Precision Drilling Corporation Annual Report 2000

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FY2000 Annual Report · Precision Drilling Corporation

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P r e c i s i o n
D r i l l i n g
C o r p o r a t i o n

Canadian eh...

2000
A n n u a l R e p o r t

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O U R G U I D A N C E A N D S U P P O R T

This year’s annual report celebrates 15 years of robust growth for
Precision. It focuses on the critical goals we have set and met over the
last year and the factors crucial to the continued growth of our
company.

It is no accident that today, Precision is at the forefront of the
drilling and service industry in Canada and making inroads globally.
Our achievement is the result of a decade of hard work, careful
planning, bold strategic moves and, as in any business, some good
fortune.

Precision Drilling Corporation is an international oilfield services
company. In a 15 year span, Precision has grown from a three rig
drilling contractor in western Canada, with $4 million in revenue to
a multi-service international oil and gas service company with
revenues exceeding $1.3 billion. Through a series of targeted
acquisitions, the Corporation has expanded its suite of services and
now provides them on five continents.

In its steadfast pursuit of operational excellence in every endeavour,
Precision has emerged in this, a new millennium, as a strong and
tenacious competitor. We are well positioned to provide innovative
technology, unparalleled service and dedicated support to our
customers worldwide. We are committed to sustained strength and
profitability – enterprise wide – for the benefit of all shareholders.

Our Officers: from left to right Michael J. McNulty, Vice President Finance; Hank B. Swartout, Chairman,

President and Chief Executive Officer; W. Bruce Herron, Senior Vice President Rental and Production

Services; Dale E. Tremblay, Senior Vice President Finance and Chief Financial Officer; Jan M. Campbell,

Corporate Secretary; Larry J. Comeau, Senior Vice President Oilfield Speciality Services.

Our Board of Directors: from left to right back row W. C. (Mickey) Dunn; Murray K. Mullen; Brian E.

Roberts; H. Garth Wiggins; Robert J. S. Gibson. Seated front row Hank B. Swartout; Steven C. Grant.

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

2 0 0 0 A N N U A L R E P O R T

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

C A N A D I A N

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...with a global presence

France

Netherlands

Germany

Switzerland

Austria

Hungary

Italy

Turkey

Lithuania

USA

Mexico

Venezuela

Bolivia

Brazil

Colombia

Canada

USA

Mexico

Venezuela

Colombia

Brazil

Bolivia

Argentina

Netherlands
Germany

France

Switzerland

Austria

Lithuania

Hungary

Greece

Egypt

Turkey
Syria
Saudi
Arabia

UAE
Oman

Italy

Tunisia

Nigeria

Russia

Kazakhstan

Turkmenistan

China

India Bangladesh

Yemen

Thailand

Vietnam

Indonesia

Australia

Greece

Russia

China

Kazakhstan

India

Bangladesh

Australia

Vietnam

Thailand

Indonesia

Argentina

Nigeria

Syria

Egypt

Tunisia

Yemen

Oman

Saudi Arabia

IN THIS ANNUAL REPORT

UAE

Turkmenistan

... with a global presence z Page 1 How We’ve Done This Year z Page 2 Disclosure Matters z Page 4

Tab 1 z G R O W I N G — Report of the Chief Executive Officer z Page 5

Tab 2 z D I V E R S E — Operating Matters: Our knowledge, products and services and skill sets z Page 13

Tab 3 z I N V O LV E D — Our role in the workplace, environment and our communities z Page 31

Tab 4 z S O L I D — Financial Matters: MD&A and our consolidated financial statements and notes z Page 39

Tab 5 z C A N A D I A N – How we’ve done historically, who we are and where to find us z Page 73

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

G L O B A L P R E S E N C E

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H O W W E ’ V E D O N E T H I S Y E A R

FINANCIAL PERFORMANCE SUMMARY

(Stated in thousands of dollars, except per share amounts which are presented on a fully diluted basis)

Years ended December 31,

2000

1999

% Change

Revenue

Operating earnings
Cash flow (1)

Per share

Earnings before goodwill amortization

Per share

Net earnings

Per share

Shareholders’ equity

Per share

Net capital expenditures (2)
Long-term debt

Number of shares outstanding, end of year (000’s)

(1)
(2)

Funds provided by operations
Excludes acquisitions

1,355,453

260,845

297,873

5.69

154,321

2.98

131,560

2.55

1,206,895

23.08

180,484

548,096

52,283

734,740

117,494

100,036

2.13

50,081

1.09

34,250

0.76

908,795

19.27

41,148

226,815

47,163

T H E T R A C K R E C O R D

Share Performance TSE
Up 52% over 1999

Share Performance NYSE
Up 46% over 1999

Value of Shares Outstanding
Up 69% over 1999
$ Millions

PD
TSE 300

PDS
S&P 500
OSX

3500

3000

2500

2000

1500

1000

500

350

300

250

200

150

100

122

198

167

208

173

284

236

339

142

3000

2500

2000

1500

1000

500

April 30

Dec. 31

April 30

Dec. 31

April 30

Dec. 31

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

S U M M A R I E S

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H O W W E ’ V E D O N E T H I S Y E A R

QUARTERLY RESULTS SUMMARY

(Stated in thousands of dollars, except per share amounts which are presented on a fully diluted basis)

Year ended December 31, 2000

Total

Revenue

Operating earnings
Cash flow (1)

Per share

Earnings before goodwill amortization

Per share

Net earnings

Per share

Year ended December 31, 1999

Revenue

Operating earnings
Cash flow (1)

Per share

Earnings before goodwill amortization

Per share

Net earnings

Per share

(1)

Funds provided by operations

$ 384,400

$ 223,812

$ 303,354

$ 443,887

$ 1,355,453

93,847

107,148

2.10

49,573

0.98

45,291

0.90

24,131

35,096

0.68

11,136

0.23

6,835

0.14

48,141

56,092

1.09

23,453

0.46

16,903

0.34

94,726

99,537

1.82

70,159

1.31

62,531

1.17

260,845

297,873

5.69

154,321

2.98

131,560

2.55

Total

$ 193,855

98,134

$ 185,081

$ 257,670

$ 734,740

41,259

2,489

0.06

12,779

0.29

9,057

0.21

4,766

7,692

0.18

5,454

0.13

1,849

0.05

25,802

39,606

0.85

11,797

0.25

7,643

0.16

45,667

50,249

1.04

20,051

0.42

15,701

0.34

117,494

100,036

2.13

50,081

1.09

34,250

0.76

T H E T R A C K R E C O R D

Gross Revenue
Up 84% over 1999
$ Millions

Cash Flow
Up 167% over 1999
Dollars per share fully diluted

Net Earnings
Up 236% over 1999
Dollars per share fully diluted

1500

1200

900

600

300

3.0

2.5

2.0

1.5

1.0

0.5

0.0

April 30

Dec. 31

April 30

Dec. 31

April 30

Dec. 31

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

S U M M A R I E S

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D I S C L O S U R E

DISCLOSURE REGARDING FORWARD–LOOKING STATEMENTS

Certain statements contained in this annual report, including statements which may contain words such as “could”,

“should”, “expect”, “believe”, “will” and similar expressions and statements relating to matters that are not historical facts are

forward-looking statements including statements as to: future capital expenditures, including the amount and nature thereof; oil

and gas prices and demand; expansion and other development trends of the oil and gas industry; business strategy; expansion and

growth of the Corporation’s business and operations, including the Corporation’s market share and position in the domestic and

international drilling markets; and other such matters.

These statements are based on certain assumptions and analyses made by the Corporation in light of its experience and its

perception of historical trends, current conditions and expected future developments as well as other factors it believes are

appropriate in the circumstances. However, whether actual results and developments will conform with the Corporation’s

expectations and predictions is subject to a number of risks and uncertainties which could cause actual results to differ materially

from the Corporation’s expectations, including: fluctuations in the price and demand of oil and gas; fluctuations in the level of

oil and gas exploration and development activities; fluctuations in the demand for well servicing, contract drilling and ancillary

oilfield services; the existence of competitors, technological changes and developments in the oil and gas industry; the ability of

oil and gas companies to raise capital; the effects of severe weather conditions on operations and facilities; the existence of

operating risks inherent in the well servicing, contract drilling and ancillary oilfield services; political circumstances impeding the

progress of work in any of the countries in which the Corporation does business; identifying and acquiring suitable acquisition

targets on reasonable terms; general economic, market or business conditions; changes in laws or regulations, including taxation,

environmental and currency regulations; the lack of availability of qualified personnel or management; and other unforeseen

conditions which could impact on the use of services supplied by the Corporation.

Consequently, all of the forward-looking statements made in this report are qualified by these cautionary statements and

there can be no assurance that the actual results or developments anticipated by the Corporation will be realized or, even if

substantially realized, that they will have the expected consequences to or effects on the Corporation or its business or operations.

The Corporation assumes no obligation to update publicly any such forward-looking statements, whether as a result of new

information, future events or otherwise.

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

D I S C L O S U R E

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Growing...

– big enough to meet
our customers’ needs
– anywhere!

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

G R O W I N G

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R E P O R T O F T H E C H I E F E X E C U T I V E O F F I C E R

FELLOW SHAREHOLDERS,

The delivery in August 2000, of Rig 709, one of our

By almost any measure fiscal 2000 was a great year for our

Canadian designed and built Super Single™ drilling rigs to

company. It did not happen by chance.

Kazakhstan, illustrates the desirability of our rig technology.

Fifteen years ago we devised a strategy to build Precision

into the premier drilling contractor in Canada. With the

execution of this strategy well in hand, we expanded our focus

to become the dominant player in the Canadian oilfield

services industry.

The key ingredients to success were technology, operating

excellence and motivated people. From drilling rig design to

satellite transmission to downhole tools, Precision has

developed a unique product mix. As far back as the late 80’s,

we invested heavily in rig technology. Today that is paying off,

giving us an efficient, modern and high-tech fleet that is

second to none in the world. Along with new drilling

technology, we added complementary products and services.

Part and parcel of this strategy was an unshaken commitment

to safety throughout the entire expanding organization to

protect the employees and assets of both Precision and our

clients, while reducing costs and improving efficiency.

MORE THAN CANADIAN

Our multinational client required a fast moving, fast drilling

rig to help it meet its contractual commitments. Rig 709 has

been able to punch down holes in a few days where previous

contractors took weeks. In Venezuela, our fleet has expanded

and continues to be highly utilized, again underscoring the

yields of our well planned investment in rig technology and

rig management systems.

The same discipline is applied to our Oilfield Specialty

Services segment. Our wireline business developed and

released several new tools, while expanding our open hole

logging activities into the US to complement an established

cased hole operation. Today’s underbalanced drilling (UBD)

technology developed on the plains of southeastern

Saskatchewan, has found its way to the production platforms

of the southern North Sea. Using Precision’s new offshore

UBD separation design, our multinational client was able to

drill and profitably produce a previously unproducible

reservoir. The ultramodern Polar Completions tool facility has

enabled Precision to win supply contracts from Australasia to

Precision has succeeded in executing this strategy and

the Middle East through fast-track tool design and speedy

now is adding a global element to it. We are clearly in the

forefront of leading service companies in Canada. But

through our focus on more exotic drilling technology, we are

now developing a new generation of products and services

that will address clients’ needs around the world.

delivery. The Western Canadian Sedimentary Basin (WCSB),

one of the most actively drilled basins, is at the forefront of

directional and horizontal activity. As a leader in this market,

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R E P O R T O F T H E C H I E F E X E C U T I V E O F F I C E R

Precision is exporting its expertise drilling deviated and lateral

acquisitions and most importantly, a commitment to

wellbores in new and existing reservoirs in Latin America, the

significant research and development. More specifically,

US, Europe and India.

Precision

last year spent $201.0 million

in capital

As our technology becomes more widely accepted, we

expenditures

(internal growth), $599.4 million on

believe our customers will take us to even more frontiers. We

already have a presence in a number of countries around the

world but, to effectively and efficiently deliver all of our

services under one umbrella, the Oilfield Specialty Services

acquisitions (external growth) and $20.3 million on research

and development. The total is $820.7 million, not an

inconsequential sum. These investments are bearing great fruit

and have positioned our company for what we believe will be

segment has developed an international structure. The

significant upside potential.

position of Regional Director of Operations has been

Revenues of $1,355.5 million rose $620.7 million or

established for five strategic geographical areas: US,

84% over the prior year. Operating cash flow and net earnings

Europe/Africa, Middle East, Asia Pacific and Latin America.

of $297.9 million and $131.6 million were up $197.8 million

Each Regional Director will be located in their area with a

or 198% and $97.3 million or 284% respectively over fiscal

local infrastructure to support the various product lines.

1999. Of this revenue growth, 73% was internal and 27%

Our Regional Directors are seasoned oilfield professionals

came through acquisitions. It is also noteworthy that our

with experience and knowledge of all active local customers

international revenue grew 109% from $119.5 million to

within their regions.

$250.3 million while our domestic revenue grew by 80%.

With strong local familiarity, Precision will be able to

Contributing to our earnings was a $19.9 million tax

more effectively develop business operations in each of these

reduction, which is a result of substantively enacted Federal

geographical areas. Recent acquisitions have already

tax changes. This reduction, plus the proposed Provincial tax

contributed to this network creating support services from

cuts, are anticipated to have significant positive impact on

which the company can leverage.

Precision’s earnings and cash flows in the future. This tax

RECORD PERFORMANCE

The results of fiscal year 2000 clearly reveal how our

strategy is evolving. We depend and will continue to depend

on internal organic growth, external growth through

reform represents the biggest incentive given to business by

our governments in recent history and creates an environment

for increased corporate profitability.

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

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R E P O R T O F T H E C H I E F E X E C U T I V E O F F I C E R

Our financial success is due only in part to our corporate

Our neighbour to the south, the United States, is hungry

prowess. The business environment clearly played a significant

for gas. Rotating blackouts in California this winter highlight

role especially as rising oil and gas prices dictated greater

a critical electrical shortage in certain areas of the US. The

service activity. Yet, Precision was ready to deliver and

absence of new electrical capacity, strangled by the

prepared to capitalize on the business opportunities as they

ineffectiveness of deregulation, and compounded by the ever-

presented themselves.

OUR OPPORTUNITIES

We are positive about the continuing prospects for high

levels of both gas and oil exploration and production. We

possess many of the products, services and technologies that

are in high demand now. The strategies we implemented

several years ago now position the Corporation to leverage off

the strong economic fundamentals.

Natural gas continues to be a good news story

throughout the WCSB. In the last few years, the supply of

North American gas has lagged behind the growth in demand.

The low oil price environment of 1997-98 reduced the cash

flows of producers and contributed to curtailing gas drilling

activity. There was always the incentive for consumers to want

“clean” natural gas as a fuel but there was little incentive to

produce it at then prevailing prices. There were few new

utilities coming on stream even as the demand for natural gas

grew and steeper decline curves appeared for reserves. This

implies a tight supply for natural gas for some time to come.

increasing electrical demand for the Internet and e-business,

has sparked a flurry of announced additions to the US

electrical generation fleet. Analysts predict that over 95% of

these projects will be fired by natural gas, for economic and

environmental reasons. US gas consumption is predicted to

grow by 26% as we approach the end of the decade.

Canada will remain an important source of gas supply for

the US and Precision stands to benefit. To meet short-term

demand, producers must develop their current reservoirs. This

translates into high utilization, especially for our shallow and

medium depth rigs. Our Oilfield Speciality Services and

Rental and Production business segments will also experience

high activity levels. Producers in their search for new, longer-

life and more productive reservoirs will move west and north

to drill deeper. With more than half the deep rigs in Canada,

Precision will capitalize on this shift to deeper gas drilling.

The gas reserves of the Mackenzie Valley and other

northern gas basins are another important source of supply for

burgeoning North American demand. Our participation with

Mackenzie Delta Integrated Oilfield Services, an Inuvialuit

company, qualifies Precision as one of the only two drilling

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R E P O R T O F T H E C H I E F E X E C U T I V E O F F I C E R

contractors able to drill in the Canadian far north. We have

The world reserves of light crude oil are in decline.

laid the necessary foundations for all our segments to

Refineries in North America are continuing to upgrade their

participate in this vast northern expanse as explorers prove up

plants as they switch their diets to heavier crudes. Heavy oil is

northern gas and build the necessary infrastructure to deliver

abundant in Canada and its geological risk is minimal. As

it to voracious southern markets.

North American demand for oil grows, the WCSB will

Further south, Mexico with its untapped gas basins, can

increasingly be a significant source of supply. Both our Super

also be an important supplier to the US. Recently, Precision,

as a part of a joint venture, was awarded a US $270 million,

240 gas well project, in the Burgos Basin in northern Mexico.

As project manager and lead contractor, the Corporation will

Single™ rigs and the horizontal drilling capabilities of the

Oilfield Specialty Services segment will be called upon more

as producers increase their use of Steam Assisted Gravity

Drainage (SAGD) technology and multilateral technology in

supply drilling rigs, wireline, directional drilling, and well

order to exploit the heavy oil reservoirs.

testing services, drill bits and downhole completion tools.

In addition to heavy oil drilling, Precision’s downstream

This high profile project gives Precision a foothold in a new,

businesses are already benefiting from the increased oil sands

expanding market eager for all the services and products we

activity. Oil sands giants, with their multi-billion dollar

can deliver.

expansions of their plant facilities, plan to increase their

We continue to observe a tight balance in the world

combined output from around 300,000 bbl/day to over

demand and supply of crude. Such conditions should keep the

900,000 bbl/day by 2008 providing opportunities for new

price of crude relatively high, spurring on more oil drilling

and ongoing maintenance requirements.

activity. Analysts predict that overall exploration and

ACQUISITIONS

production spending will increase 20% world wide for this

coming year and that the majority of all regions in the world

will increase their drilling numbers for a second straight year.

