Precision Drilling Corporation Annual Report 2002

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FY2002 Annual Report · Precision Drilling Corporation

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innovative

Development

s t r a t e g i c

Deployment

2002 ANNUAL REPORT

Contents

Company Profile

Financial Performance Summary

Disclosure Regarding Forward-Looking

Statements

Report of the Chief Executive Officer

11 Report on Technology

12 From Fort Worth, Texas, to Yemen

14 From Houston, Texas, to

Mexico’s Burgos Basin and the North Sea

18 From Calgary, Alberta,

to northwestern Alberta and Indonesia

22 From Edmonton, Alberta,

to the Fort McMurray oil sands

24 From Nisku, Alberta, to Veracruz, Mexico

26 From Cheltenham, England,

to Mexico’s Burgos Basin

28 From Hannover, Germany,

to Cold Lake, Alberta

30 The Precision Group of Companies

32 Health, Safety and the Environment

37 Management’s Discussion and Analysis

50 Financial Reporting

74 Corporate Governance

77 Shareholder Information

Glossary

Annual Meeting

The Annual and Special Meeting of the Shareholders
of Precision Drilling Corporation will be held in the
McMurray Room of the Calgary Petroleum Club,
319-5th Avenue SW, Calgary, Alberta, Canada,
at 3:00 p.m. (Calgary time) on May 13, 2003.

Shareholders are encouraged to attend and those
unable to do so are requested to complete the Form
of Proxy at their earliest convenience.

Profile

P r e c i s i o n

Precision Drilling Corporation is an international oil and gas service company that provides a

comprehensive range of services, new and innovative technology, and superior customer service to the

energy industry around the world.

Headquartered in Calgary, Alberta, Canada, we have built on our success as a leader in the Canadian

drilling service industry to include operations on six continents, with regional centers serving Canada, the

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

Through our Contract Drilling Group, Technology Services Group, and Rental and Production Group, we

provide drilling and service rigs; drilling and completion services; open hole and cased hole wireline

services; controlled pressure drilling; sophisticated downhole tools; logging-while-drilling systems;

directional drilling services; drill bit and tool manufacturing; drilling, completion, and production rental

equipment; and industrial maintenance services.

In 2002, Precision launched the first of a new generation of sophisticated drilling and formation

evaluation tools designed to meet the tough technological challenges of offshore, hostile environments and

high-cost exploration and development.

With these tools, we are taking our Corporation to a new level of technical excellence for the world’s

energy industry, and opening up new potential for profitability and success for both our customers and

our Corporation.

Historical

Information

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

Years ended December 31,

2002

2001

%
Increase
(Decrease)

Revenue
Operating earnings (1)
Cash flow (2)

Per share

Earnings before goodwill amortization

Per share

Net earnings

Per share
Shareholders’ equity
Per share

Net capital expenditures (3)
Long-term debt (4)
Number of shares outstanding, end of year (000’s)

(1) Refer to explanation on page 37 of this annual report.
(2) Funds provided by operations.
(3) Excludes business acquisitions.
(4) Excludes current portion of long-term debt.

$1,689,150

159,021

194,771

3.55

91,265

1.66

91,265

1.66

1,533,000

28.35

239,543

514,878

54,067

$1,953,563
381,632
465,673
8.59
218,319
4.03
186,534
3.44
1,415,979
26.63
340,691
496,200
53,176

(14)
(58)
(58)
(59)
(58)
(59)
(51)
(52)
8
6
(30)
4
2

%
Increase
(Decrease)

44
48
56
45
43
33
43
33
17
15
89
(9)
2

2000

$1,355,453
258,214
297,873
5.91
152,874
3.03
130,113
2.58
1,206,780
23.08
180,484
548,096
52,283

Share Performance TSX

Share Performance NYSE

Value of Shares Outstanding
$ Millions

200

150

100

PD
TSX

200

150

100

PDS
S&P
OSX

3000

2500

2000

1500

1000

500

April 30

December 31

April 30

December 31

April 30

December 31

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

Year ended December 31, 2002

Year

Revenue
Operating earnings (1)
Cash flow (2)

Per share

Earnings before goodwill amortization

Per share

Net earnings

Per share

$ 566,114 $ 345,954 $ 382,830 $ 394,252 $ 1,689,150
159,021
194,771
3.55
91,265
1.66
91,265
1.66

114,911
117,273
2.16
66,829
1.23
66,829
1.23

23,626
25,490
0.46
12,246
0.22
12,246
0.22

14,717
40,051
0.73
8,863
0.16
8,863
0.16

5,767
11,957
0.22
3,327
0.06
3,327
0.06

Year ended December 31, 2001

Year

Revenue
Operating earnings (1)
Cash flow (2)

Per share

Earnings before goodwill amortization

Per share

Net earnings

Per share

613,655 $ 409,917 $ 474,016 $ 455,975 $ 1,953,563
381,632
90,287
159,538
465,673
109,978
170,345
8.59
2.05
3.12
218,319
49,588
88,009
0.92
1.61
4.03
186,534
41,648
80,059
3.44
0.77
1.47

58,024
92,066
1.68
39,053
0.71
31,123
0.57

73,783
93,284
1.74
41,669
0.78
33,704
0.63

(1) Refer to explanation on page 37 of this annual report.
(2) Funds provided by operations.

Revenue
$ Millions

Cash Flow
Dollars per share diluted

Earnings
Before Goodwill Amortization
Dollars per share diluted

2000

1500

1000

500

April 30

December 31

April 30

December 31

April 30

December 31

Disclosure Regarding Forward-looking Statements

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

“could”, “should”, “expect”, “estimate”, “likely”, “believe”, “will” and similar expressions and statements relating

to matters that are not historical facts are forward-looking statements including, but not limited to, 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 marketshare 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, performance

and achievements 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, including stock market volatility; 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.

Performing Under

P r e s s u r e

Report of the Chief Executive Officer

TO OUR SHAREHOLDERS, EMPLOYEES, CUSTOMERS AND ASSOCIATES:

In many ways, 2002 was a transition year for Precision Drilling Corporation.

Our vision to develop new, innovative measurement-while-drilling (MWD) and logging-while-drilling (LWD)

tools through the Advantage R & D team progressed through the development phase to deployment, marking a

significant milestone in our five-year strategic plan. We can be proud of this accomplishment, but must

acknowledge that it was not without cost. The commercialization occurred somewhat later than our plan

demanded and the financial results of our Technology Services group suffered accordingly. We remain firm in

our belief that the continued commercialization of these tools will take our Corporation to a new level of

technical excellence and enhance Precision’s ability to profit in the high-margin international drilling technology

marketplace.

The environment in which our Corporation operated also went through a shift, from high activity levels in

North America during 2001 to declining utilization throughout 2002. It was not until December that the Canadian

marketplace experienced a reversal of this trend.

The Contract Drilling group again demonstrated its resilience and ability to reduce costs in the face of a down

market by managing the transition from one extreme to another. They once again underscored their position as

the backbone of the organization, using a simple philosophy of managing costs in line with revenue. They

maintained their position as the premier drilling contractor in Canada, drilling 6,315 wells or over 42% of all

wells drilled, and continued to take a leadership position in safety and technical matters both inside the

organization and in the industry.

As we enter 2003, our Corporation finds

itself on much firmer ground. The rollout of

our new technologies has become reality. Our

internal processes and our cost consciousness

have been strengthened. The outlook for

increased activity within the industry looks

bright, particularly in North America — and

our core businesses remain in a strong

position to profit from a re-energized market.

PERFORMANCE ANALYSIS

There were a number of factors that had

an impact on the Corporation and the

industry in 2002. Allegations of energy

market manipulation and corporate wrong-

doing, political unrest in South America,

global recession, and the looming possibility

Rig 709
The story of Rig 709 is unique in the history of Precision’s

technological and geographical growth, as well as being

representative of the Corporation’s roots. Originally

developed in 1991 to drill in the slant mode under a lake to

reach known oil reserves, it was redesigned in 1996 to

incorporate pull-down capabilities for the pioneering of

SAGD wells in northern Alberta. It traveled to Kazakhstan in

2000 for a 30 well specialized drilling project, then returned

to Canada’s East Coast for a three well project. In 2002, the

rig returned to the eastern hemisphere and is in the process

of drilling its sixth well in India, where its mobility, size,

top-drive, slant capabilities and safety features are

delivering value to another Precision client.

of war in the Middle East were just a few of the external economic and geopolitical issues that overshadowed

the year. In Canada, the federal government’s ratification of the Kyoto Accord resulted in the re-examination of

near and long-term business investment decisions in almost all industry sectors.

Regardless of how such uncontrollable events unfold, our business has traditionally been driven by one single

factor - commodity prices. Yet 2002 was not a typical year. Uncertainty was pervasive around the world and our

activity did not follow the trend expected from the movement in commodity prices.

In North America, Precision’s main market, commodity prices went through a dramatic shift. High drilling

activity levels in 2001 were followed by a marked decrease in activity throughout 2002. At the same time, sharp

declines in oil and gas prices late in 2001 were followed by a relatively quick recovery in 2002 – but this recovery

did not result in more drilling activity, as would be expected. Rig utilization in Canada did not begin to climb

until December 2002.

There is much speculation as to why our customers did not resume drilling activities in the latter half of 2002.

Some of the theories put forward include uncertainty about whether or not commodity prices and markets would

be sustained, the desire for operators to repair balance sheets and pay down debt, the fact that many were

entrenched in reorganizations, and the integration of recent acquisitions. Also, with the growing number of income

trusts, cash flows were increasingly diverted from operational investments to make distributions to unitholders.

Whatever the causes, the slump in drilling activity in North America was a primary reason why Precision was

unable to sustain the progressive increase in revenues that has characterized recent years. Our Corporation was

able to realize its second-highest-ever revenues: $1.7 billion compared to the record-breaking $2.0 billion achieved

in 2001. But in the area that the Corporation prides itself, profitability, we disappointed our shareholders. Earnings

per share were $1.66, down significantly from $4.03 per share in Precision’s record 2001 year.

The Rental and Production segment performed well in a highly competitive market. It maintained its revenue

year-on-year at $274 million and showed a small decline in operating earnings of only $8 million. Our Contract

Drilling division performed extremely well under the circumstances. They experienced a revenue decline of $236

million to $774 million, but managed to shave costs

significantly and recorded a drop in operating earnings of

only $115 million, finishing the year with a profit of $183

million. The reductions were due entirely to the decline in

Canadian drilling. This was a major factor for Precision’s

Technology Services as well, but the disappointing results of

that group were impacted by a number of other issues, some

of which deserve attention here.

GROWING TECHNOLOGY SERVICES

During 2002, our main strategy was to support the rollout

of our new MWD/LWD technologies and establish brand

recognition for Precision on a global basis. We recognized this

was a significant challenge for the Corporation as we

attempted to enter markets that had been dominated by a

handful of large multi-national service companies.

Because our international operations were in the start-up

phase, it was clear that additional costs would be incurred to

prepare for the planned early commercialization of the technology developed. These difficulties were

compounded by a weak drilling market worldwide. On reflection, we underestimated the magnitude of the

challenge and the fierce pricing pressure with which we would be faced. Most significantly, we also encountered

delays in bringing the new technology to market as fast as we needed it.

The result was a disappointing financial performance for the Technology Services group. Revenue dropped

only $30 million from 2001 to $639 million, but our operating earnings fell by close to $100 million, to a loss

of $41 million. In Canada, revenues were down $63 million while operating earnings declined by $38 million to

$7 million. In the U.S., where we faced lower activity levels, the decision was made not to pare costs, but to

maintain and continue our investment to be ready for the upturn. In hindsight, this was a mistake. Revenues

declined $62 million and operating earnings dropped $60 million to a loss of $25 million.

Internationally, we experienced a significant increase in our marketshare as we grew revenue by

approximately $95 million. Unfortunately, this aggressive revenue growth was matched by increases in

operating, administration and depreciation costs as we continued to build our international infrastructure. The

result was no appreciable change in earnings for the year.

We recognize that getting to the deployment stage of our new technologies has involved a considerable

investment for our Corporation in a relatively short period of time. We have learned a tremendous amount in the

last 12 months and have recognized our mistakes, but we are also firmly committed to our strategy. We will

continue with the commercialization of our new tools as our highest priority. This is the cornerstone of our plan

to establish ourselves as a global oilfield service player and provide the long-term returns expected by our

shareholders.

We will not, however, pursue a “growth at all costs” strategy. In 2003, Precision is focused on profitable

growth in areas where we can obtain premium returns. In the first quarter of 2003, we have already completed

a review of our cost structure and have made a number of cuts in the global organization. Management changes

have been made that reflect our transition to a focused, cost-control environment. Our Technology Services group

has now been restructured and the direction is clear: return on investment comes first.

LOOKING AHEAD

We are optimistic about the immediate future, especially in

the Canadian marketplace.

We expect a significant turnaround in drilling activity in

North America in 2003, perhaps to levels as high as those

achieved in 2001. The reason is simple. While oil is the fuel of

choice on a global basis, natural gas is a significant and growing

energy source for the North American economy. In 2002, we

went from a situation where gas storage was full to now being

at its lowest levels in five years. Reserves must be added, and

quickly. By early 2003, we had already seen heightened activity,

which we expect to continue well into 2004.

