Pure Energy Services Ltd.
TSX : PSV

Pure Energy Services Ltd.

August 13, 2008 08:46 ET

Pure Energy-2008 Second Quarter Summary Financial Statements and M D & A

CALGARY, ALBERTA--(Marketwire - Aug. 13, 2008) - Pure Energy Services Ltd. (TSX:PSV):



PURE ENERGY SERVICES LTD.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

JUNE 30, 2008


PURE ENERGY SERVICES LTD.
Consolidated Balance Sheets

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(Unaudited, stated in thousands of dollars)
June 30, December 31,
2008 2007
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Assets

Current assets
Cash $ 4,031 $ 1,855
Accounts receivable 18,928 22,176
Inventory 3,377 2,915
Deposits and prepaid expenses 2,494 1,514
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28,830 28,460

Property and equipment 165,377 162,291

Intangible assets 2,080 2,315
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$ 196,287 $ 193,066
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Liabilities and Shareholders' Equity

Current liabilities
Operating loan (Note 4) $ 4,204 $ 1,380
Accounts payable and accrued liabilities 11,774 13,539
Income taxes payable 1,087 274
Current portion of long-term debt 629 333
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17,694 15,526

Long-term debt (Note 5) 43,634 40,500
Future income taxes 4,964 6,973

Shareholders' equity

Share capital (Note 6) 106,510 106,002
Contributed surplus 3,257 2,853

Accumulated other comprehensive loss (3,261) (4,098)
Retained earnings 23,489 25,310
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20,228 21,212
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129,995 130,067
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Contingency (Note 12)

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$ 196,287 $ 193,066
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See accompanying notes to the interim consolidated financial statements.


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

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

Three months ended Six months ended
June 30, June 30,
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2008 2007 2008 2007
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Revenue $ 32,087 $ 16,510 $ 78,781 $ 62,616

Expenses
Operating 28,278 17,790 62,365 49,421
Selling, general and administrative 4,847 5,182 10,145 10,480
Depreciation and amortization 3,803 2,864 7,612 6,026
Interest on long-term debt 591 478 1,255 771
Other interest 11 99 90 295
Foreign exchange loss (gain) (8) 38 9 30
Other income (expense) (10) 3,892 (13) 3,776
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37,512 30,343 81,463 70,799

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Loss before income taxes (5,425) (13,833) (2,682) (8,183)

Income taxes
Current expense (reduction) 376 (1,775) 1,002 2,338
Future reduction (1,987) (2,789) (1,863) (5,082)
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(1,611) (4,564) (861) (2,744)

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Net loss (3,814) (9,269) (1,821) (5,439)

Retained earnings, beginning of
period, as previously reported 27,303 32,669 25,310 29,556

Adjustment relating to fair value
accounting of financial instrument - - - (717)
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Retained earnings, beginning of
period, as re-stated 27,303 32,699 25,310 28,839
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Retained earnings, end of period $ 23,489 $ 23,400 $ 23,489 $ 23,400
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Loss per share (Note 7)
Basic $ (0.24) $ (0.58) $ (0.11) $ (0.34)
Diluted $ (0.24) $ (0.58) $ (0.11) $ (0.34)
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See accompanying notes to the interim consolidated financial statements.


PURE ENERGY SERVICES LTD.
Consolidated Statements of Comprehensive Loss and Accumulated Other
Comprehensive Loss

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

Three months ended Six months ended
June 30, June 30,
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2008 2007 2008 2007
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Net loss $ (3,814) $ (9,269) $ (1,821) $ (5,439)

Other comprehensive loss, net of tax:

Unrealized gain / (loss) on
translating financial
statements of self-sustaining
foreign operations (177) (2,196) 837 (2,429)

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Other comprehensive income (loss)
for the period (177) (2,196) 837 (2,429)

Comprehensive loss for the period $ (3,991) $(11,465) $ (984) $ (7,868)
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Three months ended Six months ended
June 30, June 30,
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2008 2007 2008 2007
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Accumulated other comprehensive loss
on translation of foreign operations

Balance, beginning of period $ (3,084) $ 8 $ (4,098) $ -
Impact of translating financial
statements of self-sustaining
foreign operations on
January 1, 2007 - - - 241
Unrealized gain / (loss) on
translation of foreign operations
during the period (177) (2,196) 837 (2,429)
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Balance, end of period (177) (2,196) 837 (2,188)

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Total accumulated other comprehensive
loss for the period $ (3,261) $ (2,188) $ (3,261) $ (2,188)
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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, except per share amounts)

Three months ended Six months ended
June 30, June 30,
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2008 2007 2008 2007
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Cash provided by (used in)
Operating activities
Net loss $ (3,814) $ (9,269) $ (1,821) $ (5,439)
Items not involving cash:
Depreciation and amortization 3,803 2,864 7,612 6,026
Future income tax reduction (1,987) (2,789) (1,863) (5,082)
Impairment of note receivable - 4,247 - 4,247
Stock-based compensation 182 338 862 705
Gain on sale of equipment (10) (355) (13) (359)
Unrealized foreign exchange loss 5 - - 8
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(1,821) (4,964) 4,777 106
Changes in non-cash working capital
balances (Note 9) 11,234 17,020 2,393 17,768
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9,413 12,056 7,170 17,874

Investing activities
Purchases of property and equipment (7,812) (5,400) (10,068) (21,909)
Note receivable - - - 473
Proceeds from the sale of equipment 47 900 76 1,061
Changes in non-cash working capital
balances (Note 9) (168) (3,967) (1,393) (4,347)
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(7,933) (8,467) (11,385) (24,722)

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Financing activities
Operating loan (4,197) (8,506) 2,636 (10,485)
Issuance of long-term debt 3,559 5,000 3,559 17,500
Repayment of long-term debt (56) (83) (139) (167)
Issue of share capital, net of issue
costs 50 - 50 -
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(644) (3,589) 6,106 6,848

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Increase in cash 836 - 1,891 -
Effect of translation on foreign
currency cash and cash equivalents (4) - 97 -

Cash, beginning of period 3,199 - 2,043 -
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Cash, end of period $ 4,031 $ - $ 4,031 $ -
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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 six months ended June 30, 2008 and 2007

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(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 US 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, locations in more northern regions of Canada are accessible only in winter months where the ground is frozen enough to support the equipment. As a result of this seasonality, the Corporation's activity is traditionally higher in the first and fourth quarters of the year than in the second and third quarters.

2. Principles of presentation

These unaudited interim consolidated financial statements of the Corporation have been prepared by management in accordance with accounting principles generally accepted in Canada following the same accounting policies and methods of application as the consolidated financial statements of the Corporation for the year ended December 31, 2007, except as disclosed in Note 3 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, 2007.

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 six months ended June 30, 2008 and 2007.

3. Changes in accounting policies

(a) On January 1, 2008, the Corporation adopted new Canadian accounting standards for financial instruments, inventories and capital disclosures. The new standards have been adopted on a prospective basis with no restatement of prior periods.

Financial Instruments - Disclosures

The new standard increases the Corporation's disclosure regarding the nature and extent of the risks associated with financial instruments and how those risks are managed. The adoption of this new standard has not materially impacted the Corporation's consolidated financial statements (see Note 11).

Financial Instruments - Presentation

The new standard carries forward the former presentation requirements. The adoption of this new standard has not materially impacted the Corporation's consolidated financial statements.

Inventories

The new standard replaces the previous inventories standard and requires inventory to be valued on a first-in, first-out or weighted average basis, which is consistent with the Corporation's current accounting policy. The new standard allows the reversal of previous write-downs to net realizable value when there is a subsequent increase in the value of the inventories. The adoption of this new standard has not materially impacted the Corporation's consolidated financial statements.

Capital Disclosures

The new standard requires the Corporation to disclose its objectives, policies and processes for managing its capital structure (see Note 10).

(b) In 2009, the Corporation will adopt new Canadian accounting standards for goodwill and intangible assets. The new standards establish guidelines for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The Corporation is currently assessing the impact of these new standards on its consolidated financial statements.

4. 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 thereof. US dollar advances are available with interest at the bank's US base rate plus 0.5% per annum. The loan is secured by a general security agreement.

5. Long term debt

The Corporation has a $60,000 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 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 thereof. The extendible revolving facility is extendible annually at the bank's option. The current renewal date of this facility is June 30, 2009. 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 real property.

During June 2008, the Corporation entered into a US$3,500 term loan advanced at the US Bank consensus prime rate minus 1%, adjusted annually on the anniversary date. The mortgage is repayable monthly over 10 years. The loan is secured by a mortgage covering certain of the Corporation's real property.



6. Share capital

(a) Common shares issued:

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Number of
Shares Amount
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(000's)

Balance, December 31, 2007 15,847 $ 106,002
Options exercised 50 450
Balance, March 31, 2008 15,897 106,452
Options exercised 8 58
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Balance, June 30, 2008 15,905 $ 106,510
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(b) Escrow shares:

As at June 30, 2008, the Corporation has 152,000 shares (2007 - 1,338,000) held in escrow that are being released over a period of time ranging from 180 days to three years from the date of closing of the initial public offering, which occurred on February 6, 2006.

(c) Stock options:

The average fair value of options issued during the three and six months ended June 30, 2008 was $3.04 (2007 - $4.00) and $2.88 (2007 - $4.13), respectively per option using the Black-Scholes option pricing model. The compensation cost to the Corporation for the three and six months ending June 30, 2008 was $182 (2007 - $338) and $862 (2007 - $705), respectively.