In 2000, Precision completed a number of significant

acquisitions worth almost $600 million, which strengthened

our market position in several sectors, and provided additional

The demand for our oil-related technology, services and

platforms for future growth.

products both domestically and in international markets

should continue to be robust.

The Plains Energy Services acquisition underscores our

belief in the strength and longevity of Canadian oil and gas

production. Their wireline, UBD, coiled tubing drilling rigs,

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

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R E P O R T O F T H E C H I E F E X E C U T I V E O F F I C E R

workover rigs and well testing product lines expand or

attractive short radius and rotary steerable technology. As small

enhance most of the current product lines in our Contract

private companies, both lacked the financial and operational

Drilling and Oilfield Specialty Services business segments.

depth to take full advantage of global markets. By combining

Their coiled tubing drilling rigs, combined with our own

our engineering and financial strength with their international

existing design, propel Precision into a leading edge position

presence we are creating the foundation for global expansion

in this technology. The exceptional timing of this acquisition

with a delivery system for new technologies.

coincided with the strong recovery in Canada and now affords

us the opportunity to harvest free cash flow to invest in our

technological and strategic international expansion.

Following each acquisition, integration teams, systems and

infrastructure are put in place to ensure a smooth transition into

the Precision fold. One of the groups I am proud of is our

The takeover of CenAlta Energy Services, with its 163

Information Technology department. In past years Precision has

service rigs and 10 drilling rigs catapulted Precision to the

invested wisely in the development of our enterprise resource

position of owning the largest workover rig fleet in Canada.

planning software. This specialized software efficiently

With service rig fleet ownership now consolidated (three

accommodates our fast growth rate and our track record of

public companies own 65% of the industry fleet), we envision

acquisitions. For example our payroll system, one of the most

a new era of pricing discipline and stable margins. The highly

complex in Canada, seamlessly accepted 1,700 former CenAlta

fragmented, low return characteristics of the traditional

employees with their multitude of pay scales, tax withholding

service rig market are beginning to disappear. When we

requirements and multi-provincial

tax

rates. Timely

consolidated our drilling rig fleet, we were able to utilize

management information is paramount to operate our

economies of scale, improve operating efficiency and leverage

businesses profitably and efficiently and Precision will continue

technology to lower our daily operating costs. These same

to invest in such essential support services.

disciplines and proven business models are now being applied

TECHNOLOGY

to our service rig business. The CenAlta acquisition, with its

diverse range of rigs, also expands our capability to capitalize

on future international well servicing opportunities.

Precision’s traditional focus on technology is attracting

increasing opportunities from our international customers.

Advantage Engineering Services (AES), our new research and

In recent years, Geoservices S.A., has developed leading

development facility in Houston boasts a team of engineers,

edge electromagnetic (EM) directional and horizontal

technology. BecField Drilling Services was a niche player with

scientists and programmers that are equal to any in the world.

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

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R E P O R T O F T H E C H I E F E X E C U T I V E O F F I C E R

This group has a proven track record and 500 years of

UBD technology advances included the completion of a

combined experience in developing high-tech downhole tools.

5,000 psi rotating blowout preventer for higher pressure UBD

AES’s mandate is to develop next generation Logging While

well control as well as the commercialization of a new small

Drilling (LWD) and Measurement While Drilling (MWD)

footprint high pressure gas separator utilized in the

tools whose performance and durability will create a higher

demanding environment of the North Sea.

standard of excellence in the industry. The prize is a share of

the lucrative US $2.3 billion directional, MWD/LWD market

in which there are only a few players. This market is expected

to grow significantly as producers continue to explore and

produce the deep-water offshore plays. Our first tools are

scheduled to be in field trials in early 2001 and the remaining

suite of tools will roll out regularly through 2002. While the

costs of research and engineering are charged to current

As I write, the next generation coiled tubing drilling rig,

the Cisco 2000 is in field trials. As a leader in coiled tubing

drilling we have taken our experiences and translated them into

a new style of rig with major improvements in coiled tubing

handling and injection. The Cisco 2000 rig will be able to drill

to 2,000 metres with 3½” coiled tubing to qualify as the

deepest and largest diameter rated coil land rig for grass roots

drilling in the world. Developments such as these maintain

periods, this technology will construct a new platform on

Precision’s leadership in shallow and medium depth drilling.

which to generate future earnings.

The ability to produce free cash flow in our segments

Our wireline product group has introduced a number of

such as contract drilling has afforded us the ability to invest in

new wireline innovations to the market in the past year. A

high speed Wireline Communication System now enables our

technology. As we continue in this positive up cycle, all

segments will continue to generate the capital required to

trucks to record more data at faster rates during logging

support all planned technology development.

operations and provide better quality data for our clients. New

logging tools such as our ShortStak production logging tools,

SAFETY

Hi-Res Borehole Compensated Sonic tools, and Multi Array

Neutron tools were released to complete and enhance our

product offerings to our clients. All these tools now can

connect to our satellite COMSTAR system so clients can view,

manipulate and assess their logs in near real time over a secure

Internet connection anywhere in the world.

Before closing, I believe it is important to highlight

Precision’s exceptional commitment to safety. Safety is key – it

is fundamental – a priority. Our lower than industry Workers’

Compensation Board assessments are clear evidence that the

efforts of our safety professionals and management are paying

off. Safety at Precision however is not about cost reduction. In

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

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R E P O R T O F T H E C H I E F E X E C U T I V E O F F I C E R

fact we continue to invest more and more each year into our

safety staff, employee programs, and safety equipment. Safety

is not about regulatory compliance. Our safety standards are

consistent, company wide and often exceed governmental

requirements. Regardless of whether we are operating in the

regulated winter access locations of north eastern British

Columbia or in the emerging unregulated offshore fields of

Bangladesh, the safety standards and practices of both

operations mirror the other. Safety at Precision is an everyday

concern. Safety means that worker protection is one of the

prime parameters in the design of our new technology. From

pre-employment orientations and safety reporting to standard

operating procedures and continuous training of our field

Chairman, President and Chief Executive Officer

HANK B. SWARTOUT

staff, Precision is dedicated to ensuring that our workers have

the necessary knowledge, skills and equipment to perform

their jobs safely.

and for striving to create a safer work place for all of us. But as

we look towards the future, I challenge each and every one of

them to continue to improve the safety of our workplace while

Safety does not stop at our yard gate nor at the edge of a

carrying on our momentum of growth and profitability.

drilling lease. Our safety culture means we must look beyond

our boundaries. Precision continues to work cooperatively

with customers, vendors and trade associations in enhancing

safety throughout the industry. Many of these groups have

similar strong safety commitments and share our goals of a

safer industry.

In closing, I make no apologies for restating the old adage,

To our shareholders, I am proud of our legacy of value

and growth over the last decade and a half. I thank you for

your continued support of the Board and management. The

future burns brightly for Precision as I look forward to

another outstanding year.

our people are Precision’s most vital asset. Their hard work and

efforts have made 2000 the record year it was. I wish to take

this moment to congratulate and thank them for their efforts

Hank B. Swartout

March 26, 2001

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

G R O W I N G

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Diverse...

– enough to deliver top notch
service – everywhere!

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

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CONTRACT DRILLING SERVICES

Nature of Business

Units of Production

Location

Employees

Columbia Oilfield Supply Ltd.

Fleet Coil Technologies (U.S.) Corp.
Live Well Service

Procurement and distribution Warehouse and
of oilfield supplies
Contract drilling
Hydraulic well assist
snubbing
Camp and catering
LRG Catering Ltd.
Contract drilling
Precision Drilling International
Precision Drilling Limited Partnership Contract drilling

distribution facility
2 drilling rigs
19 snubbing units,
32% of industry
74 oilfield camps
12 drilling rigs
230 drilling rigs,
38% of industry
257 service rigs,
28% of the industry
Yard and shop facility,
38,000 square feet

30,000 square feet
research and
test facility
34 open hole units,
133 cased hole units,
23 slickline units,
2 barges with cased hole skids,
90 drilling systems
16 cement units,
7 acid units, 2 frac units,
2 nitrogen units,
6 coiled tubing units
108 testing systems,
41 RBOP™,
34 UBD systems
32 cased hole units,
10 slickline units,
7 combination units
Yard and manufacturing
facility, 55,000
square feet

Manufacturing and
operations support of
200 jobs/month

135 vacuum trucks,
55 high pressure units,
9 bundle blasters
90,000 square feet of
production capacity

286 trailers, 9,500 joints
of specialty drill stem, 4,000
tools, 3,600 surface units

Canada

US
Canada

Canada
International
Canada

Canada

Canada,
US,
International

Canada,
US,
International
Canada

Canada

Canada,
US

Canada

45
65

212
350
4,114

1,765

1,531

555

189

1,000

250

144

10,575

D I V E R S E

Precision Well Servicing

Contract service rigs

Rostel Industries Ltd.

Manufacture, repair and
sale of drilling equipment

OILFIELD SPECIALTY SERVICES

Advantage Engineering Services, Inc. MWD/LWD tool and

Computalog Ltd.

Fleet Cementers, Inc.

Northland Energy Corporation
Northland-Norward Energy Services
Entest
Plains Perforating Ltd.
Challenger/Silverline

Polar Completions Engineering Inc.

United Diamond Ltd.

RENTAL AND PRODUCTION SERVICES

CEDA International Corporation

Energy Industries Inc.

Montero Oilfield Services Ltd.

December 31, 2000

equipment research
and engineering
Open and cased hole
wireline services,
directional drilling services

Oil and gas well pumping
service, cementing, acidizing,
fracturing, nitrogen,
coiled tubing well servicing
Well testing and control
pressure drilling services

Cased hole logging and
perforating, H2S logging
and mechanical services
Design, manufacture
and servicing of downhole
completion and production
equipment
Design, manufacture,
sales and rental of PDC
drill bits

Industrial maintenance
and turnaround services

Packaging, sales, lease,
rental and servicing of
natural gas compression
Wellsite trailers, downhole
drilling equipment, surface
oilfield equipment

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

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P R E C I S I O N — A S U M O F I T S P A R T S

INTRODUCTION

The oil and gas industry is a constantly changing scene. At Precision Drilling Corporation we stress cutting edge technology,

broad expertise and absolute service as the vehicles taking us into the global oil patch. We are headquartered in Calgary, Alberta

and from this vibrant Canadian city we serve the world.

The extensive experience in the dynamic proving ground of the Western Canadian Sedimentary Basin enables Precision to

deliver top-to-bottom operational excellence to international corporations around the globe.

Our range of state-of-the-art services – from underbalanced drilling and high-tech rigs to real time data transmission from

well site to our clients’ offices – today are at work on five continents.

Precision operates in three business segments: Contract Drilling Services, Oilfield Specialty Services and Rental and

Production Services. These segments embrace a diverse wealth of innovative product and service lines. Wireline, MWD/LWD,

drilling services, well testing and underbalanced drilling, the latest in international drilling rig design are just a few. We also offer

rental equipment, compression packages, industrial maintenance services and more.

From its headquarters in Calgary, Alberta at the foot of the Canadian Rockies and the home of the Calgary Stampede, Precision serves the world.

We have taken the pioneering tradition of the Canadian west and our 15 years of oil and gas industry know-how and exported it around the world.

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P R E C I S I O N — A S U M O F I T S P A R T S

CONTRACT DRILLING SERVICES

Super Single™ Rigs

Beauty is in the eye of the beholder. And we think our latest drilling hardware is a beauty.

The sixth generation Super Single™ rig is our own design that replaces more traditional jack-knife and shallow telescopic

doubles in shallow to medium depth drilling.

It is Precision’s home-grown concept from engineering and design through manufacturing and operation. Its extreme

flexibility allows custom fitting for clients in environments as diverse as the hot tropical climate of Venezuela or the frigid winters

of Kazakhstan and Canada. Its small footprint makes it an environmental winner.

On our Super Single™ rigs, the top drive travels along a track system built into a one piece mast which can

be set to varying degrees, from vertical to a 45 degree slant position.

Our Super Single™ rigs boast an automated pipe handling system that eliminates much of the manual and hazardous pipe

work on the drill floor. The rig is safe, more compact and highly transportable, with a view to minimizing downtime between

jobs. Its unique mast design allows it to move in one degree increments to drill from vertical to 45 degrees.

Such features help our customers drive down their development costs and turn marginal projects into economic successes

through faster pipe tripping, speedier drilling, and ease of moving the rig – anywhere in the world.

Already the Super Single™ rig is a record holder – 5,235 feet of 8.5-inch horizontal hole in 22.5 hours!

Now that’s a prime example of Precision’s commitment to back its vision of being a major player in the international oilfield

industry with Canadian technology.

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The Super Single™ rig’s pipe arm eliminates drillpipe handling by roughnecks with a view to improve safety. This patented arm is part of the

overall automation of this rig that enables the rig to drill faster.

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P R E C I S I O N — A S U M O F I T S P A R T S

Coiled Tubing Rigs

It looks like a king-sized roll of flexible steel garden hose.

Only it’s thousands of feet long and it goes into the ground

like a plumber’s snake.

No tool joint connections mean hazardous pipehandling

is eliminated both during drilling operations and on rig moves.

This built-in safety reduces the potential for accidents.

Drilling power comes from a downhole mud motor that

produces continuous rotary action at the end of the coil.

Penetration rates of over 400 metres per hour are routinely

achieved.

Coiled tubing technology also means less drilling fluids

spilled during operations – the coil is reeled in or played out

in a single connection. This type of coil rig has a small

footprint, requires minimal ground disturbance and is self

levelling. This is a big environmental plus.

Our patented injector head technology, pioneered in the

abandonment of shallow wells, is now used to drill these types

of wells. Operators save money on bulk cement since the hole

drilled with coiled tubing is closer to the desired gauge. Fewer

cavities to fill up with cement! Drilling controls are in the

doghouse so workers’ exposure to the elements is reduced.

It’s a revolutionary technology whose time has come and it

is very much part of Precision’s diverse world of oilfield

technology.

Continuous coiled tubing, our newest drilling technology.

Anchorless Service Rigs

Guy wires are on their way out on Precision workover rigs.

Today’s modern rig fleet is increasingly anchorless and customers are welcoming the added flexibility and reduction in

environmental stress.

That familiar signpost rig mast – about 69 feet high on a single or 112 feet high on a double – needed six strong guy wires

to be safely anchored.

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P R E C I S I O N — A S U M O F I T S P A R T S

But today, Precision’s batwing rig assembly – in which the rig’s two arms swing out to anchor the rig through its own weight

distribution – eliminates a rigging expense. As well, it cuts down on ground disturbance – no 10 to 20 feet deep auger-type

anchors for attaching the guy wires to the ground are necessary.

Some clients are so impressed they have paid the capital upgrade to alter specific rigs under contract.

The batwing design, as illustrated on rigs 607 and 609, eliminates the need for guy wires to anchor

the rigs’ masts prior to the start of operations.

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P R E C I S I O N — A S U M O F I T S P A R T S

OILFIELD SPECIALTY SERVICES

Flow Rate Tester (FRT)

Developed and proven in the Canadian oilfields, Precision’s high-tech well testing system is ready for use this year in the US

and overseas markets.

It combines the best from earlier generations of conventional testing with the time saving and flexibility of wireline

operation. Simply put, it’s a better method to open hole test oil or gas reservoirs. It saves the Precision client money while

providing superior well information and protecting the environment.

The client receives real time data and with precise depth control provided by gamma ray correlation, all potential formations

can be tested in just one trip.

The FRT tool records critical reservoir pressure and potential production data. Sensors identify fluids before multiple,

uncontaminated reservoir fluid samples are taken. No gas or fluids are flowed to surface as in conventional testing, eliminating

storage and environmentally unfriendly flaring. Safety is improved especially in poisonous hydrogen sulphide formations. Fast

reservoir completion or abandonment decisions can now be made.

From open hole to cased hole applications, the FRT delivers effective reservoir knowledge from the people whose best runs

have always been below the surface.

Within a protective housing, lies a downhole laboratory consisting of a complex network of electronic components, sensors, chambers and

pumps able to analyze oil and gas formations at predetermined depths, which can be isolated for more zone specific readings by the FRT.

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P R E C I S I O N — A S U M O F I T S P A R T S

COMSTAR

The client focuses on his computer monitor in his home office whilst he analyzes a log from a well just drilled several

thousand miles away.

At the wellsite, Precision’s logging truck is still on location. Its data is transmitted to the Galaxy XR satellite that is

geostationed above earth at the Equator. From here the data is sent back to earth to computer centres in Precision’s Wide Area

Network.

It is all in near to real time. A secure Internet system delivers the data to where the client wants to view it. Our SEELOG

software allows the client to manipulate the data to his required format. This means logs are viewed and decisions made faster

than having to wait for couriers to deliver the data package.

Satellites, secure Internet connections and sophisticated communications software linking wellbores to computers virtually

anywhere in the world are all part of Precision’s diversity in a demanding, technological age.

In near real time, data is transmitted via satellite to the client, for immediate well analysis.

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P R E C I S I O N — A S U M O F I T S P A R T S

Electromagnetic Measurement While Drilling (EM-MWD) Tool

A series of mud pulses from sensors positioned just above the drill bit is the traditional method of communicating real time

drilling information to engineers on the surface.

Today EM technology is winning industry-wide acceptance because of its superior performance.

Precision, via its acquisition of EM-MWD technology and equipment license, uses electromagnetic waves through the

formation outside the wellbore to allow the driller to monitor and control well trajectory.

