Pure Energy Services Ltd.
TSX : PSV

Pure Energy Services Ltd.

November 09, 2006 18:55 ET

Pure Energy-2006 Third Quarter Financial Statements and M D & A

CALGARY, ALBERTA--(CCNMatthews - Nov. 9, 2006) - Pure Energy Services Ltd. (TSX:PSV):

PURE ENERGY SERVICES LTD.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED

SEPTEMBER 30, 2006



PURE ENERGY SERVICES LTD.
Consolidated Balance Sheets

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(Unaudited, stated in
thousands of dollars)
September 30, December 31,
2006 2005
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Assets

Current assets
Cash $ - $ 1,699
Accounts receivable 31,966 30,564
Inventory 1,009 486
Income taxes recoverable - 297
Deposits and prepaid expenses 1,713 780
Current portion of note receivable 1,673 -
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36,361 33,826

Note receivable - (Note 3) 5,019 -

Property, plant and equipment 130,677 86,596

Intangible assets - (Note 4) 2,688 1,483

Goodwill 1,230 1,230
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$ 175,975 $ 123,135
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Liabilities and Shareholders' Equity

Current liabilities
Operating loan $ 7,749 $ -
Accounts payable and accrued liabilities 13,171 13,267
Income taxes payable 302 -
Current portion of long-term debt 1,375 688
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22,597 13,955

Long-term debt - (Note 5) 8,375 25,609

Future income taxes 10,996 8,080


Shareholders' equity

Share capital - (Note 6) 105,953 58,554

Contributed surplus 1,259 427

Retained earnings 26,795 16,510
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134,007 75,491
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$ 175,975 $ 123,135
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See accompanying notes to the interim consolidated financial statements.


PURE ENERGY SERVICES LTD.
Consolidated Statements of Income and Retained Earnings

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

Three months ended Nine months ended
September 30, September 30,
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2006 2005 2006 2005
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Revenue $ 35,447 $ 26,741 $ 100,477 $ 65,217

Expenses
Operating 23,525 17,100 66,248 44,232
Selling, general and
administrative 4,715 3,275 12,865 7,970
Depreciation and amortization 2,291 1,286 6,105 3,656
Other interest - 334 - 1,014
Interest on long-term debt 136 - 431 -
Foreign exchange loss / (gain) (15) 157 294 176
Other income (142) (147) (292) (155)
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30,510 22,005 85,651 56,893
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Income before income taxes 4,937 4,736 14,826 8,324

Income taxes
Current expense (recovery) (1,919) (720) 249 (1,277)
Future expense 3,511 2,540 4,292 4,440
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1,592 1,820 4,541 3,163
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Net income for the period 3,345 2,916 10,285 5,161

Retained earnings, beginning
of period 23,450 7,958 16,510 5,752

Premium on redemption
of shares - - - (39)
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Retained earnings, end
of period $ 26,795 $ 10,874 $ 26,795 $ 10,874
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Earnings per share - (Note 7)
Basic $ 0.21 $ 0.26 $ 0.67 $ 0.49
Diluted $ 0.20 $ 0.25 $ 0.64 $ 0.48
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See accompanying notes to the interim consolidated financial statements.


PURE ENERGY SERVICES LTD.
Consolidated Statements of Cash Flows

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(Unaudited, stated in thousands
of dollars)

Three months ended Nine months ended
September 30, September 30,
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2006 2005 2006 2005
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Cash provided by (used in)
Operating activities
Net income for the period $ 3,345 $ 2,916 $ 10,285 $ 5,161
Items not involving cash:
Depreciation and amortization 2,291 1,286 6,105 3,656
Gain on sale of equipment (141) (41) (86) (49)
Gain on sale of marketable
securities - (106) - (106)
Future income tax expense 3,511 2,540 4,292 4,440
Unrealized foreign exchange
loss (gain) (41) 130 51 129
Stock-based compensation 334 129 842 228
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9,299 6,854 21,489 13,459
Changes in non-cash working
capital - (Note 9) (9,724) (4,728) (4,716) (9,190)
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(425) 2,126 16,773 4,269


Investing activities
Note receivable (6,686) - (6,686) -
Intangible asset expenditures (725) - (1,787) -
Purchases of property, plant
and equipment (10,466) (13,731) (50,535) (30,076)
Proceeds from the sale of
equipment 426 319 597 319
Proceeds from the sale of
marketable securities - 159 - 159
Business acquisitions - - - (2,033)
Changes in non-cash working
capital on investing
activities - (Note 9) (1,731) 3,088 2,353 3,838
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(19,182) (10,165) (56,058) (27,793)
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Financing activities
Operating loan 7,749 (7,388) 7,749 (4,533)
Issue of share capital, net
of issue costs (58) 121 46,384 33,547
Redemption of shares - - - (148)
Return of paid up capital - - - (1,468)
Demand loans - 15,333 - (3,135)
Issuance of long-term debt 5,000 - 5,000 -
Repayment of long-term debt (83) - (21,547) -
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12,608 8,066 37,586 24,263
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Increase (decrease) in cash (6,999) 27 (1,699) 739

Cash, beginning of period 6,999 712 1,699 -
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Cash, end of period $ - $ 739 $ - $ 739
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Supplemental information - (Note 9)


See accompanying notes to the interim consolidated financial statements.


PURE ENERGY SERVICES LTD.

Notes to the Consolidated Financial Statements

For the three and nine months ended September 30, 2006 and 2005

(Unaudited, stated in thousands of dollars, except 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.

The ability to move heavy equipment in oil and gas fields in Canada is dependent on weather conditions, whereby thawing in the spring renders many secondary roads incapable of supporting heavy equipment until the ground is dry. In addition, activity in more northern regions of Canada is accessible only in winter months when the ground is frozen enough to support the equipment. As a result, the Corporation's activity generally follows along with this seasonality, whereby activity is traditionally higher in the first and fourth quarters of the year and lower in the second and third quarters.

2. Principles of presentation

The unaudited consolidated financial statements of the Corporation have been prepared by management in accordance with accounting principles generally accepted in Canada. These unaudited interim consolidated financial statements have been prepared following the same accounting policies and methods of application as the consolidated financial statements of the Corporation for the year ended December 31, 2005, except as disclosed in Note 4 below. The disclosures provided below are incremental to those included with the Corporation's annual consolidated financial statements. The unaudited interim consolidated financial statements and the related notes should be read in conjunction with the consolidated financial statements and the related notes for the year ended December 31, 2005.

Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end and the results of operations for the interim periods shown in these statements are not necessarily indicative of results to be expected for the fiscal year. In the opinion of management, the accompanying unaudited interim consolidated financial statements include all adjustments (of a normal recurring nature) necessary to present fairly the consolidated results of the Corporation's operations and cash flows for the three and nine months ended September 30, 2006 and 2005.

3. Note receivable

The Company 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. 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 owned by the borrower.



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September 30,
2006
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Note receivable ($6,000 USD) $ 6,692
Less: current portion (1,673)
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$ 5,019
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4. Intangible assets

Intangible assets consist of the following:

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September 30, 2006
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Accumulated Net Book
Cost Amortization Value
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Customer lists $ 850 $ 101 $ 749
Non-competition agreement 161 76 85
Trade name 134 19 115
Pre-operating expenditures 1,787 48 1,739
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$ 2,932 $ 244 $ 2,688
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December 31, 2005
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Accumulated Net Book
Cost Amortization Value
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Customer lists $ 850 $ 37 $ 813
Non-competition agreement 161 36 125
Trade name 134 9 125
Financing costs 420 - 420
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$ 1,565 $ 82 $ 1,483
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The pre-operating expenditures relate to the start-up of new businesses and are recorded at cost, net of incidental revenues. These expenditures will be deferred and 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 in the United States during June 2006 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.

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 the first quarter of fiscal 2006 upon completion of the initial public offering (See Note 6).

5. 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%, the bank's Bankers' Acceptance rate plus 1.75% or the bank's fixed rate, subject to availability or in combination. The facility is extendible annually at the bank's option. The current extension date of this facility is November 30, 2006. Should this facility not be extended, outstanding amounts will be transferred to a four-year term facility repayable monthly. 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.



6. Share capital

(a) Common shares issued:

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Number of
Shares Amount
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Balance, December 31, 2005 12,689,266 $ 58,554

Initial public offering 3,125,000 50,000
Exercise of options
cash consideration received 27,432 165
reclassified from contributed surplus - 10
Issuance costs, net of future
income tax benefits of $1,423 (2,776)
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Balance, September 30, 2006 15,841,698 $ 105,953
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On February 6, 2006, the Corporation completed its initial public offering (the "IPO") of shares and commenced trading on the Toronto Stock Exchange ("TSX") immediately thereafter under the stock symbol "PSV". The IPO consisted of the issuance of 3,125,000 common shares at $16 per share for gross proceeds of $50 million. The net proceeds of approximately $46 million have been used to reduce bank debt and provide additional funding for the 2006 capital expenditure program.

(b) Escrow shares:

The Corporation has 2,110,422 shares 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.

(C) Stock options:

The average fair value of options issued during the three and nine month periods ending September 30, 2006 was $5.84 (2005 - $3.96) and $7.42 (2005 - $1.22), respectively per option using the Black-Scholes option pricing model. The compensation cost to the Corporation for the three and nine months ending September 30, 2006 was $334 (2005 - $129) and $842 (2005 - $228), respectively.



7. Earnings per share

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Three months ended Nine months ended
September 30, September 30, September 30, September 30,
2006 2005 2006 2005
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Net income available
to common
shareholders $ 3,345 $ 2,916 $ 10,285 $ 5,161
Weighted
average number of
common shares 15,841,698 11,388,461 15,405,319 10,531,998

Basic earnings
per share $ 0.21 $ 0.26 $ 0.67 $ 0.49
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Net income available
to common
shareholders $ 3,345 $ 2,916 $ 10,285 $ 5,161
Weighted average
number of common
shares 15,841,698 11,388,461 15,405,319 10,531,998
Dilutive effect of
stock options 573,421 174,659 602,526 140,655
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Diluted weighted
average number of
common shares 16,415,119 11,563,120 16,007,845 10,672,653

Diluted earnings
per share $ 0.20 $ 0.25 $ 0.64 $ 0.48
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8. Segmented information

The Corporation operates in two main industry segments which operate in two geographic areas. These 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, multiline 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:

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Three months ended Completion Drilling
September 30, 2006 Services Services Corporate Total
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Revenue $ 26,476 $ 8,971 $ - $ 35,447
Income (loss) before
income taxes 4,553 3,344 (2,960) 4,937
Depreciation and amortization 1,783 373 135 2,291
Capital expenditures(1) 7,198 2,735 533 10,466
Total assets 120,781 45,107 10,087 175,975
Goodwill 745 485 - 1,230
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Three months ended Completion Drilling
September 30, 2005 Services Services Corporate Total
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Revenue $ 22,863 $ 3,878 $ - $ 26,741
Income (loss) before
income taxes 5,403 1,271 (1,938) 4,736
Depreciation and amortization 1,129 121 36 1,286
Capital expenditures(1) 7,400 2,936 170 10,506
Total assets 76,852 21,584 3,944 102,380
Goodwill 745 - - 745
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(1) Does not include property, plant and equipment acquired on business
acquisitions.

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Nine months ended Completion Drilling
September 30, 2006 Services Services Corporate Total
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Revenue $ 75,674 $ 24,803 $ - $100,477
Income (loss) before
income taxes 14,012 8,643 (7,829) 14,826
Depreciation and amortization 4,759 1,023 323 6,105
Capital expenditures(1) 35,799 13,707 1,029 50,535
Total assets 120,781 45,107 10,087 175,975
Goodwill 745 485 - 1,230
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Nine months ended Completion Drilling
September 30, 2006 Services Services Corporate Total
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Revenue $ 56,147 $ 9,070 $ - $ 65,217
Income (loss) before
income taxes 10,353 2,366 (4,395) 8,324
Depreciation and amortization 3,143 421 92 3,656
Capital expenditures(1) 22,103 7,365 608 30,076
Total assets 76,852 21,584 3,944 102,380
Goodwill 745 - - 745
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(1) Does not include property, plant and equipment acquired on business
acquisitions.