7. Loss per share

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Three months ended Six months ended
June 30, June 30,
2008 2007 2008 2007
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Net loss available to common
shareholders $ (3,814) $ (9,269) $ (1,821) $ (5,439)
Weighted average number of
common shares 15,898,877 15,847,031 15,885,591 15,847,031

Basic loss per share $ (0.24) $ (0.58) $ (0.11) $ (0.34)
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Net loss available to common
shareholders $ (3,814) $ (9,269) $ (1,821) $ (5,439)
Weighted average number of
common shares 15,898,877 15,847,031 15,885,591 15,847,031
Dilutive effect of stock
options - - - -
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Diluted weighted average
number of common shares 15,898,877 15,847,031 15,885,591 15,847,031

Diluted loss per share $ (0.24) $ (0.58) $ (0.11) $ (0.34)
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8. Segmented information

The Corporation operates in two main industry segments which operate in two geographic areas. The Canadian Completion Services segment conducts operations in the Western Canadian Sedimentary Basin ("WCSB") and provides logging and perforating, production testing, multiline and pressure transient analysis services which are performed on new and producing oil and gas wells to exploration and production companies.

The US Completion Services segment conducts operations in the Rocky Mountain region of the United States and provides logging and perforating, production testing and fracturing services which are performed on new and producing oil and gas wells to exploration and production companies.

The Drilling Services segment conducts operations in the WCSB and provides contract drilling services and equipment rentals to oil and gas exploration and production companies.



The segmented amounts are as follows:

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Canadian US
Three months ended Completion Completion Drilling
June 30, 2008 Services Services Services Corporate Total
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Revenue $ 7,124 $ 22,142 $ 2,821 $ - $ 32,087
Income (loss) before
income taxes (3,701) 1,461 (854) (2,331) (5,425)
Depreciation and
amortization 1,665 1,608 321 209 3,803
Capital expenditures 768 6,697 342 5 7,812
Total assets 49,181 87,732 53,768 5,606 196,287
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Canadian US
Three months ended Completion Completion Drilling
June 30, 2007 Services Services Services Corporate Total
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Revenue $ 6,556 $ 8,543 $ 1,411 $ - $ 16,510
Loss before income
taxes (5,408) (681) (1,320) (6,424) (13,833)
Depreciation and
amortization 1,602 1,031 231 - 2,864
Capital expenditures 1,065 3,127 936 272 5,400
Total assets 56,794 70,333 52,301 2,715 182,143
Goodwill 745 - 485 - 1,230
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Canadian US
Six months ended Completion Completion Drilling
June 30, 2008 Services Services Services Corporate Total
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Revenue $ 25,462 $ 35,803 $ 17,516 $ - $ 78,781
Income (loss) before
income taxes (1,335) 1,070 2,861 (5,278) (2,682)
Depreciation and
amortization 3,132 3,077 1,080 323 7,612
Capital expenditures 2,092 7,366 583 27 10,068
Total assets 49,181 87,732 53,768 5,606 196,287
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Canadian US
Six months ended Completion Completion Drilling
June 30, 2007 Services Services Services Corporate Total
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Revenue $ 30,477 $ 17,320 $ 14,819 $ - $ 62,616
Income (loss) before
income taxes (1,469) (966) 2,920 (8,668) (8,183)
Depreciation and
amortization 3,173 2,075 778 - 6,026
Capital expenditures 2,859 14,351 3,978 721 21,909
Total assets 56,794 70,333 52,301 2,715 182,143
Goodwill 745 - 485 - 1,230
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The Corporation operates in the following geographic locations:

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Three months ended
June 30, 2008 Canada United States Total
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Revenue $ 9,945 $ 22,142 $ 32,087
Income (loss) before income taxes (6,886) 1,461 (5,425)
Property and equipment 90,273 75,104 165,377
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Three months ended
June 30, 2007 Canada United States Total
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Revenue $ 7,967 $ 8,543 $ 16,510
Loss before income taxes (8,904) (4,929) (13,833)
Property and equipment 97,253 61,765 159,018
Goodwill 1,230 - 1,230
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Six months ended
June 30, 2008 Canada United States Total
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Revenue $ 42,978 $ 35,803 $ 78,781
Income (loss) before income taxes (3,752) 1,070 (2,682)
Property and equipment 90,273 75,104 165,377
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Six months ended
June 30, 2007 Canada United States Total
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Revenue $ 45,296 $ 17,320 $ 62,616
Loss before income taxes (2,969) (5,214) (8,183)
Property and equipment 97,253 61,765 159,018
Goodwill 1,230 - 1,230
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9. Supplemental cash flow information

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Three months ended Six months ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
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Interest paid $ 605 $ 732 $ 1,348 $ 1,150
Income taxes paid 177 - 177 -
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Components of change in non-cash
working capital balances:
Accounts receivable $ 14,546 $ 21,785 $ 3,425 $ 17,663
Inventory (500) (695) (397) (1,072)
Prepaid expenses and deposits (1,102) (1,547) (956) (1,442)
Accounts payable and accrued
liabilities (2,078) (4,716) (1,897) (4,066)
Income taxes payable 200 (1,774) 825 2,338
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11,066 13,053 1,000 13,421
Change in non-cash working capital
on investing activities (168) (3,967) (1,393) (4,347)
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Change in non-cash working capital
on operating activities $ 11,234 $ 17,020 $ 2,393 $ 17,768
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10. Capital disclosures

The Corporation's capital structure is comprised of Shareholders' Equity plus Long-Term Debt. The Corporation's objective when managing its capital structure is to preserve the financial flexibility to maintain investor, creditor and market confidence and to sustain future growth and development of the Corporation.

The Corporation's capital management policies are aimed at:

- maintaining an appropriate balance between short-term debt, long-term debt and equity;

- maintaining sufficient undrawn committed credit capacity to provide liquidity;

- ensuring ample covenant room to draw on the credit lines as required; and

- maintaining a level of leverage with sufficient room for increases when necessary.

The Corporation monitors its capital structure and short-term financing requirements using non-GAAP financial metrics consisting of Net Debt to Capitalization and Net Debt to Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA"). The metrics are used to steward the Corporation's overall debt position as measures of the Corporation's overall financial strength.

The Corporation operates in a cyclical industry and as a result has experienced significant fluctuations in historical financial results during past cycles. The industry cyclicality and fluctuations in financial results are expected to continue in the future.

Management is focused on the future growth of the Corporation. Management expects to experience short-term breaches in the Corporation's capital management financial targets due to its growth focus and industry cyclicality. Management is able to tolerate these short-term breaches as long as its expectation of future financial performance is sufficient to reduce the breaches in its capital management financial targets below its stated targets in the near future.

The Corporation aims to maintain a Net Debt to Capitalization ratio of less than 40% that is calculated as follows:



As at
June 30, December 31,
2008 2007
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Long-Term Debt, excluding current portion $ 43,634 $ 40,500
Less: Working capital (11,136) (12,934)
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Net Debt 32,498 27,566
Total Shareholders' Equity 129,995 130,067
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Total Capitalization $ 162,493 $ 157,633
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Net Debt to Capitalization ratio 20% 17%
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The Corporation monitors Net Debt to EBITDA on a trailing and forward basis. The Corporation typically targets Net Debt to EBITDA of less than 2.5 times. As at June 30, 2008, Net Debt to EBITDA was 2.3 times compared to 4.1 times at December 31, 2007 calculated on a trailing twelve-month basis as follows:



As at
June 30, December 31,
2008 2007
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Net Debt $ 32,498 $ 27,566
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Net income (loss) 89 (3,529)
Add (deduct):
Depreciation and amortization 14,168 12,581
Interest on long-term debt 2,397 1,913
Other interest 329 534
Income tax reduction (2,954) (4,838)
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EBITDA $ 14,029 $ 6,661
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Net Debt to EBITDA 2.3 times 4.1 times
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The Corporation's capital management objectives, evaluation measures, definitions and targets have remained unchanged over the periods presented. The Corporation is subject to certain financial covenants in its credit facility agreement and is in compliance with all financial covenants.

11. Financial Instruments and Risk Management

a) Financial risk management

The Corporation has exposure to the following risks from its use of financial instruments:

- Credit risk

- Liquidity risk

- Market risk

This note presents information about the Corporation's exposure to each of the above risks, and the Corporation's objectives, policies and processes for measuring and managing risk.

The Corporation's risk management policies are established to identify and analyze the risks faced by the Corporation, to set appropriate risk limits and controls, and to monitor risks and adherence to market conditions and the Corporation's activities.

Credit risk

Credit risk is the risk of financial loss to the Corporation if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Corporation's receivables from customers.

Trade receivables

The Corporation's exposure to credit risk is influenced mainly by the individual characteristics of each customer. 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. The Corporation does not typically obtain collateral from its customers; however, the Corporation does have the ability to place a lien on a customer's well in the event of non-payment.

The Corporation has established a credit policy under which each new customer is analyzed individually for creditworthiness before the Corporation's standard payment and delivery terms and conditions are offered. The Corporation's review includes review of trade references, financial statement review, review of payment history (credit check), debt analysis (bank references) and input from management. Extending credit to existing customers will continue as long as existing customers have an acceptable payment history. Customers that fail to meet the Corporation's benchmark creditworthiness may transact with the Corporation only on a prepayment basis.

Approximately 25% percent of the Corporation's revenue is attributable to sales transactions with a single customer. However, geographically there is no concentration of credit risk.

The carrying amount of accounts receivable represents the maximum credit exposure. The Corporation establishes an allowance for doubtful accounts that represents an estimate of incurred losses in respect of trade and other receivables. Customers with balances over 60 days are reviewed by management on a weekly basis, and if necessary, an allowance may be set up, or alternatively, the Corporation may place a lien on the customer's well.

There was no change in the Corporation's allowance for doubtful accounts in the second quarter of 2008, and there were no liens placed on any wells.

Liquidity risk

Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they fall due. The Corporation's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Corporation's reputation.