This is good news for all of Precision’s product lines. We

expect Contract Drilling to be operating flat-out in Canada in

2003. Our leading-edge technology and fleet of specialized

rigs will continue to give us a competitive edge in making the

most of today’s drilling environment. Our advanced coiled

tubing technology has helped us capitalize on the preference for shallow gas drilling in the Western Canadian

Sedimentary Basin. Our fleet of deep drilling rigs is the largest in Canada, while our expertise in specialized

drilling services for Steam Assisted Gravity Drainage (SAGD) projects, which we helped pioneer, is ideal for

clients developing the heavy oil and oil sands of northern Alberta.

Restructured and re-focused, the Technology Services team is poised to have a very successful year, especially

in Canada and the United States. Their new tools will continue to roll out to our regional centers throughout

2003 and we believe we will start to demonstrate to our customers the superior performance of our technology.

Our new PrecisionLWD™ system, designed to operate at depths and in hostile environments where traditional

tools cannot operate, has performed beyond expectations in field tests. We are also very excited about the new

4 3/4 in. Revolution™ rotary steerable system that has now successfully completed trials and is approaching full

commercialization.

In Latin America, there are signs of increased activity, despite the political and economic instability which

affected Precision’s operations in Venezuela in 2002. Our integrated services project in the Burgos Basin of

Mexico continues to be a major success story, and the original 240 gas well project is now expected to involve

the drilling of more than 300 wells.

In other areas of our business, CEDA remains a key and profitable part of our Corporation. It is likely to follow

up its record-breaking performance last year as the clear leader in the Canadian turnkey industrial maintenance

and turnaround markets. It is already viewed as the premier company in North America in offering specialized

catalyst services to refinery and petrochemical plants in Canada and the United States.

In early 2003, Precision bolstered its balance sheet with the sale of Energy Industries for $60 million. Energy

Industries, which specializes in compression equipment packaging, sales, service and rental, was a well-run

organization with an industry-leading management, sales and technical team. It was not, however, a business

that Precision could expect to grow significantly, particularly on a global basis. The sale should benefit both

Precision and Energy Industries.

Drive to Survive

Extracted directly from our video on driving safely, this

picture reflects how seriously we take this issue. Hank

Swartout, Chairman and CEO: “Seat belts are a vital

part of our personal protective equipment. At Precision

Drilling Corporation, vehicle safety is a core concern

and central to our initiative with the Royal Canadian

As always, we will continue to emphasize our

commitment to health, safety and environmental

(HSE) practices in 2003. At Precision, achieving

excellence in health and safety is a priority. In

2002, the Corporation’s statistics for overall lost

time due to incidents continued to outstrip the

industry average, while our safety performance

earned us $1.3 million in performance rebates from

Canadian workers’ compensation boards. Both

achievements demonstrate the success of our

efforts to protect our people and ensure they are

Mounted Police (RCMP) to enhance training, education

receiving effective messages about safety.

and awareness. In fact, our joint RCMP/Precision video

production “Drive to Survive” is being viewed by

We will also continue to take environmental

issues seriously. We were proud to receive the

Precision employees and many of our customers with a

ranking as the most environmentally responsible

focus on saving lives and reducing vehicle incidents.”

oil and gas service company in Canada from a

national organization focused on corporate social

responsibility. This will ensure that we set the bar

even higher in the coming year.

TAKING PROACTIVE STEPS

As we head into 2003, we are fully aware of the potential for market volatility that characterizes our business.

We will focus on our core businesses and work to increase the efficient operation of all of our business units.

Much work was already done in this area in 2002. Our Contract Drilling group increased internal efficiencies

and effectiveness by flattening its management structure, tightening cost controls in deployment and use of

assets, and integrating technology with people. The group’s four operations centers were consolidated into two

centers located in Calgary and Nisku, Alberta, while the engineering team was brought together into one facility.

Improvements were also made in communications systems to support our rigs in terms of standards and safety,

ensuring that all customers get the same package of quality service.

Corporate-wide, we are improving our information systems to provide our people with better, more timely

information about our customers and our operations. We are currently in the midst of a project to implement an

integrated information system within Technology Services to replace a myriad of systems inherited from

numerous acquisitions. This system will integrate Technology Services more closely with the Contract Drilling

group and allow them to benefit from a number of the process efficiencies already enjoyed by the rest of the

organization.

We are proud of the success we had in launching our new technologies in 2002 and in positioning Precision

as a provider of the sophisticated tools and services that are the future of the industry. In 2003, we will stay the

course in developing our technological edge, while enhancing operational and administrative cost control. We

have transitioned ourselves in 2002 to be a more global player and have paid the admission price to put us on

the map. We will continue that transition by growing our global footprint and our market share with our

expertise in drilling, wireline and MWD/LWD.

The engine for that growth will continue to be Contract Drilling.

Precision’s success and growth as a global company has been built on the foundation of long-term customer

relationships gained over the years by delivering quality service with leadership in innovative technology and

oilfield equipment. We recognize that in order to maintain our current customer loyalty and expand our customer

base, both domestically and internationally, we must strive to continually reinforce this basic principle of

customer focus. Our Corporation has distinguished itself from the competition by the high standards we practice

in the field, the ability to deploy rigs and drill wells in record time, and the strength of our marketing and

technological expertise. These differentiating factors all boil down to one common element: the quality of our

people and of their outstanding performance.

On behalf of Precision’s senior management and Board of Directors, I extend our appreciation to every

member of our team around the world.

Hank B. Swartout

Chairman of the Board, President and Chief Executive Officer

March 21, 2003

Report on

Te c h n o l o g y

The following section highlights the development and deployment of some of Precision’s new

technologies. Details of Precision’s operations during 2002 are included in Management’s Discussion and

Analysis (page 37). For a description of our Corporation and its history, please refer to the 2002 Renewal

Annual Information Form, a hard copy of which may be obtained through Precision’s Corporate Secretary.

It is also available on the Internet at www.precisiondrilling.com.

Development

In 1999, as part of our global growth strategy, Precision embarked on an ambitious research and

development program to develop the high-end technology capabilities that would allow us to compete as a

major player on the international market.

Precision was already a Canadian leader in providing products and services for cased hole, open hole and

directional drilling. However, we recognized the huge technological leap that would be required to take us

from our existing technology, designed to operate within Canada’s benign environment, to the sophisticated

technology needed to succeed in more challenging environments around the world.

We made that leap by breaking the traditional mold in research and development. We identified key

technologies that would support our growth; created a dedicated group to focus on technology services;

capitalized on existing expertise by hiring the proven leaders in their field; established research and

development centers in areas where that expertise was concentrated; and created distribution channels

through regional centers in Canada, the United States, Latin America, Europe/Africa, the Middle East, and

Asia/Pacific.

Deployment

Unencumbered by an established research and development hierarchy, or an inventory of existing tools

that required retrofitting, Precision moved quickly ahead in creating drilling and formation evaluation tools

that offered a whole new level of performance benefits.

By 2002, a number of those tools were already being used by clients around the world, with more poised

for commercialization early in 2003.

Fort Worth, Texas

Getting a Clearer Picture with Wireline Technology

When Precision acquired Computalog Ltd. in 1999, it also acquired considerable expertise

in manufacturing and research and development of new wireline technologies. Computalog’s

research and development group, located in Fort Worth, includes some of the best engineers,

physicists, software developers and mechanical designers in the industry.

Specializing in open and cased hole wireline tool

development, including completion services, the Fort

Worth team introduced significant new products in

2002.

In addition to the new High Resolution Micro

Imager (HMI™) tool, which is used to image reservoir

features and provide high resolution data about

subsurface formations, Computalog launched a number

of other state-of-the-art tools. These included a Spectral

Gamma Ray tool that is used in formation evaluation

and enables Precision to effectively compete in high-

technology wells, and the Flow Rate Tester (FRT)® tool,

a new generation formation fluid sampling tool that

provides rapid multiple downhole tests for real-time

logging of reservoir production potential. Another

Computalog product, the Hi-Temperature Slim Sector

Bond™ tool, has a diameter of just 42 mm (1 11/16 in.)

High Resolution Micro Imager
(HMI™) Tool
The HMI™ tool uses electrical imaging to

make it possible to visualize the borehole in

real time, showing sedimentary features,

cross-bedding, fractures, thin beds and

structural features such as bed dip, direction,

faults and

reservoir

structure. This

sophisticated tool features six independent

arms, each with a pad of 25 buttons that

gather the high-resolution data customers

need to visualize complex subsurface

structures. The wellbore is sampled at a rate

of 400 samples per meter (120 samples per

foot) to give clients excellent imaging

and is setting new standards for cement bond

coverage and fine vertical resolution.

evaluation in cased holes by successfully logging wells

at temperatures up to 218˚C (425˚F).

In 2003, Computalog will be expanding its research,

development and training activities by adding a new

4,300 square meter (46,000 square foot) facility

adjacent to the manufacturing facility in Fort Worth.

Development

Deployment

Yemen
Precision’s HMI™ tool is on site in Yemen where it is
hard at work for a large international energy company
operating in that country’s Masila Block. The project,
involving three open hole and two cased hole units,
was awarded to Precision in June 2002. A camp facility
was set up, equipment mobilized and operations begun
by September. The HMI™ tool provided our client with
valuable information which was used to determine
their development well program.

Houston, Texas

Achieving the Advantage in Drilling and Formation Evaluation Technology

Created by Precision as a new research and development group in 1999, Advantage

R & D, Inc. was located in Houston to draw on the area’s proven expertise in the design and

development of high-end formation evaluation tools for the energy industry.

Advantage employs more than 60 staff, including engineers, physicists and technicians,

focused on creating innovative measurement-while-drilling (MWD) and logging-while-drilling

(LWD) technology. A state-of-the-art facility combines a first-class work environment with the

latest in computer modeling technology, personnel training, manufacturing capabilities, and

testing facilities.

Advantage’s initial development efforts focused on a directional gamma ray MWD tool

designed to give clients increased reliability and workability in extreme environments. The

Hostile Environment Logging (HEL™) MWD system has demonstrated unprecedented

capabilities for operations at high temperatures, under high pressures and at high flow rates.

It is the backbone of an emerging suite of tools capable of operating in hostile environments,

including the sophisticated PrecisionLWD™ system.

LWD systems are used to gather information about the formation being drilled, the well

path, and other parameters used to monitor downhole drilling conditions. The PrecisionLWD™

system is specifically designed for challenging ultra-deepwater drilling environments, which

includes wells with high pressures, fast drilling rates, or that require high circulation rates.

Continued on page 16

PrecisionLWD™ System
The new PrecisionLWD™ system is designed to address the shortcomings of the LWD systems that are

currently available to deepwater operators, while also meeting their requirements for the future. With this

new system, operators can successfully log wells while drilling up to 122 meters (400 feet) per hour. The

PrecisionLWD™ system also operates at pressures up to 30,000 psi, which allows deeper wells to be drilled

successfully. Before the PrecisionLWD™ system was introduced, operators had to rely on systems that could

log at only 61 meters (200 feet) per hour, at pressures of only 25,000 psi.

Development

Burgos Basin, Mexico
The PrecisionLWD™ system

has been used successfully

in Mexico’s Burgos Basin,

combining the HEL™ MWD

system with the Multi-

Frequency

Resistivity

(MFR™) tool. This system,

coupled with new density

and neutron porosity tools

to be commercialized in

2003, will form a triple-

combo LWD service that

will allow operators to

make complete formation

evaluation decisions.

Deployment

From page 14

With the PrecisionLWD™ system, the engineers at Advantage have created a versatile

drilling and formation evaluation platform that can transmit data using either mud-pulse or

electromagnetic

(EM) technology. Typical MWD

systems rely on mud-pulse telemetry to transmit data

from downhole to the surface, with data quality

potentially limited by such factors as drilling fluid flow

rates, pressure drop at the bit, and drilling fluid that

may be lost to the formation.

EM technology is not affected by these drilling

factors and can create substantial savings in drilling

time and project costs. This ensures that downhole

information can be obtained during all phases of a

drilling operation, including underbalanced drilling.

Together, Advantage’s new MWD, LWD and EM tools

have given Precision entry into high-temperature, high-

pressure and high-margin markets around the world.

EMpulse™
Electromagnetic System
Electromagnetic

(EM) MWD

technology

allows

downhole

real-time drilling data to be

transmitted independent of rig

hydraulics and without impact to

rig operations. The EMpulse™

electromagnetic MWD system uses

low-frequency

electromagnetic

waves to transmit downhole data

in real time to the surface during

conventional and underbalanced

horizontal and directional drilling

operations. EM telemetry trans-

mits information through the

formation to a surface antenna,

where it is received and sent to a

data acquisition system to be

decoded and processed.

Development

The North Sea
In 2002, Precision set a world depth

record for offshore data transmission

using the EMpulse™ system in the

southern portion of the North Sea for a

major international exploration and

production company. Traditional EM

systems have limitations on depth due to

loss of

signal

strength as

the

electromagnetic waves travel through the

formation to the surface. This limitation

was overcome by employing a patented

method of electrically insulating the well

casing with an external coating, which

minimized signal loss and allowed

successful data transmission from the

extended well depth.

