MANAGEMENTS DISCUSSION AND ANALYSIS




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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS




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BUSINESS OVERVIEW
 
 
 SELECT FINANCIAL AND OPERATING INFORMATION
 (Stated in thousands of Canadian dollars, except per unit amounts)
 % Increase
    
    
    
    
    
    
    
    % Increase
    
    
    
    
    
    
    % IncreaseYears ended December 31,
    
    2009
    
    
    (Decrease)
    
    
    
    2008
    
    
    (Decrease)
    
    
    2007
    
    
    (Decrease)Revenue
    
    $
    1,197,446
    
    
    
    8.7
    
    
    
    $
    1,101,891
    
    
    
    9.2
    
    
    $
    1,009,201
    
    
    
    (29.8
    )EBITDA (1)
    
    
    407,001
    
    
    
    (6.8
    )
    
    
    
    436,536
    
    
    
    (0.1
    )
    
    
    437,075
    
    
    
    (34.6
    )Net earnings
    
    
    161,703
    
    
    
    (46.6
    )
    
    
    
    302, 730
    
    
    
    (12.4
    )
    
    
    345, 776
    
    
    
    (40.3
    )Cash provided by continuing operations
    
    
    504,729
    
    
    
    46.8
    
    
    
    
    343, 910
    
    
    
    (29.0
    )
    
    
    484, 115
    
    
    
    (20.6
    )Capital spending: (2)Upgrade capital expenditures
    
    
    30,303
    
    
    
    (49.0
    )
    
    
    
    59, 454
    
    
    
    29.3
    
    
    
    45, 970
    
    
    
    (50.1
    )Expansion capital expenditures
    
    
    163,132
    
    
    
    (4.1
    )
    
    
    
    170, 125
    
    
    
    20.7
    
    
    
    141,003
    
    
    
    (17.5
    )Proceeds on sale
    
    
    (15, 978
    )
    
    
    53.0
    
    
    
    
    (10, 440
    )
    
    
    81.0
    
    
    
    (5, 767
    )
    
    
    (80.3
    )Net capital spending
    
    
    177,457
    
    
    
    (19.0
    )
    
    
    
    219, 139
    
    
    
    20.9
    
    
    
    181,206
    
    
    
    (22.5
    )Distributions declared  cash
    
    
    6,408
    
    
    
    (96.8
    )
    
    
    
    200, 659
    
    
    
    (18.6
    )
    
    
    246, 485
    
    
    
    (44.9
    )Distributions declared  in-kind
    
    
    
    
    
    
    (100.0
    )
    
    
    
    24,029
    
    
    
    (20.4
    )
    
    
    30, 182
    
    
    
    23.1Earnings per unit:Basic
    
    
    0.65
    
    
    
    (70.9
    )
    
    
    
    2.23
    
    
    
    (13.2
    )
    
    
    2.57
    
    
    
    (40.4
    )Diluted
    
    
    0.63
    
    
    
    (71.7
    )
    
    
    
    2.23
    
    
    
    (13.2
    )
    
    
    2.57
    
    
    
    (40.4
    )Distributions declared per unit  cash
    
    
    0.04
    
    
    
    (97.4
    )
    
    
    
    1.56
    
    
    
    (20.4
    )
    
    
    1.96
    
    
    
    (44.9
    )Distributions declared per unit  in-kind
    
    
    
    
    
    
    (100.0
    )
    
    
    
    0.15
    
    
    
    (37.5
    )
    
    
    0.24
    
    
    
    23.1Drilling rig utilization days:Canada
    
    
    21,229
    
    
    
    (38.4
    )
    
    
    
    34, 488
    
    
    
    (0.2
    )
    
    
    34,572
    
    
    
    (32.3
    )United States
    
    
    22,672
    
    
    
    183.2
    
    
    
    
    8,006
    
    
    
    281.6
    
    
    
    2,098
    
    
    
    n/mInternational
    
    
    710
    
    
    
    346.5
    
    
    
    
    159
    
    
    
    n/m
    
    
    
    
    
    
    
    n/mService rig operating hours:Canada
    
    
    207,361
    
    
    
    (38.1
    )
    
    
    
    335, 127
    
    
    
    (5.9
    )
    
    
    355, 997
    
    
    
    (25.9
    )
 (1)
    
    EBITDA is a non-GAAP measure and is defined as earnings before interest, taxes, loss on
asset decommissioning, depreciation and amortization and foreign exchange.
See page 48.(2)
    
    Excludes acquisitions.n/m calculation not meaningful.




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FINANCIAL POSITION AND RATIOS  (Stated in thousands of Canadian dollars, except ratios)
 Years ended December 31,
    
    2009
    
    
    
    2008
    
    
    2007Working capital
    
    $
    320,860
    
    
    
    $
    345,329
    
    
    $
    140,374Working capital ratio
    
    
    3.5
    
    
    
    
    2.0
    
    
    
    2.1Long-term debt (1)
    
    $
    748,725
    
    
    
    $
    1,368,349
    
    
    $
    119,826Total long-term financial liabilities
    
    $
    775,418
    
    
    
    $
    1,399,300
    
    
    $
    133,722Total assets
    
    $
    4,191,713
    
    
    
    $
    4,833,702
    
    
    $
    1,763,477Enterprise value (2)
    
    $
    2,536,477
    
    
    
    $
    2,636,170
    
    
    $
    1,877,139Long-term debt to long-term debt plus equity (1)
    
    
    0.22
    
    
    
    
    0.37
    
    
    
    0.08Long-term debt to cash provided by continuing operations (1)
    
    
    1.48
    
    
    
    
    3.98
    
    
    
    0.25Long-term debt to enterprise value (1)
    
    
    0.30
    
    
    
    
    0.52
    
    
    
    0.06
 (1)
    
    Excludes current portion of long-term debt which is included in working capital and is net
of unamortized debt issue costs.(2)
    
    Unit price as listed on the Toronto Stock Exchange as at December 31 multiplied by the number
of units outstanding plus long-term debt minus working capital. See page 23.
 