In managing liquidity risk, the Corporation prepares annual capital expenditure budgets, which are regularly monitored and updated as considered necessary. Further, the Corporation utilizes authorizations for capital expenditures to further manage its capital expenditure program.

The Corporation also has access to a wide range of funding at competitive rates. As at June 30, 2008, the Corporation had available unused committed bank credit facilities in the amount of $29,900 plus cash and accounts receivable in the amount of $4,031 and $18,928, respectively, for a total of $52,859 available to fund the cash outflows relating to its financial liabilities. The Corporation believes it has sufficient funding through the use of these facilities to meet foreseeable borrowing requirements.



The timing of cash outflows relating to financial liabilities are outlined
in the table below:

greater
than 5
(Stated in thousands) 1 year 2-3 years 4-5 years years Total
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Operating loan $ 4,204 $ - $ - $ - $ 4,204
Accounts payable 11,774 - - - 11,774
Income taxes payable 1,087 - - - 1,087
Long-term debt 629 14,983 19,598 9,053 44,263
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Total $ 17,694 $ 14,983 $ 19,598 $ 9,053 $ 61,328
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Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Corporation's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return on risk.

Currency risk

As the Corporation operates primarily in Canada and the United States, fluctuations in the exchange rate between the U.S./Canadian dollar can have a significant effect on the fair value or future cash flows of the Corporation's financial assets and liabilities.

The Canadian operations are exposed to currency risk on foreign currency denominated financial assets and liabilities with adjustments recognized as foreign exchange gains and/or losses in the consolidated statement of operations.

The U.S. operations with a domestic functional currency expose the Corporation to currency risk on the translation of the U.S. operations' financial assets and liabilities to Canadian dollars for consolidation. Adjustments arising when translating the U.S. operations into Canadian dollars are reflected in the consolidated statements of other comprehensive income as unrealized gains or losses on translating financial statements of self-sustaining foreign operations.

For the quarter ended June 30, 2008, fluctuations in the value of the U.S. dollar would have had the following impact on net income and other comprehensive income:



Impact to
Impact to Net Comprehensive
(Stated in thousands) Income Other Income
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1% increase in the value of the US dollar $ 20 $ 52
1% decrease in the value of the US dollar $ (20) $ (52)


Management does not use any derivative instruments to hedge this risk. The Corporation had no forward exchange rate contracts in place as at or during the period ended June 30, 2008.

Interest rate risk

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Corporation manages its exposure to interest rate risk through a combination of fixed and variable rate borrowing facilities that are available if required. An increase or decrease in interest expense for each one percent change in interest rates on variable rate debt would have amounted to $106 during the three months ended June 30, 2008. As at June 30, 2008, all of its borrowings were at variable rates.

The Corporation had no interest rate swap or financial contracts in place as at or during the period ended June 30, 2008.

b) Fair value of financial instruments

The Corporation's financial instruments as at June 30, 2008 and 2007 include cash, accounts receivable, accounts payable and accrued liabilities, and bank debt. The fair value of cash, accounts receivable, and accounts payable and accrued liabilities approximate their carrying amounts due to their short-terms to maturity.

Bank debt bears interest at a floating market rate and accordingly the fair market value approximates the carrying value.

12. Contingency

The Corporation's wholly-owned subsidiary, Pure Energy Services (USA), Inc. ("Pure USA") has been named in a lawsuit commenced by former employees claiming damages. A liability has been recorded in the financial statements based on management's reasonable estimate of the contingent liability as at June 30, 2008. Exposure to loss in excess of the liability recorded exists, but is not determinable at this time.

13. Comparative figures

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

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") is dated, and has been prepared taking into consideration information available to August 12, 2008 and should be read in conjunction with the consolidated unaudited financial statements of the Corporation as at and for the six months ended June 30, 2008 and 2007 and should also be read in conjunction with the audited consolidated financial statements and MD&A for the years ended December 31, 2007 and 2006. 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 is an oilfield services company which 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. ("Pure USA"), 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 refer to the Corporation and its subsidiaries and the Partnership. The Corporation currently has three operating segments, the Canadian Completion Services segment, the US Completion Services segment and the Drilling Services segment, which carry on business through various operating divisions. 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 Drilling Services segment ("Drilling Services") conducts operations in the WCSB and is comprised of the Quintera 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 Six Months ended
($ millions, except per June 30, June 30,
share amounts) 2008 2007 2008 2007
----------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Revenue $ 32.1 $ 16.5 $ 78.8 $ 62.6
EBITDA (1) (1.0) (10.4) 6.3 (1.1)
EBITDAS (1) (0.8) (10.1) 7.1 (0.4)
Net Loss (3.8) (9.3) (1.8) (5.4)
Loss per share
Basic $ (0.24) $ (0.58) $ (0.11) $ (0.34)
Diluted $ (0.24) $ (0.58) $ (0.11) $ (0.34)
----------------------------------------------------------------------------


(1) EBITDA and EBITDAS do not have standardized meanings prescribed by GAAP. Management believes that, in addition to net income, EBITDA and EBITDAS are useful supplemental measures. EBITDA and EBITDAS are provided as measures of operating performance without reference to financing decisions and income tax impacts, which are not controlled at the operating management level. EBITDAS also excludes stock based compensation expense as it is also not controlled at the operating management level. Investors should be cautioned that EBITDA and EBITDAS should not be construed as alternatives to net income determined in accordance with GAAP as an indicator of the Corporation's performance. The Corporation's method of calculating EBITDA and EBITDAS 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.

Highlights and Outlook

The Corporation's revenue for the 2008 second quarter increased $15.6 million compared to the same period in 2007. The Corporation's 2008 second quarter net loss decreased $5.5 million compared to the 2007 second quarter. US Completion Services experienced improved financial results as a result of the utilization of the equipment previously transferred from Canadian Operations, increased utilization experienced in the US Logging & Perforating division and the improved financial performance of the Fracturing division. All three of the US divisions recorded positive income before income taxes for the quarter. As a result, the effect of spring break-up (and the resultant seasonal decrease in activity levels in the WCSB) on the Corporation's consolidated financial results for the 2008 second quarter was lessened by the positive financial results realized from US Completion Services. Management expects that the financial results of US Completion Services will have a larger impact in the remainder of 2008 and in 2009 as its financial performance continues to improve.

Management is cautiously optimistic regarding activity levels in the WCSB and the effect on Canadian Operations in the second half of 2008. The Petroleum Services Association of Canada ("PSAC") is forecasting a 13% increase in the natural gas well count for 2008 to 9,336 wells, compared to 8,233 natural gas wells drilled in 2007(1). PSAC reports that 3,972 natural gas wells were drilled in the first half of 2008 and is forecasting that an additional 5,364 natural gas wells will be drilled in the second half of 2008.

(1) Source - 2008 PSAC Canadian Drilling Activity Forecast July Update

Revenue for the 2008 second quarter for the Drilling Services segment increased by 100% compared to the second quarter of 2007 as a result of continued higher than anticipated drilling rig utilization. Consistent with the PSAC forecast, the Drilling Services segment is expecting increased utilization for its drilling services, tool rentals and directional drilling services in the 2008 third and fourth quarters. The Quintera Drilling division has received commitments for the majority of its drilling rigs for the winter drilling season. The Motorworks division has experienced good utilization of its mud motors year to date and Management expects that both mud motor rentals and directional drilling services will continue to grow during the 2008 third and fourth quarters and in 2009.

Revenue for the Canadian Completion Services segment increased 9% in the 2008 second quarter when compared to the same period in 2007, mainly as a result of a 9% increase in the job count. Canadian Completion Services' loss before income taxes for the 2008 second quarter decreased 32% compared to the 2007 second quarter. This decrease was largely attributable to higher revenues and lower operating expenses resulting from cost cutting measures implemented during the last year.

For the Canadian Completion Services segment, Management anticipates slightly stronger utilization in the second half of 2008 when compared to the same period in 2007, but expects that utilization rates will increase more significantly in 2009. Management also expects that higher pricing opportunities will present themselves in the 2008 fourth quarter and in 2009, especially as the Corporation focuses on the provision of services for unconventional gas and oil plays. The Canadian Logging and Perforating division is transferring a logging and perforating derrick unit from its southern operations to Fort St. John to increase services in that area.

US Completion Services are focused on the provision of services in unconventional plays or tight reservoirs in the US Rocky Mountain region. Similar services will be required in the WCSB with the further development of unconventional plays in the northern regions of the WCSB and other areas. The Canadian Completion Services segment has already taken advantage of the knowledge and experience of the US Logging and Perforating division to gain the expertise necessary to perform multi-stage perforating for customers in the WCSB. Management anticipates the further transfer of knowledge for other processes and services performed by US Completion Services in the US Rocky Mountain region which will have similar application in the WCSB.

All of the divisions of US Completion Services experienced strong utilization during the period. Revenues from US Completion Services increased 159% for the 2008 second quarter when compared to the 2007 second quarter, with the largest increase occurring in the Fracturing division. Income before income taxes from US Completion Services for the 2008 second quarter increased 315% when compared to the same period in 2007. All of the divisions of US Completion Services recorded positive income before income taxes for the quarter.

Revenue for the Fracturing division in the 2008 second quarter increased by 768% and 190%, respectively, compared to revenue for the 2007 second quarter and the 2008 first quarter. The Fracturing division continues to increase utilization and gain customer acceptance as a result of the recognition by customers of the quality and high efficiency of the division's services. The first two fracturing spreads are currently operating at high utilization, both under contract and for spot market services. The third fracturing spread is currently being crewed and is expected to be operational in September 2008. The third fracturing spread is expected to be active in the spot market once the spread becomes fully crewed. Management is confident that all three fracturing spreads will achieve good utilization rates during the 2008 fourth quarter and 2009 first quarter.