The Corporation operates in the following geographic locations:

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Canada United States Total
Three months ended September 30, 2006
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Revenue $ 29,628 $ 5,819 $ 35,447
Income before income taxes 5,102 (165) 4,937
Property, plant and equipment 83,520 47,157 130,677
Goodwill 1,230 - 1,230
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Canada United States Total
Three months ended September 30, 2005
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Revenue $ 22,769 $ 3,972 $ 26,741
Income before income taxes 3,542 1,194 4,736
Property, plant and equipment 65,729 10,275 76,004
Goodwill 745 - 745
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Canada United States Total
Nine months ended September 30, 2006
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Revenue $ 85,210 $ 15,267 $100,477
Income (loss) before income taxes 14,891 (65) 14,826
Property, plant and equipment 83,520 47,157 130,677
Goodwill 1,230 - 1,230
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Canada United States Total
Nine months ended September 30, 2005
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Revenue $ 57,077 $ 8,140 $ 65,217
Income before income taxes 6,604 1,720 8,324
Property, plant and equipment 65,729 10,275 76,004
Goodwill 745 - 745
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9. Supplemental cash flow information

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Three months ended Nine months ended
September September September September
30, 2006 30, 2005 30, 2006 30, 2005
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Interest paid $ 136 $ 334 $ 431 $ 1,014
Income taxes
paid (recovered) (1,264) 4 (325) 287

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Components of change in
non-cash working
capital balances:
Accounts receivable (10,190) (8,841) (1,402) (9,113)
Inventory (231) 2 (523) (32)
Prepaid expenses
and deposits 468 3,096 (933) 2,594
Accounts payable and
accrued liabilities (908) 4,852 (96) 2,767
Income taxes payable (594) (749) 591 (1,568)
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(11,455) (1,640) (2,363) (5,352)

Change in non-cash
working capital on
investing activities: (1,731) 3,088 2,353 3,838
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Change in non-cash
working capital on
operating activities: $ (9,724) $ (4,728) $ (4,716) $ (9,190)
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10. Comparative figures

Certain comparative figures have been reclassified to conform with the current period's financial statement presentation.


MANAGEMENT'S DISCUSSION AND ANALYSIS

FORM 51-102F1

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006

NOVEMBER 9, 2006

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following management's discussion and analysis ("MD&A") of the consolidated financial condition and results of operations of Pure Energy Services Ltd. (the "Corporation" or "Pure Energy") is dated and has been prepared taking into consideration information available to November 9, 2006 and should be read in conjunction with the unaudited consolidated financial statements of the Corporation as at and for the three and nine months ended September 30, 2006 and 2005 and should also be read in conjunction with the audited consolidated financial statements and MD&A for the year ended December 31, 2005. Additional information relating to the Corporation, including the Corporation's Annual Information Form, is available on SEDAR at www.sedar.com. Unless otherwise indicated, references in this MD&A to "$" or "Dollars" are to Canadian dollars.

Overview

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 conducts operations in the Western Canadian Sedimentary Basin ("WCSB") and in the Rocky Mountain region of the United States. In Canada, the Completion Services Segment 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"). In the United States, the Completion Services Segment is comprised of the Production Testing division, the Logging and Perforating division and the Fracturing division (the "US Completion Services"). As at September 30, 2006, the US Fracturing division had not commenced operations. 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

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Three Months ended Nine Months ended
($ millions, except per share September 30, September 30,
amounts, unaudited) 2006 2005 2006 2005
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Revenue $ 35.4 $ 26.7 $ 100.5 $ 65.2
EBITDA (1) 7.4 6.4 21.4 13.0
Net income 3.3 2.9 10.3 5.2
Earnings per share
Basic $ 0.21 $ 0.26 $ 0.67 $ 0.49
Diluted $ 0.20 $ 0.25 $ 0.64 $ 0.48
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(1) EBITDA does not have a standardized meaning prescribed by GAAP. Please
refer to the "Non-GAAP Disclosure" for the reconciliation to net
income.


Third Quarter Highlights

The Corporation's revenue for the quarter ended September 30, 2006 increased 33% compared to the 2005 third quarter. EBITDA for the quarter increased 16% and net income increased 15% compared to the quarter ended September 30, 2005. Diluted earnings per share of $0.20 decreased $0.05 compared to the $0.25 diluted earnings per share recorded in the 2005 third quarter.

The 2006 third quarter revenue increase reflects a 131% increase in Drilling Services, a 47% increase in US Completion Services and a 9% increase in Canadian Completion Services. The emergence of the Motorworks rentals division, the deployment of 4 new drilling rigs and higher drilling day rates account for the large increase in Drilling Services revenue. The significant increase in Production Testing equipment capacity accounts for the increase in US Completion Services revenue. The increase in Canadian Completion Services revenue was a result of the improved performance of the Multiline division, additional Production Testing equipment capacity and higher revenue per job experienced in all divisions.

The increase in EBITDA was a result of the Drilling Services segment's 167% increase in EBITDA, an 11% increase in Canadian Completion Services EBITDA partially offset by a 53% increase in Corporate expenses and a 74% decrease in EBITDA experienced by US Completion Services. The significant increase in Drilling Services EBITDA was largely a result of the additional revenue generated by the Drilling division and the successful growth of the Motorworks rental division. The increase in Corporate expenses related to the growth of the Corporation coupled with additional public company expenses. Lower EBITDA recorded by US Completion Services was a result of a decline in EBITDA margins in the Production Testing division, a loss recorded in the Logging and Perforating division and the growth in administrative expenses relating to the US operations.

Year-to-Date Highlights

The Corporation's revenue for the nine months ended September 30, 2006 increased 54% compared to the nine months ended September 30, 2005. EBITDA for the nine months ended September 30, 2006 increased 64% and net income increased 99% compared to the nine months ended September 30, 2005. Diluted earnings per share of $0.64 increased 33% compared to the $0.48 recorded in the comparable period in 2005.

The results for the first nine months of 2006 reflect the increase in equipment capacity in the Completion Services Segment and the Drilling Services Segment coupled with higher margins in Canadian Completion Services and Drilling Services largely as a result of higher average revenue per job experienced in both Segments and increased operational leverage on each segment's fixed expenses. US Completion Services margins are lower as a result of lower production testing margins, a loss recorded by the logging and perforating division and higher administrative costs.