The key advantage of this EM tool, part of the bottom hole assembly, is that the solid state electronics do not rely on a fluid

filled wellbore in order to transmit data. This is especially useful in underbalanced drilling where aerated fluids distort mud pulses

resulting in lost data. As well it is more reliable, provides considerably more data and is cost effective with no moving parts and

hydraulic issues to prolong survey times.

After application in over 1,500 wells, this proven technology is becoming the communication method of choice. Another

stake on Precision’s claim to being a leading innovator in the quest for faster, more cost effective drilling.

EM-MWD broadcasts radio waves of downhole information to enable technicians to monitor and

control well trajectory.

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P R E C I S I O N — A S U M O F I T S P A R T S

Underbalanced Drilling (UBD)

Pioneering hasn’t stopped in western Canada.

Precision lead the development of UBD in western Canada then took its innovative approach to the North Sea. Originally

developed as a way to reduce formation damage during drilling operations, UBD provides a host of other positive benefits: an

increase in recoverable reserves from the reservoir; basic real time reservoir evaluation; greater penetration rates while drilling; less

downtime associated with lost circulation; and an overall reduction in drilling time.

The Corporation has completed its second offshore North Sea system – a state of the art, closed loop UBD surface separation

package for a multinational client. This integrated package allows our client to produce gas for the first time from this reservoir

from an offshore platform and halves the usual time for projects of this magnitude in the southern North Sea gas field

development.

This technology, coupled with our newly engineered separation design that occupies only half the deck space of earlier

packages, can be employed by a wider range of offshore rigs than previously possible. With a patented technique which allows

separation of gas from wellbore returns at high pressure, gas can be sent straight to production or re-injection thus reducing

environmentally unfriendly flaring.

This type of integrated technology enlarges Precision’s overseas clout. It allows us a modest claim to be returning some of

that pioneer spirit that built the Canadian West to its European roots.

With safety as the paramount objective, Precision was

challenged to engineer and build a UBD system capable of

operating offshore in the harsh conditions of the North Sea.

The second generation [shown above] has a smaller footprint,

yet is capable of handling even greater rates of flow.

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P R E C I S I O N — A S U M O F I T S P A R T S

Venezuelan Wireline

Canadian technology is in full bloom in the development of Venezuela’s vast oil reserves.

From the country’s El Tigre eastern field – a flat, dry terrain, rich in shallow heavy oils and deeper light crude deposits – to

the Ojeda field in the west on Lake Maracaibo, Precision is a competitive supplier of high-tech services to PDVSA, Venezuela’s

national petroleum company.

A new US $1.4 million barge, measuring 40 feet by 110 feet, is part of our response to increased demand in this challenging

offshore oil field. It is a complete high end logging unit with living quarters and anchor winch systems. This is Precision’s

second barge to operate on Lake Maracaibo.

The Corporation’s growing profile in Venezuela, with continued investment, has led to increased contracts in the area.

Our Cutting Edge

Forty-one polycrystalline diamond compact (PDC) wafers embedded in the fist of an 8¾ inch steel body. That is the
business end of a drilling rig. Built in Nisku, Alberta by Canada’s sole PDC bit company, the new-age technology bits are

designed for increased penetration and harder formations with greater stability – all to produce a constant torque, virtually no

slipstick and much less wear and tear on drill collars and pipe.

A PDC bit in production.

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P R E C I S I O N — A S U M O F I T S P A R T S

The distinction is in the placement of the PDC cutters, highly pressured wafers of black diamond layered in tungsten

carbide slugs. These cutters use a more efficient shearing action than the crushing mode of traditional roller bits.

After all, diamonds aren’t just about glitter.

Precision’s Advantage

The mandate of Advantage Engineering Services’ team of scientists, engineers and software programmers is to to develop

the next generation of directional drilling MWD/LWD tools and gain a commanding share of the estimated US $2.3 billion

market. The team operates out of a new 30,000 square foot state-of-the-art research and engineering facility complete with

extensive testing and downhole simulation capabilities.

The Advantage team, assembled just over a year ago, will begin to field test its first set of new tools starting in the second

quarter of 2001.

These tools are initially aimed at the deep-water segment of the market where current technology is at its limits. The

objective – to provide a superior line of tools that log faster and more reliably in zones where extreme temperatures, flow rates

and pressures are commonplace.

Our commitment to this technology is evident – Precision is planning to spend approximately $55 million researching,

developing and proving this new generation of tools. The result: an innovative technology platform from which to grow new

earnings in a market where lost time is measured in seconds and lost dollars in millions.

There has to be an Advantage in all that!

On Advantage’s vibration table, tools or components of tools are tested to evaluate their durability.

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P R E C I S I O N — A S U M O F I T S P A R T S

Completion Tools

The tender mandated the design, manufacture and delivery of hydroseals – all within 30 days.

Precision’s completion tool division met its deadline for the high quality order from a multinational producer in Australia

and won repeat business.

Expertise, honed on successful projects such as designing and manufacturing a complete recovery system for a major

Saskatchewan heavy oil plant, backstop the Corporation’s move into the global scene.

Other contracts which led to the repeat business, include hydroseal orders for a Middle East client in Oman and completion

strings for horizontal re-entries in Kazakhstan. Further international contracts with oil majors were landed in Indonesia, Egypt,

Yemen and Hungary.

This willingness to move the bar, coupled with the ability to deliver Precision-style excellence, on time, is how we will vault

to the next level of market penetration.

A specialized laser measurement instrument ensures exact tolerances in the manufacture of

completion tools.

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A wireline technician inspects circuitry on one of our newly assembled open hole wireline trucks.

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P R E C I S I O N — A S U M O F I T S P A R T S

RENTAL AND PRODUCTION SERVICES

Industrial Maintenance

Precision is cleaning up in the world of industrial plant maintenance.

The Corporation, through its CEDA arm, specializes in industrial maintenance from chemical cleaning operations and plant

turnarounds to highly specialized, state-of-the-art hydraulic bolt tensioning and the speedy removal of large heat exchangers.

Last year we renewed long-term contracts with clients involving a broad range of industrial maintenance and cleaning

services in the oil sands projects at Fort McMurray, Alberta.

We also promoted the Unidense method of loading industrial reformers as the preferred technology around the world. Our

skilled technicians, through an alliance, completed loading projects throughout North America, Chile, Sicily, Trinidad, Germany,

South Korea, Norway and France. Our crews performed turn key turnarounds around the globe.

The world is getting to be a cleaner place because of our efforts.

With the billions of dollars of investment in plant expansions, oil sands players have begun the

construction that should triple production to 900,000 barrels per day, adding more

infrastructure to be maintained by our established industrial maintenance arm.

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P R E C I S I O N — A S U M O F I T S P A R T S

Rentals

Polycrystalline diamonds are not always a driller’s best friends.

Increasingly popular at the cutting edge of the drill, the diamond bits with their aggressive cutters create far more torque

and torsional stresses on the drill string than traditional roller cone drill bits.

Precision’s downhole rental tool division has a project underway: a torsional shock tool designed to reduce or eliminate

random torsional stress cycles. These are what cause many drill string failures delaying drilling while the crew fishes for the

detached drill pipe and tools. In some cases the hole must be abandoned and a new one drilled.

The 4½ foot long tool, in the initial stages of field introduction, sits above the drill bit. Its function is to dampen the stress

cycle and thus prevent a costly twist off.

Yet another example of Precision’s constant effort to design excellence into its field operations.

After each rental, the torsional shock tool is inspected and redressed.

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P R E C I S I O N — A S U M O F I T S P A R T S

Packaging

A portable compression unit looks like a big Meccano

set on skids with its compressor, engine, process cooler,

piping and pressure vessels.

Precision sets the industry standard for excellence in

packaging these tailor-made units, using 27 years of field

experience to produce deftly engineered and easily serviced

compression packages.

The market for compression is expanding. Aging wells,

declining reservoir pressures and production rates have

almost doubled the demand for compression over the past

decade. Drilling takes place further and further away from

pipelines increasing the need for a greater network of

gathering systems requiring more compressor units.

A skid mounted portable natural gas compressor.

The Corporation has an aggressive stocking program that ensures quick response to orders.

Skilled teams, with decades of fieldwork behind them, understand the customers’ need regardless how remote the package.

SUMMARY

So as you can see, we have a broad base of services already being provided on a global basis. This, however, is just the

beginning.

We think “Best in Class”, and bolster that claim with more than 20 acquisitions over the past decade. Technologies such as

Super Single™ rigs, UBD, and FRT are just three of our many calling cards.

The expertise, encompassed within our organization of over ten thousand employees, backed by the information technology

we deploy, enables us to successfully integrate all Precision services, wherever our clients want us to be.

The mantra of “Operational Excellence” infuses all segments. We tailor our services to individual client needs while using

our knowledge to reduce costs and improve margins.

As we broaden our footprint on the world, we take the best of our homegrown skills and attitudes wherever we operate.

These include standards of safety, environmental awareness and community involvement in a world that increasingly expects and

receives the best from us – whether that be offshore in Venezuela’s Lake Maracaibo, in the always-challenging North Sea or back

home in the Western Canadian Sedimentary Basin. From our Canadian backyard to the international oilfields:

We commit; We deliver; No excuses.

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

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Involved...

– striving to make a difference
in our work and where we live
– thoughtfully!

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

I N V O L V E D

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Precision invested in this rig floor simulator as a key component of its training program for entry level floorhands.

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I N V O L V E D

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W E A R E I N V O L V E D

SAFETY

Safety Is Everyone’s Business

Safety pays. People, profits, and the Corporation all

benefit when employees are part of a team committed to a safe

At Precision, safety professionals make no apologies for

their presence on a rig floor or checking out crews handling

toxic industrial cleaning materials. Their on-site style is to

bring safety training to the job, not just the employee to the

working environment. Our safety record, backed by

classroom.

workplace experience and external audits, makes its own case.

On the job, the safety crews audit every procedure. They

Precision has more than 34 safety professionals on staff.

Last year they logged more than 1,000 field visits.

investigate incidents. They are trained to recognize hazards;

situations that are accidents waiting to happen.

Safety at Precision begins at the top. We not only preach

safety – we practise it. Senior executives and managers

continually go into the field to inspect working conditions

and to ensure compliance with company policy.

After Precision acquires a company, it immediately

reviews the target’s safety procedures to ensure they match the

high standards that apply throughout the Corporation, at

home and abroad.

The Corporation supports its large investment in safety

by tracking trends from a global database. Customer alliances

They know government regulations in depth. Their focus

reaches outside Precision through membership in industry

associations. Information systems designed especially for

safety management are part of Precision’s Information

Technology arsenal for producing a safe and healthy work

environment.

On the Job

A moment of distraction is all it takes to send a derrick

man plunging 100 feet from the monkey board to the ground

to suffer permanent injuries or worse.

with multinationals also link Precision’s safety committees to

That’s reason enough for Precision to invest $350,000 in

companies with world-class safety performance. For example,

equipping derrick men with hook-on fall arresters, in addition

this year, following a major audit of our safety programs and

to their traditional pullback lines.

practices by a large multinational producer, Precision was

The arresters are on a slope line and already have paid off

invited to take part in a round table on best safety practices,

in four cases.

to take place in Houston. Precision along with other key

suppliers will expound their safety management practices in

efforts to bring safety to a higher level.

Safety Checks

“I didn’t want to use it but I did,” says Precision

derrickman Keith Northcott, 29 of Port Aux Basque,

Newfoundland, who had unhooked his pullback line. “I was

green. I fell handling pipe. I slid and the fall arrester saved me

Safety is no longer secondary to the petroleum industry’s

from falling.” Keith said “It works. Without it, I’d be crippled

focus of drilling holes in the ground.

or worse. I came down, no injuries at all. Certainly I’m one of the

lucky ones.’’

He’s still scrambling around the monkey board, thanks to

that fall arrester and the safety program that put it there.

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W E A R E I N V O L V E D

Roughneck U

So you want to be a worker in the oilfields.

The three-day course is free. There is no pay and there is

no guarantee of a job on graduation.

But you do get an insider’s look at what it’s like to work

on a rig along with an early introduction into the role safety

plays in the petroleum industry.

Some quotes from a recent Precision orientation course

evaluation:

“This is a very helpful course to get me started. I wouldn’t

want to go on a rig without a clue.”

Another wrote: “It’s nice to see a company take the time and

expense to give a new hand a good start.”

“Hands on experience was necessary to get me the confidence

to work efficiently. I hope I can produce quality workmanship,

equal to the quality Precision has displayed to me.”

And another: “The instructors did an excellent job. They

never candy coat anything. They told me straight out what it

would be like. I appreciate everything they said and showed me of

their past experiences.”

Graduate Programs

Fall arresters save lives. A derrickman attaches his safety harness to

the fall arrester prior to his ascent up the rig mast to the monkey

They arrive in groups of eight or more at our Edmonton

board.

wireline technology boot-camp with degrees in engineering,

geology or geophysics. Their first subject in this intensive six-

month long training program is safety — or how to survive in

The first task is to unload the trucks, get to know the

equipment and what fellow oilfield workers do to service

client wells in an era of high-tech.

the modern oil patch.

Safety covers basic first aid, professional driving,

Precision’s company-wide safety policy and the dangers of

working with hydrogen sulphide.

The Edmonton Wireline Shops reclaim them for two

weeks – their world expands with the theory of logging tools,

operating processes, software and hardware. Six weeks in the

field follow under the careful eye of a veteran wireline engineer.

Then the new hires change into coveralls. It’s reality time

for the next five weeks at one of the 15 wireline and cased hole

Trouble shooting becomes part of their working lives as

they learn the complexities of keeping an oilfield customer

field operations in western Canada.

happy.

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W E A R E I N V O L V E D

Another two review weeks back at Edmonton and week-

never stops. Intermediate and Senior Engineer ratings follow.

long log interpretation school in Calgary are next before their

And there is spring school for upgrading with new tools and

final field assignments. Practise what we have taught you, their

cutting edge technologies along with staying abreast of

instructors tell them – you have six to eight weeks before you

Precision’s constantly evolving computer systems.

get to do the job all on your own.

And one final program event – the gruelling eight-hour

breakout exam day back at Calgary headquarters. The

examiners ask trouble shooting questions, probe for practical

solutions to scenarios they know are possible in the field.

Expectations are high: the passing grade is 80 percent. A slip-

up means a make-up exam with a 90 percent pass challenge.

To ensure our wireline employees continually stay abreast of the

No one ever said operational excellence would come easy.

Offshore Safety Basics

Most things are different on an offshore rig or production

platform.

“We come and go via helicopter, work long shifts in a

confined space where there isn’t much room to move around, to

store fuel and supplies.” explains an offshore veteran. “With

underbalanced drilling, things are very different

from

conventional drilling. The pressure is at the surface. That means

a potential fire hazard with hydrocarbons. Energized mixtures of

gas, sand and liquids under pressure must be safely controlled.

Being offshore just heightens this risk”.

Precision’s UBD arm has major contracts in the North

Sea. It has built three UBD packages for offshore platforms

and along with our clients we have become aware of the need

for intensive training courses for all of our technicians who

work offshore.

The Corporation joined several North Sea contractors

and a major North Sea operator last year to set up a three-day

course at Lowestoft, UK.

Personnel learned how to deal with a lot of equipment in

a confined space, with safety as a crucial theme. The service

latest in tool design and computer technology, Precision administers

companies provided a basic course in safety from their

in-house training programs directed at all engineers as part of their

continuing qualifications.

particular perspectives. Directional drillers, snubbers, operators

and well testers presented insights into how they work and

what they do to prevent mishaps. Everybody’s knowledge was

If all goes well the graduate has one last task – pick up a

broadened.

truck and get back to his assigned field district where, after six

months on the job, he becomes what he set out to be – a

Junior Field Engineer. Learning doesn’t stop there. In fact, it

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Precision’s offshore operations in the UK carry an

Nature First

impressive credential – ISO 9002 accreditation. This is an

Anyone watching the caribou in their migrations across

industry standard, based on strict six month audits, that assures

northern Canada marvels at the spectacular sight of thousands

clients that the services we provide are supported by top quality

of animals moving to their feeding and calving grounds.

procedures and safety tracking systems.

The North Sea sector is highly regulated for safety by the

UK Health and Safety Executive (HSE). We also won HSE

approval for safety procedures in our pioneering package using

Precision is aware of how important these great herds are to all

Canadians and their special cultural value to northern people.

The Corporation tailors its contracts working in harmony

with customers, suspending operations or moving rigs so as to

jointed pipe for the first time in a UBD operation offshore UK.

intrude as little as possible during these vital periods.

Safety is deeply ingrained throughout Precision’s

Prevention is Better

expanding world.

ENVIRONMENT

Leaving a Smaller Footprint

Working with Mother Nature is a priority at all levels of

Precision. Our commitment is to high standards of

environmental care in all our operations, each and every day.

While most of our operations are carried out on leases which

are under the control of our clients, we ensure that we are

familiar with their environmental polices and practices and

those of the regulatory authorities as we work co-operatively

to minimize the impact to the environment.

Some of our clients are now practising zero percent

disturbance drilling. Among other things, drilling cuttings are

returned to the ground free of all contaminants. This requires

that Precision modifies and services its equipment to meet

these higher standards. For example, our rig mud systems are

designed to eliminate the possibility of unwanted fluids and

solids entering into them. Zero percent drilling disturbance

specifications are so tight that even an introduction of

hydrocarbon laced water into the mud system will require that

the cuttings be hauled away and treated offsite in a proper

facility instead of being land farmed in the immediate area.