Management has been advised that the reconstruction of the Corporation's principal sand supplier's processing facility has been completed and the facility is currently being commissioned to become fully operational. The Corporation has commenced receiving deliveries of sufficient quantities of 20/40 sand to meet its contractual commitments.

With the addition of seven production testing units transferred from the Canadian Operations during the first half of 2008, the US Production Testing division now has 33 production testing units working in the US Rocky Mountain region. Management is confident that opportunities continue to exist to grow production testing services in all three of the Corporation's US markets.

The financial performance of the US Logging and Perforating division continues to improve as a result of increased customer acceptance and complementary services performed as a result of the increased utilization of the Fracturing division's equipment. The division's revenue for the 2008 second quarter increased 183% and 65% compared to the revenue for the 2007 second quarter and 2008 first quarter, respectively. A third wireline unit has been transferred from Canadian Operations to Colorado to meet customer demand. One wireline truck currently operates in Wyoming. The Wyoming operations are considered to be start-up operations, as regulatory approvals and licenses have only been recently received to allow for the provision of perforating services.



Results of Operations

Three months Ended June 30, 2008 Compared to the Three months Ended June 30,
2007

Canadian Completion Services

----------------------------------------------------------------------------
Canadian
Completion
Services
Financial Year-Over-Year Change
Results
Three months
ended,
($ thousands, June 30, % of June 30, % of
unaudited) 2008 Revenue 2007 Revenue $ Percentage
----------------------------------------------------------------------------
Revenue $ 7,124 100% $ 6,556 100% $ 568 9%
Expenses
Operating 7,657 107.5% 8,646 131.9% (989) (11)%
Selling,
general and
administrative 1,505 21.1% 2,030 31.0% (525) (26)%
Depreciation
and
amortization 1,665 23.3% 1,602 24.4% 63 4%
Other expense
/ (income) (2) (0.0)% (314) (4.8)% 312

Loss before
income taxes $ (3,701) (51.9)% $ (5,408) (82.5)% $1,707 32%
----------------------------------------------------------------------------


Canadian Completion Services Revenue

Revenue for Canadian Completion Services increased 9% in the 2008 second quarter compared to the 2007 second quarter, which was largely attributable to a 9% increase in the job count, while the overall average revenue per job remained constant. The segment increased job count despite poor weather conditions experienced during the quarter and its performance compares favourably to the 11% decrease in the PSAC well count. The increases in job count and revenue are largely a result of an increased focus on the unconventional gas plays in the northern regions of the WCSB coupled with a significant increase in logging activity related to regulatory compliance.

The Production Testing division's revenue increased 23%, due to increases in job count and average revenue per job of 14% and 8%, respectively. The increase in job count and average revenue per job was the result of more work being performed in the northern regions of the WCSB during the 2008 second quarter as compared to the 2007 second quarter. Average revenue per job in the northern regions of the WCSB is typically higher compared to the central and southern regions of the WCSB.

The Logging and Perforating division's revenue increased 13%, due to increases in job count and average revenue per job of 6% and 7%, respectively. An increase in specialty logging activity primarily related to regulatory compliance was partially offset by a small decrease in perforating activity. Average revenue per job increased as a result of the pricing impact of the regulatory compliance related specialty logging combined with an increase in deeper gas and oil directed perforating activity. Regulatory related compliance specialty logging jobs and deeper gas and oil directed perforating jobs typically experience higher revenue per job relative to typical logging jobs and shallow gas perforating jobs. The Logging and Perforating division is focused on expanding its market share and responding to market opportunities in the compliance-related specialty logging market and the deeper gas and oil perforating market.

The Multiline division's revenue increased 8%, due to increases in job count of 9% partially offset by a 1% decrease in average revenue per job. Revenue in all operational areas either slightly increased or was maintained when compared to the revenue generated during the 2007 second quarter.



----------------------------------------------------------------------------
Canadian
Completion
Services
Unit 2008 Second Quarter 2007 Second Quarter As at December 31,
Complement Average Ending Average Ending 2008(A) 2007
----------------------------------------------------------------------------

Production
Testing Division 36.3 33 45.9 45 33 41
Logging and
Perforating
Division 21.0 21 21.0 21 21 21
Multiline
Division 16.0 16 16.0 16 16 16
----------------------------------------------------------------------------
Canadian
Completion
Services Total 73.3 70 82.9 82 70 78
----------------------------------------------------------------------------
(A) - Expected equipment capacity as at December 31, 2008 based on approved
budgets.


Canadian Completion Services Income before Income Taxes

Canadian Completion Services loss before income taxes decreased significantly in the 2008 second quarter compared to the 2007 second quarter as a result of the significant increase in revenue combined with decrease in all of the operating divisions' operating expenses.

The Production Testing division's loss before income taxes decreased in the 2008 second quarter compared to the 2007 second quarter primarily due to positive operating leverage generated as a result of higher revenue levels coupled with a reduction in operating expenses due to cost cutting measures implemented during the past year and the transfer of units to US Completion Services. The Canadian Production Testing division's profitability was positively impacted by the transfer of 7 units from Canada to US Completion Services since the beginning of the year. These transfers primarily resulted in a reduction of operating expenses and depreciation expense during the 2008 second quarter as compared to the 2007 second quarter. The impact of the positive operating leverage was partially offset by an increase in repairs and maintenance expense during the quarter. The increased repairs and maintenance expense was required to prepare some production testing units for the expected increase in activity during the second half of the year.

The Logging and Perforating division's loss before income taxes decreased significantly in the 2008 second quarter compared to the 2007 second quarter primarily due to positive operating leverage generated as a result of increased specialty logging revenue. Operating expenses have decreased despite the increase in revenue due to cost cutting measures implemented during the past year. Depreciation expense has increased primarily as a result of the addition of specialty logging equipment expected to enhance the revenue generating capabilities of this division.

The Multiline division's loss before income taxes decreased significantly in the 2008 second quarter compared to the 2007 second quarter primarily due to a significant customer credit relating to job problems recorded during the 2007 second quarter. The Multiline division did not experience similar job problems during the 2008 second quarter resulting in a significant reduction in loss before income taxes relative to the 2007 second quarter.



US Completion Services

----------------------------------------------------------------------------
US Completion
Services
Financial Results Year-Over-Year Change
Three months
ended,
($ thousands, June 30, % of June 30, % of
unaudited) 2008 Revenue 2007 Revenue $ Percentage
----------------------------------------------------------------------------
Revenue $ 22,142 100% $ 8,543 100% $ 13,599 159%
Expenses
Operating 17,877 80.7% 7,307 85.5% 10,570 145%
Selling,
general and
administrative 1,196 5.4% 886 10.4% 310 35%
Depreciation
and
amortization 1,608 7.3% 1,031 12.1% 577 56%

Income (Loss)
before income
taxes $ 1,461 6.6% $ (681) (8.0)% $ 2,142 315%
----------------------------------------------------------------------------


US Completion Services Revenue

Revenue for US Completion Services increased 159% in the 2008 second quarter compared to the 2007 second quarter as a result of increases in all three operating divisions, with the largest increase occurring in the Fracturing division.

The Production Testing division's revenue increased 35% as a result of a 45% increase in job count, which was partially offset by a 7% decrease in average revenue per job. The job count increase is the result of an increase in utilization levels arising from additional units under contract and a 40% increase in unit count in the 2008 second quarter compared to the 2007 second quarter. Average revenue per job decreased as a result of a larger proportion of work being performed under contract.

The Fracturing division's revenue increased by 768% in the 2008 second quarter compared to the 2007 second quarter, and increased 190% compared to the 2008 first quarter. High utilization of equipment resulting from the first full quarter of contract work and an increase in fracturing service work obtained on the spot market led to the significant revenue growth. The 2008 second quarter was the first quarter in this division's history where fracturing sand supply was not a significant impediment to the division's financial results.

The Logging and Perforating division's revenue increased 183% in the 2008 second quarter compared to the 2007 second quarter, and increased 65% compared to the 2008 first quarter. Equipment utilization increased by approximately thirty six percentage points during the 2008 second quarter compared to the 2007 second quarter as a result of synergies experienced with the Fracturing division and the work derived from previously disclosed contracts and commitments. Utilization levels continue to improve each quarter and Pure was successful in launching its logging and perforating services in the Wyoming market during the 2008 second quarter. Management anticipates that further expected increases in utilization of the fracturing spreads will also have a further positive impact on the utilization of the logging and perforating units through the provision of complementary logging and perforating services.



----------------------------------------------------------------------------
US Completion 2008 Second Quarter 2007 Second Quarter As at December 31,
Services
Unit Complement Average Ending Average Ending 2008(A) 2007
----------------------------------------------------------------------------
Production
Testing division 31.0 33 22.1 23 33 26
Logging and
Perforating
division 3.0 3 2.0 2 3 3
Fracturing
division(B) 3.0 3 2.0 2 3 3
----------------------------------------------------------------------------
US Completion
Services Total 37.0 39 26.1 27 39 32
----------------------------------------------------------------------------
(A) - Expected equipment capacity as at December 31, 2008 based on approved
budgets.
(B) - A fracturing spread is made up of several pieces of specialized
equipment.


US Completion Services Income before Income Taxes

Income before income taxes for US Completion Services increased by $2.1 million in the 2008 second quarter compared to the 2007 second quarter as all three divisions recorded positive income before income taxes for the quarter. Significantly higher revenue in the 2008 second quarter coupled with the elimination of startup costs incurred by the Fracturing division in the 2007 second quarter led to the growth in income before income taxes.

The US Production Testing division's income before income taxes increased by 18% in the 2008 second quarter compared to the 2007 second quarter. This percentage increase was lower than the percentage increase in revenue due to increases in repairs and maintenance expense, wages and benefits, and depreciation expense. Repairs and maintenance and depreciation expenses increased as a result of the equipment added since the 2007 second quarter. Wages and benefits as a percentage of revenue increased as a result of hiring additional field staff to operate the additional equipment transferred to the US Production Testing division from Canada combined with the commencement of operations in North Dakota.