Results of Operations

Three Months Ended September 30, 2006 Compared to the Three Months Ended September 30, 2005

Completion Services



Overall Financial Results
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Three months Sept- Sept- Year-Over-
ended ember ember Year Change
($ thousands, 30, % of 30, % of Percent-
unaudited) 2006 Revenue 2005 Revenue $ age
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Revenue $ 26,476 100% $ 22,863 100% $ 3,613 16%
Expenses
Operating 18,492 69.8% 14,819 64.8% 3,673 25%
Selling, general
and
administrative 1,654 6.2% 1,547 6.8% 107 7%
Depreciation and
amortization 1,783 6.7% 1,129 4.9% 654 58%
Other income (6) (35) 29

Income before
income taxes 4,553 17.2% 5,403 23.6% (850) (16)%
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The Completion Services Segment revenue increased 16% and income before income taxes decreased 16%, compared to the 2005 third quarter results. The 2006 third quarter results reflect a marginal increase in the Canadian Completion Services segment offset by weaker results in the US Completion Services segment compared to the 2005 third quarter results.

Canadian Completion Services' improved results related to the significant improvement in the Multiline division's operating results largely offset by a decrease in the Logging and Perforating division's operating results. The Multiline division's improvement is largely attributed to increased customer acceptance in the higher margin deep critical sour market. The Logging and Perforating division's decrease in operating results was a result of a 4% decrease in revenue coupled with increases in salaries and unit expenses.

US Completion Services increased revenue by 47% as a result of the significant capital additions made since the 2005 third quarter. However, 2006 third quarter income before income taxes decreased by $1.0 million relative to the 2005 third quarter. The decrease was largely a result of lower margins experienced in the production testing division, an increase in US administrative expenses and an operating loss recorded by the logging and perforating division during the quarter.



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Canadian Completion Services Financial Results

Three months Sept- Sept- Year-Over-
ended ember ember Year Change
($ thousands, 30, % of 30, % of Percent-
unaudited) 2006 Revenue 2005 Revenue $ age
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Revenue $ 20,657 100% $18,891 100% $ 1,766 9 %
Expenses
Operating 13,563 65.7% 12,132 64.2% 1,431 12 %
Selling,
general and
administrative 1,045 5.1% 1,338 7.1% (293) (22)%
Depreciation
and
amortization 1,301 6.3% 895 4.7% 406 45 %
Other income (6) (35) 29

Income before
income taxes 4,754 23.0% 4,561 24.1% 193 4 %
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Canadian Completion Services Revenue

Revenue for Canadian Completion Services increased 9% for the three months ended September 30, 2006 compared to the three months ended September 30, 2005. The Canadian Completion Services job count decreased by approximately 600 jobs or 12% and average revenue per job increased by approximately $960 or 25%. The job count decrease was largely attributable to a decline in the number of jobs performed by the Logging and Perforating division. The increase in average revenue per job was a result of higher revenue per job experienced in all three divisions with the most significant increases experienced in the Multiline and Logging and Perforating divisions.

The Production Testing division experienced increases of 14%, 3% and 10% in revenue, job count and average revenue per job, respectively. A 17% increase in unit capacity combined with a decrease in unit utilization resulted in the small increase in job count. Unit utilization decreased because of the slow down in industry activity and wet weather experienced in September. The Production Testing division's decrease in unit utilization was not as pronounced as the other Canadian Completion Services divisions as this division has less exposure to shallow gas and coal bed methane ("CBM") activity. Average revenue per job increased as a result of pricing increases implemented after the 2005 third quarter.

The Multiline division experienced increases of 38% and 57% in revenue and average revenue per job, respectively and a 12% decrease in job count. The higher average revenue per job was largely a result of pricing increases implemented after the 2005 third quarter combined with an increase in the amount of work performed in the deep critical sour market which typically experiences higher average revenue per job. The decrease in job count is largely related to the slow down in industry activity combined with an increase in the amount of work performed in the deep critical sour market. These jobs require more preparation and planning relative to other types of work which decreases the number of jobs this division will perform during a quarter. The decrease in job count is usually more than compensated for by the increase in revenue per job associated with deep critical sour jobs.

The Logging and Perforating division's 2006 third quarter revenue decreased 4% as a result of a 31% decrease in job count largely offset by a 40% increase in average revenue per job. The lower job count is largely a result of the decline in industry activity, lower activity from a major customer and maintaining pricing increases during the quarter. Average revenue per job increased as a result of pricing increases implemented during the fall of 2005 combined with 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 2006 2005 As at
Services Unit Third Quarter Third Quarter December 31,
Complement Average Ending Average Ending 2006(A) 2005
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Logging and
Perforating
Division 19.0 19 18.7 19 21 18
Production
Testing Division 39.7 41 34.0 34 47 37
Multiline Division 16.0 16 14.0 16 16 16
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Canadian Completion
Services Total 74.7 76 66.7 69 84 71
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(A) - Expected equipment capacity as at December 31, 2006 based on
approved budgets.


Canadian Completion Services Income before Income Taxes

Canadian Completion Services income before income taxes for the three months ended September 30, 2006 increased approximately 4% compared to income before income taxes for the three months ended September 30, 2005. This marginal increase was largely a result of improved operating results produced by the Multiline division offset by weaker operating results produced by the Logging and Perforating division. The 2006 third quarter income before income taxes for all of the other divisions was basically consistent with amounts recorded during the 2005 third quarter.

The Multiline division's income before income taxes as a percentage of revenue increased approximately seventeen percentage points as a result of the increase in the higher margin deep critical sour work performed, coupled with an increase in revenue from other job types translating into higher margins and operational leverage on the division's fixed expenses compared to the 2005 third quarter results.

The Logging and Perforating division's income before income taxes as a percentage of revenue decreased approximately six percentage points as a result of increases in salaries and unit expenses. Salary expenses have increased as a result of competitive pressures necessitating salary and bonus increases required to retain qualified wireline personnel.



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US Completion Services
Financial Results
Three months Sept- Sept- Year-Over-
ended ember ember Year Change
($ thousands, 30, % of 30, % of Percent-
unaudited) 2006 Revenue 2005 Revenue $ age
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Revenue $ 5,819 100% $ 3,972 100% $ 1,847 47 %
Expenses
Operating 4,929 84.7% 2,687 67.6% 2,242 83 %
Selling,
general and
administrative 609 10.5% 209 5.3% 400 191 %
Depreciation
and
amortization 482 8.3% 234 5.9% 248 106 %

Income /
(loss) before
income taxes (201) (3.5)% 842 21.2% (1,043) (124)%
---------------------------------------------------------------------------


US Completion Services Revenue

Revenue for US Completion Services increased 47% for the three months ended September 30, 2006 compared to the three months ended September 30, 2005 as a result of increased production testing equipment capacity partially offset by a decrease in production testing unit utilization and a small decrease in production testing average revenue per job. The Logging and Perforating division also contributed to the revenue increase; however, the revenue generated by this division did not meet management expectations.