Spills are preventable. Precision’s well testing operations

combine training, procedures and purpose built equipment to

ensure no such an occurrence. The nature of the task requires

us to flow and meter oil and gas to surface often at high rates

and high pressures to assist our clients in evaluating the

potential of their reservoirs. Trained supervisors hold pre-job

meetings. An exhaustive pre-flow checklist with more than

230 items is reviewed. Nothing is left to chance – valves,

flowlines, cables, anchors, oil and water lines, relief and supply

lines, propane supply, and pressure vessels are all checked.

Well flow does not begin until the crew all sign off.

Many of our clients require our rigs to go sumpless. This

replaces the traditional method of simply digging a pit or

sump in which to dispose cuttings during a drilling or service

operation. Today’s rigs are modified so that wastes are

collected in transportable tanks and then hauled to hazardous

waste landfill sites or treatment centres.

Environmental protection is a team responsibility – from

management through to field personnel. All are aware of laws

and regulations that protect the environment. Potential

hazards are identified before a job is undertaken. Emergency

response plans are

in place to minimize potential

environmental incidents.

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The industry itself has given environmental protection a

Although the major responsibility for environmental

new status throughout the oil patch.

spills remains with the well operator, Precision also

Within Precision, the environment is not a static issue but

a dynamic one – we encourage training courses on updated

protection issues at both field and management levels.

We scrutinize all proposed acquisitions to ensure any

necessary environmental clean up is complete before we take

over a property or facility. The deal is not done until it gets an

environmental clean bill of health.

incorporates environmental protection in its equipment

design and operation practices whenever possible. Many rigs

have switched over to electronic fuel injected motors which

reduce fuel consumption 15-20% and run cleaner. New catch

systems collect drilling mud, from breaking joints of drill

pipe, and route it back to the mud tanks instead of it

collecting in the cellar. The use of our anchorless workover rigs

is spreading as the industry recognizes their smaller footprint

Precision management regularly provides a report to the

along with that of our Super Single™ drilling rig.

Board of Directors on environmental practices including any

Environmental planning thus makes for sound business

serious incidents. This policy applies to what occurs at home

practices.

or abroad.

When a Spill Occurs

As old fashioned as it sounds, a key element in any

environmental safety program remains good housekeeping

The surface stain spread over the ground near a Precision rig

habits such as:

and other equipment in a racking area in the Wildcat Hills west

z simple checks to see that oil is not leaking out of

of Cochrane, Alberta.

A Precision supervisor called in an environmental

consultant to inspect the site. The crew found hydrocarbons had

equipment

z the placing of absorbent pads around engines
z the provision of segregated bins for waste plastics and

leaked from the rig and from a diesel tank on skids. There was

wire rope at rig sites

another surface stain from a pile of stacked pipes.

Waste is managed so that it is reduced.

Contractors were hired to excavate 11 tons of topsoil to a

Recycling plays its part – from office paper to used oil.

depth of 25 cm and transport the material to a landfill. The

The all-purpose burning waste barrel is no more.

grassland site then was backfilled and contoured to grade with

After all, we all live and work in the same world.

fresh topsoil.

The Corporation’s spill procedures stress quick response, full

disclosure to government and senior staff at levels depending on

size of spill, and a speedy clean-up.

Each area has its own spill containment package with a list

of emergency contacts if the spill is a large one.

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PRECISION IN THE COMMUNITY

In education, Precision has begun a

five-year

The Corporation’s donation committee focuses on 12

commitment

the Southern Alberta

Institute of

major categories: community, both rural and urban;

Technology’s (SAIT) new environmental technology centre.

international aid; women’s groups; youth; aboriginal peoples;

Our own world of technology education is strongly linked

medical; the disabled; the homeless; education; the

through many employees to SAIT.

environment; the arts; and political organizations.

Mount Royal College received its third payment in a

The Corporation sets a budget, based on a percentage of

four-year commitment to its capital program.

net income, for the committee to distribute. The committee

then accepts requests from various organizations. Funds are

donated on a regular basis to each of the categories subject to

internal category limits.

The Corporation also supports overseas projects as it

increases its own global presence. The Aga Khan Foundation

of Canada receives annual donations towards its efforts to

improve living conditions in the developing world. We also

Traditionally we have kept a flexible view towards

contributed to the Venezuelan Relief fund of the Canadian

donations whereby we would exceed our set budget for

Red Cross after devastating floods ravaged parts of that

donations in years where we outperform.

country.

This year we supported STARS air ambulance in

Last year we backed the Partners in Health program at

recognition of its role in airlifting injured workers from

the Foothills Hospital in Calgary. This initiative seeks to create

remote sites. Its service covers much of the oil patch – a vital

centres of excellence in health care research and medical

reassuring presence for workers in isolated areas. Medical

education. Precision also continues to donate to the Alberta

evacuation to urban centres by air not only saves lives but it

Cancer Foundation’s Tom Baker Centre.

gets the injured worker quickly to skilled treatment.

It also spares the injured worker from having to be driven over

often rough, near impassable back-country roads.

This year we have pledged a major contribution to the

Alberta Children’s Hospital which will make us a significant

patron of the institution over the next few years.

Both Calgary and Edmonton United Way campaigns

We are out there in the community and for the

received grants for the many social agencies they fund. Our

aim is to reach as many different and deserving groups as

community.

possible.

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

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PDar01DR10 3/28/01 3:01 PM Page 39

Solid...

– the financial strength
to sustain long term growth
– consistently!

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

S O L I D

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Crude Oil Prices

Natural Gas Prices

WTI Calendar year average – US$/Bbl

AECO Calendar year average Cdn. $/MMbtu

2000 Revenue
Total: $ 1,355.5 Million

1999 Revenue
Total: $ 734.7 Million

2000 Sources of Funds
Total: $ 734.4 Million

2000 Uses of Funds
Total: $ 766.1 Million

Oilfield Specialty
Rental & Production
Contract Drilling

27%
18%
55%

Oilfield Specialty
Rental & Production
Contract Drilling

23%
24%
53%

Proceeds on sale of equipment 3%
Increase in long-term debt
44%
Increase in bank indebtedness 10%
Issue of common shares
3%
40%
Funds from operations

Acquisitions
Repayment of long-term debt
Non-cash working capital
Redemption of warrants
Purchase of equipment

48%
15%
8%
3%
26%

Net Fixed Assets

$ Millions

Cash Flow

$ Millions

1500

1200

900

600

300

250

200

150

100

April 30

Dec. 31

April 30

Dec. 31

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M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

The Management’s Discussion and Analysis focuses on key statistics from the Consolidated Financial Statements, and pertains to

known risks and uncertainties relating to the oilfield and industrial service sectors. This discussion should not be considered all-inclusive,

as it excludes changes that may occur in general economic, political and environmental conditions. Additionally, other elements may or

may not occur which could affect the Corporation in the future. In order to obtain the best overall perspective, this discussion should be

read in conjunction with the material contained in other parts of this annual report including the audited Consolidated Financial

Statements and the related notes. The effects on the Consolidated Financial Statements arising from differences in generally accepted

accounting principles between Canada and the United States are described in Note 13 to the Consolidated Financial Statements.

HIGHLIGHTS

(Stated in thousands of dollars, except per share amounts which are presented on a fully diluted basis)

Years ended December 31,

Revenue

Increase (decrease)

Operating earnings

Increase (decrease)

Earnings before goodwill amortization

Increase (decrease)

Earnings before goodwill amortization per share

Increase (decrease)

Net earnings

Increase (decrease)

Net earnings per share

Increase (decrease)

Funds provided by operations

Increase (decrease)

Funds provided by operations per share

Increase (decrease)

% of

2000

Revenue

1999

Revenue

$1,355,453

84%

260,845

122%

154,321

208%

2.98

173%

19%

11%

$ 734,740

(10%)

117,494

16%

(35%)

50,081

(46%)

1.09

(48%)

131,560

10%

34,250

284%

2.55

236%

(56%)

0.76

(57%)

297,873

22%

100,036

14%

198%

5.69

167%

(40%)

2.13

(43%)

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

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M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

SUMMARY INCOME STATEMENT

(Stated in thousands of dollars)

Years ended December 31,

Operating earnings

Contract drilling services

Oilfield specialty services

Rental and production services

Corporate and other expenses

Interest

Gain on disposal of subsidiary and investments

Reduction of carrying amount of investments

Reduction of carrying amount of property, plant and equipment

Earnings before income taxes and goodwill amortization

Income taxes

Earnings before goodwill amortization

Goodwill amortization, net of tax

Net earnings

2000

1999

212,633

97,864

30,620

43,289

(25,697)

260,845

28,713

(40)

–

232,172

77,851

154,321

22,761

6,796

19,705

(6,871)

117,494

16,544

(26,318)

13,101

10,200

103,967

53,886

50,081

15,831

131,560

34,250

The record results posted by the Corporation in 2000

which is produced by natural gas fueled generators, increased

are indicative of the improved business fundamentals in the oil

with the prolific rise in Internet and e-business utilization.

and natural gas exploration and production industry in

Natural gas production, however, has remained stagnant due

Canada and internationally. The price of West Texas

to the maturity of producing reservoirs and, until this year,

Intermediate crude oil averaged US $30.31 per barrel in 2000

declining investment in exploration and production activity as

compared to US $19.24 in 1999. Production discipline by

low commodity prices did not provide acceptable returns on

OPEC members and increased demand from strong world

investment. As the year progressed our clients became more

economies contributed to the improvement in world crude oil

comfortable with the sustainability of oil and gas prices and

prices. Similarly, North American natural gas prices rose

with their improving financial positions. This in turn lead to

dramatically in 2000 due to tightening supply and demand.

increases in exploration and development spending and higher

Natural gas on the New York Mercantile Exchange averaged

activity levels across all our businesses.

US $4.38 per mcf in 2000 compared to US $2.32 per mcf in

1999. Demand for electricity, a large and growing portion of

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M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

In the increasingly favourable business environment,

Growth through acquisition is complemented by

the Corporation continued to execute its strategy to

internal development of new and existing services. The

strengthen its Canadian base of operations and lever off this

cornerstone of the Corporation’s strategy to become a full

solid foundation to become a worldwide integrated oilfield

service provider on the world oil and gas industry stage is our

service provider. Acquisitions have remained a key element in

research staff and facilities at Advantage Engineering Services,

carrying out this plan. During the second quarter, the

Inc. (AES) in Houston, Texas. The mandate of this group, is

industrial maintenance group strengthened its presence in the

to build the industry’s most reliable Logging While Drilling

growing Fort McMurray oilsands operations with the

(LWD) system with an emphasis on the global deepwater

acquisition of the assets of JJay Exchanger Industries Ltd., an

drilling market. Field testing of the tools is scheduled for the

established business in plant maintenance and shutdown

second quarter and the first commercial application will take

work. The acquisition of Plains Energy Services Ltd. (Plains)

place this summer. The evolution of our Super Single™

in July enhanced the Corporation’s capabilities in coiled

drilling rig technology

is also continuing with the

tubing drilling, a technology especially suited to shallow gas

construction of additional rigs for both domestic and

drilling, and added experienced personnel and well

international customers.

maintained equipment to our well servicing, production

testing, underbalanced drilling, and wireline operations. In

October, Precision acquired CenAlta Energy Services Inc.

(CenAlta), creating the largest and most diversified fleet of

service rigs in the Western Canadian Sedimentary Basin

(WCSB). Also in October, the Corporation acquired the

global directional drilling and electromagnetic (EM)

Measurement While Drilling (MWD) assets of Geoservices

S.A. (Geoservices) of Paris, France and an exclusive worldwide

license to its EM-MWD technology. This acquisition will

allow for increased utilization of MWD technologies for

directional and horizontal well applications on a global basis

and enable Precision to more effectively integrate its

underbalanced drilling capabilities.

The expansion has continued. In January 2001, the

Corporation acquired BecField Drilling Services Ltd.

(BecField). BecField, with established operations in Europe

and the Middle East, provides directional drilling and MWD

services through its technical, field and support personnel to

both onshore and offshore oil and gas companies.

The maintenance of Precision’s strong balance sheet

remained of paramount importance throughout this year of

rapid growth. The Corporation ended the year with a debt to

debt plus equity ratio of just over 0.3 and debt to trailing cash

flow of 1.84. With the strong demand for our services

expected in 2001, our financial position and flexibility should

continue to improve.

A development, the importance of which must not be

overlooked, was the announcement of planned corporate tax

rate reductions by the federal government of Canada and the

provincial government of Alberta. The federal government

introduced tax rate reductions in its February 28 and October

18, 2000 budgets that will reduce corporate tax rates by 7%

over the next 4 years. The Alberta provincial government has

also planned to reduce corporate tax rates by 7.5% over the

next four years. These changes combine to reduce the

Corporation’s tax rate on ordinary income earned in Alberta

from 45% in 2000 to 30.5% in 2004. Our Canadian

operations are the solid foundation upon which Precision is

building its international presence and they will always be a

critical contributor to the Corporation’s profitability.

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

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M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

These significant tax rate reductions represent the biggest

international markets. The Rental and Production Services

fundamental change in the Canadian economy in recent

segment includes the design, packaging, sales and service of

history and create an environment of increased profitability.

natural gas compression equipment; the manufacture and

Precision’s operations are managed in three industry

segments. Contract Drilling Services provides land drilling

services in Canada and internationally, and provides well

workover services in Canada. The Oilfield Specialty Services

segment provides both open and cased hole wireline,

directional drilling, MWD/LWD services, production testing

and underbalanced drilling services, in domestic and

CONTRACT DRILLING SERVICES

(Stated in thousands of dollars, except per day/hour amounts)

rental of oilfield wellsite trailers; the rental of equipment to the

oil and gas industry for drilling, completion and production

activities; and the provision of industrial process services,

including specialized equipment and labour services to

downstream oil and gas, petro-chemical and other process

industry customers.

Years ended December 31,

Revenue

Expenses:

Operating

General and administrative

Depreciation

Operating earnings

Number of drilling rigs (end of year)

Drilling operating days

Revenue per operating day

Number of service rigs (end of year)

Service rig operating hours

Revenue per operating hour

% of

2000

Revenue

1999

Revenue

59%

29%

$ 743,544

440,300

32,417

58,194

$ 212,633

244

43,376

13,961

257

222,539

380

63%

23%

$ 429,848

272,589

19,359

40,036

97,864

220

30,172

$ 12,266

106,846

340

Contract Drilling Services revenue increased by

Revenue per operating day in Canada increased by 14% in

$313.7 million or 73% over 1999 as a result of the combined

2000 over 1999. This pricing momentum continues in 2001,

impact of increased utilization, pricing increases and

when for the first time in the Corporation’s history, drilling

expansion of the equipment fleet. Of the 43,376 drilling

day rates for certain rigs are expected to increase as we come

operating days in 2000, 5% or 2,373 were from rigs working

out of the winter drilling season.

internationally. This compares to 1,088 or 4% in 1999.

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M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

The following table illustrates the change in the size,

its own design innovations to establish a world leading

makeup and deployment of the drilling fleet in 2000. The

position in this technology. The acquisition of CenAlta added

acquisition of Plains added 8 coiled tubing rigs to the fleet.

10 drilling rigs to the fleet and an additional 6 rigs were built

This provided the equipment base to which Precision applied

at our in-house machining and fabrication facilities.

Type of Drilling Rig

Depth

Canada

International

Total

Canada

International

Total

2000

1999

Single

Super Single™

Double

Light triple

Heavy triple

Coiled tubing

Total fleet

to 1,200 m

to 2,500 m

to 3,000 m

to 3,600 m

to 7,600 m

102

230

105

–

244

211

–

220

The size and breadth of the service rig fleet increased

rig fleet was the one area across the Corporation that was

dramatically with the acquisition of CenAlta and Plains.

hampered by shortages of skilled labour.

Utilization and hourly rates also increased. Service rig

operating hours increased 108% to 222,539 in 2000 from

106,846 in 1999 and revenue per operating hour increased

12% from $340 to $380. However, utilization of the service

The characteristics of the fleet, which currently

operates only in the Western Canadian Sedimentary Basin, is

illustrated in the following table:

Type of Service Rig

Single

Freestanding mobile single

Mobile single

Double

Freestanding mobile double

Mobile double

Heavy double

Slant
Swab

Total fleet

2000

105

16
2

257

1999

–

4
–

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M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

With 257 workover rigs, Precision now services the

efficiencies were gained from our in-house operating supply

entire breadth of the market and has approximately 28% of

procurement and distribution capabilities and our in-house

the Canadian workover rig industry. The ownership of the

rig repair and construction service. There is still room for

Canadian service rig

industry has been significantly

improvement

in operating cost structures as recent

consolidated with three companies now owning 65% of the

acquisitions become fully ensconced in our vertically

fleet. As the history of the drilling business has shown,

integrated service delivery system. Depreciation remained

consolidation of an oilfield service brings pricing discipline

relatively consistent on a per unit of production basis (per

and improved margin stability. The much larger fleet allows us

operating day or operating hour), further contributing to the

to reap the benefit of economies of scale and will be managed

operating earnings percentage increase.

using the same integrated processes and operating philosophy

that have proven successful in our drilling operation.

An important component of the success of the

Contract Drilling Services segment is the degree to which cost

Operating earnings for the Contract Drilling Services

structures have been developed to be as variable as possible

segment increased to 29% of revenue from 23%. Expense

with activity levels. This allows the Corporation to respond

increases, primarily in employee compensation and fuel costs

quickly to sudden changes in our extremely cyclical industry

were more than offset by rate increases. In addition, further

and produces superior returns in periods of high activity.