The US Fracturing division realized its first quarterly positive income before income taxes in the 2008 second quarter as a result of a significant increase in activity levels due to the commencement of work performed under its previously disclosed customer contracts and commitments. While revenue continues to grow, increasing costs for fuel, steel, and repair and maintenance expenses have resulted in lower than anticipated margins. Management is currently working on strategies to reduce the negative impact of these cost increases on the Fracturing division's margins.

The US Logging and Perforating division's income before income taxes improved from a small operating loss recorded during the 2007 second quarter to positive income before income taxes during the 2008 second quarter. The increase in revenue generated from the previously disclosed contracts and commitments resulted in improved income before income taxes. The margins being produced by this division are now close to meeting management's expectations. Management expects further improvement as the division establishes itself in the Wyoming market.

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.

Depreciation and amortization expense has increased as a result of the additional equipment deployed in US Completion Services.



Drilling Services

----------------------------------------------------------------------------
Drilling
Services
Financial Year-Over-Year Change
Results
Three months
ended,
($ thousands, June 30, % of June 30, % of
unaudited) 2008 Revenue 2007 Revenue $ Percentage
----------------------------------------------------------------------------
Revenue $ 2,821 100% $ 1,411 100% $ 1,410 100%
Expenses
Operating 2,743 97.2% 1,837 130.2% 906 49%
Selling,
general and
administrative 611 21.7% 704 49.9% (93) (13)%
Depreciation
and
amortization 321 11.4% 231 16.4% 90 39%
Other income - 0.0% (41) (2.9)% 41 (100)%

Income (Loss)
before income
taxes $ (854) (30.2)% $ (1,320) (93.6)% $ 466 35%
----------------------------------------------------------------------------


Drilling Services Revenue

Revenue for Drilling Services increased $1.4 million or 100% in the 2008 second quarter compared to the 2007 second quarter which compares favourably to the 13% increase in the CAODC active rig(2) count and the 11% decrease in the PSAC well count. The wet weather experienced during the quarter negatively impacted the segment's activity and revenue despite the significant increase compared to the 2007 second quarter.

(2) Source - CAODC Average Monthly Drilling Rig Count - Western Canada

Revenue for the Quintera Drilling division increased by 144% in the 2008 second quarter compared to the 2007 second quarter as a result of increased utilization levels. The division's ten drilling rigs operated at an average utilization rate of 13% compared to an average utilization rate of 6% during the 2007 second quarter. The average daily rig rates have decreased by 21% relative to Q2 2007 rig rates reflecting the excess supply of rigs in the WCSB relative to the decreased demand experienced during the 2007 second quarter.

Revenue for the Motorworks Rentals division increased 29% in the 2008 second quarter compared to the 2007 second quarter. The division's job count and average revenue per job increased due to an increase in the amount of directional drilling services performed.



----------------------------------------------------------------------------
Drilling Services 2008 Second Quarter 2007 Second Quarter As at December 31,
Unit Complement Average Ending Average Ending 2008(A) 2007
----------------------------------------------------------------------------
Drilling rigs 10.0 10 10.0 10 10 10
Mud motors 59.0 59 60.0 60 59 59
----------------------------------------------------------------------------
(A) - Expected equipment capacity as at December 31, 2008 based on approved
budgets.


Drilling Services Income before Income Taxes

Loss before income taxes decreased by $0.5 million in the 2008 second quarter compared to the 2007 second quarter primarily due to positive operating leverage as a result of significantly higher revenue generated during the quarter.

The Quintera Drilling division's loss before income taxes decreased approximately 43% in the 2008 second quarter compared to the 2007 second quarter. Positive operating leverage as a result of significantly higher revenue resulted in a reduction as a percentage of revenue in operating, SG&A and depreciation expenses relative to the 2007 second quarter. Depreciation expense increased in dollar terms as a result of the increase in utilization of the drilling rigs.

The Motorworks Rentals division's loss before income taxes decreased approximately 14% in the 2008 second quarter compared to the 2007 second quarter. Equipment rental and subcontractor expenses increased due to an increase in the amount of directional drilling services performed partially offsetting the positive operating leverage experienced during the quarter.



Corporate

----------------------------------------------------------------------------
Corporate
Services
Financial
Results
Three months % of % of
ended, Consol- Consol- Year-Over-Year Change
($ thousands, June 30, idated June 30, idated
unaudited) 2008 Revenue 2007 Revenue $ Percentage
----------------------------------------------------------------------------

Expenses
Selling,
general and
administrative $1,353 4.2% $1,224 7.4% $ 129 11%
Stock-based
compensation
expense 182 0.6% 338 2.0% (156) (46)%
Depreciation 209 0.7% - 0.0% 209
Interest on
long-term debt 591 1.8% 478 2.9% 113 24%
Other interest 11 0.0% 99 0.6% (88) (89)%
Foreign
exchange (gain)
/ loss (8) 0.0% 38 0.2% (46)
Other expense
/ (income) (7) 0.0% 4,247 25.7% (4,254)

Loss before
income taxes $2,331 7.3% $6,424 38.9% $(4,093) (64)%
----------------------------------------------------------------------------


Corporate expenses for the 2008 second quarter decreased $4.1 million compared to the 2007 second quarter relative to a 94% increase in consolidated revenue for the same comparative periods. A note receivable impairment of $4.2 million was recorded during the 2007 second quarter. The Corporation did not record any impairment provisions during the 2008 second quarter resulting in a $4.3 million reduction in other expenses / (income).

Income Tax Expense

The 2008 second quarter income tax provision increased relative to the 2007 second quarter provision largely due to the decrease in loss before income taxes and a decrease in the current income tax and future income tax rates in Canada.



Results of Operations

Six months Ended June 30, 2008 Compared to the Six months Ended June 30,
2007

Canadian Completion Services

----------------------------------------------------------------------------
Canadian
Completion
Services
Financial
Results Year-Over-Year Change
Six months
ended,
($ thousands, June 30, % of June 30, % of
unaudited) 2008 Revenue 2007 Revenue $ Percentage
----------------------------------------------------------------------------
Revenue $ 25,462 100% $ 30,477 100% $(5,015) (16)%
Expenses
Operating 20,555 80.7% 24,953 81.9% (4,398) (18)%
Selling,
general and
administrative 3,115 12.2% 4,120 13.5% (1,005) (24)%
Depreciation
and
amortization 3,132 12.3% 3,173 10.4% (41) (1)%
Other expense
/ (income) (5) (0.0)% (300) (1.0)% 295

Loss before
income taxes $ (1,335) (5.2)% $(1,469) (4.8)% $ 134 9%
----------------------------------------------------------------------------


Canadian Completion Services Revenue

Revenue for the Canadian Completion Services segment decreased 16% in the first six months of 2008 compared to the first six months of 2007. The decrease was attributable to a 13% decline in job count and a 6% decrease in average revenue per job. The job count decline was relatively consistent with the overall decline in industry activity as evidenced by the decline in the PSAC well count of 14%.

The Production Testing division's revenue decreased 12% largely as a result of a 12% decrease in job count, consistent with the 14% decline in the PSAC well count. Average revenue per job has remained consistent with prior year largely as a result of a larger proportion of the job count occurring in the northern locations where average revenue per job is typically higher.

The Logging and Perforating division's revenue decreased 16% as a result of a 12% decrease in job count and a 4% decrease in average revenue per job. The lower job count is marginally lower than the decline in the PSAC well count. Average revenue per job decreased as a result of reduced prices caused by increased competition. However, the Logging and Perforating division has experienced a significant increase in specialty logging average revenue per job as a result of the pricing impact of regulatory compliance related specialty logging work. This increase has partially offset the overall decline in average revenue per job due to competitive pressures.

The Multiline division's revenue decreased 21% as a result of a 17% decrease in job count and a 5% decrease in average revenue per job. The decrease in job count and average revenue per job is primarily a result of the slow down in industry activity during the first quarter causing a larger percentage of the overall job count to shift towards production related services and away from completion related services, which typically have lower average revenue per job.

Canadian Completion Services Income before Income Taxes

Loss before income taxes for the Canadian Completion Services segment decreased 9% in the first six months of 2008 compared to the first six months of 2007 as a result of improved operating results during the second quarter combined with lower SG&A expenses, partially offset by a 16% reduction in year-to-date revenue. The reduction in the segment's SG&A expenses is a result of cost cutting measures implemented during the past year.

The Production Testing division's income before income taxes for the six months ended June 30, 2008 increased $0.5 million compared to the six months ended June 30, 2007 despite a 12% decrease in revenue. The improvement in income before income taxes is largely a result of cost reductions resulting from the transfer of 7 units to the US Completion Services segment during the past six months combined with improved second quarter operating results and lower SG&A expenses.

The Logging and Perforating division's income before income taxes as a percentage of revenue decreased by approximately one percentage point for the six months ended June 30, 2008 compared to the six months ended June 30, 2007 as a result of a decrease in the perforating operating margin partially offset by an improved specialty logging operating margin and lower SG&A expenses. The decrease in the perforating operating margin was largely attributable to the reduction in perforating revenue. The specialty logging operating margin significantly improved as a result of the increase in regulatory compliance related specialty logging work.

The Multiline division's income before income taxes as a percentage of revenue decreased by approximately six percentage points for the six months ended June 30, 2008 compared to the six months ended June 30, 2007 primarily as a result of the decrease in revenue. Operating and SG&A expenses decreased in proportion with the reduction in revenue; however, depreciation expense increased largely accounting for the reduction in income before income taxes as a percentage of revenue.



