Ltd.
    Michael Baldwin
    Chief Financial Officer
    (403) 262-4000
    (403) 262-4005 (FAX)
    Email: mbaldwin@pure-energy.ca
    or
    Pure Energy Services Ltd.
    #300, 1010 - 1st Street S.W.
    Calgary, Alberta T2R 1K4
    (403) 262-4000
    (403) 262-4005 (FAX)
    Website: www.pure-energy.ca