Deployment

Calgary, Alberta

Centralizing Expertise to Support Drilling and Completions

Under the umbrella of Precision’s Research and Development Canada (R & D Canada)

group, three specialized teams were brought under common management and one roof in the

fall of 2002.

The Edmonton, Alberta engineering team of Computalog Drilling Services was

consolidated with the Polar Completions and Flow Rate Tester (FRT)® tool development groups

in Calgary to help speed the delivery of critical technologies to the field and enhance financial

performance by sharing engineering services within Precision.

R & D Canada designs and manufactures ancillary products and technologies to support

major projects at other Precision centers, and also designs and launches its own products for

which a market has been identified. The group is located in a 7,300 square meter (79,000

square foot) research and manufacturing center in Calgary which is equipped with test

facilities and ultra-modern, computer-controlled machine tools capable of producing any

downhole equipment under stringent quality assurance systems

Development

Z-Frac™ Selective Stimulation Tool
The Z-Frac™ tool gives operators the ability to perforate and fracture multiple zones in a single

run, cutting days off conventional completion programs and saving costs. With the Z-Frac™ tool,

operators can work in hostile fluids at pressures as high as 10,000 psi. This tool also features a

downhole shutoff valve, which allows the tool string to be placed and moved within the wellbore,

under pressure, without

the use of wireline blanking plugs. To date,

the

Z-Frac™ tool has performed with no mechanical failures.

In 2002, in partnership with Polar Completions, R & D Canada introduced the Z-Frac™

Selective Stimulation System, comprised of several downhole tools. The system allows a

hydraulic fracturing operation to be performed on multiple zones within a wellbore in a single

run, saving customers time and money.

Continued on page 20

Northwestern Alberta
An operator in northwestern Alberta

needed a way to cost-effectively

fracture multiple zones at high

pressures. The Z-Frac™ tool’s straddle

packer technology, combined with

Precision’s

snubbing

services,

allowed the operator to perform

single trip, multi-zone sand fracture

treatments at savings of between

$80,000 to $100,000 per well over

conventional multi-zone

frac

programs. While initial development

of the Z-Frac™ tool focused on 5 1/2

in. casing strings, the tool is now so

popular that two prototypes for other

sizes of casing are being tested in

early 2003.

Deployment

Development

From page 18

R & D Canada also introduced the Vari-Cone™ liner hanger system, which offers operators

more options for choosing downhole equipment configurations. Because of that flexibility, the

Vari-Cone™ system increases Precision’s competitive edge, giving customers access to a high-

end technology that was previously available only through a handful of large multinational

companies. In 2002, development of Vari-Cone™ technologies resulted in four patents pending.

A number of other sophisticated technologies

and products have been engineered by R & D

Canada and were either launched in 2002 or

expected to be in the field early in 2003.

These include the Selective Set Open Hole

Straddle Packer, currently the only system that

exclusively uses tubing hydraulics to operate

downhole assemblies. It allows operators to

selectively test isolated zones within horizontal

wells to determine their potential and/or stimulate

production. Other R & D Canada products include a

Coiled Tubing Orienter to control direction of

drilling by discrete changes of circulation; a

Variable Gauge Stabilizer which can modify the

bottomhole assembly configuration hydraulically

Vari-Cone™ Liner Hanger System
Precision’s Vari-Cone™ liner hangers are

available in single or multiple cone

configurations. They feature a proprietary

Scabbard Slip™ system that provides

superior

slip protection, drill-down

capability with a unique rotational lock

mechanism, improved flow dynamics

during well conditioning and cementing

operations, and a locking collet to prevent

premature mechanical shearing of the slip

assembly during run-in. The system also

includes, as a standard, safety features

normally associated with premium liner

without tripping out; and larger-diameter additions

systems.

to Precision’s line of mud-lubricated drilling

motors to complement the HEL™ MWD system.

Indonesia
In

2002,

Indonesia’s

national

oil

company

became the first Precision

client to deploy Vari-Cone™

liner hangers, which were

installed on land in Java

and in northern Sumatra.

Both

systems

featured

Vari-Cone™ tandem cone

liner hangers with integral

liner top packers. By early

2003, several Vari-Cone™

liner hangers had been

installed successfully.

Deployment

Edmonton, Alberta

Breaking New Ground in Maintenance and Safety

Precision’s research and development team in Edmonton is

an integral part of CEDA International Corporation (CEDA),

the only Canadian company offering turnkey industrial

maintenance and turnaround services to the energy industry.

CEDA’s research and development efforts have grown out of

its unique knowledge and experience, with the focus on

developing new tools and applications that are marketable in the

field. The new SuperLance™ tool is an outstanding example.

Working in collaboration with a large producer of crude oil

from oil sands, CEDA developed this revolutionary tool for

removing coke buildup, which largely determines when a coker

unit must be shut down for maintenance. Conventional lancing

systems provide only limited access to the curved section of the

coker snout and no access to the entire gas outlet tube piping.

Drawing upon Precision’s experience in coiled tubing

drilling, CEDA adapted water blasting technology into a coiled

lance that allows full access into the snout and gas outlet tube

piping. The SuperLance™ tool performs online coker maintenance

in a fraction of the time of conventional methods, with no

shutdown in production, and with much reduced safety risk. It

ultimately provides our clients with a new dimension in “online

cleaning” unparalleled by traditional means. This process can be

used in other cleaning applications that only months ago were

considered impossible tasks.

The SuperLance™ System
Using the SuperLance™ system, a

coil of about 24 meters (80 feet) of

tubing is fed into a coker unit with

a hydraulically-powered chain

driver. The tubing’s tip is equipped

with multi-directional water

cutting jets that blast away the

coke buildup with high-pressure

water at 7,500 psi. Greater crew

safety comes from the automated

design of the

lance

injection

process during

the

cleaning

operation. The new hydraulic-

driven injection system is operated

remotely from the vessel nozzle,

while the conventional method

requires a crew to work at the

nozzle where the snout lance is

injected.

Development

Fort McMurray, Alberta
During field testing in October 2002, the

SuperLance™ system found immediate

success at an Alberta oil sands refinery,

working flawlessly through initial field

trials. The client was able to successfully

clean the reactor snout and gas outlet tubes.

The automated cleaning processes also

proved beneficial in improving the safety of

the entire snout lancing process. Although

developed for the energy industry, there is

considerable potential for adapting the

SuperLance™

system

improve

maintenance practices in other industries.

Deployment

Nisku, Alberta

Getting More Bite from Drill Bit Technology

Strategically located in the supply and service corridor serving the drilling industry in Alberta, United

Diamond Ltd. was formed by Precision in September 2000 to focus on polycrystalline diamond compact (PDC)

drill bit technology. PDC bits drill with more speed and durability than traditional bits in many formations.

Now Canada’s largest steel-bodied PDC drill bit manufacturer, United Diamond has an aggressive research

and development program aimed at creating even more stable and durable PDC drill bits. It employs the latest

in cutter technology with superior abrasion resistance.

In 2002, United Diamond continued to invade traditional rollercone drill bit territory when the research and

development team in Nisku introduced the TorkBuster™ tool which gives their PDC bits an added edge. This tool

increases rates of penetration, drills harder formations at even faster rates, and maintains steady and reduced

torque in drillstrings.

With the launch of the TorkBuster™ tool and the growing demand for PDC bits, United Diamond has already

outgrown its original 700 square meter (7,500 square foot) shop. In the spring of 2003, United Diamond is

moving into a new facility of almost triple the size which allows more room for manufacturing, an expanded

welding and repair center, TorkBuster™ tool repair, inventory, and operations personnel.

The Torkbuster™ Tool
The TorkBuster™ tool runs above the PDC bit in both rotary and directional drilling assemblies to

help the bit shear the formation being drilled. The tool provides a high frequency, radially-directed

impact to the bit which increases the rate of penetration, allows harder formations to be drilled at

faster rates, and maintains a relatively small, steady torque level in the drillstring. Reducing torque

in the drillstring improves the reliability of mud motors, downhole tools and other assembly

components. It also allows for a smoother well path and reduced fatigue on drillpipe, drill collars

and tool joints.

Development

Veracruz, Mexico
The TorkBuster™ tool has been deployed in Mexico to drill tough carbonate formations

in the Veracruz area. Combined with a Computalog Commander® mud motor and a

PDC drill bit from United Diamond, the TorkBuster™ tool has tripled the average rate

of penetration.

Deployment

Cheltenham, England

Gaining more Control with Rotary Steerable Technology

Smart Stabilizer Systems Ltd., Precision’s newest research and development group, is based in Cheltenham,

England, where rotary steerable technology was created and where a large pool of engineering suppliers support

the technology. The acquisition of BecField Drilling Services Ltd. in 2000 connected Precision to the existing

local expertise, and to the potential for creating our own suite of state-of-the-art tools.

Rotary steerable systems allow operators to orient and control the well

trajectory while rotating the drill string. The result is faster penetration

rates, smoother wellbores, and fewer doglegs than in wells drilled by

conventional methods using mud motors.

Precision’s new Revolution™ rotary steerable system is the first 4 3/4 in.

rotary steerable system to use point-the-bit technology to improve borehole

quality and bit life, which translates into enhanced efficiency and cost

savings. For our customers, the small tool diameter opens up different size

and casing design options, and helps them realize the better bottom line

benefits that smaller boreholes have on drilling and completion costs. By

designing the 4 3/4 in. tool size first, Precision reduced the engineering

challenges associated with producing the Revolution™ system in larger tool

sizes, as well as shortening time to market and gaining better control of

research and development costs.

Smart Stabilizer Systems moved into a new 1,300 square meter (14,000

square foot) research and development facility in 2002. The site features the

latest high-tech assembly, testing and quality inspection equipment, and uses

the latest 3D computer-aided design techniques.

In 2003, Smart Stabilizer Systems will focus on delivering tools for

larger hole sizes and on further integrating near-bit sensors to help optimize

the drilling process.

Revolution™
Rotary Steerable System
The first 4 3/4 in. rotary

steerable system to use point-

the-bit technology to control

the well path, Precision’s

Revolution™ system is fully

integrated

with

the

PrecisionLWD™ system. The

short, compact design of the

Revolution™ system reduces the

complexity of rotary steerable

drilling

technology while

placing

critical

LWD

measurements close to the bit.

Development

Burgos Basin, Mexico
First deployed successfully in Alberta on the drilling of

a directional well southeast of Calgary, the Revolution™

rotary steerable system helped Precision’s customer

control the hole deviation and direction much more

efficiently than by using conventional mud motors.

By early 2003, the Revolution™ system was also being

used as part of Precision’s integrated services project in

Mexico’s Burgos Basin. The system was used to

efficiently drill a vertical well in a single run, in an

area where

formation

influences had always

necessitated directional correction runs.

Deployment

Hannover, Germany

Keeping Logging Tools on Track

Located in Hannover, Precision’s directional drilling research and development center in Germany, System

Entwicklung und Simulation (SES) or System Development and Simulation, was acquired with the purchase of

BecField Drilling Services Ltd. in 2000.

The SES facility incorporates both research and manufacturing elements. A nearby test well allows tools in

development to be tested under real-world conditions and provides a training venue for international operators.

The center was used in the 1990s to develop, manufacture and support a MWD system. This system is still

the basis of Precision’s directional drilling service business in Europe/Africa and the Middle East.

More recently, a team of wireline engineers and

operators manufactured the new PrecisionTrac™

wireline conveyance system — a system that helps

operators perform wireline logging jobs in highly

deviated wells.

Other products currently under development in

Hannover include a turbine generator power system

with potential for reducing LWD costs and enhancing

the operating range of the EMpulse™ electromagnetic

MWD system. Work also continues on a new high-

temperature mud-pulse telemetry system with

improved data

rate capability, and a new

PrecisionTrac™ Wireline Conveyance System

With the PrecisionTrac™ system, customers can

get logging and completion tools to the bottom of

any wellbore. The system allows standard

logging tools to be run on wireline cable in

horizontal wells. Technical modifications by

Hannover engineers also allow Precision’s new

tool to perform in deeper, hotter wells, reducing

clients’ costs. The PrecisionTrac™ system can also

communication method for relaying commands from

be used to fire perforating guns and set

the surface to the Revolution™ rotary steerable

production packers.

system.

Development

Cold Lake, Alberta
Extracting the millions of barrels of heavy

oil that lie below the plains of Alberta and

Saskatchewan in western Canada utilizes a

special technique called Steam Assisted

Gravity Drainage (SAGD). In 2002, a leading

independent oil and gas company used the

PrecisionTrac™ wireline conveyance system

to deploy a ranging tool needed to ensure

accurate well spacing for use of SAGD. The

PrecisionTrac™ system eliminated the need

for the tanks and pumping capabilities

normally required for this procedure.

Deployment

NATURE OF BUSINESS

NAME OF BUSINESS

LOCATION

EQUIPMENT AND FACILITIES

CONTRACT DRILLING GROUP

Contract Drilling

Precision Drilling

Canada

227 drilling rigs
(34% of the industry in Canada)

Precision Drilling International

International

16 drilling rigs

Well Servicing

Precision Well Servicing

Canada

240 service rigs
(26% of the industry in Canada)

Rig Assist Snubbing

Live Well Service

Canada,
International

23 snubbing units
(33% of the industry in Canada)

Camp and Catering Services

LRG Catering Ltd.