US Completion Services

----------------------------------------------------------------------------
US Completion
Services
Financial
Results Year-Over-Year Change
Six months
ended,
($ thousands, June 30, % of June 30, % of
unaudited) 2008 Revenue 2007 Revenue $ Percentage
----------------------------------------------------------------------------
Revenue $ 35,803 100% $ 17,320 100% $ 18,483 107%
Expenses
Operating 29,515 82.4% 14,577 84.2% 14,938 102%
Selling,
general and
administrative 2,141 6.0% 1,634 9.4% 507 31%
Depreciation
and
amortization 3,077 8.6% 2,075 12.0% 1,002 48%
Other expense
/ (income) - - -

Income (Loss)
before income
taxes $ 1,070 3.0% $ (966) (5.6)% $ 2,036 211%
----------------------------------------------------------------------------


US Completion Services Revenue

US Completion Services revenue increased 107% in the first six months of 2008 compared to the first six months of 2007 primarily as a result of a significant increase in the Fracturing division's revenue coupled with solid growth in the Logging and Perforating division and the establishment of the North Dakota Production Testing division. The average rig count in the Rocky Mountain region increased 12%(3) during the first six months of 2008 relative to the first six months of 2007.

The Production Testing division's revenue and job count increased 29% and 48%, respectively, in the first six months of 2008 compared to the first six months of 2007. The significant job count increase was higher than the 12% increase in rig count and was largely the result of high utilization and the addition of nine units, representing a 33% increase in unit capacity since the 2007 second quarter. Average revenue per job decreased as a result of a larger proportion of work being performed under contract.

The Fracturing division's revenue and job count increased 500% and 928%, respectively, in the first six months of 2008 compared to the first six months of 2007. High utilization of equipment resulting from the significant increase in contract work and an increase in fracturing service work obtained on the spot market led to the significant revenue growth. The 2008 second quarter was the first quarter in this division's history where fracturing sand supply was not a significant impediment to the division's financial results.

The Logging and Perforating division's revenue and job count increased 150% and 174%, respectively, in the first six months of 2008 compared to the first six months of 2007. Equipment utilization significantly increased as a result of synergies experienced with the Fracturing division and the work derived from previously disclosed contracts and commitments.

US Completion Services Income before Income Taxes

Income before income taxes for the US Completion Services segment increased by $2.0 million in the first six months of 2008 compared to the first six months of 2007 as a result of significant increases in all of the divisions' revenues.

The US Production Testing division's income before income taxes increased 21% in the first six months of 2008 compared to the first six months of 2007. This increase was largely attributable to the revenue increase resulting from the 33% increase in unit capacity. Income before income taxes as a percentage of revenue decreased approximately four percentage points largely as a result of lower average revenue per job due to a larger proportion of work being performed under contract.

The US Fracturing division realized its first quarterly positive income before income taxes in the 2008 second quarter as a result of a significant increase in activity levels due to the commencement of work performed under its previously disclosed customer contacts and commitments. The increase in this division's income before income taxes accounts for the majority of the increase in the segment's income before income taxes.

The US Logging and Perforating division's income before income taxes improved from an operating loss recorded during the first six months of 2007 to positive income before income taxes during the first six months of 2008. The increase in revenue generated from the previously disclosed contracts and commitments resulted in improved income before income taxes.

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.

Depreciation and amortization expense has increased as a result of the additional equipment deployed in US Completion Services.



Drilling Services

----------------------------------------------------------------------------
Drilling
Services
Financial Year-Over-Year Change
Results
Six months
ended,
($ thousands, June 30, % of June 30, % of
unaudited) 2008 Revenue 2007 Revenue $ Percentage
----------------------------------------------------------------------------
Revenue $ 17,516 100% $ 14,819 100% $ 2,697 18%
Expenses
Operating 12,294 70.2% 9,891 66.7% 2,403 24%
Selling,
general and
administrative 1,281 7.3% 1,290 8.7% (9) (1)%
Depreciation
and
amortization 1,080 6.2% 778 5.3% 302 39%
Other expense
/ (income) - (60) (0.4)% 60

Income before
income taxes $ 2,861 16.3% $ 2,920 19.7% $ (59) (2)%
----------------------------------------------------------------------------


Drilling Services Revenue

Revenue for the Drilling Services segment increased 18% during the first six months of 2008 compared to the first six months of 2007 which compares favourably to the 1% decrease in the CAODC active rig count and the 14% decrease in the PSAC well count.

Revenue for the Quintera Drilling division increased by 19% during the first six months of 2008 compared to the first six months of 2007 as a result of increased utilization levels and a broadening of the division's customer base. Average day rates have declined by approximately 20% primarily as a result of decreased demand experienced during the first half of the year relative to the first half of 2007.

Revenue for the Motorworks Rentals division increased 18% during the first six months of 2008 compared to the first six months of 2007. Mud motor utilization increased as a result of an increased customer base, an increase in directional drilling services performed and quicker service time for mud motors as a result of internal servicing. Average revenue per job increased largely due to an increase in the amount of directional drilling services performed.

Drilling Services Income before Income Taxes

Income before income taxes decreased 2% during the first six months of 2008 compared to the first six months of 2007. The decrease recorded during the 2008 first quarter was largely offset by the increase recorded during the 2008 second quarter.

The Quintera Drilling division's income before income taxes increased by 6% during the first six months of 2008 compared to the first six months of 2007. The increased positive operating leverage as a result of the significant increase in revenue was partially offset by lower first quarter margins primarily due to lower average day rates. Depreciation expense increased as a result of the increase in utilization of the drilling rigs.

The Motorworks Rentals division's income before income taxes significantly decreased during the first six months of 2008 compared to the first six months of 2007. This division experienced a significant decrease in income before income taxes as a result of the shift in work from performance drilling to directional drilling. Directional drilling typically incurs significantly lower margins largely due to higher equipment rental and subcontractor expenses.



Corporate

----------------------------------------------------------------------------
Corporate
Services
Financial
Results
Six months % of % of
ended, Consol- Consol- Year-Over-Year Change
($ thousands, June 30, idated June 30, idated
unaudited) 2007 Revenue 2006 Revenue $ Percentage
----------------------------------------------------------------------------

Expenses
Selling,
general and
administrative $2,746 3.5% $2,731 4.4% $ 15 1%
Stock-based
compensation
expense 862 1.1% 705 1.1% 157 22%
Depreciation 323 0.4% - 0.0% 323
Interest on
long-term debt 1,255 1.6% 771 1.2% 484 63%
Other interest 90 0.1% 295 0.5% (205) (69)%
Foreign
exchange (gain)
/ loss 9 0.0% 30 0.0% (21) (70)%
Other expense
/ (income) (7) 0.0% 4,136 6.6% (4,143)

Loss before
income taxes $5,278 6.7% $8,668 13.8% $(3,390) (39)%
----------------------------------------------------------------------------


Corporate expenses for the six months ending June 30, 2008 decreased 39% compared to the six months ending June 30, 2007 relative to a 26% increase in consolidated revenue for the same comparative periods. A note receivable impairment of $4.2 million was recorded during the 2007 first half. The Corporation did not record any impairment provisions during the 2008 first half resulting in a $4.1 million reduction in other expenses / (income). Stock-based compensation expense increased $0.2 million, primarily as a result of a one-time increase in stock based compensation expense. Depreciation expense increased $0.3 million primarily as a result of depreciation relating to IT infrastructure. Interest expense increased $0.3 million as a result of higher debt balances carried during the 2008 first half compared to the 2007 first half.

Income Tax Expense

The 2008 first half income tax provision increased relative to the 2007 first half provision largely due to the decrease in loss before income taxes and a decrease in the current income tax and future income tax rates in Canada.



Capital Expenditures

----------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
($ thousands) 2008 2007 2008 2007
----------------------------------------------------------------------------
Canadian Completion Services $ 768 $ 1,065 $ 2,092 $ 2,859
US Completion Services 6,697 3,127 7,366 14,351
Drilling Services 342 936 583 3,978
Corporate 5 272 27 721


Total Capital Expenditures $ 7,812 $ 5,400 $ 10,068 $ 21,909
----------------------------------------------------------------------------


The Corporation has reduced its capital expenditures during the past six months in response to the WCSB activity slowdown and the reduction in profitability experienced during the past year.

The Canadian Completion Services 2008 second quarter capital expenditures represent payments relating to the construction of a new facility and sustaining capital.

The US Completion Services 2008 second quarter capital expenditures represent payments relating to the purchase of land and additional capital required to support the growth of the US segment.

The Drilling Services 2007 second quarter capital expenditures represent upgrades to existing rigs and additional support equipment.

Liquidity and Capital Resources

Cash Provided by Operating Activities for the Three months Ended June 30, 2008

Cash received for services performed exceeded payments relating to operating expenses and interest expense during the three months ended June 30, 2008 by $9.9 million.

Cash Provided by Operating Activities for the Six months Ended June 30, 2008

Cash received for services performed exceeded payments relating to operating expenses and interest expense during the six months ended June 30, 2008 by $7.7 million.



Working Capital

----------------------------------------------------------------------------
As at As at
June 30, December 31,
($ thousands) 2008 2007
----------------------------------------------------------------------------
Current assets $ 28,830 $ 28,460
Current liabilities 17,694 15,526
----------------------------------------------------------------------------
Working capital $ 11,136 $ 12,934
----------------------------------------------------------------------------


Working capital decreased by $1.8 million in the 2008 second quarter compared to December 31, 2007. The increase in current assets of $0.4 million primarily relates to increases in cash of $2.2 million, deposits and prepaid expenses of $1.0 million and inventory of $0.4 million partially offset by the decrease in accounts receivable of $3.2 million.

The increase in current liabilities of $2.2 million primarily relates to increases in the operating loan and income taxes payable of $2.8 million and $0.8 million partially offset by a decrease in accounts payable and accrued liabilities of $1.8 million.