 OVERVIEW
   1.
    
    improve the balance sheet;2.
    
    integrate Grey Wolf; and3.
    
    continue to provide high performance, high value service to customers.
   1.
    
    First, with regard to the balance sheet, Precision was able to reduce long-term debt throughout
the year and lowered the Trusts debt to total capitalization ratio to 0.22 at December 31, 2009
from 0.37, a year earlier. This improvement was accomplished through a series of measures that
included Trust unit issuances, debt refinancing and through internally generated cash flow that was
used to reduce debt. These transactions were accomplished in spite of some of the toughest times in
the equity and debt markets in the past two decades. These transactions were necessary to improve
the capital structure of the Trust and to position the Trust for growth in 2010 and beyond.2.
    
    The integration of Grey Wolf was substantially completed during 2009. Personnel were realigned,
and information and operating system decisions and implementations were planned and executed during
the year. Precisions supply chain support system was expanded into the United States with the
opening of Grey Wolf Supply mid-year which is now supplying all of the United States rigs.
Maintenance and manufacturing processes and systems are being established in the United States and
2010 should provide additional cost savings from these activities.




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3.
    
    The people of Precision continue to perform at a very high level. Precision continues to
deliver our customers the high performance, high value service that they have come to expect.
Safety of our people is the top core value for Precision, and 2009 produced the best safety record
in Precisions history. Precision is not resting on our 2009 results and the Trust continues to
move towards Target Zero which is Precisions goal
of no work place incidents. Precision is proud to be one of the contractors
of choice for several major and large independent
exploration and production companies in North America. In fact, Precision earned Contractor of the
Year honours from a major oil company for its United States operations during 2009.
 
 
 VISION AND STRATEGY
  ®




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OUTLOOK




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ABOUT PRECISION




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RESOURCES NEEDED TO SUCCEED IN A CYCLICAL BUSINESS
 
    
 FUNDAMENTALS OF THE ENERGY SERVICES INDUSTRY
    GLOBAL MARKETS
  PRECISION DRILLING TRUST 2009 ANNUAL REPORT     9




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10     MANAGEMENTS DISCUSSION AND ANALYSIS




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NORTH AMERICAN MARKETS
   
 PRECISION DRILLING TRUST 2009 ANNUAL REPORT     11




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ECONOMIC DRIVERS
      
  12     MANAGEMENTS DISCUSSION AND ANALYSIS




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Drilling Rig Activity in Canada and the United States
   PRECISION DRILLING TRUST 2009 ANNUAL REPORT     13




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OPERATING CAPABILITIES
  High Performance Drilling Rigs
  ® ®
 14     MANAGEMENTS DISCUSSION AND ANALYSIS




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®
 ® ®
 Large Diversified Rig Fleets
    Inventory of Ancillary Equipment
   Safety, Environmental and Employee Wellness Programs
  PRECISION DRILLING TRUST 2009 ANNUAL REPORT     15




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Well-maintained Equipment
   
  Employees
  Information Systems
   16     MANAGEMENTS DISCUSSION AND ANALYSIS




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KEY PERFORMANCE DRIVERS
  Safety Management
  Environmental Management
  2
  Operating Efficiency
  PRECISION DRILLING TRUST 2009 ANNUAL REPORT     17




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
    
    Mechanical downtime is minimized through preventative maintenance programs, detailed
inspection processes, an extensive fleet of strategically placed spare equipment, an in-house
supply chain, and regular equipment upgrades; and
    
    Non-productive time, or move, rig-up and rig-out time, which is minimized by decreasing
the number of truck loads per rig, using lighter truck loads, and using mechanized equipment
for safer and quicker rig operations.
 Customer Demand
  Workforce
  Financial Performance
   
    
    Safety performance  total recordable incident frequency per 200,000 man-hours:
  
    
    Operational performance  rig down time for repair as measured by time
not billed to customer:
  
    
    Key field employee retention  senior field
employee retention rates:
  
    
    Financial performance  return on capital employed calculated as a percentage of
operating earnings (before non-cash decommissioning charges) divided by total assets less
current liabilities:
  
    
    Financial performance  unit value performance for year against industry peer group,
adjusted for dividends or distributions.
  18     MANAGEMENTS DISCUSSION AND ANALYSIS




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CAPITAL AND LIQUIDITY MANAGEMENT
          
    
    a term loan A facility in an aggregate principal amount of $289 million (the
Term Loan A Facility);
 
    
    a term loan B facility in an aggregate principal amount of $422 million (the
Term Loan B Facility); and
 
    
    a revolving credit facility in the amount of US$260 million (the Revolving
Credit Facility).
 PRECISION DRILLING TRUST 2009 ANNUAL REPORT     19