Supply Procurement
and Distribution

Columbia Oilfield Supply Ltd.

Canada

Drilling Equipment Engineering

Rostel Industries Ltd.

Canada

and Manufacturing

TECHNOLOGY SERVICES GROUP

MWD/LWD and

Computalog Drilling Services

Directional Drilling Services

Wireline Logging and
Perforating Services

Computalog Wireline Services

Plains Perforating Ltd.
Challenger Wireline

Controlled Pressure Drilling

Northland Energy

and Well Testing

Canada, U.S.,
International

Canada

Canada, U.S.,
International

74 oilfield camps

40,000 square foot warehouse
and distribution facility

48,000 square foot yard
and shop facility

135 drilling systems

46 open hole units, 177 cased
hole units, 8 slickline units,
2 barges with cased hole skids

24 cased hole units, 10 slickline
units, 4 mechanical units,
6 combination units

179 well testing systems,
44 RBOP® rotating blowout
preventers, 22 controlled
pressure drilling systems

Completion Products

and Services

Polar Completions
Engineering Inc.

Canada, U.S.,
International

55,000 square foot yard
and manufacturing facility

Pressure Pumping Services

Fleet Cementers, Inc.

U.S.

PDC Drill Bits

United Diamond Ltd.

Canada, U.S.,
International

RENTAL AND PRODUCTION GROUP

Industrial Maintenance

CEDA International Corporation

Canada, U.S.

and Turnaround Services

Natural Gas Compression

Services

Energy Industries Inc.
(sold effective January 1, 2003)

Canada

16 cement units, 8 acid units,
1 fracturing spread, 1 sand
delivery unit, 2 nitrogen
units, 7 coiled tubing units,
1 cement testing facility

19,000 square foot facility,
manufacturing and operations
support for 400 jobs/month

166 vacuum trucks,
79 high-pressure units,
14 bundle blasters

90,000 square feet of
production capacity

Surface Oilfield Equipment
Rental and Transportation

Downhole Drilling
Equipment Rental

Smoky Oilfield Rentals

Canada

3,600 surface units

Big D Rentals

Canada

10,000 joints of specialty
drill stem, 4,000 tools

Wellsite Accommodation Rental

Ducharme Oilfield Rentals

Canada

281 trailers

Total employees, including contracted and project management individuals, as at December 31, 2002: 9,365

Raising the bar in Corporate

Responsibility

Health, Safety and the Environment

Just as 2002 was a year for achieving new heights in technological development, it was also a year for

Precision to raise the bar on its health, safety and environmental (HSE) practices.

In fact, the downturn in drilling activity gave Precision the opportunity to consolidate HSE management

systems; intensify training efforts so field personnel were ready to perform at the highest possible standards

when activity resumed; and demonstrate our commitment to providing HSE leadership, from the ranks of senior

management to field workers anywhere in the world.

The results were rewarding for both our people and our bottom line.

SYSTEM CONSOLIDATION

In 2002, a new Shared Business Services department was formed to bring together some of the common

services within the organization, including HSE.

As a result, HSE initiatives will be integrated on a corporate-wide basis, rather than a business segment basis,

in 2003. This will result in cost savings, and allow Precision to share best practices found within the systems and

procedures already developed by individual business units.

A corporate HSE Management System document was generated in 2002 for all Precision’s business segments.

This high level document identifies our HSE policy and key beliefs and provides a framework for systematically

evaluating each of our business activities and identifying associated risks.

English, French, German and Spanish versions of the manual were prepared in 2002 and an Arabic version

will be completed in 2003. Work also began on creating an internal HSE site on Precision’s Intranet so our

employees have access to the same information from any location around the world, at any time.

OUTSTANDING PERFORMANCE

Precision’s safety performance continues to outstrip the industry average.

In Canada in 2002, the lost time incident (LTI) rates for our Contract Drilling Group (CDG) were 1.1 per

200,000 man hours; for our Technology Services Group (TSG) 1.4; and, for our Rental and Production Group 0.6.

Lost Time Incidents
Contract Drilling Group

(1)

Technology Services Group

Rental and Production Group

CDG
Industry

2002

2001
(1) 2002 industry statistics are not yet available

TSG
Industry

2002

2001

RPG
Industry

2002

2001

Source Occupational Injuries and Diseases in Alberta (Upstream Oil & Gas and Construction) for the Years 1994 - 2001.

In other notable achievements in 2002, REPPSCO Services, a Rental and Production Group company and

subsidiary of CEDA International Corporation, passed the one-million-hours milestone without sustaining a single

lost time injury. Precision also had 264 drilling and service rigs operate free of recordable incidents in 2002.

WORKERS’ COMPENSATION REBATES

Precision’s ongoing investment in HSE is realizing returns on a financial, as well as the human level. As a

result of the proactive safety programs we have in place, Precision will receive $1.3 million in rebates from

Canadian workers’ compensation boards for our 2002 performance.

AWARDS AND RECOGNITION

Precision’s commitment to providing leadership in HSE practices continues to earn us recognition at home

and around the world.

Our Corporation received the 2002 Green Machines ranking as the most environmentally responsible

company in Canada for oil and gas services from a national group specializing in socially responsible investing

and corporate social responsibility.

Also in 2002, Computalog Wireline Services earned the Carrier Safety Award from the Petroleum Services

Association of Canada in the over 10 million kilometers category. This award recognizes the safety performance

of all commercial vehicles in British Columbia, Alberta, Saskatchewan, Manitoba and the Territories.

Internationally, Precision Drilling Technology Services GmbH won the gold award from the Royal Society for

the Prevention of Accidents for achieving a high standard of health and safety while working in the Middle East

over the last four years.

In Germany, TSG earned the Safety Certificate Contractors One Star Award for implementation of its HSE

management systems. This award results from review by an independent registration body. In 2003, TSG will aim

for the Two Star Award by pursuing more detailed implementation.

HSE PROGRAMS

Target Zero™ — It’s People, It’s Personal

Target Zero™ is a bold safety statement that encompasses our mission to

hurt no one. It is built upon management commitment and acceptance of

safety responsibility. Target Zero™ is supported through our investment

in training, and ensuring expectations to work safely are understood,

with an overall focus on continuous improvement in all aspects of HSE.

Driver Safety

Precision has made dramatic improvements in reducing risk at our worksites and working towards our

ultimate goal of Target Zero™. It is now time to extend the same focus to one of our greatest risks, driving to

and from the worksite.

In 2002, Precision stepped up efforts to address one of the riskier parts of our day-to-day-work through a

program called Driver Safety. An initiative that began within TSG, where a collision-risk assessment tool is used

for all new hires, Driver Safety is currently being reviewed as a company-wide program.

Hank Swartout, Chairman and CEO: “Seat belts are a vital part of our personal protective equipment. At

Precision Drilling Corporation, vehicle safety is a core concern and central to our initiative with the Royal

Canadian Mounted Police (RCMP) to enhance training, education and awareness. In fact, our joint RCMP/Precision

video production “Drive to Survive” is being viewed by Precision employees and many of our customers with a

focus on saving lives and reducing vehicle incidents.”

Safety Stand Down Week in Canada

Precision participated in the industry’s first annual Safety Stand Down Week in January 2002. During the

busiest time of the year senior managers, up to and including the Chief Executive Officer, visited worksites to

discuss safety issues.

This program reinforced the strong focus that already exists within our Corporation for HSE accountability

at the senior management level. During 2002, senior management completed a total of more than 300 site visits.

Recycling

A key part of Precision’s HSE management system is to protect the environment by working to reduce, mitigate

or eliminate potentially harmful effects from our activities or operations anywhere in the world. In 2002, TSG

demonstrated this commitment by locating a German company that will recycle the lithium battery cells used in

our MWD systems. In Mexico’s Burgos Basin, Precision’s integrated services team has developed systems for

disposing of hazardous waste and creating an audit trail for measuring environmental performance.

Investing in People

During 2002, more than 1,200 supervisors and operations personnel completed observation and

communication training during the downturn of drilling activity. This initiative helped participants develop a

greater understanding of safety accountability and responsibility and provided support for the adoption of a

philosophy that only accepts zero injuries. The mutual investment in time of both Precision management and field

staff translated into the ability to quickly and safely ramp up to top performance once increased drilling activity

resumed.

Communication

During 2002, Precision produced a number of videos addressing a wide range of HSE subjects and concerns.

Such productions are essential to helping us communicate to employees throughout our Corporation with a

consistent message about safety. All videos will be made available via Precision’s Intranet so employees can view

them anytime, from anywhere.

Corporate Giving – Giving back in the communities in which we operate

Corporate giving is an important part of corporate citizenship for Precision, because it helps

strengthen our roots in the communities we serve.

In 2002, our Corporate Donations Program experienced its most active year to date, fulfilling over

65% of requests within the scope of 12 categories. These categories are: rural and urban

community; international aid; women’s groups; youth; aboriginal; medical; disabilities; the arts; the

homeless; educational; the environment; and political.

More than half the donation requests were brought forward by Precision employees, with additional

requests provided by customers, shareholders and the communities in which we operate.

Of course, the social consciousness of our employees extends far beyond corporate requests, which is

why so many volunteer for a number of local charities, from the United Way and fun runs supporting

cancer and other research, to adopting families of the less fortunate during the holiday season.

Giving back to the community is a philosophy we are proud to share with our employees.

A Full

Accounting

Crude Oil Prices
WTI yearly average – US$/Bbl

Natural Gas Prices
AECO yearly average – Cdn.$/Mmbtu

2002 Revenue
Total: $1,689.2 Million

2001 Revenue
Total: $1,953.6 Million

2000 Revenue
Total: $1,355.5 Million

16%

14%

18%

38%

46%

34%

52%

27%

55%

Rental and Production Group

Technology Services Group

Contract Drilling Group

Rental and Production Group

Technology Services Group

Contract Drilling Group

Rental and Production Group

Technology Services Group

Contract Drilling Group

Net Capital Expenditures
$ Millions

Cash Flow
$ Millions

400

350

300

250

200

150

100

500

400

300

200

100

April 30

December 31

April 30

December 31

Management’s Discussion and Analysis

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 15 to the Consolidated Financial Statements.

HIGHLIGHTS (1)

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

Years ended December 31,

2002

Increase
(Decrease)

2001

Increase
(Decrease)

2000

Increase
(Decrease)

Financial Results

Revenue

% change

Operating earnings (2)

% of revenue/% change

Earnings before goodwill

$1,689,150

159,021

(14%)

$ (264,413) $1,953,563 $ 598,110
44%
123,418
48%

381,632
20%

(222,611)

(58%)

$1,355,453 $ 620,713
84%
138,299
115%

258,214
19%

amortization
% of revenue/% change

91,265

(127,054)

(58%)

218,319
11%

65,445
43%

152,874
11%

101,461
197%

Earnings before goodwill
amortization per share
% change
Net earnings

% of revenue/% change

Net earnings per share

% change

Cash flow (3)

% of revenue/% change

Cash flow per share

% change

Financial Position

1.66

(2.37)

(59%)

91,265

(95,269)

1.66

(51%)

(1.78)

(52%)

194,771

(270,902)

12%

3.55

(58%)

(5.04)

(59%)

Working capital
Long-term debt (4)
Long-term debt to long-term

debt plus equity (4)

210,256

514,878

0.25

1.89
166%
94,531
266%
1.79
227%
196,394
194%
3.67
164%

1.00
33%
56,421
43%
0.86
33%
167,800
56%
2.68
45%

4.03

186,534
10%
3.44

465,673
24%
8.59

215,919
496,200

0.26

3.03

130,113
10%
2.58

297,873
22%
5.91

157,736
548,096

0.31

(1) Quarterly financial information for the two year period ended December 31, 2002, is presented on page 3 of this annual report.
(2) Operating earnings is not a recognized measure under Canadian generally accepted accounting principles (GAAP). Management
believes that in addition to net earnings, operating earnings is a useful supplemental measure as it provides an indication of the
results generated by the Corporation’s principal business activities prior to consideration of how those activities are financed or
how the results are taxed in various jurisdictions. Investors should be cautioned, however, that operating earnings should not be
construed as an alternative to net earnings determined in accordance with GAAP as an indicator of Precision’s performance.
Precision’s method of calculating operating earnings may differ from other companies and, accordingly, operating earnings may
not be comparable to measures used by other companies.

(3) Funds provided by operations (see Consolidated Statements of Cash Flow).
(4) Excluding current portion of long-term debt, which is included in working capital.