Financing

The Corporation's primary sources of financing are bank debt and equity issuances. The Corporation has a $20 million revolving demand operating loan, a $5 million non-revolving term loan facility and a $60 million extendible revolving loan facility. The revolving demand operating loan is repayable upon demand. The $5 million non-revolving term loan facility is repayable monthly over 15 years.

The Corporation entered into a US$3.5 million non-revolving term loan facility during the 2008 second quarter. The term loan facility is repayable monthly over 10 years and is secured by a mortgage covering certain of the Corporation's real property.

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. During the 2008 first quarter, the Corporation received confirmation from its lender of the extension of the revolving loan facility's renewal date from June 30, 2008 to June 30, 2009.

As at August 12, 2008, the Corporation had 15,905,431 common shares and 1,408,958 stock options outstanding.

The Corporation, through the conduct of its operations, has undertaken certain contractual obligations. As at June 30, 2008, the Corporation's contractual obligations were as follows:



----------------------------------------------------------------------------
Payments Due by Period
----------------------------------------------------------------------------
Contractual Obligations Less than 1 - 3 4 - 5 After
($ thousands) Total 1 Year Years Years 5 Years
----------------------------------------------------------------------------
Long-term debt obligations
(1) $ 44,263 $ 630 $ 14,983 $ 19,598 $ 9,052
Purchase obligations 84,368 14,360 28,104 38,010 3,894
Operating leases 10,979 2,482 6,335 1,854 308
----------------------------------------------------------------------------
Total Contractual
Obligations $ 139,610 $ 17,472 $ 49,422 $ 59,462 $ 13,254
----------------------------------------------------------------------------
(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 2009.


Cash Requirements

----------------------------------------------------------------------------
As at June 30, 2008 ($ thousands)
----------------------------------------------------------------------------
Committed capital expenditures $ 4,034
Uncommitted capital expenditures 7,526
----------------------------------------------------------------------------
2008 expected capital expenditures $ 11,560
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The Corporation has committed to spend $4.0 million which represents the capital expenditures necessary to complete capital projects currently underway and provided for under the Corporation's 2008 capital expenditure program. The remaining $7.5 million is uncommitted and represents projects not yet started under the Corporation's capital budget.

Subsequent to June 30, 2008, The Corporation expanded its 2008 capital expenditure program by $2.5 million. The expansion is for additional support equipment required by the US Fracturing and Logging and Perforating divisions. The expansion increases the uncommitted capital expenditures to $10.0 million and the 2008 expected capital expenditures to $14.0 million.

The Corporation has historically financed its capital expenditures with funds from operations, equity issuances and debt. As at June 30, 2008, the Corporation has available debt capacity of $23.5 million on its extendible revolving term loan facility.

Fair value of financial instruments

The Corporation's financial instruments as at June 30, 2008 and 2007 include cash, accounts receivable, accounts payable and accrued liabilities, and bank debt. The fair value of cash, accounts receivable, and accounts payable and accrued liabilities approximate their carrying amounts due to their short-terms to maturity.

Bank debt bears interest at a floating market rate and accordingly the fair market value approximates the carrying value.

Off Balance Sheet Arrangements

The Corporation has not entered into any off-balance sheet arrangements.

Accounting Policies

The Corporation prepares its financial statements in accordance with GAAP. Except as discussed below, accounting policies have been applied consistently during all periods included in the financial statements. Certain information of the previous period has been reclassified to conform to the presentation adopted in the current year.

Changes in Accounting Policies

On January 1, 2008, the Corporation adopted new Canadian accounting standards for financial instruments, inventories and capital disclosures. The new standards have been adopted on a prospective basis with no restatement of prior periods.

Financial Instruments

The Corporation has exposure to the following risks from its use of financial instruments:

- Credit risk

- Liquidity risk

- Market risk

The Corporation's risk management policies are established to identify and analyze the risks faced by the Corporation, to set appropriate risk limits and controls, and to monitor risks and adherence to market conditions and the Corporation's activities.

Credit risk

Credit risk is the risk of financial loss to the Corporation if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Corporation's receivables from customers.

The Corporation's exposure to credit risk is influenced mainly by the individual characteristics of each customer. 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. The Corporation does not typically obtain collateral from its customers; however, the Corporation does have the ability to place a lien on a customer's well in the event of non-payment.

The Corporation has established a credit policy under which each new customer is analyzed individually for creditworthiness before the Corporation's standard payment and delivery terms and conditions are offered. The Corporation's review includes review of trade references, financial statement review, review of payment history (credit check), debt analysis (bank references) and input from management. Extending credit to existing customers will continue as long as existing customers have an acceptable payment history. Customers that fail to meet the Corporation's benchmark creditworthiness may transact with the Corporation only on a prepayment basis.

Approximately 25% percent of the Corporation's revenue is attributable to sales transactions with a single customer. However, geographically there is no concentration of credit risk.

The carrying amount of accounts receivable represents the maximum credit exposure. The Corporation establishes an allowance for doubtful accounts that represents an estimate of incurred losses in respect of trade and other receivables. Customers with balances over 60 days are reviewed by management on a weekly basis, and if necessary, an allowance may be set up, or alternatively, the Corporation may place a lien on the customer's well.

There was no change in the Corporation's allowance for doubtful accounts in the second quarter of 2008, and there were no liens placed on any wells.

Liquidity risk

Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they fall due. The Corporation's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Corporation's reputation.

In managing liquidity risk, the Corporation prepares annual capital expenditure budgets, which are regularly monitored and updated as considered necessary. Further, the Corporation utilizes authorizations for capital expenditures to further manage its capital expenditure program.

The Corporation also has access to a wide range of funding at competitive rates. As at June 30, 2008, the Corporation had available unused committed bank credit facilities in the amount of $29,900 plus cash and accounts receivable in the amount of $4,031 and $18,928, respectively, for a total of $52,859 available to fund the cash outflows relating to its financial liabilities. The Corporation believes it has sufficient funding through the use of these facilities to meet foreseeable borrowing requirements.

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Corporation's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return on risk.

Currency risk

As the Corporation operates primarily in Canada and the United States, fluctuations in the exchange rate between the U.S./Canadian dollar can have a significant effect on the fair value or future cash flows of the Corporation's financial assets and liabilities.

The Canadian operations are exposed to currency risk on foreign currency denominated financial assets and liabilities with adjustments recognized as foreign exchange gains and/or losses in the consolidated statement of operations.

The U.S. operations with a domestic functional currency expose the Corporation to currency risk on the translation of the U.S. operations' financial assets and liabilities to Canadian dollars for consolidation. Adjustments arising when translating the U.S. operations into Canadian dollars are reflected in the consolidated statements of other comprehensive income as unrealized gains or losses on translating financial statements of self-sustaining foreign operations.

For the quarter ended June 30, 2008, fluctuations in the value of the Canadian dollar would have had the following impact on net income and other comprehensive income:



----------------------------------------------------------------------------
Impact to
Impact to Comprehensive Other
(Stated in thousands) Net Income Income
----------------------------------------------------------------------------
1% increase in the value of the US dollar $ 13 $ 24
1% decrease in the value of the US dollar $ (13) $ (24)
----------------------------------------------------------------------------


Management does not use any derivative instruments to hedge this risk. The Corporation had no forward exchange rate contracts in place as at or during the period ended June 30, 2008.

Interest rate risk

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Corporation manages its exposure to interest rate risk through a combination of fixed and variable rate borrowing facilities that are available if required. An increase or decrease in interest expense for each one percent change in interest rates on variable rate debt would have amounted to $425 during the six months ended June 30, 2008. As at June 30, 2008, all of its borrowings were at variable rates.

The Corporation had no interest rate swap or financial contracts in place as at or during the period ended June 30, 2008.

Inventories

The new standard replaces the previous inventories standard and requires inventory to be valued on a first-in, first-out or weighted average basis, which is consistent with the Corporation's current accounting policy. The new standard allows the reversal of previous write-downs to net realizable value when there is a subsequent increase in the value of the inventories. The adoption of this new standard did not have a material impact on the Corporation's consolidated financial statements.

Capital Disclosures

The Corporation's capital structure is comprised of Shareholders' Equity plus Long-Term Debt. The Corporation's objective when managing its capital structure is to preserve the financial flexibility to maintain investor, creditor and market confidence and to sustain future growth and development of the Corporation.

The Corporation's capital management policies are aimed at:

- maintaining an appropriate balance between short-term debt, long-term debt and equity;

- maintaining sufficient undrawn committed credit capacity to provide liquidity;

- ensuring ample covenant room to draw on the credit lines as required; and

- maintaining a level of leverage with sufficient room for increases when necessary.

The Corporation monitors its capital structure and short-term financing requirements using non-GAAP financial metrics consisting of Net Debt to Capitalization and Net Debt to Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA"). The metrics are used to steward the Corporation's overall debt position as measures of the Corporation's overall financial strength.

The Corporation operates in a cyclical industry and as a result has experienced significant fluctuations in historical financial results during past cycles. The industry cyclicality and fluctuations in financial results are expected to continue in the future.

Management is focused on the future growth of the Corporation. Management expects to experience short-term breaches in the Corporation's capital management financial targets due to its growth focus and industry cyclicality. Management is willing to tolerate these short-term breaches as long as its expectation of future financial performance is sufficient to reduce the breaches in its capital management financial targets below its stated targets in the near future.

The Corporation attempts to maintain a Net Debt to Capitalization ratio of less than 40%. As at June 30, 2008, the Corporation's net debt to capitalization ratio was 20% (December 31, 2007 - 17%).