OILFIELD SPECIALTY SERVICES

(Stated in thousands of dollars)

Years ended December 31,

Revenue

Expenses:

Operating

General and administrative

Depreciation

Research and engineering

Operating earnings

Wireline jobs performed

MWD/directional drilling man days

Well testing/CPD man days

2000

$ 372,425

254,628

38,920

27,969

20,288

30,620

29,431

34,404

41,777

% of
Revenue

1999

$ 125,954

68%

11%

68%

14%

10%

85,695

17,529

12,305

3,629

6,796

9,179

10,171

24,493

Oilfield Specialty Services revenue increased by $246.5

from a competitor in May. In addition, Computalog Ltd.

million or 196% in 2000 over 1999. This increase is the result

(Computalog), which was acquired in July 1999, contributed

of two factors. First, business acquisitions account for

revenue for the full year in 2000.

approximately $130.0 million of the change. The purchase of

Plains in July expanded the depth of many services provided

in this segment, as did the acquisition of well testing assets

Second, activity levels increased significantly across all

services offered by the segment. On a full year over year basis,

adjusting out the effect of acquisitions, the number of wireline

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jobs performed, MWD man days, well testing/controlled

2001. More significant, however, were the expenditures made

pressure drilling man days and directional drilling man days

across all the segment’s service lines to improve the

increased by 40%, 68%, 38%, and 73% respectively. Pricing

maintenance levels and reliability of the equipment fleet and

for all of these services improved during the year.

enhance the training programs provided to the workforce.

Operating earnings amounted to $30.6 million or 8% of

revenue in 2000. This segment will be the engine of Precision’s

future growth and its results are characteristic of a global

These upgrades were necessary to prepare the operations to

move into the diverse international market place and to

increase the number of qualified crews available.

business in early stages of development. Costs are being

Much of the impetus for the segment’s international

incurred, and charged against income, which are preparing the

growth initiatives is to reduce the Corporation’s exposure to

platform for revenue and profitability expansion. The

the cyclical North American market. The Canadian market is

acquisitions noted above along with the purchase of assets from

subject to large seasonal swings in activity levels. The North

Geoservices in October, added critical mass, technology and

American market responds quickly to commodity price

international distribution channels. This strategy continued to

fluctuations. Exploration and production projects in many

unfold in 2001 with the acquisition of BecField. Consistent

other areas of the world are less susceptible to these factors.

with Precision’s experience throughout its acquisitive history, the

This strategy will increase the utilization of the segment’s

integration period carries cost redundancies and the resulting

relatively mobile equipment fleets. Employee costs in this

inefficiencies that take time to eliminate.

segment are more fixed in nature making higher utilization

The pursuit of Oilfield Specialty Services international

key to improved profitability.

growth objectives also contributed to higher expenses in 2000

Expansion of product lines is an important element of

with no commensurate revenue contribution. Expansion of

this plan. To move into new markets and compete in a

the cased hole and open hole wireline operation in the US

meaningful way, the Corporation will have to be a full service

required expenditures in the latter half of the year to set up

provider. The following charts illustrate the expansion of

new operations centres. These operations will begin

product lines within the Oilfield Specialty Services segment

contributing noticeable revenue growth in the first quarter of

and the geographic diversification of its revenue.

Revenue by Service Line

2000: Total: $ 372.4 Million

1999: Total: $ 126.0 Million

Well testing/controlled pressure drilling 15%
Pumping services 4%
Directional drilling 23%
Downhole tools and completions 5%
Drill bits
1%
52%
Wireline

Directional drilling 18%
Well testing/controlled pressure drilling 30%
Downhole tools and completions 3%
Wireline
49%

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Revenue by Geographic Distribution

2000: Total: $ 372.4 Million

1999: Total: $ 126.0 Million

Canada
US
Rest of world

58%
30%
12%

Canada
US
Rest of world

62%
24%
14%

As a new player in international markets, Precision will

length in the industry. These tools are currently being field

use its unique mix of skills and equipment to secure its initial

tested and initial commercial applications are planned for the

service contracts. Leading edge technologies being developed

second half of 2001.

by AES will play an increasing role in accomplishing this

objective. While the cost of this world class research and

engineering team and facility is being borne by current

operations, the benefits will not be translated into meaningful

revenue and margin increases until 2002. The advancements

in MWD and LWD technology being developed at AES are

projected to produce tools with the highest flow rating,

highest pressure rating, fastest logging speed, and shortest tool

The operational and administrative infrastructures

necessary to deliver the segment’s services internationally are

now being put in place. A Regional Director of Operations

has been appointed in each of five strategic areas: US,

Europe/Africa, Middle East, Asia Pacific and Latin America.

These people are experienced oilfield professionals with

business knowledge specific to these regions.

RENTAL AND PRODUCTION SERVICES

(Stated in thousands of dollars)

Years ended December 31,

Revenue

Expenses:

Operating

General and administrative

Depreciation

Operating earnings

Equipment rental days

Number of compressor packages sold

% of

2000

Revenue

1999

Revenue

$ 239,220

170,729

11,207

13,995

43,289

671,000

71%

18%

$ 178,938

133,809

10,849

14,575

19,705

478,000

75%

11%

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Revenue in the Rental and Production Services

level of information systems spending as operations with

segment increased by $60.3 million or 34% with all product

different hardware and software configurations are integrated

lines increasing by relatively the same percentage. The

into Precision’s systems.

industrial maintenance and plant turnaround operation

received a strong return from its expansion in Fort McMurray

and has seen revenue climb as clients increase the scope and

duration of their plant maintenance shutdowns. The oilfield

equipment rental and natural gas compression packaging

businesses saw activity levels rise in step with increased oilfield

activity in western Canada.

With the exception of natural gas compression

packaging, operating margins increased across the segment in

conjunction with the increased demand for their products and

services. The gas compression business is experiencing strong

competitive pressures as a result of over capacity in the

Canadian market.

CORPORATE AND OTHER EXPENSES

Corporate and other expenses of $25.7 million have

increased due to the increase in personnel required to manage

the expanded business including the establishment of a

corporate office in Houston, Texas. A significant portion of

corporate employee compensation is comprised of incentive

pay that is tied to corporate performance. The improved

financial performance of the Corporation relative to 1999

resulted in increased employee compensation expense. In

addition, the Corporation’s active acquisition program

contributed to the increase in costs in 2000. There tends to be

an increase in costs for a period after each acquisition until

corporate functions can be rationalized.

In total, general and administrative expense declined

slightly as a percentage of revenue to 7.6% in 2000 from 8.0%

in 1999.

Interest Expense

Net interest expense increased by $12.2 million or 74%

in 2000 over 1999, in conjunction with the increase in net

borrowings from $236.4 million to $675.4 million. The cash

component of business acquisition costs in 2000 amounted to

$365.0 million while debt assumed in these transactions

totalled $93.3 million. As a percentage of revenue, net interest

expense remained consistent at 2.1% in 2000 compared to

2.3% in 1999. Management is comfortable with this level of

debt servicing cost.

Income Taxes

Tax expense in 2000 is equal to 34% of earnings before

income taxes and goodwill amortization, compared to 52% in

1999. Half of this difference is due to the impact of the

Canadian federal government’s plan to reduce corporate tax

rates by 7% over the next four years. Canadian generally

accepted accounting principles (GAAP) require that the effect

of this rate reduction on the Corporation’s future tax balances

be reflected as a decrease of future tax expense in 2000, since

the rate reductions have been substantively enacted into law.

The resultant reduction of tax expense in the fourth quarter of

2000 amounted to $19.9 million. This treatment differs from

US GAAP in that this adjustment would not be recognized

A significant component of corporate expenditures is

until reduced rates have been formally passed into law, which

dedicated to the maintenance of our management information

will occur in 2001. In addition, a similar adjustment will

systems. This department has expanded to meet the ever

occur in 2001, under Canadian and US GAAP, should the

increasing needs of our fast growing domestic and international

Alberta provincial government proceed with its plan to reduce

operations. Again, acquisition activity has an impact on the

corporate tax rates by 7.5% over the next four years.

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The other primary reason for the reduced effective tax

At December 31, 2000 the Corporation had working

rate in 2000 relates to the Corporation’s change in method of

capital of $157.7 million. This amount is net of $100.0

accounting for income taxes. Effective January 1, 2000, the

million borrowed under the Corporation’s extendable

Corporation retroactively adopted the liability method of

revolving unsecured facility to finance the increase in accounts

accounting for income taxes without restating prior periods in

receivable resulting from the increase in activity.

accordance with revised Canadian accounting standards. The

new standards move Canadian practice in line with US

income tax accounting methods. The most significant impact

of this change is that the Corporation’s provision for income

taxes is no longer increased by the effect of non-deductible

depreciation.

Goodwill Amortization

Goodwill amortization increased by $6.9 million as a

Maintaining a strong balance sheet has remained a

focus of management throughout this past year of rapid

growth. At year-end the Corporation had long-term debt of

$548.1 million and its debt to debt plus equity ratio was

conservative at 0.31. The longer-term component of the

Corporation’s capital structure was increased with the addition

of $150 million Series 2 unsecured debentures maturing in

2010. The $200 million Series 1 unsecured debentures mature

result of adding $268.9 million to goodwill during 2000,

in 2007.

primarily from the Plains and CenAlta acquisitions. In

Strong adherence to conservative financial philosophies

addition, a full year of amortization was taken on the $55.5

has put the Corporation in good stead with current lenders

million of goodwill associated with the Computalog

and the public debt markets. This is very important for an

acquisition in July 1999.

Recently, accounting standards bodies in both Canada

and the US have proposed changes that would eliminate the

amortization of goodwill as an ongoing expense item and

would also eliminate pooling of interests as an acceptable

method of accounting for business combination transactions.

organization that has and will continue to grow through

acquisition and therefore requires ready access to funding

sources. The Corporation believes that its strong balance sheet

and unutilized borrowing capacity, combined with funds

generated from operations, will provide sufficient capital to

fund its on-going operations and future expansion.

These changes will facilitate a closer comparison of our results

BUSINESS RISKS

with those of our US peers, most of whom have used pooling

of interests accounting in the past.

LIQUIDITY AND CAPITAL RESOURCES

Crude Oil and Natural Gas Prices

The price received by our customers for the crude oil

and natural gas they produce has a direct impact on cash flow

In 2000 the Corporation adhered closely to its policy

available to them to finance the acquisition of services

of correlating capital expenditure levels to cash flow as a key

provided by the Corporation.

element of its business risk management strategy. Funds from

operations amounted to $297.9 million for the year ended

December 31, 2000 while capital expenditures totaled $201.0

million.

Prices for crude oil are established in a worldwide

market in which supply and demand are subject to a vast array

of economic and political influences. This results in very

volatile pricing; a prime example of which is West Texas

Intermediate crude oil trading at US $12 per barrel in late

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1998 and in excess of US $40 per barrel at one point in 2000.

comes out of the ground rendering many secondary roads

Natural gas prices are established in a more “local” North

incapable of supporting the weight of heavy equipment until

American market due to the requirement to transport this

they have thoroughly dried out. The duration of this “spring

gaseous product in pressurized pipelines. Demand for natural

breakup” has a direct impact on the Corporation’s activity

gas is seasonal and is correlated to heating and electricity

levels. In addition, many exploration and production areas in

generation requirements.

The Corporation manages the risk of volatile

commodity prices, and thus volatile demand for its services,

by striving to maintain efficient cost structures that are

northern Canada are accessible only in winter months when

the ground is frozen hard enough to support equipment. The

timing of freeze up and spring breakup affects the ability to

move equipment in and out of these areas.

scalable to activity levels. In addition, our strong balance sheet

Working with our customers, we strive to position

and adherence to conservative financing practices provide the

equipment where possible such that it can be working on

resilience to withstand and benefit from downturns and

location during spring breakup, limiting the need to move

upturns in the business cycle.

equipment during this period as much as possible. However,

Workforce Availability

The Corporation’s ability to provide reliable services is

dependent upon the availability of well trained, experienced

crews to operate our field equipment. The strong Canadian

and US economies combined with the seasonality of

employment offered by many of our business units in Canada

has increased the challenge of attracting qualified personnel.

We must also balance the requirement to maintain a skilled

workforce with the need to establish cost structures that vary

with activity levels.

Our most experienced people are retained during

periods of low utilization by having them fill lower level

positions on our field crews. The Corporation has established

training programs for employees new to the oilfield service

sector and we work closely with industry associations to

ensure competitive compensation levels and to attract new

workers to the industry as required.

Weather

The ability to move heavy equipment in the Canadian

many uncontrollable factors affect our ability to plan in this

fashion and the spring season, which can occur any time from

late March through May, is traditionally our slowest time.

This seasonal cyclicality is evidenced by the number of drilling

operating days in Canada in the first quarter of 2000 versus

the second quarter. In the period of January to March 2000,

our Canadian drilling operating days totaled 13,937 while in

the period of April to June, 2000 operating days amounted to

6,013.

Technology

Technological innovation by oilfield service companies

has improved the profitability of the entire exploration and

production sector over the industry’s 140-year history.

Recently, development of directional and horizontal drilling,

underbalanced drilling, coiled tubing drilling, and methods of

providing real time data during drilling and production

operations have increased production volumes and the

recoverable amount of discovered reserves. Innovations such

as 3-D and 4-D seismic have maintained the success rate of

exploration wells as the quantity of drillable prospects

oil and natural gas fields is dependent on weather conditions.

declines.

As warm weather returns in the spring, the winter’s frost

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Our ability to deliver more efficient services is critical

Foreign Operations

to our continued success. The Corporation has continuously

The Corporation is working hard to export its expertise

built upon its experience and teamed with customers to

and technologies to oil and gas producing regions around the

provide solutions to their unique problems. Our ability to

world. With this comes the risk of dealing with business and

design and build specialized equipment has kept us on the

political systems that are much different than we are

leading edge of technology. The success of our in-house

accustomed to in North America. The Corporation has hired

designed and built Super Single™ drilling rig, both in Canada

employees who have experience working in the international

and abroad, is testimony of our dedication to these efforts.

arena and it is committed to recruiting resident nationals on

The continued development of our Oilfield Specialty

the staffs of all its international operations.

Services segment, and in particular the research and

Foreign Currency Exchange Rates

development work of AES, puts the Corporation at another

level where high-end technological innovation is paramount

to success. The team of highly qualified experienced

professionals, that has been assembled and working together

for almost a year in a state of the art testing facility, is equal to

any in the industry.

Natural Gas Supply

North American natural gas demand is strong and

The Corporation has two sources of foreign currency

exchange risk. On international contracts, attempts are made

to structure revenue streams such that a portion sufficient to

match local expenditures is denominated in the local currency,

with the remainder being denominated in US dollars. In

addition, many of our business units buy a portion of their

parts and supplies from suppliers in the United States. As a

result, the Corporation is a net payer of US dollars but at

growing. The industry has focused on the Western Canadian

present this exposure is not significant.

Sedimentary Basin as the source of supply to satisfy a

Merger and Acquisition Activity

significant portion of

this

increased demand. The

Corporation’s substantial operations in western Canada are

poised to benefit from the increased natural gas activity created

by this supply and demand imbalance. Recent natural gas

discoveries in offshore fields in eastern Canada could, in the

long-term, provide competition to western Canadian supplies.

Acquisition Integration

The Corporation has worked towards its strategic

objective of becoming an integrated service provider of

sufficient size to benefit from economies of scale and to

provide the foundation from which to pursue international

opportunities. Business acquisitions have been an important

tool in this pursuit and will continue to be so in the future.

Continued successful integration of new businesses, people

and systems is key to our future success.

Recent merger and acquisition activity in the oil and

gas exploration and production sector has impacted demand

for our services as customers focus on reorganization activities

prior to committing funds to significant drilling and

maintenance projects. Continued merger and acquisition

activity could have a short-term impact on our business, but

in the long-term should result in stronger, more active

customers.

OUTLOOK

Management holds an optimistic outlook for the future

based upon the strong fundamentals of the oil and natural gas

exploration and production industry and upon its internal

initiatives to capitalize on them.

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z The North American natural gas story is key to
management’s optimistic outlook. Analysts estimate

resource and will benefit from increased activity in this

area. In addition, the Corporation has successfully

that over 60% of Canadian drilling activity in 2001

exported this home grown expertise, particularly in

will be targeting natural gas. The shortage of electricity

Venezuela and Kazakhstan.

in California is well documented and has resulted in a

large number of electrical generating facilities being

z The Corporation is confident that its significant
research and engineering efforts, centered around

proposed. Analysts predict that natural gas will be the

AES’s staff and facilities, will produce the next

fuel of choice for 95% of these plants. Canada will

generation of LWD systems and sensors. Field tests of

remain an important source of supply for this

this equipment are underway and the first commercial

expanding market and transportation capacity is no

longer an issue. Meeting the demand will require

increased drilling in existing reservoirs and exploration

of new areas including the Mackenzie Delta and other

northern regions. Precision is well positioned to take

advantage of this increased activity.

z Crude oil prices have remained high due to the tight
supply and demand balance. This situation will likely

applications are scheduled for the second half of 2001.
z The Corporation’s success and critical mass in Canada
now form the strong foundation upon which to grow

internationally. Precision’s presence in the US is

growing and experienced people have been put in place

and infrastructure is currently being developed in

Europe/Africa, Asia Pacific, the Middle East and Latin

America to facilitate the export of our skills and

continue for some time, as the impact of years of

technologies, both old and new.

declining investment in the oil industry due to

uneconomic pricing levels can not be reversed in a

short time frame. Higher commodity prices will

provide the necessary financing but time is also

required to attract and train technically skilled

personnel, develop drilling prospects, and bring new

reserves into production. The continued production

discipline of OPEC is a factor in the supply and

demand equation, but to a diminishing extent.