SUMMARY INCOME STATEMENT

(Stated in thousands of Canadian dollars)

Years ended December 31,
Operating earnings (loss):

Contract Drilling Group
Technology Services Group
Rental and Production Group
Corporate and Other

Interest, net
Dividend income
Gain on disposal of investments
Earnings before income taxes, non-controlling interest

and goodwill amortization

Income taxes
Earnings before non-controlling interest and

goodwill amortization

Non-controlling interest
Earnings before goodwill amortization
Goodwill amortization, net of tax
Net earnings

2002

2001

2000

$ 183,400

(40,646)

43,618

(27,351)

159,021

35,236

(39)

(900)

124,724

32,308

92,416

1,151

91,265

–

91,265

298,100
60,428
51,678
(28,574)
381,632
43,582
(1,106)
(1,805)

340,961
121,774

219,187
868
218,319
31,785
186,534

212,633
30,620
43,289
(28,328)
258,214
28,713
–
(40)

229,541
76,667

152,874
–
152,874
22,761
130,113

Oilfield activity in both Canada and the U.S., as measured by number of wells drilled, declined by

approximately 20% in 2002 relative to 2001. As a result we experienced a reduction of revenue and an erosion

of operating margins due to competitive pressures. International drilling activity increased moderately in 2002

in all regions except Latin America. The political instability in Venezuela had a negative impact on activity levels

and operating results of both our Contract Drilling Group and the Technology Services Group.

The Contract Drilling Group performed well in the softer market and undertook a number of initiatives to

further improve the efficiency of operations. Actions taken were aimed at standardization of operating and

administrative processes and realization of economies of scale. The Canadian operation’s refinement of its

integrated management information systems has been an enabler for continued improvement of this business.

The strength of this group continues to be the foundation that allows the Corporation to pursue its long-term

strategies with respect to the Technology Services Group.

Throughout 2002, the Corporation continued to focus on the Technology Services Group and two key

elements of its long term plan, development of new technologies and geographic expansion, both of which

present Precision with opportunities for continued growth. Progress was made on both fronts. Revenue generated

outside Canada and the U.S. grew by 63% in 2002 over 2001 from $150.0 million to $245.2 million. A significant

portion of this growth occurred in Mexico with the success of the Corporation’s integrated services project in the

Burgos Basin. Revenue also grew in each of the Corporation’s other operating regions, namely Europe/Africa,

Latin America, the Middle East and Asia/Pacific. The pursuit of growth, however, came with a cost as operations

and administrative support structures were uneconomic at this stage in the business’ development.

With respect to technology, new product introductions in 2002 included the High Resolution Micro Imager

(HMI™) tool, the Flow Rate Tester (FRT)® tool, the Hostile Environment Logging (HEL™) MWD system, the

PrecisionLWD™ system, the EMpulse™ electromagnetic MWD system, the Z-Frac™ tool, the Vari-Cone™ liner

hanger system, and the TorkBuster™ tool. Early in 2003, the new Revolution™ rotary steerable system underwent

successful field tests as has the LWD Triple-Combo tool set. The further deployment of our new suite of tools

should begin to generate increasingly significant revenues over the next several years.

The Corporation’s strong balance sheet is another element of the solid foundation that allows Precision to

continue to pursue its long-term strategic objectives. Precision enjoys a strong working capital position and a

long-term debt to long-term debt plus equity ratio of a modest 25% at December 31, 2002. Early in 2003, the

Corporation’s balance sheet was further bolstered by the sale of Energy Industries Inc. for proceeds of $60 million,

which were used to pay down borrowings under our revolving credit facility.

Precision’s operations are managed in three industry segments. The Contract Drilling Group (CDG) includes

drilling rigs, service rigs, hydraulic well assist snubbing units, procurement and distribution of oilfield supplies,

camp and catering services, and manufacture, sale and repair of drilling equipment. The Technology Services

Group (TSG) includes wireline, directional drilling, MWD/LWD services, well testing, pumping services for

cementing, fracturing and well stimulation, the design, manufacture and marketing of downhole completion tools

and the design, manufacture and marketing of polycrystalline diamond compact (PDC) drill bits. The Rental and

Production Group (RPG) includes oilfield equipment rental services, industrial maintenance services and

compression equipment packaging, rental, sales and service.

CONTRACT DRILLING GROUP

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

Years ended December 31,

Revenue
Expenses:

Operating
General and administrative
Depreciation
Foreign exchange

Operating earnings

Years ended December 31,

2002

% of
Revenue

% of
2001 Revenue

% of
2000 Revenue

$ 773,949

$ 1,010,020

$ 743,544

494,511

63.9

30,265

63,045

2,728

$ 183,400

3.9

8.1

0.4

23.7
%

603,797
33,124
75,511
(512)
$ 298,100

440,513
32,417
58,194
(213)
$ 212,633

59.8
3.3
7.5
(0.1)
29.5
%

59.2
4.4
7.8
–
28.6
%

% Increase
2002 (Decrease)

% Increase
2001 (Decrease)

% Increase
2000 (Decrease)

Number of drilling rigs (end of year)
Drilling operating days (worldwide)
Revenue per operating day
Number of service rigs (end of year)
Service rig operating hours
Revenue per operating hour

243

35,081

(2.0)

(25.6)

16,008

240

(0.1) $
(6.6)

392,210

(20.4)

446

4.4

248
47,142
16,097
257
492,480
427

1.6
8.7
15.3
–
121.3
12.4

244
43,376
13,961
257
222,539
380

10.9
43.8
13.8
238.2
108.3
11.8

Most of CDG’s assets are positioned within the energy services market in Canada where we have a dominant

market share in each of our core businesses, with unique capability in our vertical integration. Deployment of

assets into international markets in situations that meet our financial targets and operational expertise is a

growth initiative that is steadfastly pursued within this group. International contract drilling is active with 16

drilling rigs engaged in Mexico, Venezuela, India, Oman, Brazil and Argentina.

Geographic Distribution of Revenue

2002
Total: $773.9 Million

2001
Total: $1,010.0 Million

2000
Total: $743.5 Million

15%

13%

11%

85%

87%

89%

Canada

International

The segment’s core business, drilling and workover services in Canada, incorporates the following elements:

Contract drilling rigs – Precision Drilling – 227 drilling rigs – 34% of industry rigs

Service rigs – Precision Well Servicing – 240 service rigs – 26% of industry rigs

Snubbing units – Live Well Service – 23 snubbing units – 33% of industry units

Drilling camps and catering – LRG Catering – 74 camps – 20% of industry camps

These operations, along with the drilling rigs working internationally, are supported by the following

services:

Rostel Industries provides standardized workmanship in equipment manufacture and repair services.

Columbia Oilfield Supply provides centralized procurement, inventory and distribution of consumable

supplies.

Type of Drilling Rig

Depth

Canada

2002
International

Total

Canada

2001
International

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

227

243

16
17
99
47
39
11
229

2
3
7
6
1
–
19

Type of Service Rig

Single
Freestanding mobile single
Mobile single
Double
Freestanding mobile double
Mobile double
Heavy double
Freestanding heavy double
Slant
Swab
Total fleet

2002

–

240

Total

18
20
106
53
40
11
248

2001

4
23
91
60
5
48
9
–
16
1
257

While safety and quality service are our primary focus, close behind are our basic and simple methods of

controlling costs in conjunction with revenue generation. Canada is a market that has allowed the segment to

mature into an efficient and productive business model, but not without challenge. Due to the seasonal and

economic cycles associated with our industry, our fixed cost support infrastructure is lean with great elasticity

to expand direct variable costs to meet high equipment demand periods and conversely, to shrink with drops in

utilization. Fixed cost support infrastructure relates to salaried office personnel and systems while variable costs

typically relate to our employees that work directly with equipment on the job, in the field. The variable, hourly

paid field employees work and get paid when associated equipment is generating revenue. The only exception is

for maintenance work and, certain educational and training endeavours.

❚
❚
❚
❚
❚
❚
2002 Compared to 2001

The asset base for CDG was virtually unchanged during the year, as there were no additions and certain rigs,

five drilling and 17 service, have been taken out of service. The reasons for the decline in activity in 2002

compared to 2001 were two-fold. First, competition and industry capacity continued to increase, albeit at a slower

pace, as competitors continued to build new equipment. Available rigs in Canada are now at an all-time high.

Second, although the fourth best year ever in western Canada in terms of well completions, 2002 was

characterized by low risk drilling whereby short duration shallow gas wells were dominant. A lack of confidence

in energy commodity pricing triggered conservative spending by our customers. This is noteworthy as drilling

parameters serve as a lead indicator for most future energy services within a region. There were 14,459 wells

drilled in Canada in 2002, a mark that resulted in a drilling rig activity decline of 27% to 31,363 operating days

for Precision in Canada, representing a 38% utilization rate, a post-1992 low. Service rig activity declined 20%

to 392,210 hours in Canada (44% utilization). Our service rig work was split one-third new well completion, with

the remaining two-thirds directed towards the workover of existing wells in production. Snubbing unit activity

declined 15% and camp and catering days declined 37% to 9,041 days (33% utilization).

Capital expenditures should ensure that equipment is kept up-to-date with economic and environmentally

based technological upgrades. Capital expenditures are managed to closely match changes in demand for our

existing asset base. Measures of demand include utilization, revenue and operating earnings. Compared to the

prior year, service and drilling rig utilization declined a combined 24%, capital expenditures were down 59%,

revenue reduced 23% and operating earnings declined 38%.

In terms of operating earnings, the $114.7 million dollar drop over the prior year is due to a volume reduction

of $69.7 million resulting from lower equipment utilization, with the remaining $45.0 million due to price

competitiveness giving rise to lower rig dayrates and less coverage of fixed infrastructure costs. Drilling and

service rig dayrates were strong in the first quarter of 2002 as record 2001 performance momentum carried

forward through winter drilling. However, as the remaining three quarters progressed, steadily softening demand

continued to erode operating margins and CDG exited the year with margins at 52 week lows. With spot market

rates for drilling rigs in early 2003 having increased by $1,000 per day in the oversupplied doubles market, there

are early signs that equipment demand and rates may strengthen in 2003 rather than deteriorate throughout the

year, as they did in 2002.

2001 Compared to 2000

CDG saw revenue increase by 36% in 2001 over 2000. This increase was the net result of improved pricing

and an increased fleet size with acquisitions completed in the second half of 2000. Price increases realized during

the buoyant first half of 2001 were for the most part maintained throughout the remainder of the year.

Operating earnings increased by $85.5 million or 40%; however, as a percentage of revenue it remained

relatively consistent at 30% in 2001 compared to 29% in 2000. The mix of business within the segment

influenced this latter comparison. Well servicing typically generates less operating margin than contract drilling

rigs. Although well service hours experienced 121% growth and drilling rig operating days a mere 9%, overall

operating earnings as a percentage of revenue increased due to strong pricing for drilling rigs in Canada and

internationally. During 2001, Canadian rig labour rates were increased approximately 10%.

Within CDG, 88% of revenue was generated in Canada. Canadian equipment utilization for 2001 as a

percentage of available days was nominally less than 2000 due to a highly unusual decline in demand during

the fourth quarter. Both drilling and service rig operations managed to build and hold pricing gains until late in

the year. As 2001 came to a close, competitive pressure was serving to lower customer pricing as available rig

supply in the spot market was growing.

TECHNOLOGY SERVICES GROUP

(Stated in thousands of Canadian dollars)

Years ended December 31,

Revenue
Expenses:

% of
Revenue

2002

% of
2001 Revenue

% of
2000 Revenue

$ 639,367

$ 669,439

$ 372,425

Operating
General and administrative
Depreciation and amortization
Research and engineering
Foreign exchange
Operating earnings (loss)

493,425

91,123

58,935

34,862

1,668

$ (40,646)

77.2

14.3

9.2

5.4

0.3
(6.4) $

440,547
81,905
51,656
32,440
2,463
60,428

65.8
12.2
7.7
4.9
0.4
9.0

255,012
38,920
27,969
20,288
(384)
30,620

68.5
10.5
7.5
5.4
(0.1)
8.2

Years ended December 31,

Wireline jobs performed
Directional wells drilled
Well testing/CPD (2) man days

% Increase
2002 (Decrease)

% Increase
2001 (Decrease)

30,813

1,654

(18.6)

44.1

37,845
1,148

28.6
15.1

% Increase
2000 (Decrease)

29,431
997

220.6
–(1)

(Canada only)

49,227

(18.1)

60,135

43.9

41,777

70.6

(1) Not available in 1999.

(2) Controlled Pressure Drilling (CPD).

2002 Compared to 2001

As illustrated in the following charts, TSG continued its geographic diversification efforts in 2002. Revenue

declined by $30.1 million or 4.5% in 2002 compared to 2001. The Canadian and U.S. operations saw revenue

decline as a result of reduced activity levels. The year over year decline in number of wells drilled amounted to

approximately 20% in both markets. The U.S. operations were also hampered by delays in the rollout of our new

suite of tools. We believe that the segment’s new generation tools should generate a growing revenue base as

more tools are deployed.

Geographic Distribution of Revenue

2002
Total: $639.4 Million

2001
Total: $669.4 Million

2000
Total: $372.4 Million

38%

24%

12%

46%

30%

58%

22%

32%

Canada

U.S.

Rest of World

Revenue increased in all regions except Canada and the U.S. as the segment’s expanded international presence

facilitated the participation in a broader spectrum of projects. The political situation in Venezuela did have a

negative effect on revenue as oil and gas production activity in that country was virtually shut down in the last

six weeks of the year.