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Secured Facility
   
    
    a maximum total leverage ratio of 3.00 to 1.00 as at the last day of any period of four
consecutive fiscal quarters of the Trust, except that such maximum ratio is 3.50 to 1.00 for
any such period ending after December 31, 2009 and on or prior to December 31, 2011;
 
    
    a minimum interest coverage ratio of 3.00 to 1.00 for any period of four consecutive
fiscal quarters of the Trust, except that such minimum ratio is 2.75 to 1.00 for any such
period ending after December 31, 2009 and on or prior to December 31, 2011;
 
    
    a minimum fixed charge coverage ratio for any period of four consecutive fiscal quarters
of the Trust beginning March 31, 2009 of: (i) 1.00 to 1.00 for any such period ending on or
prior to December 31, 2010; and (ii) 1.05 to 1.00 for any such period ending after December
31, 2010;
 
    
    the following amounts are required to be used as prepayments of the term loans: (i) 100%
of the net cash proceeds of any incurrence of debt by the Trust, Precision or their
subsidiaries (subject to certain exceptions); (ii) 100% of the net cash proceeds of certain
sales or other dispositions of any assets belonging to the Trust, Precision or their
subsidiaries, except to the extent the Trust, Precision or their subsidiaries use the proceeds
from the sale or disposition to acquire, improve or repair assets useful in their business
within a specified period; and (iii) 75% of the Trusts annual excess cash flow, which
percentage will be reduced to 50%, 25% and 0% if the Trust achieves and maintains a
consolidated leverage ratio of less than 2.00 to 1.00, 1.25 to 1.00, and 0.75 to 1.00,
respectively. In addition to mandatory prepayments, Precision has the option to prepay the
loans under the Secured Facility generally without premium or penalty, other than customary
breakage costs for Eurodollar rate loans;
 
    
    limits on distributions based on 20% of the Trusts operating cash flow before changes
in working capital, provided that 50% of operating cash flow generated in excess of certain
base case projections will also be permitted to be paid as distributions, subject to an
overall cap of 30% of aggregate operating cash flow before changes in working capital;
 
    
    covenants that limit the Trusts capital expenditures above an agreed base-case,
allowing for certain exceptions; and
 
    
    the Trust, Precision and their material subsidiaries organized in Canada or the United
States (other than certain excluded subsidiaries) and each other subsidiary that becomes a
party to the collateral documents (collectively, the Subsidiary Guarantors) have pledged
substantially all of their tangible and intangible assets (with certain exceptions) that are
located in Canada or the United States as collateral, secured by a perfected first priority
lien, subject to certain permitted liens. In addition, the Trust and the Subsidiary Guarantors
have guaranteed the obligations of Precision under the Secured Facility.
   20     MANAGEMENTS DISCUSSION AND ANALYSIS




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Unsecured Senior Notes
     PRECISION DRILLING TRUST 2009 ANNUAL REPORT     21




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General
       Payments Due by Period(Stated in thousands of Canadian dollars)
    
    Total
    
    
    Less Than 1 Year
    
    
    1 - 3 Years
    
    
    4 - 5 Years
    
    
    After 5 YearsLong-term debt
    
    $
    885,984
    
    
    
    $     223
    
    
    $
    108,580
    
    
    $
    602,181
    
    
    $
    175,000Interest on long-term debt
    
    
    350,367
    
    
    
    74,619
    
    
    
    144,825
    
    
    
    109,060
    
    
    
    21,863Rig construction
    
    
    32,963
    
    
    
    
    
    
    
    32,963
    
    
    
    
    
    
    
    Operating leases
    
    
    27,665
    
    
    
    11,034
    
    
    
    11,879
    
    
    
    3,190
    
    
    
    1,562Contractual incentive plans (1)
    
    
    23,606
    
    
    
    9,028
    
    
    
    14,578
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    1,320,585
    
    
    
    $94,904
    
    
    $
    312,825
    
    
    $
    714,431
    
    
    $
    198,425
 (1)
    
    Includes amounts not yet accrued at December 31, 2009 but payable at the end of the
contract term. Unit based compensation amounts disclosed at year-end unit price.
Precision has multiple long-term incentive plans (LTIP) which compensate officers and key
employees through cash payments at the end of a stated term.
 Outstanding Unit Data
 March 10,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007Trust units
    
    
    275,516,778
    
    
    
    275,516,778
    
    
    
    160,042,065
    
    
    
    125,587,919Exchangeable LP units
    
    
    118,820
    
    
    
    118,820
    
    
    
    151,583
    
    
    
    170,005Total units outstanding
    
    
    275,635,598
    
    
    
    275,635,598
    
    
    
    160,193,648
    
    
    
    125,757,924Deferred Trust units outstanding
    
    
    290,732
    
    
    
    290,732
    
    
    
    54,543
    
    
    
    18,280Warrants outstanding
    
    
    15,000,000
    
    
    
    15,000,000
    
    
    
    
    
    
    
    Trust unit options outstanding
    
    
    3,641,200
    
    
    
    1,787,700
    
    
    
    
    
    
    
    
  22     MANAGEMENTS DISCUSSION AND ANALYSIS




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Years ended December 31,(Stated in thousands of Canadian dollars)
    
    2009
    
    
    
    2008
    
    
    2007Cash provided by continuing operations (A)
    
    $
    504,729
    
    
    
    $
    343,910
    
    
    $
    484,115Net earnings (B)
    
    $
    161,703
    
    
    