OPEC’s surplus production capacity has declined

substantially and many member states are now looking

to attract western technology and capital to reverse this

trend.

z Canada’s heavy oil reserves are plentiful and improving
technology is rapidly increasing the productive capacity

of this known resource. Precision has long been a leader

in developing drilling techniques to exploit this

z In March 2001, Precision, as part of a joint venture was
awarded a US $270 million, 240 well project in the

Burgos Basin in northern Mexico. As project manager

and lead contractor, the Corporation will supply

drilling rigs, wireline, directional drilling, and well

testing services, drill bits and downhole completion

tools. This high profile project gives the Corporation a

foothold in a new expanding market eager for all the

services and products we can deliver.

Based upon these longer-term fundamentals and the

demand for the Corporation’s services currently being

experienced, management expects 2001 to be another record

year.

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M A N A G E M E N T ’ S R E P O R T T O T H E S H A R E H O L D E R S

The accompanying consolidated financial statements and all information in the Annual Report are the responsibility of

management. The consolidated financial statements have been prepared by management in accordance with the accounting

policies in the notes to financial statements. When necessary, management has made informed judgments and estimates in

accounting for transactions which were not complete at the balance sheet date. In the opinion of management, the financial

statements have been prepared within acceptable limits of materiality, and are in accordance with Canadian generally accepted

accounting principles appropriate in the circumstances. The financial information elsewhere in the Annual Report has been

reviewed to ensure consistency with that in the consolidated financial statements.

Management has prepared Management’s Discussion and Analysis (MD&A). The MD&A is based upon the Corporation’s

financial results prepared in accordance with Canadian GAAP. The MD&A compares the audited financial results for the twelve

months ended December 31, 2000 to the audited results for the twelve months ended December 31, 1999. Note 13 to the

consolidated financial statements describes the impact on the consolidated financial statements of significant differences between

Canadian and United States GAAP.

Management maintains appropriate systems of internal control. Policies and procedures are designed to give reasonable

assurance that transactions are properly authorized, assets are safeguarded and financial records properly maintained to provide

reliable information for the preparation of financial statements.

KPMG LLP, an independent firm of Chartered Accountants, was engaged, as approved by a vote of shareholders at the

Corporation’s most recent annual general meeting, to audit the consolidated financial statements in accordance with generally

accepted auditing standards in Canada and provide an independent professional opinion.

The Audit Committee of the Board of Directors, which is comprised of three directors who are not employees of the

Corporation, has discussed the consolidated financial statements, including the notes thereto, with management and external

auditors. The consolidated financial statements have been approved by the Board of Directors on the recommendation of the

Audit Committee.

HANK B. SWARTOUT

Chairman of the Board,

DALE E. TREMBLAY

Senior Vice President Finance

President and Chief Executive Officer

and Chief Financial Officer

February 14, 2001

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A U D I T O R S ’ R E P O R T T O T H E S H A R E H O L D E R S

We have audited the consolidated balance sheets of Precision Drilling Corporation as at December 31, 2000 and 1999 and

the consolidated statements of earnings and retained earnings and cash flow for the years then ended. These financial statements

are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements

based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that

we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An

audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating

the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the

Corporation as at December 31, 2000 and 1999 and the results of its operations and its cash flow for the years then ended in

accordance with Canadian generally accepted accounting principles.

Accounting principles generally accepted in Canada vary in certain significant respects from accounting principles generally

accepted in the United States. Application of accounting principles generally accepted in the United States would have affected

results of operations for years ended December 31, 2000 and 1999 and shareholders’ equity as of December 31, 2000 and 1999,

to the extent summarized in Note 13 to the consolidated financial statements.

KPMG LLP

Chartered Accountants

Calgary, Canada

February 14, 2001

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C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

C O N S O L I D A T E D B A L A N C E S H E E T S

(Stated in thousands of dollars)

As at December 31,

ASSETS

Current assets:

Cash
Investment in short-term commercial paper
Accounts receivable
Income taxes recoverable
Inventory

(Note 2)

Property, plant and equipment, at cost less accumulated depreciation
Goodwill, net of accumulated amortization of $60,838 (1999 - $38,077)
Other assets

(Note 3)

(Note 4)

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Bank indebtedness
Accounts payable and accrued liabilities
Current portion of long-term debt

Long-term debt
Future income taxes
Deferred income taxes
Shareholders’ equity:
Share capital
Retained earnings

(Note 5)

(Note 9)

(Note 6)

Contingencies and commitments

(Notes 8 and 17)

See accompanying notes to consolidated financial statements.
Approved by the Board:

2000

1999

20,702
–
424,817
2,050
85,688

533,257

1,287,932
550,502
16,445

5,550
46,775
239,088
3,531
59,566

354,510

761,589
304,400
13,367

$ 2,388,136

$ 1,433,866

112,620
227,548
35,353

375,521

548,096
257,624
–

864,495
342,400

1,206,895

3,353
129,766
58,524

191,643

226,815
–
106,613

627,923
280,872

908,795

$ 2,388,136

$ 1,433,866

HANK B. SWARTOUT

H. GARTH WIGGINS

Director

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

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C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

C O N S O L I D A T E D S T A T E M E N T S O F E A R N I N G S A N D R E T A I N E D E A R N I N G S

(Stated in thousands of dollars, except per share amounts)

Years ended December 31,

Revenue
Expenses:

Operating
General and administrative
Depreciation
Research and engineering

Operating earnings
Interest:

Long-term debt
Other
Income

Gain on disposal of subsidiary and investments
Reduction of carrying amount of investments
Reduction of carrying amount of property, plant and equipment

Earnings before income taxes and goodwill amortization
Income taxes:
Current
Future
Deferred (reduction)

Earnings before goodwill amortization
Goodwill amortization, net of tax

Net earnings
Retained earnings, beginning of year
Adjustment on adoption of liability method of accounting for income taxes

Retained earnings, end of year

Earnings per share before goodwill amortization:

(Note 10)

Basic
Fully diluted
Earnings per share:

Basic
Fully diluted

See accompanying notes to consolidated financial statements.

(Note 10)

2000

1999

$ 1,355,453

$ 734,740

870,172
102,848
101,300
20,288

1,094,608

260,845

31,166
473
(2,926)
(40)
–
–

487,960
58,429
67,228
3,629

617,246

117,494

19,634
481
(3,571)
(26,318)
13,101
10,200

(Note 9)

232,172

103,967

36,252
41,599
–

77,851

154,321
22,761

131,560
280,872
(70,032)

69,299
–
(15,413)

53,886

50,081
15,831

34,250
246,622
–

$
$

342,400

$ 280,872

3.17
2.98

2.70
2.55

$
$

1.13
1.09

0.77
0.76

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C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W

(Stated in thousands of dollars, except per share amounts)

Years ended December 31,

Cash provided by (used in):

Operations:

Net earnings
Items not affecting cash:

Depreciation
Goodwill amortization
Future income taxes
Deferred income taxes
Amortization of deferred financing costs
Gain on disposal of subsidiary and investments
Reduction of carrying amount of investments
Reduction of carrying amount of property, plant and equipment
Amortization and realization of deferred foreign exchange gain

Funds provided by operations
Changes in non-cash working capital balances

Investments:

Acquisitions
Purchase of property, plant and equipment
Proceeds on sale of property, plant and equipment
Investments
Proceeds on disposal of investment and subsidiary

(Note 16)

(Note 12)

Financing:

Increase in long-term debt
Repayment of long-term debt
Deferred financing costs
Issuance of common shares
Redemption of warrants
Change in bank indebtedness

Increase (decrease) in cash
Cash, beginning of year

Cash, end of year

Funds provided by operations per share:

(Note 10)

Basic
Fully diluted

Cash is defined as cash and investment in short-term commercial paper.
See accompanying notes to consolidated financial statements.

2000

1999

131,560

34,250

101,300
22,761
41,599
–
1,435
(40)
–
–
(742)

297,873
(60,988)

236,885

(364,959)
(201,004)
20,520
95
64

(545,284)

321,543
(118,219)
(1,973)
21,009
(18,924)
73,340

276,776

(31,623)
52,325

20,702

6.11
5.69

$
$

67,228
15,831
–
(15,413)
1,157
(26,318)
13,101
10,200
–

100,036
(62,219)

37,817

2,250
(56,117)
14,969
(3,125)
122,929

80,906

109,688
(187,860)
–
11,558
–
(260)

(66,874)

51,849
476

52,325

2.25
2.13

$
$

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C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Field technical equipment is depreciated on the straight-

(Tabular amounts stated in thousands of dollars,

line method over periods ranging from two to five years.

except per share amounts)

Precision Drilling Corporation (the Corporation) is a

vertically integrated oilfield service company, providing

oilfield and industrial services to customers worldwide.

The financial statements are prepared in accordance with

generally accepted accounting principles

in Canada.

Management is required to make estimates and assumptions

that affect the reported amounts of assets and liabilities and

disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and

expenses during the reported period. Actual results could

differ from these estimates.

SIGNIFICANT ACCOUNTING POLICIES:

(a) Principles of consolidation:

The consolidated financial statements include the

accounts of the Corporation, its subsidiaries, all of which

are wholly-owned, and its proportionate share of joint

ventures.

(b)

Inventory:

Inventory is valued at the lower of average cost and

replacement value.

Drilling rig equipment is depreciated by the unit-of-

production method based on 3,650 drilling days, except

for drill pipe and drill collars, which are depreciated over

1,100 drilling days. Service rig equipment is depreciated

on a unit-of-production method based on 1,500 days for

single and double rigs and 2,000 days for heavy double

rigs.

Rental equipment is depreciated on the straight-line

method over periods ranging from five to 15 years. Other

equipment is depreciated on a straight-line basis over

periods ranging from three to 10 years.

Light duty vehicles are depreciated on the straight-line

method over four years. Heavy-duty vehicles are

depreciated on the straight-line basis over 10 years.

Buildings are depreciated on the straight-line method

over periods ranging from 10 to 30 years.

(d) Revenue recognition:

Revenue is primarily recognized as services are rendered

based upon agreed daily, hourly, or job rates. The

Corporation’s manufacturing operations recognize

revenue on work in progress on a percentage of

completion basis.

(e)

Investments:

Investments in shares of associated companies, over

which the Corporation has significant influence, are

accounted for by the equity method. Other investments

are carried at cost. If there are other than temporary

declines in value, these investments would be written

down to their net realizable value.

(f) Deferred financing costs:

Costs associated with the issuance of long-term debt are

deferred and amortized on the straight-line basis over the

term of the debt. The amortization is included in interest

expense.

(g) Goodwill:

Goodwill is recorded at cost and amortized on the

straight-line method over 20 years. The recoverability of

goodwill is assessed, if indications of impairment are

present, based on estimated undiscounted future cash

flows.

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C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

(h)

Income taxes:

Effective January 1, 2000, the Corporation adopted the

liability method of accounting for future income taxes.

Under the liability method, future income tax assets and

liabilities are determined based on “temporary

differences” (differences between the accounting basis

exchange rate and non-monetary assets and liabilities are

translated using historical rates of exchange. Gains or

losses resulting from these translation adjustments are

included in net earnings. Gains and losses related to

foreign currency denominated long-term debt are

deferred and amortized over the term of the debt.

and the tax basis of the assets and liabilities), and are

(k) Stock-based compensation plans:

measured using the currently enacted, or substantively

enacted, tax rates and laws expected to apply when these

differences reverse. Income tax expense is the sum of the

Corporation’s provision for current income taxes and the

difference between opening and ending balances of the

future income tax assets and liabilities.

Prior to adoption of this new accounting standard,

income tax expense was determined using the deferral

method. Under this method, deferred income tax expense

was determined based on “timing differences” (differences

between the accounting and tax treatment of expense or

income items), and were measured using the tax rates in

effect in the year the differences originated.

The Corporation has adopted the new income tax

accounting standard retroactively, without restating the

financial statements of any prior period. As a result, the

Corporation has recorded an adjustment to retained

earnings and future tax liability, formerly the deferred tax

liability, in the amount of $70.0 million as at January 1,

2000.

(i) Post employment benefits:

The Corporation has entered into an employment

agreement with a senior officer, which provides for certain

post employment benefits. Costs of these benefits are

charged to earnings on a straight-line basis over ten years.

(j) Foreign currency translation:

Accounts of foreign operations, all of which are

considered financially and operationally integrated, are

translated to Canadian dollars using average exchange
rates for the year for revenue and expenses. Monetary

assets and liabilities are translated at the year end current

The Corporation has equity incentive plans, which are

described in Note 6. No compensation expense is

recognized for these plans when stock options are issued.

Any consideration received on exercise of the stock

options is credited to share capital.

(l) Research and engineering:

Research and engineering costs are charged to income as

incurred. Costs associated with the development of new

operating tools and systems are expensed during the

period unless the recovery of these costs can be reasonably

assured given the existing and anticipated future industry

conditions. Upon successful completion and field testing

of the tools any deferred costs are transferred to the

related capital asset accounts.

(m) Earnings and funds provided by operations per share:

Basic earnings and funds provided by operations per share

are calculated using the weighted average number of

shares outstanding during the year. Fully diluted earnings

and funds provided by operations per share are calculated

by adjusting earnings and funds from operations by the

imputed earnings on funds which would have been

received on exercise of options and by adjusting the

weighted average number of shares outstanding by the

number of options outstanding.

(n) Comparative figures:

Certain comparative figures have been reclassified to

conform with

the current

financial

statement

presentation.

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C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

INVENTORY:

Finished goods and work in progress

Operating supplies

Manufacturing parts and materials

PROPERTY, PLANT AND EQUIPMENT:

2000

Rig equipment

Field technical equipment

Rental equipment

Other equipment

Vehicles

Buildings

Other

Land

1999

Rig equipment

Field technical equipment

Rental equipment

Other equipment

Vehicles

Buildings

Other

Land

2000

52,600

16,123

16,965

85,688

1999

23,930

18,406

17,230

59,566

Accumulated

Net Book

Cost

Depreciation

Value

$ 848,476

163,244

$ 685,232

306,552

86,656

176,945

67,968

44,935

13,489

14,426

$ 1,559,447

$ 632,015

106,563

80,815

76,259

27,174

26,093

13,062

11,018

20,384

23,321

36,219

13,608

7,766

6,973

–

286,168

63,335

140,726

54,360

37,169

6,516

14,426

271,515

$ 1,287,932

126,935

$ 505,080

11,962

22,877

29,289

9,592

5,186

5,569

–

94,601

57,938

46,970

17,582

20,907

7,493

11,018

$ 972,999

211,410

$ 761,589

4. OTHER ASSETS:

Investments, at cost less provision for impairment

Investments, at equity

Deferred financing costs, net of accumulated amortization

Deferred foreign exchange loss (gain)

2000

4,125

3,183

8,927

210

1999

4,494

2,905

8,389

(2,421)

16,445

13,367

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C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

LONG-TERM DEBT:

Unsecured debentures – Series 1

Unsecured debentures – Series 2

Unsecured notes (US $35,000)

EDC facility (US $18,472)

EDC facility (US $50,000)

Extendable revolving unsecured facility

Equipment loans

Capital lease obligations

Less amounts due within one year

2000

1999

200,000

$ 200,000

150,000

–

27,712

75,010

94,468

30,760

5,499

583,449

35,353

–

50,516

34,278

–

545

285,339

58,524

548,096

$ 226,815

The $200.0 million 6.85% Series 1 unsecured

The $75.0 million unsecured term financing facility with

debentures mature June 26, 2007 and have an effective

the EDC is repayable over five years in semi-annual

interest rate of 7.44% after taking into account deferred

installments, matures September 15, 2005 and bears

financing costs. The debentures are redeemable at any

interest at six-month US Libor plus applicable margin.

time at the option of the Corporation upon payment of

The margin is dependent upon the Corporation’s credit

a redemption price equal to the greater of an amount

rating, which at December 31, 2000 resulted in a margin

calculated with reference to the yield on a Government of

of 0.9%.

Canada bond with the same maturity, and par.

The Corporation has an extendable revolving unsecured

The $150.0 million 7.65% Series 2 unsecured

facility of $300.0 million (or US equivalent) with a

debentures mature October 27, 2010 and have an

syndicate led by a Canadian chartered bank. Advances

effective interest rate of 7.71% after taking into account

under the facility bear interest at the bank’s prime lending

deferred financing costs. The debentures are redeemable

rate, US base rate, US Libor plus applicable margin or

at any time at the option of the Corporation upon

Bankers’ Acceptance plus applicable margin. The

payment of a redemption price equal to the greater of an

applicable margin is dependent on the Corporation’s

amount calculated with reference to the yield on a

credit rating, which at December 31, 2000 resulted in a

Government of Canada bond with the same maturity,

margin of 0.75%. The facility is extendable annually at

and par.

The $27.7 million unsecured term financing facility with

the Export Development Corporation (EDC)

repayable in semi-annual installments, matures on

January 20, 2004 and bears interest at six-month US

Libor plus applicable margin. The margin is dependent

upon the Corporation’s credit rating, which at December
31, 2000 resulted in a margin of 0.8%.

the option of the lenders. Should this facility not be

extended, outstanding amounts will be transferred to a

two-year term facility repayable in equal quarterly

installments. As at December 31, 2000 the Corporation

had drawn $194.5 million under this facility, $100.0

million of which has been included in bank indebtedness

as the funds were used to finance working capital.

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C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

Equipment loans of $30.8 million bear interest at rates between 8.26% and 8.75% and are repayable in monthly installments.

These loans are secured by specific well servicing equipment.