The average number of production testing units operating in the US Rocky Mountain region increased from 9.7 units operating during the 2005 third quarter to 19 units operating during the 2006 third quarter. Average revenue per job decreased as a result of a decrease in the volume of under-balanced drilling ("UBD") work performed partially offset by a 16% increase in conventional production testing pricing. Production testing unit utilization during the 2006 third quarter decreased relative to the 2005 third quarter as a result of the significant increase in units operating combined with lower utilization of the UBD units.

The Logging and Perforating division commenced commercial operations during June 2006 and its revenue base grew during the third quarter. However, the growth has not met management expectations as a result of slower than anticipated customer acceptance. Management believes that revenue growth in this division will continue as customer acceptance increases and synergies are developed with the commencement of fracturing operations.



---------------------------------------------------------------------------
US Completion 2006 2005 As at
Services Unit Third Quarter Third Quarter December 31,
Complement Average Ending Average Ending 2006(A) 2005
---------------------------------------------------------------------------
Production
Testing Division 19.0 20 9.7 11 21 13
Logging and
Perforating Division 2.0 2 - - 2 -
Fracturing
Division(B) - - - - 2 -
---------------------------------------------------------------------------
US Completion
Services Total 21.0 22 9.7 11 25 13
---------------------------------------------------------------------------
(A) - Expected equipment capacity as at December 31, 2006 based on
approved budgets.
(B) - A fracturing spread is made up of several pieces of specialized
equipment.


US Completion Services Income / (Loss) before Income Taxes

US Completion Services income before income taxes decreased from $0.8 million recorded during the 2005 third quarter to a loss of $0.2 million during the 2006 third quarter. The decrease was largely a result of lower margins experienced in the Production Testing division, an increase in US administrative expenses and an operating loss recorded by the Logging and Perforating division during the quarter.

Production Testing margins have decreased as a result of lower unit utilization, a decrease in UBD activity and increases in salary and repairs and maintenance expenses. 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. The operating loss generated by the Logging and Perforating division was primarily a result of lower than expected revenue generated by the division.



Drilling Services

Three months Sept- Sept- Year-Over-
ended ember ember Year Change
($ thousands, 30, % of 30, % of Percent-
unaudited) 2006 Revenue 2005 Revenue $ age
---------------------------------------------------------------------------
Revenue $ 8,971 100% $ 3,878 100% $ 5,093 131%
Expenses
Operating 5,033 56.1% 2,280 58.8% 2,753 121%
Selling,
general and
administrative 357 4.0% 206 5.3% 151 73%
Depreciation
and
amortization 373 4.2% 121 3.1% 252 208%
Other income (136) (1.5)% (136)

Income before
income taxes 3,344 37.3% 1,271 32.8% 2,073 163%
---------------------------------------------------------------------------


Drilling Services Revenue

Drilling Services revenue increased 131% for the three months ended September 30, 2006 compared to the three months ended September 30, 2005. Drilling Services revenue increased largely as a result of the emergence of the Motorworks rental division, an increase in drilling day rates and an increase in equipment capacity.

Average drilling day rates increased approximately 26% largely as a result of pricing increases finalized during the 2005 fourth quarter. An average of 8 drilling rigs operated during the three months ended September 30, 2006 at an average utilization rate of 44% compared to an average of four drilling rigs operating during the three months ended September 30, 2005 at an average utilization rate of 56%. Utilization decreased as a result of the activity slowdown experienced during the quarter. The Motorworks acquisition was effective November 1, 2005 and accounted for approximately 38% of the Drilling Services segment revenue during the 2006 third quarter. The Motorworks rental division has increased revenue by approximately 80% relative to the 2006 second quarter as a result of a significant increase in utilization.



---------------------------------------------------------------------------
2006 2005 As at
Drilling Services Third Quarter Third Quarter December 31,
Unit Complement Average Ending Average Ending 2006(A) 2005
---------------------------------------------------------------------------
Drilling rigs 8.0 8 4.0 4 10 6
Mud motors 35.3 35 - - 65 8
---------------------------------------------------------------------------
(A) - Expected equipment capacity as at December 31, 2006 based on
approved budgets.


Drilling Services Income before Income Taxes

Income before income taxes for the Drilling Services Segment increased approximately $2.1 million for the three months ended September 30, 2006 compared to the three months ended September 30, 2005. The increase reflected the increase in drilling revenue and higher drilling margins combined with the contribution from the Motorworks rental division. The increase in income before income taxes as a percentage of revenue was a result of operational leverage on the divisional fixed expenses. The higher revenue base combined with higher drilling day rates largely account for the increased operational leverage.



Corporate

---------------------------------------------------------------------------
Three months Sept- % of Sept- % of Year-Over-
ended ember Consol- ember Consol- Year Change
($ thousands, 30, idated 30, idated Percent-
unaudited) 2006 Revenue 2005 Revenue $ age
---------------------------------------------------------------------------
Expenses
Selling,
general and
administrative $2,704 7.6% $ 1,522 5.7% $1,182 77 %
Depreciation
and
amortization 135 0.3% 36 0.2% 99 275 %
Interest 136 0.4% 333 1.3% (197) (60)%
Foreign exchange
loss (15) 158 0.6% (173) (110)%
Other income - (111) (0.4)% 111 (100)%

Loss before
income taxes (2,960) (8.4)% (1,938) (7.8)% (1,022) 53 %
---------------------------------------------------------------------------


Corporate expenses for the three months ended September 30, 2006 increased 53% compared to the three months ended September 30, 2005, and relative to a 33% increase in consolidated revenue for the same comparative periods. Selling, general and administrative ("SG&A") expenses increased $1.2 million or 77%, mainly as a result of higher salaries and related, corporate and office expenses associated with the growth of the Corporation and additional public company expenses. Stock based compensation expense of approximately $0.3 million recorded during the quarter also contributed to the increase.

Interest expense decreased as a result of lower debt balances carried during the 2006 third quarter compared to the 2005 third quarter.

Income Tax Expense

The 2006 third quarter income tax expense reflects the tax provision relating to the income before income taxes recorded during the quarter. The current income tax recovery and the large future income tax expense recorded during the quarter were largely a result of the deferral of taxable income relating to the Canadian operations partnership.