    $
    302,730
    
    
    $
    345,776Distributions declared (C)
    
    $
    6,408
    
    
    
    $
    224,688
    
    
    $
    276,667Excess of cash provided by operations over distributions declared (A-C)
    
    $
    498,321
    
    
    
    $
    119,222
    
    
    $
    207,448Excess of net earnings over distributions declared (B-C)
    
    $
    155,295
    
    
    
    $
    78,042
    
    
    $
    69,109(Stated in thousands of Canadian dollars except per unit amounts)
    
    2009
    
    
    
    2008
    
    
    2007Units outstanding
    
    
    275,635,598
    
    
    
    
    160,193,648
    
    
    
    125,757,924Year-end unit price (1)
    
    $
    7.65
    
    
    
    $
    10.07
    
    
    $
    15.09Units at market
    
    $
    2,108,612
    
    
    
    $
    1,613,150
    
    
    $
    1,897,687Long-term debt
    
    
    748,725
    
    
    
    
    1,368,349
    
    
    
    119,826Less: Working capital
    
    
    (320,860
    )
    
    
    
    (345,329
    )
    
    
    (140,374
    )Enterprise value
    
    $
    2,536,477
    
    
    
    $
    2,636,170
    
    
    $
    1,877,139
 (1)
    
    As per the Toronto Stock Exchange.
 PRECISION DRILLING TRUST 2009 ANNUAL REPORT     23




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CONSOLIDATED FINANCIAL RESULTS
 
 
 CONSOLIDATED OVERVIEW
 SUMMARY OF CONSOLIDATED STATEMENTS OF EARNINGS  (Stated in thousands of Canadian dollars)
 Years ended December 31,
    
    2009
    
    
    
    2008
    
    
    2007Revenue:Contract Drilling Services
    
    $
    1,030,852
    
    
    
    $
    809,317
    
    
    $
    694,340Completion and Production Services
    
    
    176,422
    
    
    
    
    308,624
    
    
    
    327,471Inter-segment elimination
    
    
    (9,828
    )
    
    
    
    (16,050
    )
    
    
    (12,610
    )1,197,446
    
    
    
    
    1,101,891
    
    
    
    1,009,201EBITDA: (1)Contract Drilling Services
    
    
    397,467
    
    
    
    
    359,137
    
    
    
    329,351Completion and Production Services
    
    
    42,499
    
    
    
    
    109,054
    
    
    
    132,030Corporate and Other
    
    
    (32,965
    )
    
    
    
    (31,655
    )
    
    
    (24,306
    )407,001
    
    
    
    
    436,536
    
    
    
    437,075Depreciation and amortization
    
    
    138,000
    
    
    
    
    83,829
    
    
    
    71,604Loss on asset decommissioning
    
    
    82,173
    
    
    
    
    
    
    
    
    6,722Operating earnings (1)
    
    
    186,828
    
    
    
    
    352,707
    
    
    
    358,749Foreign exchange
    
    
    (122,846
    )
    
    
    
    (2,041
    )
    
    
    2,398Finance charges
    
    
    147,401
    
    
    
    
    14,174
    
    
    
    7,318Earnings from continuing operations before income taxes
    
    
    162,273
    
    
    
    
    340,574
    
    
    
    349,033Income taxes
    
    
    570
    
    
    
    
    37,844
    
    
    
    6,213Earnings from continuing operations
    
    
    161,703
    
    
    
    
    302,730
    
    
    
    342,820Discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    2,956Net earnings
    
    $
    161,703
    
    
    
    $
    302,730
    
    
    $
    345,776
 (1)
    
    Non-GAAP measure. See page 48.
 24     MANAGEMENTS DISCUSSION AND ANALYSIS




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(1)
    
    Non-GAAP measure see page 48.
 
   PRECISION DRILLING TRUST 2009 ANNUAL REPORT     25




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QUARTERLY FINANCIAL SUMMARY  (Stated in thousands of Canadian dollars, except per diluted unit amounts)
 Year ended December 31, 2009
    
    Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    YearRevenue
    
    $
    448,445
    
    
    $
    209,597
    
    
    $
    253,337
    
    
    $
    286,067
    
    
    $
    1,197,446EBITDA (1)
    
    
    169,387
    
    
    
    59,260
    
    
    
    85,739
    
    
    
    92,615
    
    
    
    407,001Net earnings
    
    
    57,417
    
    
    
    57,475
    
    
    
    71,696
    
    
    
    (24,885
    )
    
    
    161,703Per diluted unit (2)
    
    
    0.28
    
    
    
    0.22
    
    
    
    0.25
    
    
    
    (0.09
    )
    
    
    0.63Cash provided by operations
    
    
    201,596
    
    
    
    212,554
    
    
    
    19,948
    
    
    
    70,631
    
    
    
    504,729Distributions to unitholders  declared
    
    $
    6,408
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    6,408
 Year ended December 31, 2008
    
    Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    YearRevenue
    
    $
    342,689
    
    
    $
    138,514
    
    
    $
    285,639
    
    
    $
    335,049
    
    
    $
    1,101,891EBITDA (1)
    
    
    147,347
    
    
    
    35,574
    
    
    
    118,820
    
    
    
    134,795
    
    
    
    436,536Net earnings
    
    
    106,266
    
    
    
    21,739
    
    
    
    82,349
    
    
    
    92,376
    
    
    
    302,730Per diluted unit (2)
    