Principal repayments over the next five years are as follows:

2001

2002

2003

2004

2005

SHARE CAPITAL:

$ 35,353

32,866

35,537

19,673

15,041

Authorized:
z unlimited number of non-voting cumulative convertible redeemable preferred shares without nominal or par value
z unlimited number of common shares without nominal or par value

The following is a summary of the changes in share capital:

Issued:

Common Shares:

Balance, December 31, 1998

Issued on acquisition of Computalog

Issued on acquisition of Underbalanced

Options exercised

Balance, December 31, 1999

Issued on acquisition of Plains

Issued on acquisition of CenAlta

Issued on acquisition of AQRIT assets

Options exercised

Warrants issued on acquisition of Plains

Warrants repurchased by the Corporation

Balance, December 31, 2000

Number

Amount

42,078,518

$ 504,541

4,031,441

217,158

835,902

106,107

5,716

11,559

47,163,019

$ 627,923

113,882

4,025,743

48,000

932,409

6,555

202,535

2,500

21,009

52,283,053

$ 860,522

22,897

(18,924)

$ 864,495

Each of the 351,604 warrants outstanding entitle the holder thereof to acquire one common share at an exercise price of

$64.00 at any time prior to 4:00 p.m. on December 31, 2001. The warrant holders were entitled to put the warrants to

Precision at any time prior to September 29, 2000 in return for $11.30 cash for each full warrant and holders of 1,674,671

warrants exercised their option to do so.

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C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

The Corporation has equity incentive plans under which a combined total of 5,208,823 options to purchase common shares

can be granted to employees and directors. Under these plans, the exercise price of each option equals the fair market value

of the Corporation’s stock on the date of the grant and an option’s maximum term is five years. Options generally vest over

a period of four years from the date of grant as employees or directors render continuous service to the Corporation.

A summary of the status of the equity incentive plans as at December 31, 1999 and 2000, and changes during the periods

then ended is presented below:

Outstanding at December 31, 1998

Granted
Exercised
Cancelled or expired

Outstanding at December 31, 1999

Granted
Exercised
Cancelled or expired

Outstanding at December 31, 2000

Options
Outstanding
3,370,600
1,718,540
(835,902)
(313,400)
3,939,838
1,615,474
(932,409)
(148,800)
4,474,103

Exercise Price
6.50 – 44.38
13.50 – 33.60
6.50 – 34.50
7.00 – 34.50
$ 13.50 – 44.38
25.50 – 54.20
13.50 – 34.50
16.30 – 40.25
$ 13.50 – 54.20

Range of Weighted Average
Exercise Price
15.89
$
28.12
13.87
24.21
25.57
39.51
22.53
28.55
31.18

Options
Exercisable
772,000

827,097

946,087

The range of exercise prices for options outstanding at December 31, 2000 are as follows:

Total Options Outstanding

Exercisable Options

Range of Exercise Prices:
$ 13.50 – 19.99
20.00 – 29.99
30.00 – 39.99
40.00 – 49.99
50.00 – 54.20
$ 13.50 – 54.20

EMPLOYEE BENEFIT PLANS:

Number
712,854
772,985
2,126,590
805,274
56,400
4,474,103

Weighted
Average
Weighted
Remaining
Average
Exercise Contractual
Life (Years)
2.2
2.0
3.6
4.6
4.5
3.3

Price
14.49
25.05
34.58
41.11
52.24
31.18

Weighted
Average
Exercise
Price
14.52
24.12
33.58
44.38
–
24.84

Number
301,904
282,658
346,525
15,000
–
946,087

The Corporation has a defined contribution employee benefit plan covering a significant number of its employees. The

Corporation matches individual employee contributions up to 5% of the employee’s compensation. Employer matching

contributions under the plan totalled $4.3 million for the year ended December 31, 2000 (year ended December 31, 1999

- $3.0 million).

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C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

COMMITMENTS:

The Corporation has commitments for operating lease agreements in the aggregate amount of $120.6 million. Payments
over the next five years are as follows:
2001
2002
2003
2004

$ 22,279
19,030
14,715
9,258

2005

Rent expense included in the statements of earnings is as follows:

Year ended December 31, 2000

Year ended December 31, 1999

INCOME TAXES:

8,314

$ 12,064

5,322

The provision for income taxes differs from that which would be expected by applying statutory rates. A reconciliation of

the difference is as follows:

Earnings before income taxes

Income tax rate

Expected income tax provision

Add (deduct):

Non-deductible expenses

Utilization of prior period losses

Non-deductible depreciation and amortization

Income taxed in jurisdictions with lower tax rates

Reduction of carrying amount of investments

Other

Reduction of future tax balances due to substantively enacted tax rate reductions

2000

209,411

45%

94,235

1,458

(1,828)

10,106

(5,869)

–

(317)

97,785

(19,934)

77,851

1999

88,136

45%

39,661

1,313

(1,657)

10,146

–

4,926

(503)

53,886

–

53,886

The Federal Government of Canada introduced tax rate reductions to be implemented over the next four years in its

February 28 and October 18, 2000 budgets. The effect of the combined 7% tax rate reduction, from 29% to 22%, on the

Corporation’s future tax balances has been reflected as a reduction of future tax expense in 2000.

The Corporation’s operations are complex and the computation of the provision for income taxes involves tax

interpretations, regulations and legislation that are continually changing. There are tax matters that have not yet been

confirmed by taxation authorities, however, management believes that the provision for income taxes is adequate.

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C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

The net future tax liability (1999 – deferred tax liability) is comprised of the tax effect of the following temporary

differences:

Liabilities:

Property, plant and equipment

Assets held in partnership with different tax year

Deferred financing costs

Assets:

Losses carried forward

Reserves

Share issue costs

2000

1999

220,364

87,371

67,332

3,358

19,522

3,859

291,054

$ 110,752

30,528

2,902

–

33,430

257,624

–

2,946

1,193

4,139

$ 106,613

10. EARNINGS AND FUNDS PROVIDED BY OPERATIONS PER SHARE:

Per share amounts have been calculated on the weighted average number of common shares outstanding. The weighted

average shares outstanding for the year ended December 31, 2000 was 48,722,141 (year ended December 31, 1999 –

44,499,837).

Fully diluted per share amounts reflect the dilutive effect of the exercise of the options and warrants outstanding. The fully

diluted shares outstanding for the year ended December 31, 2000 was 52,886,723 (year ended December 31, 1999 –

47,851,960). Earnings on the funds which would have been received on exercise of the options have been imputed at 5%

per annum.

11. SIGNIFICANT CUSTOMERS:

During the years ended December 31, 2000 and 1999, no one customer accounted for more than 5% of the Corporation’s

revenue.

12. ACQUISITIONS:

During the year ended December 31, 2000, the Corporation completed business acquisitions, the most significant of which

were:

(a) Acquisition of all the issued and outstanding shares of Plains Energy Services Ltd. (Plains) in July 2000. Plains provides

wireline, surface control systems, well servicing and contract drilling services to the oil and gas industry and engineers,

manufactures, sells and operates specialty products, tools and equipment.

(b) Acquisition of all the issued and outstanding shares of CenAlta Energy Services Inc. (CenAlta) in October 2000.

CenAlta provides equipment and crews for the servicing and drilling of oil and natural gas wells in western Canada.

(c) Acquisition of the global directional drilling and electromagnetic measurement while drilling business and associated

assets from Geoservices S.A. (Geoservices) in October 2000.

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C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

The acquisitions have been accounted for by the purchase method with results of operations of the acquired businesses

included in the financial statements from the effective dates of acquisition. The details of the acquisitions are as follows:

Plains

CenAlta

Geoservices

Other

Total

Net assets acquired at assigned values:

Working capital
Property, plant and equipment
Goodwill
Other assets
Long-term debt
Future income taxes

Consideration:

Common shares
Warrants
Cash

11,178
124,847
188,540
28
(42,535)
(4,755)
$ 277,303

6,555
22,897
247,851
$ 277,303

(2,240)
219,411
72,351
–
(50,725)
(34,262)
$ 204,535

$ 202,535
–
2,000
$ 204,535

6,717
85,500
–
–
–
–
92,217

–
–
92,217
92,217

18
17,401
7,972
–
–
–
25,391

2,500
–
22,891
25,391

15,673
447,159
268,863
28
(93,260)
(39,017)
$ 599,446

$ 211,590
22,897
364,959
$ 599,446

The following proforma information provides an indication of what the Corporation’s results of operations would have
been had Plains and CenAlta been acquired effective January 1, 2000:

Revenues
Earnings before goodwill amortization
Net earnings
Earnings per share before goodwill amortization:

Basic
Fully diluted
Earnings per share:

Basic
Fully diluted

2000
$1,546,431
129,692
99,304

2.50
2.37

1.91
1.83

During the year ended December 31, 1999 the Corporation completed several acquisitions, the most significant of which

were:

(a) Acquisition of all the issued and outstanding shares of Computalog Ltd. (Computalog) in July 1999. Computalog

provides electric wireline logging services and directional drilling services to the oil and gas industry and manufactures

and sells specialty products, tools and equipment.

(b) Acquisition of all the issued and outstanding shares of Underbalanced Drilling Systems Ltd. (Underbalanced) in July

1999. Underbalanced provides a service gas for use in underbalanced drilling applications.

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C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

The acquisitions have been accounted for by the purchase method with results of operations of the acquired entities

included in the financial statements from the effective dates of acquisition. The details of the acquisitions are as follows:

Net assets acquired at assigned values:

Working capital
Property, plant and equipment
Investments
Deferred financing costs
Goodwill
Long-term debt

Deferred income taxes

Consideration:

Common Shares
Carrying amount of Computalog shares

acquired prior to April 30, 1999

Carrying amount of investment

prior to January 1, 1999

Cash

(a)
(b)

Includes cash of $9,392
Includes cash of $100

Computalog Underbalanced

Other

Total

49,798(a)
82,628
3,204
321
55,518
(52,165)

(5,663)

133,641

106,107

23,070

–
4,464

(303)(b) $
7,149
–
–
–
(911)

–

5,935

5,716

–

–
219

133,641

5,935

(3)
10,716
–
–
655
(7,279)

(2)

49,492
100,493
3,204
321
56,173
(60,355)

(5,665)

4,087

$ 143,663

–

1,528
2,559

4,087

$ 111,823

23,070

1,528
7,242

$ 143,663

13. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:

These financial statements have been prepared in accordance with Canadian generally accepted accounting principles

(Canadian GAAP) which, in the case of the Corporation conform with United States generally accepted accounting

principles (US GAAP) in all material respects, except as follows:

(a)

Income taxes:

In 1999 the Corporation followed the deferral method of accounting for income taxes. In 2000 the Corporation

adopted the liability method as described in Note 1(h) without restatement of prior years. For 1999 and 2000 US

GAAP required the use of the liability method prescribed in the Statement of Financial Accounting Standards No. 109,

which substantially conforms with the Canadian GAAP accounting standard adopted in 2000. In 1999, adoption of

US GAAP would have increased both goodwill and future tax liability by $70.0 million. In 2000 the US GAAP

financial statements would reflect an increase of goodwill of $66.5 million and a corresponding increase in retained

earnings. An additional charge to earnings of $3.5 million would be required related to this goodwill.

Under Canadian GAAP, future tax liabilities and assets are calculated by reference to current tax legislation and

proposed legislation that is considered to be substantively enacted but not yet enacted into law. US GAAP requires that

only enacted income tax legislation be used for calculation of future tax amounts.

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

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C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

(b) Translation of foreign currency denominated debt:

Under Canadian GAAP, gains and losses on translation of foreign currency denominated debt are deferred and

amortized over the debt term. US GAAP requires that such gains and losses be included in the determination of

income.

The Corporation calculates its fully diluted earnings per share following the policy outlined in Note 10. US GAAP

requires the use of the treasury stock method for diluted per share amounts.

The application of the US accounting principles would have the following impact on the consolidated financial statements:

Consolidated Statements of Earnings

Years ended December 31,

Net earnings under Canadian GAAP
Adjustments under US GAAP:
Goodwill amortization
Income tax rate
Foreign currency translation

Net income and comprehensive income under US GAAP

Earnings per share under US GAAP:

Basic
Fully diluted

Balance Sheet

2000

1999

131,560

34,250

(3,502)
(19,934)
(210)

107,914

2.22
2.14

$
$

–
–
2,421

36,671

0.80
0.79

$
$

As at December 31,

2000

1999

Current assets
Property, plant and equipment
Goodwill
Other assets

Current liabilities
Long-term debt
Future income taxes

Deferred income taxes
Shareholders’ equity

As reported
533,257
$
1,287,932
550,502
16,445
$ 2,388,136
375,521
$
548,096
257,624

–
1,206,895
$ 2,388,136

US GAAP
$

533,257
1,287,932
617,032
16,235
$ 2,454,456
375,521
$
548,096
277,558

–
1,253,281
$ 2,454,456

As reported
354,510
$
761,589
304,400
13,367
$ 1,433,866
191,643
$
226,815
–

106,613
908,795
$ 1,433,866

US GAAP
354,510
$
761,589
374,432
15,788
$ 1,506,319
191,643
$
226,815
176,645

–
911,216
$ 1,506,319

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

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C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

Stock Compensation

Under Canadian GAAP, no compensation cost has been recognized for stock options in the financial statements. Under US

GAAP, the Corporation applied APB Opinion No. 25 in accounting for stock options and, accordingly, no compensation

cost is recognized in earnings. The per share weighted-average fair value of stock options granted during the year ended

December 31, 2000 was $18.21 (year ended December 31, 1999 - $8.66) on the date of grant using the Black Scholes

option-pricing model with the following assumptions: risk free interest rate of 6.0%, expected life of five years and expected

volatility of 61% (year ended December 31, 1999 – risk-free interest rate of 5%, expected life of five years and expected

volatility of 46%).

Had the Corporation determined compensation cost based on the fair value at the date of grant for its stock options under

SFAS 123, net earnings in accordance with US GAAP would have decreased by $16.8 million to $91.2 million (basic EPS -

$1.87) for the year ended December 31, 2000 and decreased by $6.3 million to $27.9 million (basic EPS - $0.63) for the year
ended December 31, 1999. These pro forma earnings reflect compensation cost amortized over the options’ vesting period.

Comprehensive Income

Comprehensive income is equal to net earnings.

14. SEGMENTED INFORMATION:

The Corporation operates in three industry segments. Contract Drilling Services, which provides drilling services and well

servicing rigs, Oilfield Specialty Services, which includes well testing, underbalanced drilling, wireline and directional

drilling services and the manufacture and sale of wireline tools and equipment, and Rental and Production Services, which

includes compression equipment design, packaging, sales and service, oilfield equipment rental services, industrial

equipment rentals (to February 18, 1999) and other industrial process services.

Contract
Drilling
Services

743,544
212,633
–
58,194
1,376,007
97,498

429,848
97,864
–
40,036
827,412
27,670

Oilfield
Specialty
Services

Rental and
Production
Services

Corporate
and Other

372,425
30,620
20,288
27,969
718,680
78,468

125,954
6,796
3,629
12,305
345,492
9,138

$ 239,220
43,289
–
13,995
203,113
21,828

$ 178,938
19,705
–
14,575
188,524
15,800

264
(25,697)
–
1,142
90,336
3,210

–
(6,871)
–
312
72,438
3,509

Total

$ 1,355,453
260,845
20,288
101,300
2,388,136
201,004

$ 734,740
117,494
3,629
67,228
1,433,866
56,117

2000
Revenue
Operating earnings
Research and engineering
Depreciation
Assets
Capital expenditures*

1999
Revenue
Operating earnings
Research and engineering
Depreciation
Assets
Capital expenditures*

* excludes acquisitions

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C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

The Corporation’s operations are carried on in the following geographic locations:

2000
Revenue
Assets

1999
Revenue
Assets

15. FINANCIAL INSTRUMENTS:

Domestic

International

Total

$ 1,105,183
2,048,219

$ 250,270
339,917

$ 1,355,453
2,388,136

$ 615,222
1,271,228

$ 119,518
162,638

$ 734,740
1,433,866

The carrying value of cash, investments in short-term commercial paper, accounts receivable, accounts payable and accrued

liabilities approximate their fair value due to the relatively short period to maturity of the instruments. The fair value of

long-term debt, exclusive of the unsecured debentures, approximates its carrying value as it bears interest at floating rates.

The $200 million Series 1 debentures have a fair value of approximately $199.5 million as at December 31, 2000

(December 31, 1999 - $191.8 million) and the $150 million Series 2 unsecured debentures have a fair value of

approximately $152.6 million at December 31, 2000. Investments have a carrying value of $7.3 million (December 31,

1999 - $7.4 million) and a fair value of approximately $12.0 million (December 31, 1999 - $7.4 million) as at December

31, 2000.

Accounts receivable includes balances from a large number of customers. The Corporation assesses the credit worthiness of

its customers on an ongoing basis as well as monitoring the amount and age of balances outstanding. Accordingly, the

Corporation views the credit risks on these amounts as normal for the industry. At December 31, 2000 the Corporation’s

allowance for doubtful accounts was $8.2 million (December 31, 1999 - $6.6 million).

The Corporation manages its exposure to interest rate risks through a combination of fixed and floating rate borrowings.

As at December 31, 2000, 34% of its total long-term debt was in floating rate borrowings.

The Corporation is exposed to foreign currency fluctuations in relation to its international operations, however,

management believes this exposure is not material to its overall operations.

16. SUPPLEMENTAL CASH FLOW INFORMATION:

Cash interest paid
Cash income taxes paid
Components of change in non-cash working capital balances:

Accounts receivable
Inventory
Accounts payable and accrued liabilities
Income taxes payable

2000
29,504
34,771

$ (120,686)
(6,391)
64,479
1,610
(60,988)

1999
16,663
120,238

$ (48,414)
(4,927)
16,072
(24,950)
$ (62,219)

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

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C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

The components of accounts payable and accrued liabilities are as follows:

Accounts payable
Accrued liabilities:

Payroll
Other

17. CONTINGENCIES:

2000

1999

68,903

40,494

50,522
108,123
227,548

25,959
63,313
$ 129,766

The Corporation, through the performance of its services and product sales obligations, is sometimes named as a defendant

in litigation. The nature of these claims is usually related to personal injury, completed operations or product liability. The

Corporation maintains a level of insurance coverage deemed appropriate by management and for matters for which

insurance coverage can be maintained. The Corporation has no outstanding claims having a potentially material adverse

effect on the Corporation as a whole.