Having set up regional operations centers in 2001, our strategy in 2002 was to establish brand recognition

for Precision through successful completion of competitively bid projects. With these expanded operations,

Precision is now becoming recognized as a viable alternative to the historical group of oilfield service providers

in many international markets. However, the scope of TSG’s growth initiatives, in terms of both geography and

product lines, combined with the impact of delays in the deployment of new technologies, resulted in operations

support and administrative organizations that were uneconomic for the start-up revenue levels realized. This is

also reflected in operating and general and administrative expense, which grew 11.9% year-over-year while

revenue declined by 4.5%.

Rectifying this situation is now the top priority of management. The research and engineering team and

manufacturing operations have made substantial progress towards achieving the objectives established when the

Corporation’s expansion into technology services was initiated. These significant technological developments are

described below. The emphasis will now be on operating the business units as efficiently as possible and growing

the revenue base to make full use of the infrastructure. This will involve focusing on the segment’s two main

product lines, namely wireline and directional drilling services. We believe many of the start-up costs are behind

us and with the delivery of the new generation tools, Precision will be able to more effectively compete in the

global oilfield services market.

Success in increasing revenue and profitability in TSG is largely dependent upon the deployment of the

technologies discussed above. The number of tools manufactured and delivered to field operations increased

steadily over the course of 2002.

Significant technology developments were achieved in both drilling and wireline services in 2002. The focus

for 2003 will be to actively support the field testing and deployment of the new technologies presently under

development and to develop and deploy important enabling infrastructure technology.

The EMpulse™ electromagnetic MWD system had three major upgrades that allowed it to operate under more

severe levels of shock and vibration. The basic system was upgraded to be able to operate at temperatures up to

150°C with the high-temperature system up to 175°C. Improved features for offshore drilling applications

included the creation of an antenna deployment and recovery system, development of surface handling systems

and the creation of an innovative system for transmitting the signal through a specially coated casing string.

Development of the Hostile Environment Logging (HEL™) MWD system and the PrecisionLWD™ system, each

designed to operate in high-temperature and high-pressure wells, was completed in 2002. The PrecisionLWD™

system consists of a pulser, downhole power system, communication infrastructure, azimuthal gamma ray tool,

directional tool, high accuracy bore and annulus pressure monitors, Multi-Frequency Resistivity (MFR™), neutron

porosity and density tools (referred to as a triple-combo system), as well as the surface systems needed to deliver

the service at the rig site.

Field testing of the 4 3/4 in. Revolution™ rotary steerable system commenced late in 2002. This tool is

designed to be used in conjunction with the HEL™ MWD and PrecisionLWD™ systems.

Progress was made in cased hole logging, the most significant being the development of a best-in-class

high-temperature Sector Bond™ tool; a high reliability pulsed neutron generator for the Pulsed Neutron Decay-

Spectrum (PND®-S) tool, and a gamma ray/neutron tool. Highlights in open hole logging include successfully

field testing the Spectral Gamma Ray tool. The software group added significant processing and field

interpretation capability to the cased hole workstation.

2001 Compared to 2000

In 2001, TSG made progress in pursuit of its international growth objectives. Significant effort and

investment was directed to the U.S. wireline operation resulting in increased market share and providing a solid

base from which to expand our other services lines in this market.

The integration of acquisitions, most notably Geoservices S.A. and BecField Drilling Services Ltd. (BecField),

was also a focus in 2001. These additions provided technological advances and distribution channels with

established operating structures in international markets. The integrated service contract in Mexico’s Burgos

Basin established Precision’s presence in that country, which resulted in additional controlled pressure drilling,

well testing, directional drilling, MWD/LWD and drill bit contracts. These expansion initiatives combined with

increased domestic activity levels to generate an 80% increase in revenue to $669.4 million in 2001 compared to

2000.

Operating earnings increased by 97% to $60.4 million from $30.6 million in 2000. As a percentage of

revenue, operating earnings improved slightly from 8% to 9%. The operational and administrative infrastructure

necessary to deliver the segment’s services internationally were in the initial stages of development in the U.S.,

Latin America, Europe/Africa, the Middle East and Asia/Pacific. This included the equipment and facilities to

repair the MWD/LWD tools being produced by the Corporation’s research and engineering staff at Advantage

R & D, Inc. (formerly Advantage Engineering Services, Inc.). Costs for training field personnel and establishing

technical support networks were also incurred to facilitate the rollout of the suite of new tools.

RENTAL AND PRODUCTION GROUP

(Stated in thousands of Canadian dollars)

Years ended December 31,

Revenue
Expenses:

Operating
General and administrative
Depreciation
Foreign exchange

% of
Revenue

2002

% of
2001 Revenue

% of
2000 Revenue

$ 274,403

$ 271,880

$ 239,220

203,055

74.0

12,674

15,095

(39)

4.6

5.5

–

192,857
12,353
14,934
58
51,678

71.0
4.5
5.5
–
19.0

171,192
11,207
13,995
(463)
43,289

71.6
4.7
5.8
(0.2)
18.1

Operating earnings

43,618

15.9

Years ended December 31,

Equipment rental days (000’s)
Number of compressor packages sold
Plant maintenance man-days (000’s)

(1) Not available in 1999.

2002 Compared to 2001

% Increase
2002 (Decrease)

607

259

(34.4)

37.5

12.6

% Increase
2001 (Decrease)

925
56
230

37.9
(17.6)
15.0

% Increase
2000 (Decrease)

671
68
200

40.4
15.3
–(1)

Revenue in RPG increased modestly in 2002 over 2001 as reductions in the oilfield equipment rental business

were more than offset by increases in the industrial plant maintenance operation and the compression packaging

business. The industrial plant maintenance business benefited from the commissioning work performed at a new

heavy oil upgrading plant and continued high levels of maintenance work at oil sands projects in northern

Alberta. Operating margins were consistent with 2001 levels. During the year, this business was expanded

through the acquisition of a vacuum truck operation in northern Alberta. The utilization of these assets will be

enhanced by using them for plant maintenance work in addition to their continued operation in the oil and gas

drilling and well servicing market.

Compression packaging revenue increased slightly and margins remained consistent with 2001 levels. Energy

Industries Inc., the subsidiary which carried on this business, was sold in March 2003 with an effective date of

January 1, 2003. Although this operation had been profitable since its acquisition by Precision in 1996, it was

not a core business in the Corporation’s energy services globalization strategy.

The oilfield equipment rental business saw revenue decline in conjunction with reduced Canadian drilling

activity. This also had an impact on overall segment profitability as the rental business has higher margins than

the industrial plant maintenance and compression packaging businesses.

2001 Compared to 2000

Revenue in RPG increased by $32.7 million in 2001 or 14%, with the majority of the increase coming from

the industrial maintenance and plant turnaround operation. This business saw strong returns from its expansion

to service the oil sands projects in northern Alberta and from its focus on providing a full range of services to

its customers.

Operating margins improved slightly with increased activity levels. In spite of strong competitive pressures,

the gas compression business was able to maintain its revenue and operating margins.

OTHER ITEMS

2002 Compared to 2001

Corporate and Other Expenses

Net expenses for the Corporate and Other segment declined by $2.0 million in 2002 compared to 2001. The

primary reason was the reduction in variable compensation payments, which are tied to corporate performance.

Foreign Currency Translation

Effective January 1, 2002, the Corporation was required to adopt, on a retroactive basis, a new Canadian

accounting standard whereby unrealized gains or losses on foreign currency denominated long-term monetary

items will no longer be deferred and amortized but rather expensed as incurred. The new standard is consistent

with U.S. practice.

Interest Expense

Net interest expense declined by $8.3 million in 2002 as a result of the reduced cost of borrowing due to

declining interest rates and reduced borrowing levels. The average debt outstanding in 2002 was $568.4 million

compared to $630.8 million in 2001. Interest coverage, defined as operating earnings divided by net interest

expense, declined to approximately five times in 2002 compared to nine times in 2001. Interest coverage is

expected to move back towards 2001 levels in 2003 based upon anticipated activity levels and interest rates.

Income Taxes

The effective tax rate on earnings before income taxes and goodwill amortization was 26% in 2002 compared

to 36% in 2001. This reduction is due to the combined impact of tax rate reductions instituted by both the Alberta

and Canadian Federal governments and income taxed in jurisdictions with lower tax rates.

The effective tax rate in 2002 and 2001 was reduced by 0.5% and 2%, respectively, as a result of tax rate

decreases enacted by the Alberta government in those years. Canadian GAAP required that the effect of these

rate reductions be reflected as a decrease of future tax expense. The impact of these rate reductions was $2.6

million in 2002 and $6.0 million in 2001.

Goodwill Amortization

In 2001, standards under both Canadian and U.S. GAAP were issued that eliminated the amortization of

goodwill. These rules were adopted January 1, 2002, by the Corporation.

2001 Compared to 2000

Corporate and Other Expenses

Corporate and Other expenses of $30.8 million increased 8% from $28.6 million in 2000 following the growth

of the Corporation. In particular, the continued development of the corporate office in Houston, Texas, facilitated

marketing initiatives to support the international expansion. Corporate expenses are primarily personnel related

costs, including incentive pay, which is tied to performance. The strong financial performance of the Corporation

resulted in increased employee compensation costs.

Interest Expense

Net interest expense increased by $14.9 million or 52% in 2001 over 2000, following the increase in average

net borrowings from $455.9 million in 2000 to $630.8 million in 2001. Net borrowings at year-end dropped to

$600.1 million from $675.4 million at year-end 2000. As a percentage of revenue, net interest expense remained

at 2%. Interest coverage, defined as operating earnings divided by net interest expense, remained at nine times.

Income Taxes

The Corporation’s effective tax rate was 36% of earnings before income taxes and goodwill amortization,

compared to 33% in 2000. The increase in the tax rate resulted from the impact on future tax expense of tax

rate reductions in 2001 and 2000. In 2001, the Alberta government enacted a 2% reduction in tax rates effective

April 1, 2001. In 2000, the Canadian Federal government substantially enacted into law a 7% corporate tax rate

reduction over the period 2001 to 2004. Canadian GAAP required that the effect of these rate reductions be

reflected as a decrease of future tax expense in the year the law is passed or substantially enacted. The impact

of the Alberta tax rate reduction in 2001 was $6.0 million and in 2000 the impact of the Canadian Federal rate

reduction was $19.9 million. Excluding the impact of these rate reductions on future tax expense, the

Corporation’s effective tax rate was 38% in 2001 and 42% in 2000.

Goodwill Amortization

Goodwill amortization increased by $9.0 million, partially due to adding $23.9 million in goodwill from the

BecField acquisition and also from the full year of amortization on the $268.9 million of goodwill primarily

associated with the acquisitions of Plains Perforating Ltd. and CenAlta Energy Services Inc. in 2000.

LIQUIDITY AND CAPITAL RESOURCES

The Corporation continues to adhere to its conservative financial philosophies, the cornerstones of which are

to manage capital spending in relation to cash flow and to maintain a strong balance sheet. On a combined basis,

over the last two years our investing activities have been financed entirely from operating cash flow. Our balance

sheet remains solid with working capital of $210.3 million and a long-term debt to long-term debt plus equity

ratio of 25% at December 31, 2002.

In March 2003, the Corporation received $60.0 million on the sale of Energy Industries Inc. These funds were

used to repay borrowings under the $350.0 million revolving credit facility. At December 31, 2002, borrowings

under the facility amounted to $208.3 million.

Management believes that maintaining focus on these financing principles is a key element of the

Corporation’s risk management program that must respond to the very cyclical oil and gas business. The

Corporation’s strong balance sheet and unutilized borrowing capacity, combined with funds generated from

operations, is expected to provide sufficient capital to fund its ongoing operations and future expansions.

ACCOUNTING STANDARD CHANGES

In 2003, the Corporation will be required to adopt new Canadian accounting standards relating to testing the

impairment of long-lived assets. These standards are substantially equivalent to the corresponding U.S. rules. The

new standards establish a two step process for determining the impairment on long-lived assets held for use. An

impairment loss is recognized when the carrying amount of a long-lived asset exceeds the sum of the

undiscounted cash flows expected to result from its use and eventual disposition. The amount of any impairment

loss recognized is equal to the excess of the asset’s carrying value over the present value of the discounted cash

flows expected to result from its use and eventual disposition.

BUSINESS RISKS

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 available for them to finance the acquisition of services provided by the Corporation.

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 $29 per barrel in early 2001, US $20 in late 2001, and recently in

excess of US $30. Natural gas prices are established in a more “local” North American market due to the

requirement to transport this gaseous product in pressurized pipelines. Demand for natural gas is seasonal and

is correlated to heating and electricity generation requirements. Demand for natural gas and fuel oils is also

affected by consumer’s ability to switch from one to the other to take advantage of relative price variations.

The Corporation partially manages the risk of volatile commodity prices, and thus volatile demand for its

services, by striving to maintain cost structures that are scalable to activity levels. However, cost structures in

CDG are more variable in nature than those within TSG. In addition, our strong balance sheet and adherence to

conservative financing practices provide the resilience to withstand and benefit from downturns and upturns in

the business cycle.

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 and experienced sales and technical support professionals.

During periods of high activity levels, the attraction and retention of such employees is sometimes challenging

due to competition for their services. We must also balance the requirement to maintain a skilled workforce with

the need to establish cost structures that vary as much as possible with activity levels.