    
    0.79
    
    
    
    0.16
    
    
    
    0.61
    
    
    
    0.66
    
    
    
    2.23Cash provided by operations
    
    
    57,307
    
    
    
    200,458
    
    
    
    3,241
    
    
    
    82,904
    
    
    
    343,910Distributions to unitholders  declared
    
    $
    49,046
    
    
    $
    49,045
    
    
    $
    49,046
    
    
    $
    77,551
    
    
    $
    224,688
 (1)
    
    Non-GAAP measure. See page 48.(2)
    
    Net earnings per diluted unit have been adjusted to reflect the rights offering completed in
the second quarter of 2009. See Note 18 to the audited consolidated financial statements.
  26     MANAGEMENTS DISCUSSION AND ANALYSIS




---



##### 



FOURTH QUARTER 2009
       PRECISION DRILLING TRUST 2009 ANNUAL REPORT     27




---



##### 



28     MANAGEMENTS DISCUSSION AND ANALYSIS




---



##### 



BUSINESS SEGMENT RESULTS
 
    
    
    203 land drilling rigs in Canada;
    
    146 land drilling rigs in the United States;
    
    two land drilling rigs in Mexico;
    
    one land drilling rig in Chile;
    
    96 drilling and base camps in Canada;
    
    engineering, manufacturing and repair services primarily for Precisions operations; and
    
    centralized procurement, inventory and distribution of consumable supplies primarily for Precisions Canadian,
United States and Mexico operations.
  
    
    200 well completion and workover service rigs;
    
    20 snubbing units;
    
    approximately 11,300 oilfield rental items including well control equipment, surface equipment, specialty tubulars
and wellsite accommodation units; and
    
    78 wastewater treatment units.
 PRECISION DRILLING TRUST 2009 ANNUAL REPORT     29




---



##### 



CONTRACT DRILLING SERVICES
      30     MANAGEMENTS DISCUSSION AND ANALYSIS




---



##### 



Horsepower
    
    < 1000
    
    
    1000-1500
    
    
    >1500
    
    
    TotalTier I
    
    
    55
    
    
    
    45
    
    
    
    9
    
    
    
    109Tier II
    
    
    72
    
    
    
    44
    
    
    
    24
    
    
    
    140Tier III
    
    
    80
    
    
    
    17
    
    
    
    6
    
    
    
    103Total
    
    
    207
    
    
    
    106
    
    
    
    39
    
    
    
    352
 CONTRACT DRILLING FINANCIAL RESULTS  (Stated in thousands of Canadian dollars, except where indicated)
 % of
    
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofYears ended December 31,
    
    2009
    
    
    Revenue
    
    
    
    2008
    
    
    Revenue
    
    
    2007
    
    
    RevenueRevenue
    
    $
    1,030,852
    
    
    
    
    

    
    $
    809,317
    
    
    
    
    
    
    $
    694,340Expenses:Operating
    
    
    578,225
    
    
    
    56.1
    

    
    
    425,051
    
    
    
    52.5
    
    
    
    345,043
    
    
    
    49.7General and administrative
    
    
    55,160
    
    
    
    5.3
    

    
    
    25,129
    
    
    
    3.1
    
    
    
    19,946
    
    
    
    2.9EBITDA (1)
    
    
    397,467
    
    
    
    38.6
    

    
    
    359,137
    
    
    
    44.4
    
    
    
    329,351
    
    
    
    47.4Depreciation and amortization
    
    
    118,889
    
    
    
    11.5
    

    
    
    57,076
    
    
    
    7.1
    
    
    
    40,660
    
    
    
    5.9Loss on asset decommissioning
    
    
    67,794
    
    
    
    6.6
    

    
    
    
    
    
    
    
    
    
    
    2,460
    
    
    
    0.3Operating earnings (1)
    
    $
    210,784
    
    
    
    20.4
    

    
    $
    302,061
    
    
    
    37.3
    
    
    $
    286,231
    
    
    
    41.2% Increase
    
    
    
    
    
    
    
    % Increase
    
    
    
    
    
    
    % Increase2009
    
    
    (Decrease)
    
    
    
    2008
    
    
    (Decrease)
    
    
    2007
    
    
    (Decrease)Number of drilling rigs (end of year)
    
    
    352
    
    
    
    (5.9
    )

    
    
    374
    
    
    
    52.7
    
    
    
    245
    
    
    
    1.7Drilling utilization days (operating
and moving):Canada
    
    
    21,229
    
    
    
    (38.4
    )

    
    
    34,488
    
    
    
    (0.2
    )
    
    
    34,572
    
    
    
    (32.3
    )United States
    
    
    22,672
    
    
    
    183.2
    

    
    
    8,006
    
    
    
    281.6
    
    
    
    2,098
    
    
    
    n/mInternational
    
    
    710
    
    
    
    346.5
    

    
    
    159
    
    
    
    n/m
    
    
    
    
    
    
    
    Drilling revenue per utilization day:Canada
    
    $
    17,824
    
    
    
    8.6
    

    
    $
    16,420
    
    
    
    (2.5
    )
    
    $
    16,833
    
    
    
    (6.5
    )United States (in US$)
    
    $
    19,882
    
    
    
    (8.0
    )

    
    $
    21,610
    
    
    
    (7.9
    )
    
    $
    23,473
    
    
    
    (8.5
    )Drilling statistics: (2)Number of wells drilled
    
    
    2,198
    
    
    