Results of Operations

Nine Months Ended September 30, 2006 Compared to the Nine Months Ended
September 30, 2005

Completion Services

---------------------------------------------------------------------------
Overall Financial
Results
Nine months Sept- Sept- Year-Over-
ended ember ember Year Change
($ thousands, 30, % of 30, % of Percent-
unaudited) 2006 Revenue 2005 Revenue $ age
---------------------------------------------------------------------------
Revenue $ 75,674 100% $56,147 100% $19,527 35%
Expenses
Operating 52,115 68.9% 38,542 68.6% 13,573 35%
Selling,
general and
administrative 4,738 6.3% 4,152 7.4% 586 14%
Depreciation
and
amortization 4,759 6.3% 3,143 5.6% 1,616 51%
Other expense 50 0.1% (43) 93

Income before
income taxes 14,012 18.6% 10,353 18.4% 3,659 35%
---------------------------------------------------------------------------


The Completion Services Segment achieved increases in revenue and income before income taxes during the nine months ended September 30, 2006 of 35% compared to the nine months ended September 30, 2005. The increased results reflect continued strong demand for services during the 2006 first quarter, the impact of expanded equipment capacity and the growth in revenue and income before income taxes for the Multiline division. The increase in Canadian Completion Services income before income taxes was partially offset by a loss recorded by the US Completion Services during the nine months ended September 30, 2006.



---------------------------------------------------------------------------
Canadian Completion Services Financial Results

Nine months Sept- Sept- Year-Over-
ended ember ember Year Change
($ thousands, 30, % of 30, % of Percent-
unaudited) 2006 Revenue 2005 Revenue $ age
---------------------------------------------------------------------------
Revenue $ 60,407 100% $48,007 100% $12,400 26 %
Expenses
Operating 39,294 65.0% 32,806 68.3% 6,488 20 %
Selling,
general and
administrative 3,328 5.5% 3,706 7.7% (378) (10)%
Depreciation
and
amortization 3,570 5.9% 2,760 5.7% 810 29 %
Other expense 48 0.1% (43) 91

Income before
income taxes 14,167 23.5% 8,778 18.2% 5,389 61 %
---------------------------------------------------------------------------


Canadian Completion Services Revenue

Revenue for Canadian Completion Services increased 26% for the nine months ended September 30, 2006 compared to the nine months ended September 30, 2005. Increases in equipment capacity and average revenue per job were partially offset by a decrease in unit utilization. Unit utilization has decreased during the nine months ended September 30, 2006 largely as a result of a decrease in 2006 third quarter unit utilization partially offset by strong industry activity during the 2006 first quarter. 2006 third quarter unit utilization decreased largely as a result of lower industry activity levels with the largest impact experienced by the Logging and Perforating division.

The Production Testing division experienced significant revenue growth during the first nine months of 2006. The revenue growth was a result of a significant increase in job count coupled with an increase in average revenue per job. The increase in job count was a result of a five unit increase in the average number of units operating during the quarter coupled with a small increase in utilization. The increase in average revenue per job was largely a result of pricing increases implemented during 2005.

The Multiline division experienced significant revenue growth during the first nine months of 2006. The revenue growth was a result of a significant increase in job count coupled with an increase in average revenue per job. The increase in job count was largely a result of a four unit increase in the average number of units operating during the period. The increase in average revenue per job was largely a result of pricing increases implemented during 2005 coupled with an increase in the amount of work performed in the deep critical sour market which typically generates higher average revenue per job.

The Logging and Perforating division experienced a more moderate level of revenue growth during the first nine months of 2006. The revenue growth was a result of an increase in average revenue per job partially offset by a decrease in job count. The increase in average revenue per job was largely a result of pricing increases implemented since the 2005 third quarter. The decrease in job count was primarily a result of lower activity experienced during the 2006 second and third quarters.

Canadian Completion Services Income before Income Taxes

Canadian Completion Services income before income taxes increased approximately 61% largely as a result of the increase in revenue combined with higher income before income tax percentages realized by the Multiline division.

The Multiline division's income before income taxes as a percentage of revenue increased approximately twenty percentage points largely as a result of an increase in revenue per job translating into higher margins and operational leverage on the division's fixed expenses.



---------------------------------------------------------------------------
US Completion Services Financial Results

Nine months Sept- Sept- Year-Over-
ended ember ember Year Change
($ thousands, 30, % of 30, % of Percent-
unaudited) 2006 Revenue 2005 Revenue $ age
---------------------------------------------------------------------------
Revenue $ 15,267 100% $ 8,140 100% $ 7,127 88 %
Expenses
Operating 12,821 84.0% 5,736 70.5% 7,085 124 %
Selling,
general and
administrative 1,410 9.2% 446 5.5% 964 216 %
Depreciation
and
amortization 1,189 7.8% 383 4.7% 806 210 %
Other expense 2 2

Income / (loss)
before income
taxes (155) (1.0)% 1,575 19.3% (1,730) (110)%
---------------------------------------------------------------------------


US Completion Services Revenue

Revenue for US Completion Services increased 88% for the nine months ended September 30, 2006 compared to the nine months ended September 30, 2005 primarily as a result of increased equipment capacity partially offset by a decrease in unit utilization and a 7% decrease in the average CAD/USD exchange rate. The average number of units operating in the US Rocky Mountain region increased from 6.6 units operating during the first nine months of 2005 to 18.2 units operating during the first nine months of 2006.

Average revenue per job for the first nine months of 2006 was consistent with the comparable period in 2005. A decrease in the average revenue per job experienced by the conventional production testing equipment was 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 as a result of an increase in the volume of work performed under contract.

US Completion Services Income before Income Taxes

US Completion Services income before income taxes decreased from $1.6 million recorded during the nine months ended September 30, 2005 to a $0.2 million loss recorded during the nine months ended September 30, 2006. The decrease was largely a result of lower margins experienced in the Production Testing division, an increase in US administrative expenses and an operating loss recorded by the Logging and Perforating division.