18. SUBSEQUENT EVENT:

In January 2001, the Corporation acquired BecField Drilling Services Ltd. (BecField) for cash consideration of $30.0

million. BecField provides directional drilling and measurement while drilling services through its technical field and

support personnel to the onshore and offshore oil and gas industry. It has established operations in Europe and the Middle

East.

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

S O L I D

PDar01DR10 3/28/01 3:02 PM Page 73

Canadian...

– you bet! – and proud of
our global presence!

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

C A N A D I A N

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H O W W E ’ V E P E R F O R M E D

SHARE TRADING SUMMARY — THE TORONTO STOCK EXCHANGE

Canadian

2000

March 31

June 30

September 30

December 31

1999

March 31

June 30

September 30

December 31

High

($)

Low

($)

Volume

of Shares

Value

($)

48.95

59.50

59.00

57.15

59.50

21.50

30.75

40.60

39.45

40.60

33.90

43.80

47.90

39.30

33.90

13.25

18.45

27.05

28.25

13.25

48.55

57.20

53.85

56.25

19.50

28.00

34.00

37.00

15,684,504

643,952,179

15,846,874

851,428,913

13,604,034

731,986,873

15,461,804

747,323,156

60,597,216

2,974,691,121

13,718,204

234,035,097

14,673,427

384,072,934

14,029,216

487,923,911

8,875,591

294,174,872

51,296,438

1,400,206,814

SHARE TRADING SUMMARY — THE NEW YORK STOCK EXCHANGE

2000

March 31

June 30

September 30

December 31

1999

March 31

June 30

September 30

December 31

High

($)

Low

($)

Volume

of Shares

Value

($)

33.75

40.38

39.56

37.94

40.38

14.00

21.13

27.75

26.94

27.75

23.31

29.38

32.38

25.56

23.31

8.81

12.31

18.38

19.13

8.81

33.38

38.63

35.63

37.53

13.00

19.06

23.19

25.69

14,504,500

416,080,112

14,323,200

512,362,421

12,586,000

455,927,521

15,878,300

491,100,502

57,292,000

1,875,470,556

4,453,900

50,536,487

7,252,400

126,663,654

9,008,500

212,591,281

9,422,900

212,297,850

30,137,700

602,089,272

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

C A N A D I A N

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H O W W E ’ V E P E R F O R M E D

STATEMENTS OF EARNINGS AND RETAINED EARNINGS

($ millions except per share amounts)

Revenue
Expenses:

Operating
General and administrative
Depreciation
Research and engineering

Operating earnings
Interest, net
Gain on disposal of subsidiary and investments
Reduction of carrying amount of investments
Reduction of carrying amount of property,

plant and equipment
Forgiveness of long-term debt
Dividend income
Earnings before taxes, goodwill amortization

and minority interest

Income taxes
Earnings before goodwill amortization

and minority interest

Goodwill amortization
Earnings before minority interest
Minority interest
Net earnings
Retained earnings, beginning of period
Adjustment on adoption of liability method of

accounting for income taxes

Adjustment on purchase and cancellation of share capital
Retained earnings, end of period

Earnings before goodwill amortization
and minority interest per share:

Basic ($)
Fully diluted ($)

Earnings per share:
Basic ($)
Fully diluted ($)

Years ended
December 31

2000

1,355.5

870.2
102.9
101.3
20.3
260.8
28.6
–
–

–
–
–

232.2
77.9

154.3
22.7
131.6
–
131.6
280.9

(70.1)
–
324.4

3.17
2.98

2.70
2.55

1999

734.7

488.0
58.4
67.2
3.6
117.5
16.5
(26.3)
13.1

10.2
–
–

104.0
53.9

50.1
15.8
34.3
–
34.3
246.6

–
–
280.9

1.13
1.09

0.77
0.76

Years ended
April 30
1995

178.6

122.4
12.1
9.8
–
34.3
1.5
–
–

–
–
0.7

33.5
16.4

17.1
–
17.1
0.2
16.9
20.7

–
(0.2)
37.4

1.04
0.95

1.03
0.94

1999

693.9

450.1
51.1
61.1
–
131.6
18.9
(34.8)
11.0

10.2
–
–

126.3
58.0

68.3
14.9
53.4
–
53.4
206.9

–
–
260.3

1.62
1.56

1.27
1.22

8 months
ending
Dec. 31
1985

4.0

3.3
0.3
0.2
–
0.2
–
–
–

–
–
–

0.2
0.1

0.1
–
0.1
–
0.1
–

–
–
0.1

0.01
n/a

1990

31.7

24.7
3.9
1.1
–
2.0
1.2
–
–

5.1
(5.2)
–

0.9
–

0.9
–
0.9
–
0.9
5.7

–
–
6.6

0.08
n/a

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

C A N A D I A N

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H O W W E ’ V E P E R F O R M E D

ADDITIONAL SELECTED FINANCIAL DATA

($ millions except per share amounts)

2000

1999

Years ended
December 31

Years ended
April 30
1995

Returns

Return on sales (1)
Return on assets (2)
Return on equity (3)

Financial position

Working capital
Current ratio
Net fixed assets
Total assets
Long–term debt
Shareholders’ equity
Long–term debt to shareholders’ equity
Net capital expenditures excluding acquisitions
EBITDA (4)
EBITDA – % of sales
Operating earnings
Operating earnings – % of sales
Cash flow (5)
Cash flow per share ($)
Depreciation

Common share data

Book value per share ($) (6)
Earnings per share ($) (7)

Price earnings ratio (8)
Weighted average common shares outstanding (000’s)

9.7%

7.5%

13.5%

157.7

1.42

1,287.9

2,388.1

548.1

1,206.9

0.45

180.5

362.1

26.7%

260.8

19.2%

297.9

6.11
101.3

24.75

2.70

20.8

48,772

1990

2.8%
3.2%
7.0%

3.8
1.53
15.7
27.4
5.6
12.7
0.44
1.1
3.1
9.8%
2.0
6.2%
2.0
0.18
1.1

8 months
ending
Dec. 31
1985

3.0%
3.7%
8.7%

0.1
1.05
2.9
4.8
0.8
2.1
0.37
1.4
0.4
10.8%
0.2
5.7%
0.4
0.04
0.2

0.23
0.01
–
9,006

4.7%
2.6%
4.2%

7.7%
9.5%
9.3% 14.7%
15.9% 29.1%

162.9
1.85
761.6
1,436.3
226.8
908.8
0.25
41.1
184.9
25.2%
117.5
16.0%
100.0
2.25
67.2

8.4
91.2
1.21
1.54
66.8
683.5
119.1
1,247.7
1.4
215.0
67.0
768.3
0.02
0.28
11.8
88.3
192.7
44.1
27.8% 24.7%
34.3
131.6
19.0% 19.2%
28.3
1.73
9.8

78.0
1.85
61.1

20.42
0.77
48.1
44,500

18.26
1.27
19.8
42,086

4.09
1.03
6.7
16,398

1.14
0.08
17.4
11,218

(1) Return on sales was calculated by dividing net earning by total revenues
(2) Return on assets was calculated by dividing net earnings by average total assets
(3) Return on equity was calculated by dividing net earnings by average total shareholders’ equity
(4) Earnings before interest, taxes, depreciation and amortization
(5) Funds provided from operations excluding forgiveness of debt for 1990 and funds provided from operations combined with dividend income
(6) Book value per share was calculated by dividing shareholders’ equity by total weighted average number of common shares outstanding
(7) Earning per share was calculated by dividing net earnings by the total weighted average number of common shares outstanding
(8) Year end closing price divided by basic earnings per share

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

C A N A D I A N

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W H O W E A R E A N D H O W T O F I N D U S

HEAD OFFICE

Precision Drilling Corporation

Oilfield Specialty Services – Latin America

P.D. Technical Services Ltd.

4200, Petro-Canada Centre
150-6th Avenue SW
Calgary, Alberta T2P 3Y7
Telephone: (403) 716-4500
Facsimile: (403) 264-0251
Website: www.precisiondrilling.com

Av. la Estancia

2nd Floor Trident House,

Centro Ciudad Comercial Tamanaca

Broad Street, Bridgetown,

Torre B, Piso 1, Oficina B105

Barbados, West Indies

Chuao, Caracas, Venezuela

Codigo Postal 1064

Telephone: 58-212-959-9906

Telephone: (246) 228-4293

Facsimile: (246) 426-5992

Precision Drilling de Venezuela, C.A.

INTERNATIONAL OFFICES

Oilfield Specialty Services – Middle East

Avenida Intercomunal El Tigre-El Tigrito

Oilfield Specialty Services – Asia Pacific

Jakarta Stock Exchange Building

Tower 2, 23rd Floor, Suite 2303A

JL. Jend. Suidirman Kav 52-53

Jakarta, 12910 Indonesia

Telephone: 62-21-7883-5381

Facsimile: 62-21-7883-5383

Oilfield Specialty Services – Europe/Africa

Eddesser Strabe 1

31234 Edemissen, Germany

Telephone: 49-5176-9896-11

Facsimile: 49-5176-9896-12

P.O. Box 2146

Al Lado de American Diesel,

Abu Dhabi, United Arab Emirates

El Tigre, Estado Anzoategui, Venezuela

Telephone: 00971-2-6449966

Telephone: 58-2832-412701

Facsimile: 00971-2-6442765

Facsimile: 58-2832-412822

PD Holdings (USA) Inc.

Suite 1700

Precision Drilling International

4400, 150-6th Avenue SW

363 N. Sam Houston Parkway East

Calgary, Alberta T2P 3Y7

Houston, Texas 77060, US

Telephone: (281) 260-5600

Facsimile: (281) 260-5670

Telephone: (403) 716-4500

Facsimile: (403) 716-4867

MAJOR SUBSIDIARIES, DIVISIONS AND OPERATIONS MANAGEMENT

Advantage Engineering Services, Inc.

Ducharme Oilfield Rentals

Fleet Coil Technologies (U.S.) Corp.

Mike Larronde

President

CEDA International Corporation

Roger Hearn

Senior Vice President

Columbia Oilfield Supply Ltd.

Martin Byar

General Manager

Computalog Ltd.

Neil Brown

President

Big D Rentals

Gordon Skulmoski

Vice President, General Manager

Energy Industries Inc.

Ivan Heidecker

General Manager

Fleet Cementers, Inc.

Tim Dame

President

Kyle Swingle

President

Live Well Service

Larry MacPherson

General Manager

LRG Catering Ltd.

Doug White

General Manager

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

C A N A D I A N

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W H O W E A R E A N D H O W T O F I N D U S

MAJOR SUBSIDIARIES, DIVISIONS AND OPERATIONS MANAGEMENT (Continued)

Northland-Norward Energy Services

Plains Perforating Ltd.

Precision Drilling Limited Partnership

Entest

Carel Hoyer

President

Challenger/Silverline

Chris Oddy

President

Oilfield Specialty Services

Polar Completions Engineering Inc.

Kurt Beilner

John Nash

Regional Director of Operations

President, Sales and Operations

Vitold Serafin

President, Engineering and

Manufacturing

Precision Drilling International

Mark Helmer

Vice President

Precision Drilling de Venezuela, C.A.

David Hobbs

President

Europe/Africa

Marwan Bitar

Regional Director of Operations

Middle East

Jerry Dugas

Regional Director of Operations

Latin America

John Mahar

Regional Director of Operations

Dan Robson

Regional Director of Operations

Asia Pacific

Dwayne Peters

Senior Vice President

Ron Berg

Vice President

Doug Evasiuk

Vice President

John Jacobsen

Vice President

Precision Well Servicing

Marv Clifton

Senior Vice President

Rostel Industries Ltd.

Yook Tong

General Manager

Smoky Oilfield Rentals

Tom Facette

Vice President, General Manager

United Diamond Ltd.

Ian Gillis

President

BANKER

LEGAL COUNSEL

AUDITORS

Royal Bank of Canada

Calgary, Alberta

Borden Ladner Gervais llp

Calgary, Alberta

KPMG LLP

Calgary, Alberta

P R E C I S I O N D R I L L I N G C O R P O R A T I O N

C A N A D I A N

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W H O W E A R E A N D H O W T O F I N D U S

DIRECTORS

W.C. (Mickey) Dunn (1)

Edmonton, Alberta

Robert J. S. Gibson (1) (2)

Calgary, Alberta

Steven C. Grant (2)

Houston, Texas

OFFICERS

Hank B. Swartout

Chairman of the Board,

Murray K. Mullen (3)

Calgary, Alberta

Brian E. Roberts (3)

Calgary, Alberta

Hank B. Swartout

Calgary, Alberta

Larry J. Comeau

Senior Vice President

President and Chief Executive Officer

Oilfield Specialty Services

Dale E. Tremblay

W. Bruce Herron

Senior Vice President Finance

Senior Vice President

and Chief Financial Officer

Rental and Production Services

H. Garth Wiggins (1)

Calgary, Alberta

(1) Audit Committee Member
(2) Compensation Committee Member
(3) Corporate Governance
Committee Member

M.J. (Mick) McNulty

Vice President Finance

Jan M. Campbell

Corporate Secretary

STOCK EXCHANGE LISTINGS

SHARE SPLIT

TRADING PROFILE

Common shares of Precision

In 1997, Precision’s Board of Directors

Toronto

Drilling Corporation are listed on

The Toronto Stock Exchange under

the trading symbol PD and on the

New York Stock Exchange under the

trading symbol PDS.

Warrants of Precision Drilling

Corporation are listed on The

Toronto Stock Exchange under

the trading symbol PD.WT.

authorized a two for one split of the

January 1, 2000 to December 31, 2000

Corporation’s common shares.

The record date for the split was

High:

$59.50

Low:

$33.90

September 30, 1997.

Volume traded – 60.6 million

New York

January 1, 2000 to December 31, 2000

High: US$40.38

Low:

US$23.31

Volume traded – 57.3 million

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W H O W E A R E A N D H O W T O F I N D U S

SHAREHOLDER INFORMATION

As a Precision Drilling Corporation shareholder, you are invited to take advantage of shareholder services or to request more

information about the Corporation.

TRANSFER AGENT AND REGISTRAR

Shareholders of record who receive

ESTIMATED INTERIM RELEASE DATES

Computershare Trust Company of Canada

more than one copy of this annual

Calgary, Alberta

TRANSFER POINT

Computershare Trust Company, Inc.

New York, New York

ACCOUNT QUESTIONS

report can contact our Transfer Agent

and arrange to have their accounts

consolidated. Shareholders who own

Precision shares through a brokerage

firm can contact their broker to request

consolidation of their accounts.

Our Transfer Agent can help you with

QUARTERLY UPDATES

2001 First Quarter

May 9, 2001

2001 Second Quarter

August 8, 2001

2001 Third Quarter

November 8, 2001

ANNUAL MEETING

a variety of shareholder related services,

If you would like to receive quarterly

including:

reports but are not a registered

The Annual General and Special Meeting

of the Shareholders of Precision Drilling

z Change of address
z Lost share certificates
z Transfer of stock to another person
z Estate Settlement

shareholder, please write or call us with

Corporation will be held in the

your name and address. To receive our

McMurray Room of the Calgary

news releases by fax, please forward your

Petroleum Club, 319-5th Avenue SW,

fax number to us. To receive our news

Calgary, Alberta at 3:30 p.m. (Calgary

releases by e-mail, please visit our website

time) on Tuesday, May 15, 2001.

You can call our Transfer Agent

at www.precisiondrilling.com and refer to

Shareholders are encouraged to attend

toll free at: 1-800 558 0046

the Investor Relations section.

You can write them at:

ONLINE INFORMATION

Computershare Trust Company of Canada

Anyone with access to the Internet can

and those unable to do so, are requested

to complete the Form of Proxy at their

earliest convenience.

600, 530-8th Ave. SW

Calgary, Alberta T2P 3S8

Or you can email them at:

caregistryinfo@computershare.com

view this annual report electronically at

www.precisiondrilling.com

PUBLISHED INFORMATION

If you wish to receive copies of the 2000

Renewal Annual Information Form, or

additional copies of this annual report,

please contact:

Corporate Secretary

Precision Drilling Corporation

4200, 150-6th Avenue SW

Calgary, Alberta T2P 3Y7

Telephone: 403-716-4500

Fax: 403-264-0251

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O U R G U I D A N C E A N D S U P P O R T

Our Officers: from left to right Michael J. McNulty, Vice President Finance; Hank B. Swartout, Chairman,

President and Chief Executive Officer; W. Bruce Herron, Senior Vice President Rental and Production

Services; Dale E. Tremblay, Senior Vice President Finance and Chief Financial Officer; Jan M. Campbell,

Corporate Secretary; Larry J. Comeau, Senior Vice President Oilfield Speciality Services.

Our Board of Directors: from left to right back row W. C. (Mickey) Dunn; Murray K. Mullen; Brian E.

Roberts; H. Garth Wiggins; Robert J. S. Gibson. Seated front row Hank B. Swartout; Steven C. Grant.

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P R E C I S I O N D R I L L I N G C O R P O R A T I O N

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P
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4200, PETRO-CANADA CENTRE, 150-6TH AVENUE S.W., CALGARY, ALBERTA T2P 3Y7

TELEPHONE: (403) 716-4500 FACSIMILE: (403) 264-0251

Website: www.precisiondrilling.com