    (45.9
    )

    
    
    4,061
    
    
    
    (13.9
    )
    
    
    4,718
    
    
    
    (23.7
    )Average days per well
    
    
    8.6
    
    
    
    13.2
    

    
    
    7.6
    
    
    
    16.9
    
    
    
    6.5
    
    
    
    (9.7
    )Number of metres drilled (000s)
    
    
    3,316
    
    
    
    (39.0
    )

    
    
    5,440
    
    
    
    (6.4
    )
    
    
    5,813
    
    
    
    (25.6
    )Average metres per well
    
    
    1,509
    
    
    
    12.6
    

    
    
    1,340
    
    
    
    8.8
    
    
    
    1,232
    
    
    
    (2.5
    )
 
 (1)
    
    Non-GAAP measure. See page 48.(2)
    
    Canadian operations only. PRECISION DRILLING TRUST 2009 ANNUAL REPORT     31




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##### 



2009 Compared to 2008
 The Contract Drilling Services segment
         32     MANAGEMENTS DISCUSSION AND ANALYSIS




---



##### 



LRG Catering
 Rostel Industries and Columbia Oilfield Supply divisions
 2008 Compared to 2007
 The Contract Drilling Services segment
       PRECISION DRILLING TRUST 2009 ANNUAL REPORT     33




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##### 



COMPLETION AND PRODUCTION SERVICES
    Type of Service Rig
    
    Horsepower
    
    
    2009
    
    
    
    2008
    
    
    2007
    
    
    2006Singles:Mobile
    
    
    150-400
    
    
    
    
    
    
    
    
    2
    
    
    
    5
    
    
    
    12Freestanding mobile
    
    
    150-400
    
    
    
    94
    
    
    
    
    97
    
    
    
    94
    
    
    
    92Doubles:Mobile
    
    
    250-550
    
    
    
    28
    
    
    
    
    42
    
    
    
    43
    
    
    
    44Freestanding mobile
    
    
    200-550
    
    
    
    30
    
    
    
    
    23
    
    
    
    9
    
    
    
    9Skid
    
    
    300-860
    
    
    
    30
    
    
    
    
    48
    
    
    
    55
    
    
    
    65Slants:Freestanding
    
    
    250-400
    
    
    
    18
    
    
    
    
    17
    
    
    
    17
    
    
    
    15Total
    
    
    
    
    
    
    200
    
    
    
    
    229
    
    
    
    223
    
    
    
    237
  COMPLETION AND PRODUCTION SERVICES FINANCIAL RESULTS  (Stated in thousands of Canadian dollars, except where indicated)
 % of
    
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofYears ended December 31,
    
    2009
    
    
    Revenue
    
    
    
    2008
    
    
    Revenue
    
    
    2007
    
    
    RevenueRevenue
    
    $
    176,422
    
    
    
    
    
    
    
    $
    308,624
    
    
    
    
    
    
    $
    327,471Expenses:Operating
    
    
    123,846
    
    
    
    70.2
    
    
    
    
    188,705
    
    
    
    61.2
    
    
    
    183,661
    
    
    
    56.1General and administrative
    
    
    10,077
    
    
    
    5.7
    
    
    
    
    10,865
    
    
    
    3.5
    
    
    
    11,780
    
    
    
    3.6EBITDA (1)
    
    
    42,499
    
    
    
    24.1
    
    
    
    
    109,054
    
    
    
    35.3
    
    
    
    132,030
    
    
    
    40.3Depreciation and amortization
    
    
    17,186
    
    
    
    9.7
    
    
    
    
    22,966
    
    
    
    7.4
    
    
    
    27,159
    
    
    
    8.3Loss on asset decommissioning
    
    
    14,379
    
    
    
    8.2
    
    
    
    
    
    
    
    
    
    
    
    
    4,262
    
    
    
    1.3Operating earnings (1)
    
    $
    10,934
    
    
    
    6.2
    
    
    
    $
    86,088
    
    
    
    27.9
    
    
    $
    100,609
    
    
    
    30.7% Increase
    
    
    
    
    
    
    
    % Increase
    
    
    
    
    
    
    % Increase2009
    
    
    (Decrease)
    
    
    
    2008
    
    
    (Decrease)
    
    
    2007
    
    
    (Decrease)Number of service rigs (end of year)
    
    
    200
    
    
    
    (12.7
    )
    
    
    
    229
    
    
    
    2.7
    
    
    
    223
    
    
    
    (5.9
    )Service rig operating hours
    
    
    207,361
    
    
    
    (38.1
    )
    
    
    
    335,127
    
    
    
    (5.9
    )
    
    
    355,997
    
    
    
    (25.9
    )Revenue per operating hour
    
    $
    652
    
    
    
    (7.9
    )
    
    
    $
    708
    
    
    
    (3.0
    )
    
    $
    730
    
    
    
    2.5
 
 (1)
    
    Non-GAAP measure. See page 48. 34     MANAGEMENTS DISCUSSION AND ANALYSIS




---



##### 



2009 Compared to 2008
 The Completion and Production Services segment
   The Precision Well Servicing division
      PRECISION DRILLING TRUST 2009 ANNUAL REPORT     35




---



##### 



2008 Compared to 2007
 The Completion and Production Services segment
   The Precision Well Servicing division
    
 CORPORATE AND OTHER ITEMS
 2009 Compared to 2008
 Corporate and Other Expenses
  Foreign Exchange
  Financing Charges
  