The Corporation monitors Net Debt to EBITDA on a trailing and forward basis. The Corporation typically targets Net Debt to EBITDA of less than 2.5 times. As at June 30, 2008, Net Debt to EBITDA was 2.3 times (December 31, 2007 - 4.1 times) calculated on a trailing twelve-month basis.

The Corporation's capital management objectives, evaluation measures, definitions and targets have remained unchanged over the periods presented. The Corporation is subject to certain financial covenants in its credit facility agreement and is in compliance with all financial covenants.

Goodwill and Other Intangible Assets

In February 2008, the Canadian Institute of Chartered Accountants issued Section 3064, Goodwill and Intangible Assets, replacing Section 3062, Goodwill and Other Intangible Assets and Section 3450, Research and Development Costs. The new Sections establish standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The new Section will be applicable to the Corporation on January 1, 2009. The Corporation is currently assessing the impact of this new Section on its consolidated financial statements.

Internal Controls over Financial Reporting

Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in reports filed with, or submitted to, securities regulatory authorities is recorded, processed, summarized and reported within the time periods specified under Canadian securities laws. The information is accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosure.

During the quarter ending June 30, 2008, there have been no changes in the design of the Corporation's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Corporation's internal controls over financial reporting.

International Financial Reporting Standards

In January 2006, the Canadian Accounting Standards Board (the "AcSB") announced its decision to replace Canadian GAAP with International Financial Reporting Standards ("IFRS") for all Canadian Publicly Accountable Enterprises ("PAEs"), including Pure. On February 13, 2008, the AcSB confirmed January 1, 2011 as the changeover date for PAEs to commence reporting under IFRS. Although IFRS is principles-based and uses a conceptual framework similar to Canadian GAAP, there are significant differences and choices in accounting policies, as well as increased disclosure requirements under IFRS.

We are currently assessing the impact of the conversion from Canadian GAAP to IFRS on our results of operations, financial position and disclosures. We will provide disclosures of the key elements of our plan and progress on the project as the information becomes available during the transition period.

Business Risks

A complete discussion on business risks faced by the Corporation may be found under "Risk Factors" in the Corporation's Annual Information Form dated March 19, 2008 which is available under the Corporation's profile at www.sedar.com.

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 well-site 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 well site 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.



Summary of Quarterly Results

----------------------------------------------------------------------------
($ millions, except
per share amounts, 2008 2007 2006
unaudited) Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
----------------------------------------------------------------------------
Revenue $ 32.1 $ 46.7 $ 31.0 $ 31.5 $ 16.5 $ 46.1 $ 34.9 $ 35.4
Net income/(loss) (3.8) 2.0 1.1 0.9 (9.3) 3.8 2.8 3.3
Earnings/(loss)
per share
Basic $(0.24) $ 0.13 $ 0.07 $ 0.05 $(0.58) $ 0.24 $ 0.17 $ 0.21
Diluted $(0.24) $ 0.13 $ 0.07 $ 0.05 $(0.58) $ 0.24 $ 0.17 $ 0.20
----------------------------------------------------------------------------


Q2 2008

- US Completion Services increased its income before income taxes $2.1 million or 315% as a result of increased utilization in all three divisions coupled with production testing units transfers from Canada.

- The US Fracturing division experienced significantly higher utilization resulting in positive income before income taxes during the quarter for the first time in its history.

- Typical second quarter wet conditions prevailed in the WCSB significantly reducing industry activity levels relative to the 2008 first quarter. However, activity levels experienced in Canadian Completion Services and Drilling Services during the 2008 second quarter increased relative to the 2007 second quarter. The loss before income taxes decreased $1.7 million or 32% for Canadian Completion Services and $0.5 million or 35% for Drilling Services.

Q1 2008

- The quarter reflects reduced activity levels for the Canadian Completions segment resulting in reduced financial results. Despite reduced activity levels, the Canadian Production Testing division's income before income taxes was consistent with the 2007 second quarter as a percentage of revenue.

- The Drilling Services segment had a strong quarter in terms of revenue; however increased operating expenses resulted in a decrease in income before income taxes.

- The US Segment continues to grow its revenue base as the Fracturing and Logging and Perforating divisions' results continue to improve. The contracts entered into in late 2007 have increased utilization, and as a result both divisions experienced positive income before income taxes in the month of March.

- Two Production Testing units were transferred from the Canadian division to the US Production Testing division.

- Corporate services recorded a one-time increase in stock based compensation expense of $0.5 million relating to option cancellations.

Q4 2007

- The quarter reflects weak financial results largely attributable to: weak Canadian industry activity resulting in considerably lower Canadian Completion Services and Drilling Services financial results; the US Fracturing division's operating loss; the goodwill impairment of $1.2 million; and a significant contingent loss relating to an overtime claim in US Completion Services.

- The Corporation also recorded a $1.6 million future tax recovery relating to the Canadian government's substantively enacted corporate income tax rate reductions.

- The quarter also reflects positive operating results including: fracturing service contract and commitment awards that are expected to significantly increase the Fracturing division's equipment utilization; the execution of a revised sand supply agreement and receipt of US$4.9 million relating to repayment of the note receivable and reimbursement of certain operating expenses; increased equipment utilization and solid financial results for the US Production Testing division; improved financial results in the US Logging & Perforating division; and a strong financial contribution by the CCS Specialty Logging group in a weak operating market.

Q3 2007

- Weak industry activity levels continued in the WCSB resulting in a significant reduction in revenue and operating results for Canadian Completion Services and Drilling Services.

- US Completion Services' Production Testing division produced another quarterly record for revenue and income before income taxes.

- US Completion Services' Fracturing division's financial results continue to be hampered by fracturing sand supply.

- Sale of rig 1 for proceeds of $5 million. The proceeds have been used to commence the construction of rig eleven.

- One-time severance and termination costs of $0.7 million were recorded during the quarter.

Q2 2007

- Weak industry activity levels continued in the WCSB resulting in a significant reduction in revenue and operating results for Canadian Completion Services and Drilling Services.

- US Completion Services' Production Testing division produced another record quarterly revenue and income before income taxes during the quarter.

- US Completion Services' Fracturing division's financial results continue to be hampered by fracturing sand supply.

- Corporate segment recorded an allowance for loan impairment increasing the net loss by $4.2 million as a result of the deterioration in the credit quality of the Corporation's fracturing sand supplier.

Q1 2007

- Weaker industry activity levels continued in the WCSB resulting in a reduction in revenue and operating results for the Canadian Completion Services and Drilling Services segments.

- The Drilling Services' Motorworks Rentals division substantially increased revenue due to strong equipment utilization during the quarter combined with significant growth in rental equipment capacity and its fully operational service facility.

- The Drilling Services segment added rig 10, a deeper double rig, to its rig fleet.

- The US Completions Services' Production Testing division produced record quarterly revenue and income before income taxes during the quarter.

- The US Completion Services' Fracturing division completed 23 jobs during the quarter and received delivery of its second fracturing spread. Fracturing sand delivery delays resulted in an operating loss during the quarter.

Q4 2006

- Weaker industry activity levels continued in the WCSB resulting in a reduction in revenue and operating results for the Canadian Completion Services and Drilling Services segments.

- The US Fracturing division commenced operations in December 2006 with one fracturing spread.

- Drilling Services' Motorworks Rentals division substantially increased revenue due to the significant growth in rental equipment and the opening of its service facility.

- The Canadian Completion Services segment added one mini-logger to its Logging and Perforating division and five production testing units to its Production Testing division.

- The US Completion Services segment added one production testing unit to its Production Testing division.

- The Drilling Services segment added rig 9, a deeper double rig, to its rig fleet and 21 mud motors to its drilling rental fleet.

Q3 2006

- Weaker industry activity levels, particularly in the shallow gas directed regions, were experienced in the WCSB during the quarter as a result of lower natural gas prices, reducing revenue and operating results for the Canadian Completion Services and Drilling Services segments.

- Weak operating results were experienced in the US Completion Services segment as the Production Testing division's operating results improved relative to the second quarter levels, but remained below management's expectations and the Logging and Perforating division recorded an operating loss.

- The Canadian Completion Services segment added one mini-logger to its Logging and Perforating division and three production testing units to its Production Testing division.

- The US Completion Services segment added three production testing units to its Production Testing division.

- The Drilling Services segment adds rig 8, a single rig, to its rig fleet and 2 mud motors to its drilling rental fleet.

Non-GAAP Disclosure

EBITDA and EBITDAS do not have standardized meanings prescribed by GAAP and therefore may not be comparable to similar measures presented by other issuers. Management believes that, in addition to net income, EBITDA and EBITDAS are useful supplemental measures. EBITDA and EBITDAS are provided as measures of operating performance without reference to financing decisions and income tax impacts, which are not controlled at the operating management level. EBITDAS also excludes stock based compensation expense as it is also not controlled at the operating management level. The following is a reconciliation of EBITDA and EBITDAS, as used in this MD&A, to net income, being the most directly comparable measure calculated in accordance with GAAP.



----------------------------------------------------------------------------
Three months ended Six months ended
($ millions, except June 30, June 30,
per share amounts) 2008 2007 2008 2007
----------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

EBITDAS $ (0.8) $ (10.1) $ 7.1 $ (0.4)

Deduct:
Stock based compensation
expense 0.2 0.3 0.8 0.7

EBITDA $ (1.0) $ (10.4) $ 6.3 $ (1.1)
Deduct:
Depreciation and amortization 3.8 2.9 7.6 6.0
Interest expense 0.6 0.6 1.4 1.0
Income taxes (1) (1.6) (4.6) (0.9) (2.7)
Net income
(GAAP financial measure) (3.8) (9.3) (1.8) (5.4)
----------------------------------------------------------------------------
(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, except to the extent required by 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 legislated targets to reduce emissions; and the other factors considered under "Risk Factors" in the Corporation's Annual Information Form dated March 19, 2008 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