Within CDG, 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.

Many of our Canadian businesses have recently experienced manpower shortages. Over 70 drilling rigs ran

without relief crews throughout the early part of 2003, requiring them to shut down when crews needed time off.

TSG’s Canadian operations have been supported by additional people and equipment brought in from other

regional operations to meet peak winter demand.

Weather

The ability to move heavy equipment in the Canadian oil and natural gas fields is dependent on weather

conditions. As warm weather returns in the spring, the winter’s frost comes out of the ground, rendering many

secondary roads incapable of supporting the weight of heavy equipment until they have thoroughly dried out. This

“spring breakup”, which generally occurs in March and April and has a duration of from four to six weeks, has a

direct impact on the Corporation’s activity levels. In addition, many exploration and production areas in 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.

Working with customers, we strive to position equipment where possible such that it can be working on

location during spring breakup, limiting the need to move equipment during this time period as much as possible.

However, 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.

Technology

Technological innovation by oilfield service companies has improved the effectiveness of the entire

exploration and production sector over the industry’s 140-year history. Recently, development of directional and

horizontal drilling, controlled pressure 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 3D and 4D seismic have improved the success rate of exploration wells

partially offsetting the decline in the quantity of drillable prospects.

Our ability to deliver more efficient services is critical to our continued success. The Corporation has

continuously built upon its experience and teamed with customers to provide solutions to their unique problems.

Our ability to design and build specialized equipment has kept us on the leading edge of drilling technology. The

success of our in-house designed and built Super Single® rig, both in Canada and abroad, is testimony of our

dedication to these efforts.

The continued development of our TSG segment and, in particular, the work of its research and development

teams put the Corporation at another level where high-end technological innovation is paramount to success. We

have assembled teams of highly qualified experienced professionals that work in state-of-the-art testing facilities.

The technologies they have developed are at or near the commercial deployment stage, however, the success of

future technological endeavours is never certain.

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.

Foreign Operations

The Corporation is working hard to export its expertise and technologies to oil and gas producing regions

around the world. With this comes the risk of dealing with business and political systems that are much different

than we are accustomed to in North America. The Corporation has hired employees who have experience working

in the international arena and it is committed to recruiting qualified resident nationals on the staffs of all of its

international operations.

Foreign Currency Exchange Rates

The Corporation has a number of 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 U.S. dollars. In addition, many of

our business units buy a portion of their parts and supplies from suppliers in the U.S. Also, the manufacturing

effort associated with the deployment of the new suite of tools is taking place in the U.S. As a result, the

Corporation is presently a net payer of U.S. dollars.

Merger and Acquisition Activity

Merger and acquisition activity in the oil and gas exploration and production sector can impact demand for

our services as customers focus on reorganization activities prior to committing funds to significant drilling and

maintenance projects. Future merger and acquisition activity could have a short-term impact on our business,

but in the long-term should result in a stronger, more active market.

OUTLOOK

Strengthening domestic natural gas prices and relatively strong world oil prices should bode well for business

prospects in the energy services sector. The economics of natural gas supply and demand is the fundamental

driver of our business in North America. The combination of high natural gas demand induced by harsher winter

weather conditions and declining production capability due to depleting reserves and reduced drilling activity

support the growing consensus that natural gas prices will remain strong through 2003 and into 2004. Strong,

sustainable pricing is what has been required to get production companies recently back to work drilling and

completing wells to close the natural gas supply and demand gap. Canadian activity has been very strong in the

first quarter of 2003 and all indications are that demand for the services provided by the Corporation will remain

high throughout the year and into 2004.

Recently oilfield activity in the U.S. has shown signs of reacting to these same business fundamentals with

the rig count climbing to over 900. This has been reflected in the results of our U.S. business units. Mexico is

also a key player in the North American natural gas supply and demand picture and the Corporation will continue

to build on its success in that country.

The expected increase in North American oilfield activity and the deployment of new tools should enhance

Precision’s results in 2003. International activity is expected to continue at its existing pace, barring any impact

that war in the Middle East might have. From this solid foundation, we will continue to move forward with our

technological and global expansion efforts but in a more focused manner, concentrating on our core service lines

and the profitability of those businesses, particularly within TSG. The geopolitical environment in many

international regions will likely also play a factor in the speed of our expansion efforts as we weigh the risks

associated with deploying people and equipment.

Although delayed beyond original expectations, our suite of new downhole tools is now moving from the

development stage to the deployment stage. This new equipment is a key element that should allow the

Corporation to compete effectively and grow in international markets and to better utilize the service delivery

infrastructure established over the last two years.

Management’s Report to the Shareholders

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 (GAAP) 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

Company’s financial results prepared in accordance with Canadian GAAP. The MD & A compares the audited

financial results for the twelve months ended December 31, 2002 to December 31, 2001 and the twelve months

ended December 31, 2001 to December 31, 2000. Note 15 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 and special 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 (signed)

Dale E. Tremblay (signed)

Chairman of the Board, President

and Chief Executive Officer

March 6, 2003

Senior Vice President Finance

and Chief Financial Officer

Auditors’ Report to the Shareholders

We have audited the consolidated balance sheets of Precision Drilling Corporation as at December 31, 2002

and 2001 and the consolidated statements of earnings and retained earnings and cash flow for each of the years

in the three-year period ended December 31, 2002. These consolidated financial statements are the responsibility

of the Corporation’s management. Our responsibility is to express an opinion on these consolidated 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, 2002 and 2001 and the results of its operations and its cash flow

for each of the years in the three-year period ended December 31, 2002 in accordance with Canadian generally

accepted accounting principles.

KPMG LLP (signed)

Chartered Accountants

Calgary, Canada

February 11, 2003, except for

Note 20 which is as at March 6, 2003

Consolidated Balance Sheets

(Stated in thousands of dollars)

As at December 31,

Assets

Current assets:

Cash

Accounts receivable

Income taxes recoverable

Inventory

Property, plant and equipment, net of

accumulated depreciation

Intangibles, net of accumulated amortization of

$15,235 (2001 - $9,413)

Goodwill

Other assets

Liabilities and Shareholders’ Equity

Current liabilities:

Bank indebtedness

2002

2001

(Restated – Note 2)

17,315

13,231

443,799

7,804

132,909

601,827

474,528

–

111,393

599,152

(Note 3)

(Note 4)

1,521,444

1,418,609

72,380

546,921

17,443

74,004

545,377

14,216

$ 2,760,015

$ 2,651,358

(Note 5)

(Note 6)

95,321

85,384

Accounts payable and accrued liabilities

(Note 18)

268,568

Incomes taxes payable

Current portion of long-term debt

Long-term debt

Future income taxes

Non-controlling interest

Shareholders’ equity:

Share capital

Retained earnings

(Note 7)

(Note 11)

(Note 8)

–

27,682

391,571

514,878

318,547

2,019

912,916

620,084

253,342

12,764

31,743

383,233

496,200

355,078

868

887,160

528,819

Commitments and contingencies

(Notes 10 and 19)

1,533,000

1,415,979

$ 2,760,015

$ 2,651,358

See accompanying notes to consolidated financial statements.

Approved by the Board:

Hank B. Swartout (signed)

Director

H. Garth Wiggins (signed)

Director

Consolidated Statements of Earnings and Retained Earnings

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

Years ended December 31,

Revenue

Expenses:

Operating

General and administrative

Depreciation and amortization

Research and engineering

Foreign exchange

Operating earnings

Interest:

Long-term debt

Other

Income

Dividend income

Gain on disposal of investments

Earnings before income taxes, non-controlling

2002

2001

2000

(Restated - Note 2)

$ 1,689,150

$ 1,953,563

$ 1,355,453

1,190,991

1,238,864

158,490

141,429

34,862

4,357

1,530,129

159,021

34,508

1,334

(606)

(39)

(900)

153,498

145,120

32,440

2,009

1,571,931

381,632

44,112

556

(1,086)

(1,106)

(1,805)

871,016

102,848

101,300

20,288

1,787

1,097,239

258,214

31,166

473

(2,926)

–

(40)

interest and goodwill amortization

124,724

340,961

229,541

Income taxes:

Current

Future

(Note 11)

Earnings before non-controlling interest and

goodwill amortization

Non-controlling interest

Earnings before goodwill amortization

Goodwill amortization, net of tax

(Note 2)

Net earnings

Retained earnings, beginning of year

(Note 2)

Adjustment on adoption of liability method

69,288

(36,980)

32,308

92,416

1,151

91,265

–

91,265

528,819

25,753

96,021

121,774

219,187

868

218,319

31,785

186,534

342,285

36,252

40,415

76,667

152,874

–

152,874

22,761

130,113

282,204

of accounting for income taxes

(Note 2)

–

(70,032)

Retained earnings, end of year

Earnings per share before

goodwill amortization:

Basic

Diluted

Earnings per share:

Basic

Diluted

$ 620,084

528,819

342,285

(Note 12)

1.70

1.66

1.70

1.66

4.12

4.03

3.52

3.44

3.14

3.03

2.67

2.58

See accompanying notes to consolidated financial statements.

Consolidated Statements of Cash Flow

(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 and amortization

Goodwill amortization

Future income taxes

Gain on disposal of investments

Amortization of deferred financing costs

Unrealized foreign exchange loss (gain)

on long-term debt

Non-controlling interest

Funds provided by operations

Changes in non-cash working capital balances

(Note 18)

Investments:

Business acquisitions,

net of cash acquired

(Note 14)

Purchase of property, plant and equipment

Purchase of intangibles

Proceeds on sale of property, plant and equipment

Proceeds on disposal of investments

Investments

Financing:

Increase in long-term debt

Repayment of long-term debt

Deferred financing costs on long-term debt

Issuance of common shares on exercise of options

Issuance of common shares on exercise of warrants

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 12)

Basic

Diluted

See accompanying notes to consolidated financial statements.

2002

2001

2000

(Restated - Note 2)

91,265

186,534

130,113

141,429

145,120

–

(36,980)

(900)

1,294

(2,488)

1,151

194,771

4,452

199,223

(4,594)

(267,794)

(4,198)

32,449

1,872

(5,672)

31,785

96,021

(1,805)

1,302

5,848

868

465,673

(33,443)

432,230

(35,557)

(366,019)

(5,673)

31,001

2,283

227

101,300

22,761

40,415

(40)

1,435

1,889

–

297,873

(60,988)

236,885

(364,959)

(195,377)

(5,627)

20,520

(247,937)

(373,738)

(545,284)

119,380

(102,275)

–

25,756

–

9,937

52,798

4,084

13,231

17,315

3.63

3.55

22,083

(83,437)

(38)

20,294

2,371

–

(27,236)

(65,963)

(7,471)

20,702

13,231

8.79

8.59

321,543

(118,219)

(1,973)

21,009

–

(18,924)

73,340

276,776

(31,623)

52,325

20,702

6.11

5.91

Notes to Consolidated Financial Statements

(Tabular amounts stated in thousands of dollars 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 (GAAP)

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.

1. SIGNIFICANT ACCOUNTING POLICIES:

(a)

Principles of consolidation:

The consolidated financial statements include the accounts of the Corporation and its subsidiaries, all

of which, except one, are wholly-owned.

(b)

Inventory:

Inventory is carried at the lower of average cost and replacement value.

(c)

Property, plant and equipment:

Drilling rig equipment is depreciated by the unit-of-production method based on 3,650 drilling days

with a 20% salvage value. Drill pipe and drill collars are depreciated over 1,100 drilling days and have

no salvage value. Service rig equipment is depreciated by the unit-of-production method based on

24,000 hours for single and double rigs and 48,000 hours for heavy double rigs. Service rigs have a

20% salvage value.

Field technical equipment is depreciated by the straight-line method over periods ranging from 2 to 10

years.

Rental equipment is depreciated by the straight-line method over periods ranging from 10 to 15 years.

Other equipment is depreciated by the straight-line method over periods ranging from 3 to 10 years.

Light duty vehicles are depreciated by the straight-line method over 4 years. Heavy-duty vehicles are

depreciated by the straight-line method over periods ranging from 7 to 10 years.

Buildings are depreciated by the straight-line method over periods ranging from 10 to 30 years.

(d)

Intangibles:

Intangibles, which are comprised of acquired patents, are recorded at cost and amortized by the

straight-line method over their useful lives ranging from 5 to 15 years.

(e)

Goodwill:

Goodwill is recorded at cost, less amortization, and is tested for impairment annually in the fourth

quarter.

(f)

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 are written down to their net realizable value.

(g)

Deferred financing costs:

Costs associated with the issuance of long-term debt are deferred and amortized by the straight-line

method over the term of the debt. The amortization is included in interest expense.

(h)

Income taxes:

The Corporation follows 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 and the tax basis of the assets and liabilities), and are

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.

(i)

Revenue recognition:

Revenue is primarily recognized as services are rendered based upon agreed daily, hourly or job rates.

The Corporation’s manufacturing activities relate to equipment sale contracts, which follow the

percentage of completion method of revenue recognition.

(j)

Post-employment benefits:

The Corporation 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.

(k)

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 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.

Transactions in foreign currencies are translated at rates in effect at the time of the transaction.

Monetary assets and liabilities are translated at current rates. Gains and losses are included in income.