Drilling Services

---------------------------------------------------------------------------
Nine months Sept- Sept- Year-Over-
ended ember ember Year Change
($ thousands, 30, % of 30, % of Percent-
unaudited) 2006 Revenue 2005 Revenue $ age
---------------------------------------------------------------------------
Revenue $ 24,803 100% $ 9,070 100% $15,733 173%
Expenses
Operating 14,133 57.0% 5,690 62.7% 8,443 148%
Selling,
general and
administrative 1,140 4.6% 593 6.5% 547 92%
Depreciation
and
amortization 1,023 4.1% 421 4.6% 602 143%
Other expense
/ (income) (136) (0.5)% (136)

Income before
income taxes 8,643 34.8% 2,366 26.1% 6,277 265%
---------------------------------------------------------------------------


Drilling Services Revenue

Drilling Services revenue increased 173% for the nine months ended September 30, 2006 compared to the nine months ended September 30, 2005. A significant increase in equipment capacity, incremental revenue from the Motorworks rental division and an increase in drilling day rates accounted for the increase in revenue during the nine months ended September 30, 2006.

Drilling Services Income before Income Taxes

Income before income taxes for the Drilling Services Segment increased approximately 265% for the nine months ended September 30, 2006 compared to the nine months ended September 30, 2005. The increase reflected the significant increase in the Drilling division's revenue and income taxes as a percentage of revenue as a result of operational leverage on fixed expenses and the incremental income before income taxes generated by the Motorworks rental division.



Corporate

---------------------------------------------------------------------------
Nine months Sept- % of Sept- % of Year-Over-
ended ember Consol- ember Consol- Year Change
($ thousands, 30, idated 30, idated Percent-
unaudited) 2006 Revenue 2005 Revenue $ age
---------------------------------------------------------------------------
Expenses
Selling,
general and
administrative $ 6,987 7.0% $ 3,225 4.9% $ 3,762 117 %
Depreciation
and
amortization 323 0.3% 92 0.1% 231 251 %
Interest 431 0.4% 1,014 1.6% (583) (57)%
Foreign
exchange
loss 294 0.3% 176 0.3% 118 67 %
Other income (206) (0.2)% (112) (0.2)% (94) 84 %

Loss before
income taxes (7,829) (7.8)% (4,395) (6.7)% (3,434) 78 %
---------------------------------------------------------------------------


Corporate expenses for the nine months ended September 30, 2006 increased 78% compared to the nine months ended September 30, 2005, and relative to the 54% increase in consolidated revenue for the same comparative period. SG&A expenses increased $3.8 million or 117%, mainly as a result of higher salaries and related, corporate and office expenses associated with the growth of the Corporation and additional public company expenses. Stock based compensation expense of approximately $0.8 million also contributed to the increase. Interest expense decreased $0.6 million as a result of lower debt balances carried during the nine months ended September 30, 2006 compared to the nine months ended September 30, 2005.

Income Tax Expense

Income tax expense increased proportionately with the increase in profitability during the nine months ended September 30, 2006. The income tax provision for the nine months ended September 30, 2006 reflects Canadian Federal and Provincial income tax rate reductions which resulted in a $0.8 million reduction to future income tax expense. Current income tax expense increased largely as a result of the previously deferred partnership income from 2005 included in taxable income during the 2006 first quarter.

Liquidity and Capital Resources

Cash Provided by Operating Activities for the Three Months Ended September 30, 2006

The Corporation used a net of $0.4 million in cash relating to operating activities during the three months ended September 30, 2006. Cash payments related to operating expenses exceeded cash received for services performed and income tax refunds received during the quarter by $0.4 million.

Cash Provided by Operating Activities for the Nine Months Ended September 30, 2006

The Corporation provided a net of $16.8 million in cash relating to operating activities during the nine months ended September 30, 2006. Cash received for services performed and income tax refunds received exceeded cash payments related to operating expenses and income taxes during the nine months ended September 30, 2006 by $16.8 million.



Working Capital
---------------------------------------------------------------------------
As at As at
($ thousands) September 30, 2006 December 31, 2005
---------------------------------------------------------------------------
(unaudited) (audited)

Current assets $ 36,361 $ 33,826
Current liabilities 22,597 13,955
---------------------------------------------------------------------------
Working capital $ 13,764 $ 19,871
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The decrease in working capital from December 31, 2005 to September 30, 2006 was largely a result of the increase in the operating loan of $7.7 million and the decrease in cash of $1.7 million partially offset by the current portion of the note receivable and increases in accounts receivable and deposits and prepaid expenses of $1.4 million and $0.9 million, respectively.

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

On February 6, 2006, the Corporation completed an initial public offering of 3.125 million common shares for net proceeds of approximately $45.9 million. The net proceeds were used to repay $21.5 million of the outstanding balance under the Corporation's extendible revolving loan facility with the balance remaining as cash. The remaining cash, cash flow from operations generated in 2006 and a portion of the unused borrowing capacity will be used to fund the Corporation's 2006 capital expenditure program.

As at November 9, 2006, the Corporation had 15,847,031 common shares and 1,479,360 stock options outstanding.

The Corporation, through the conduct of its operations, has undertaken certain contractual obligations. As at September 30, 2006, the Corporation's contractual obligations were as follows:



(Stated in thousands of dollars) Payments Due by Period
---------------------------------------------------------------------------
Less than 1 1 - 3 4 - 5 After
Contractual Obligations Total Year Years Years 5 Years
---------------------------------------------------------------------------
Long-term debt obligations (1) 9,750 1,375 3,167 2,125 3,083
---------------------------------------------------------------------------
Purchase obligations (2) 30,963 30,963 - - -
---------------------------------------------------------------------------
Operating leases 8,949 2,986 3,685 1,607 671
---------------------------------------------------------------------------
Total Contractual Obligations 49,662 35,324 6,852 3,732 3,754
---------------------------------------------------------------------------

(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 2006.

(2) Purchase obligations represent an agreement to purchase goods or
services that is enforceable and legally binding.


Cash Requirements

The Corporation has historically financed its capital expenditures with funds from operations, equity issues and debt. As at September 30, 2006, the Corporation had a number of ongoing capital projects and estimates that $32.4 million of additional capital expenditures will be required to complete these projects. The Corporation estimates that an additional $13.4 million will be required for projects that had not commenced as of September 30, 2006, which represents the remainder of its 2006 capital budget.