 36     MANAGEMENTS DISCUSSION AND ANALYSIS




---



##### 



Income Taxes
   2008 Compared to 2007
 Corporate and Other Expenses
  Finance Charges
  Income Taxes
   Discontinued Operations
  
 RESULTS BY GEOGRAPHIC SEGMENT  (Stated in thousands of Canadian dollars)
 Years ended December 31,
    
    2009
    
    
    
    2008
    
    
    2007Revenue:Canada
    
    $
    569,013
    
    

    
    $
    909,001
    
    
    $
    958,937United States
    
    
    608,109
    
    
    
    
    189,796
    
    
    
    51,082International
    
    
    23,748
    
    
    
    
    4,686
    
    
    
    Inter-segment elimination
    
    
    (3,424
    )
    
    
    
    (1,592
    )
    
    
    (818
    )$
    1,197,446
    
    
    
    $
    1,101,891
    
    
    $
    1,009,201Total Assets:Canada
    
    $
    1,639,046
    
    
    
    $
    1,741,462
    
    
    $
    1,651,920United States
    
    
    2,498,909
    
    
    
    
    3,033,378
    
    
    
    108,683International
    
    
    53,758
    
    
    
    
    58,862
    
    
    
    2,874$
    4,191,713
    
    
    
    $
    4,833,702
    
    
    $
    1,763,477
 PRECISION DRILLING TRUST 2009 ANNUAL REPORT     37




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##### 



CRITICAL ACCOUNTING ESTIMATES, NEW ACCOUNTING STANDARDS AND INTERNATIONAL FINANCIAL REPORTING
STANDARDS
 
 CRITICAL ACCOUNTING ESTIMATES
    Allowance for Doubtful Accounts Receivable
  Impairment of Long-lived Assets
  38     MANAGEMENTS DISCUSSION AND ANALYSIS




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##### 



Depreciation and Amortization
  Income Taxes
   
 NEW ACCOUNTING STANDARDS
  
    
    Section 1582 Business Combinations will require most assets acquired and liabilities
assumed, including contingent consideration to be measured at fair value and that all
acquisition costs to be expensed.
    
    Section 1602 Non-controlling Interests will require that non-controlling interests be
recognized as a separate component of equity and that net earnings be calculated without a
deduction for non-controlling interest.
    
    Section 1601 Consolidated Financial Statements establishes standards for the
preparation of consolidated financial statements.
  
 TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS
   PRECISION DRILLING TRUST 2009 ANNUAL REPORT     39




---



##### 



Capital Assets
 Componentization
    Accounting policy choice
  Asset qualification criteria
  40     MANAGEMENTS DISCUSSION AND ANALYSIS




---



##### 



Financial Statement Disclosure
  Income Taxes
   Impairments
  IFRS 1  First Time Adoption
   PRECISION DRILLING TRUST 2009 ANNUAL REPORT     41




---



##### 



Key Activity
    
    
    Deadlines/Milestones
    
    
    Status at December 31, 2009Financial Statement Preparation:   Identify differences in Canadian

GAAP/IFRS accounting policies.
   Select

entitys continuing IFRS policies.
   Select

entitys IFRS 1 choices.
   Develop financial

statement format.
   Identify IFRS 1

disclosures for 2010
    
    

   Identify
Canadian GAAP/IFRS differences Q1 2009.
   Identify and
evaluate IFRS 1 options Q1 2009.
   Identify disclosure

requirements under IFRS Q4 2009.
   Ready for complete

IFRS reporting in 2011 financial year including
comparative financial statements for 2010 financial year.
    
    

   IFRS 1 elections have been evaluated. Detailed calculations are underway to establish impact on financial statements.

   Disclosure requirements have been
established. Processes are currently being implemented to gather additional information where applicable.


   Transition statements
are being drafted. Collection of information for comparative financial statements has begun.Infrastructure:   Determine and develop IFRS expertise

needed at all levels within the entity.
   Determine and

implement information technology changes needed to be fully IFRS
compliant.
    
    

   Identify
and train IFRS project team Q1 2009.
   Ready for parallel

processing of 2010 general ledger using IFRS accounting
procedures, Q1 2010.
    
    

   IFRS project team was established and trained in Q1, 2009.
Formal training was imparted to Finance team and IFRS project team in February and September 2009.

   Configuration of
Precisions Enterprise Resource System for capital assets has been completed and tested.Business Policy Assessment:   Identify impact on financial covenants

and renegotiate/ redefine as needed.
   Identify impact on

compensation plans and change as required.
   Evaluate impact on

customer and supplier contracts.
    
    

   Impact
of IFRS on debt covenants to be identified
   Review compensation

plans by Q4, 2010
   Renegotiate and

amend customer and supplier contracts by Q3, 2010 if needed.
    
    

   Assessment of impact of IFRS conversion on compensation plans,
debt covenants
and customer and supplier contracts is in progress.Control Environment:   Assess impact on design and effectiveness

of internal control over financial
reporting.
   Assess impact on

design and effectiveness of disclosure controls and procedures.
    
    
       Update business process and information technology controls
documentation by end of Q4, 2010.
   Update CEO/CFO

certifications process by end of Q4, 2010 for SOX 302.
    
    

   Documentation of revised business process and information
technology controls as a result of IFRS changes has commenced. It is expected to be completed by Q4, 2010.
   Assessment of impact to the CEO/CFO certification process is in progress.
  42     MANAGEMENTS DISCUSSION AND ANALYSIS




---



##### 



OVERVIEW OF BUSINESS RISKS
   Crude Oil and Natural Gas Prices
   Business is Seasonal and Highly Variable
  PRECISION DRILLING TRUST 2009 ANNUAL REPORT     43




---



##### 



Customer Merger and Acquisition Activity
   Workforce Availability
   Credit Market Conditions May Adversely Affect Business
   Access to Additional Financing
   44     MANAGEMENTS DISCUSSION AND ANALYSIS




---



##### 



Technology
   Competitive Industry
  
    
    the drilling capabilities and condition of
drilling rigs;
    
    the quality of service and
experience of rig crews;
    
    the safety record of the
contractor and the particular rig;
    
    the offering of
ancillary services;
    
    the ability to provide equipment adaptable to, and personnel familiar with, new
technologies and drilling techniques; and
    
    the mobility and efficiency of rigs.
 Capital Overbuild in the Drilling Industry
   Tax Consequences of Previous Transactions Completed by Precision
  PRECISION DRILLING TRUST 2009 ANNUAL REPORT     45




---



##### 



Environmental
   United States Dollar Exchange Exposure
  
    
    Translation of United States SubsidiariesPrecisions United States operations are considered self-sustaining operations and are translated
into Canadian dollars using the current rate method. Under this method, the assets and
liabilities of Precisions operations in the United States are recorded in the consolidated
financial statements at the exchange rate in effect at the balance sheet dates and the unrealized
gains and losses are included in other comprehensive income, a component of Unitholders equity.
As a result, changes in the Canadian to United States dollar exchange rates could materially
increase or decrease Precisions United States dollar denominated net assets on consolidation
which increase or decrease Unitholders equity. In addition, under certain circumstances Canadian
GAAP requires foreign exchange gains and losses that are accumulated in other comprehensive
income to be recorded as a foreign exchange gain or loss in the statement of earnings.
Precisions United States operations generate revenue and incur expenses in United States dollars
and the United States dollar based earnings are converted into Canadian dollars for purposes of
financial statement consolidation and reporting. The conversion of the United States dollar based
revenue and expenses to a Canadian dollar basis does not result in a foreign exchange gain or
loss but does result in lower or higher net earnings from United States operations than would
have occurred had the exchange rate not changed. If the Canadian dollar strengthens versus the
United States dollar, the Canadian dollar equivalent of net earnings from United States
operations will be negatively impacted. Precision does not currently hedge any of its exposure
related to the translation of United States dollar based earnings into Canadian dollars.
    
    Transaction ExposurePrecision has long-term debt denominated in United States dollars. This debt is converted at the
exchange rate in effect at the balance sheet dates with the resulting gains or losses included in
the statement of earnings as foreign exchange. If the Canadian dollar strengthens versus the
United States dollar, Precision will incur a foreign exchange gain from the translation of this
debt. Currently, Precision has not designated any of this debt as a hedge against the net asset
position of its self-sustaining United States operations. The vast majority of Precisions United
States operations are transacted in United States dollars. Transactions for Precisions Canadian
operations are primarily transacted in Canadian dollars. However, Precision occasionally
purchases goods and supplies in United States dollars for Canadian operations. These types of
transactions and foreign exchange exposure would not typically have a material impact on the
Canadian operations financial results.
  46     MANAGEMENTS DISCUSSION AND ANALYSIS




---



##### 



Safety Risk
   Dependence on Third Party Suppliers
   
 EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
     PRECISION DRILLING TRUST 2009 ANNUAL REPORT     47




---



##### 



NON-GAAP MEASURES
  EBITDA
   (Stated in thousands of Canadian dollars)
    
    2009
    
    
    
    2008
    
    
    2007EBITDA
    
    $
    407,001
    
    
    
    $
    436,536
    
    
    $
    437,075Add (deduct):Depreciation and amortization
    
    
    (138,000
    )
    
    
    
    (83,829
    )
    
    
    (71,604
    )Loss on asset decommissioning
    
    
    (82,173
    )
    
    
    
    
    
    
    
    (6,722
    )Foreign exchange
    
    
    122,846
    
    
    
    
    2,041
    
    
    
    (2,398
    )Financing charges
    
    
    (147,401
    )
    
    
    
    (14,174
    )
    
    
    (7,318
    )Income taxes
    
    
    (570
    )
    
    
    
    (37,844
    )
    
    
    (6,213
    )Earnings from continuing operations
    
    $
    161,703
    
    
    
    $
    302,730
    
    
    $
    342,820
 Operating Earnings
  (Stated in thousands of Canadian dollars)
    
    2009
    
    
    
    2008
    
    
    2007Operating earnings
    
    $
    186,828
    
    
    
    $
    352,707
    
    
    $
    358,749Add (deduct):Foreign exchange
    
    
    122,846
    
    
    
    
    2,041
    
    
    
    (2,398
    )Financing charges
    
    
    (147,401
    )
    
    
    
    (14,174
    )
    
    
    (7,318
    )Income taxes
    
    
    (570
    )
    
    
    
    (37,844
    )
    
    
    (6,213
    )Earnings from continuing operations
    
    $
    161,703
    
    
    
    $
    302,730
    
    
    $
    342,820
 48     MANAGEMENTS DISCUSSION AND ANALYSIS