Accounting Policies

During the nine months ended September 30, 2006, the Corporation started up the US Fracturing and Logging and Perforating divisions and has incurred expenditures ("pre-operating expenditures") that are incremental in nature and directly related to placing the new divisions into service. Management has deferred the pre-operating expenditures until such time as these divisions are ready to commence commercial operations. The US Fracturing division has not commenced commercial operations to date. Commercial operations are expected to commence during the 2006 fourth quarter once the fracturing equipment is delivered, the necessary regulatory approvals are obtained and all other factors necessary to commence commercial operations have been met. The US Logging and Perforating division commenced commercial operations during the 2006 second quarter. Management is confident that the capitalized pre-operating expenditures relating to the US Fracturing and Logging and Perforating divisions will be recoverable from future operations.

The Corporation has adopted an accounting policy whereby it defers all expenditures relating to the start-up of new businesses. Deferred pre-operating expenditures are recorded at cost, net of incidental revenues, during the pre-operating period of the new businesses and are amortized on a straight-line basis over five years upon commencement of commercial operations. The adoption of this accounting policy is in accordance with GAAP.

The adoption of this accounting policy has resulted in the Corporation deferring $0.7 million and $1.8 million of expenditures for the three and nine months ending September 30, 2006, respectively. As a result, operating expenses have decreased by this amount during the three and nine months ended September 30, 2006. Amortization of the US Logging and Perforating division pre-operating expenditures commenced during the three and nine months ended September 30, 2006. No amortization has been recorded relating to the US fracturing division pre-operating expenditures as the new business has not commenced commercial operations.

Business Risks

A complete discussion on business risks faced by the Corporation may be found in the Corporation's Annual Information Form dated March 10, 2006 filed on SEDAR at www.sedar.com.



Summary of Quarterly Results

---------------------------------------------------------------------------
($ millions,
except per
share amounts, 2006 2005 2004
unaudited) Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
---------------------------------------------------------------------------

Revenue $ 35.4 $ 22.9 $ 42.1 $ 35.3 $ 26.7 $ 15.6 $ 22.8 $ 14.8
Net income /
(loss) 3.3 (0.2) 7.2 5.7 2.9 (0.5) 2.8 0.5
Earnings /
(loss) per
share
Basic $ 0.21 $ (0.02) $ 0.49 $ 0.47 $ 0.26 $ (0.05) $ 0.32 $ 0.08
Diluted $ 0.20 $ (0.02) $ 0.47 $ 0.45 $ 0.25 $ (0.05) $ 0.31 $ 0.08
---------------------------------------------------------------------------


Revenue, net income (loss) and earnings (loss) per share have generally increased on a sequential quarterly basis during the previous eight quarters largely as a result of the Corporation's significant equipment expansion coupled with strong industry activity levels experienced in both the WCSB and the US Rocky Mountain region.

The quarterly results are also significantly influenced by the seasonality of the Canadian Operations which tend to experience the highest and lowest industry activity levels during the first quarter and second quarters, respectively.

Seasonality

Equipment utilization in the Canadian Operations is affected by weather conditions to varying degrees, with geographic location and type of service being a factor. The Canadian Operations tend to be more active during the winter months from November to March as the movement of heavy equipment is easier over frozen ground since many wellsite locations are only accessible during the winter months. The Canadian Operations typically experience the lowest levels of equipment utilization during April and May, however, field operations located in northern British Columbia and northern Alberta typically experience reduced activity levels throughout the summer months. All services provided by the Canadian Operations are affected by wet weather and road bans; however, the impact on the Drilling Services Segment is typically more pronounced due to increased challenges encountered when moving drilling rigs.

The weather does not have as significant an impact on equipment utilization in the US Operations. Access to wellsite locations is not typically dependent on ground conditions in the US Rocky Mountain region. As a result, oilfield services industry activity in the US Rocky Mountain region does not tend to be seasonal in nature.

Outlook

The near term outlook for natural gas prices is uncertain as a result of the historically high North American natural gas storage levels. This uncertainty is impacting the expected near term activity levels in the WCSB. Both of the Canadian Completion Services and Drilling Services segments felt the impact of the reduced activity levels during the third quarter. Activity levels early in the 2006 fourth quarter are consistent with third quarter activity levels as rig utilization has remained consistent with third quarter levels to date. Activity levels during the second half of the 2006 fourth quarter are expected to increase due to the onset of the winter drilling season; however, activity levels will likely not be as robust as the activity levels experienced during the 2005 fourth quarter as producers are not likely to accelerate their drilling programs similar to last year.

2007 expected activity levels are uncertain at this time. Many industry watchers are forecasting a decline in the WCSB well count with Petroleum Services Association of Canada recently revising its forecast and expecting a 10% decrease in 2007. It appears that producers will be moderately active during the winter drilling season and will likely take a wait-and-see approach to determine the magnitude of the drawdown of natural gas storage levels during the winter heating season. Management still believes the medium-to-long term outlook for the industry is positive as the impact of gas production decline rates will ultimately reduce the natural gas storage levels; the uncertainty revolves around the timing of the decline in natural gas storage.

The US Completion Services segment results so far this year have been disappointing relative to management's expectations. Significant growth in the Production Testing division has resulted in a weakening of margins for this division. Significant equipment delivery delays experienced in the Fracturing division have delayed the start up of this division by months. Management is still very optimistic regarding the prospects of the US Completion Services segment in 2007 despite the challenges encountered so far during the year. Management is working on improving the Production Testing and Logging and Perforating margins and increasing the UBD activity. The first full fracturing spread was recently delivered and it has successfully completed its first fracturing job this week. Activity for the Fracturing division during the remainder of the year will likely be intermittent as the division works through initial start up operational issues, gains customer acceptance and starts receiving regular deliveries of 20/40 sand near the end of the year. Management also expects delivery of the second fracturing spread by the end of the year.


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 Nine Months ended
September 30, September 30,
($ millions, unaudited) 2006 2005 2006 2005
---------------------------------------------------------------------------

EBITDA $ 7.4 $ 6.4 $ 21.4 $ 13.0
Deduct:
Depreciation and amortization 2.3 1.3 6.1 3.6
Other interest - 0.4 - 1.0
Interest on long-term debt 0.2 - 0.4 -
Income taxes (1) 1.6 1.8 4.6 3.2
Net income 3.3 2.9 10.3 5.2
---------------------------------------------------------------------------
(1) Income taxes consist of current income taxes and future income taxes.


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.

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 "Risk Factors" in the Corporation's Annual Information Form dated March 10, 2006 which is available under the Corporation's profile at www.sedar.com.


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
    Website: www.pure-energy.ca