(l)

Stock-based compensation plans:

The Corporation has equity incentive plans, which are described in Note 8. 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.

(m) 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.

(n)

Per share amounts:

Basic per share amounts are calculated using the weighted average number of shares outstanding

during the year. Diluted per share amounts are calculated based on the treasury stock method, which

assumes that any proceeds obtained on exercise of options would be used to purchase common shares

at the average market price during the period. The weighted average number of shares outstanding is

then adjusted by the net change.

(o)

Comparative figures:

Certain comparative figures have been reclassified to conform with the current financial statement

presentation.

2. ACCOUNTING CHANGES:

(a) Accounting for business combinations, goodwill and other intangible assets:

Effective January 1, 2002, the Corporation prospectively adopted the new Canadian accounting

standards relating to business combinations and goodwill and other intangible assets.

Under the new business combination standard, the Corporation is required to use the purchase method

to account for all business combinations and identify, separate from goodwill, other intangible assets

that arise from contractual or legal rights or that can be separately sold.

Under the new standard for accounting for goodwill, goodwill is no longer amortized, but is tested for

impairment at least annually. An assessment of potential goodwill impairment is completed annually

in the fourth quarter.

(b)

Foreign currency translation:

Effective January 1, 2002, the Corporation adopted, on a retroactive basis, a new Canadian accounting

standard whereby unrealized gains or losses are not deferred and amortized as previously required but

rather expensed as incurred.

As a result of this change, unrealized gains and losses related to translation of foreign currency

denominated long-term debt are no longer deferred and amortized over the term of the debt but are

expensed as incurred. Prior period results have been restated to reflect this change. The retroactive

application of this standard has reduced the opening balance of retained earnings by $1.6 million and

$115,000 at January 1, 2002 and January 1, 2001 respectively, and increased the opening balance of

retained earnings by $1.3 million at January 1, 2000.

(c)

Stock-based compensation plans:

Effective January 1, 2002, the Corporation has prospectively adopted the new accounting policies with

respect to accounting for stock options. The Corporation’s stock-based compensation plans for

employees do not involve the direct award of stock, or call for the settlement in cash or other assets.

As a result, the Corporation has the option to apply either the intrinsic value based or the fair value

based method of accounting for stock-based compensation awards granted to employees.

The Corporation has elected to apply the intrinsic value based method and accordingly, no

compensation costs have been recognized in the financial statements. Any consideration received on

exercise of the stock options is credited to share capital.

(d)

Incomes taxes:

Effective January 1, 2000, the Corporation adopted the liability method of accounting for future income

taxes.

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 adopted the new income tax accounting standard retroactively, without restating the

financial statements of any prior period. As a result, the Corporation recorded a reduction to retained

earnings and an increase to the future tax liability, formerly the deferred tax liability, in the amount of

$70.0 million as at January 1, 2000.

INVENTORY:

Finished goods and work in progress

Operating supplies

Manufacturing parts and materials

4. PROPERTY, PLANT AND EQUIPMENT:

2002

Rig equipment

Field technical equipment

Rental equipment

Other equipment

Vehicles

Buildings

Land

2001

Rig equipment

Field technical equipment

Rental equipment

Other equipment

Vehicles

Buildings

Land

2002

94,323

19,740

18,846

2001

55,118

30,020

26,255

$ 132,909

111,393

Cost

Accumulated
Depreciation

Net Book
Value

$ 1,065,742

$ 269,213

$ 796,529

513,591

97,390

174,331

82,091

71,131

16,982

78,399

31,012

84,447

21,477

15,266

–

435,192

66,378

89,884

60,614

55,865

16,982

$ 2,021,258

$ 499,814

$ 1,521,444

Cost

Accumulated
Depreciation

Net Book
Value

$ 1,022,281

215,862

806,419

365,858

96,509

167,292

72,276

52,734

14,679

31,669

28,211

71,243

15,413

10,622

–

334,189

68,298

96,049

56,863

42,112

14,679

$ 1,791,629

373,020

$ 1,418,609

Effective January 1, 2001, the Corporation changed its estimated salvage value on drilling and service rigs

from nil to 20%. The impact resulted in a reduction of related depreciation expense in the year ended December

31, 2002 by $6.9 million ($10.5 million – December 31, 2001) and an increase in net earnings after income taxes

of $4.2 million ($6.1 million – December 31, 2001) and $0.08 per share – Diluted ($0.11 – December 31, 2001).

5. OTHER ASSETS:

Investments, at cost less provision for impairment
Investments, at equity
Deferred financing costs, net of accumulated amortization

2002

8,960

2,114

6,369

2001

4,280
2,273
7,663

17,443

14,216

6. BANK INDEBTEDNESS:

A wholly-owned subsidiary of the Corporation has available a revolving credit loan facility of US $15.0

million. Advances under this facility bear interest at the bank’s prime lending rate less 1.75% and are fully

guaranteed by the Corporation. The facility is renewable and extendable annually at the option of the lenders.

As at December 31, 2002 $14.3 million (US $9.2 million) (December 31, 2001 - $1.9, US $1.2) was drawn on this

facility. Availability of this facility is further reduced by outstanding letters of credit in the amount of $1.3

million (US $811,000).

As at December 31, 2002, and 2001, the Corporation has included borrowings of $80.0 million under its

extendable revolving unsecured facility in bank indebtedness, as the funds were used to finance working capital.

7. LONG-TERM DEBT:

Unsecured debentures – Series 1

Unsecured debentures – Series 2

EDC facility (2002 – US $7,917, 2001 – US $13,194)

EDC facility (2002 – US $30,000, 2001 – US $40,000)

Extendable revolving unsecured facility

Equipment loans

Capital lease obligations

Less amounts due within one year

2002

2001

$ 200,000

200,000

150,000

12,255

46,440

128,318

3,892

1,655

542,560

27,682

150,000

21,025

63,740

79,781

11,114

2,283

527,943

31,743

$ 514,878

496,200

The $200.0 million 6.85% Series 1 unsecured debentures mature June 26, 2007 and have an effective interest

rate of 7.44% after taking into account deferred financing costs. The debentures are redeemable at any time at

the option of the Corporation upon payment of a redemption price equal to the greater of an amount calculated

with reference to the yield on a Government of Canada bond with the same maturity, and par.

The $150.0 million 7.65% Series 2 unsecured debentures mature October 27, 2010 and have an effective

interest rate of 7.71% after taking into account deferred financing costs. The debentures are redeemable at any

time at the option of the Corporation upon payment of a redemption price equal to the greater of an amount

calculated with reference to the yield on a Government of Canada bond with the same maturity, and par.

The $12.3 million unsecured term financing facility with Export Development Canada (EDC) is repayable in

semi-annual installments, matures on January 20, 2004 and bears interest at six-month U.S. Libor plus applicable

margin. The margin is dependent upon the Corporation’s credit rating, which at December 31, 2002 resulted in

a margin of 0.8%.

The $46.4 million unsecured term financing facility with EDC is repayable over five years in semi-annual

installments, matures September 15, 2005 and bears interest at six-month U.S. Libor plus applicable margin. The

margin is dependent upon the Corporation’s credit rating, which at December 31, 2002 results in a margin of 0.9%.

The Corporation has an extendable revolving unsecured facility of $350.0 million (or U.S. equivalent) with a

syndicate led by a Canadian chartered bank. Advances are available to the Corporation under this facility either

at the bank’s prime lending rate, U.S. base rate, U.S. Libor plus applicable margin or Bankers’ Acceptance plus

applicable margin or in combination. The applicable margin is dependent on the Corporation’s credit rating,

which at December 31, 2002 resulted in a margin of 0.8%. The facility is extendable annually at 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, 2002 the Corporation had drawn $208.3

million under this facility, including US $25.0 million ($38.7 million), of which $80.0 million has been included

in bank indebtedness as the funds were used to finance working capital.

Equipment loans of $3.9 million bear interest at rates between 7.5% and 9.6% 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:

2003
2004
2005
2006
2007

8. SHARE CAPITAL:

(a) Authorized:

27,682
20,470
15,556
60
200,039

❚ unlimited number of non-voting cumulative convertible redeemable preferred shares without

nominal or par value;

❚ unlimited number of common shares without nominal or par value.

(b)

Issued:

Common Shares:

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

Options exercised

Warrants exercised

Balance, December 31, 2001

Options exercised

Balance, December 31, 2002

Number

Amount

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)

52,283,053

864,495

855,935

37,050

20,294

2,371

53,176,038

887,160

890,715

25,756

54,066,753

$ 912,916

Each of the 351,604 warrants outstanding at December 31, 2000 entitled the holder thereof to acquire

one common share at an exercise price of $64.00. Holders of 37,050 warrants exercised their right to

acquire common shares during the year. The remainder of the warrants expired on December 31, 2001.

(d)

Equity Incentive Plans:

The Corporation has equity incentive plans under which a combined total of 4,345,636 options to

purchase common shares are reserved to be granted to employees and directors. Of the amount

reserved, 4,119,328 options have been granted. 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 10 years. Options vest over a period from 1 to 4 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, 2000, 2001 and 2002, and

changes during the periods then ended is presented below:

Options
Outstanding

Range of
Exercise
Price

Weighted
Average
Exercise

Options
Price Exercisable

Outstanding at December 31, 1999

3,939,838

13.50 – 44.38

$ 25.57

827,097

Granted

Exercised

Cancelled or expired

1,615,474

(932,409)

(148,800)

25.50 – 54.20

13.50 – 34.50

16.30 – 40.25

39.51

22.53

28.55

Outstanding at December 31, 2000

4,474,103

13.50 – 54.20

$ 31.18

946,087

Granted

Exercised

Cancelled or expired

1,055,350

(855,935)

(267,237)

31.05 – 65.90

13.50 – 44.38

25.50 – 52.39

44.03

23.71

38.63

Outstanding at December 31, 2001

4,406,281

13.50 – 65.90

$ 35.21

1,217,428

Granted

Exercised

Cancelled or expired

786,050

(890,715)

(182,288)

41.06 – 52.61

13.50 – 44.38

25.50 – 65.90

48.77

28.92

40.19

Outstanding at December 31, 2002

4,119,328

$ 13.50 – 65.90

$ 38.93

1,627,777

The range of exercise prices for options outstanding at December 31, 2002 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 - 59.99

60.00 - 65.90

Number

322,236

151,675

1,577,140

1,155,727

885,050

27,500

$ 13.50 - 65.90

4,119,328

14.30

27.30

34.63

42.23

52.42

65.83

38.93

Weighted
Weighted
Average
Remaining
Average
Exercise Contractual
Life (Years)

Price

Weighted
Average
Exercise
Price

Number

292,486

$ 14.17

130,050

726,875

310,941

166,800

625

27.24

34.76

43.46

54.68

65.10

1.28

1.08

2.24

4.04

4.87

3.52

3.20 1,627,777

$ 34.18

In accordance with the Corporation’s stock option plans, these options have an exercise price equal to

the market price at date of grant. The per share weighted average fair value of stock options granted

during the year ended December 31, 2002 was $20.85 based on the date of grant using the

Black-Scholes option pricing model with the following assumptions: average risk-free interest rate of

4.53%, average expected life of 3.88 years and expected volatility of 49%.

Had the Corporation determined compensation costs based on the fair value at the date of grant for

stock options granted since January 1, 2002; net earnings and earnings per share (EPS) would have

decreased to the pro forma amounts indicated below. These pro forma amounts reflect compensation

cost amortized over the option’s vesting period.

Year Ended December 31, 2002

Net earnings

Basic EPS

Diluted EPS

9. EMPLOYEE BENEFIT PLANS:

As Reported

Pro Forma

91,265

1.70

1.66

85,071

1.59

1.55

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 $6.9 million for the year ended

December 31, 2002 (year ended December 31, 2001 - $6.3 million; year ended December 31, 2000 - $4.3 million).

10. COMMITMENTS:

The Corporation has commitments for operating lease agreements, primarily for vehicles and office space, in

the aggregate amount of $121.6 million. Payments over the next five years are as follows:

2003

2004

2005

2006

2007

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

2002

2001

2000

11. INCOME TAXES:

30,781

23,161

16,821

13,795

11,461

18,085

16,923

12,064

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 and non-controlling interest

$ 124,724

2002

Income tax rate

Expected income tax provision

Add (deduct):

Non-deductible expenses

Utilization of prior period losses

Non-deductible amortization

Income taxed in jurisdictions with lower tax rates

Other

Reduction of future tax balances due to

39%

48,642

2,098

–

(13,029)

(2,852)

34,859

2001

309,176

42%

129,854

2000

206,780

45%

93,051

4,259

–

13,096

(18,102)

(1,369)

127,738

1,458

(1,828)

10,106

(5,869)

(317)

96,601

substantively enacted tax rate reductions

(2,551)

(5,964)

(19,934)

32,308

121,774

76,667

During 2002 and 2001, the Province of Alberta enacted a 0.5% and 2% reduction in tax rates, respectively,

which has been reflected as a reduction in future tax expense in 2002 and 2001. In addition, during 2000, the

Federal Government of Canada introduced tax rate reductions to be implemented over the period from 2001 to

2004. The effect of the 7% tax rate reduction, from 29% to 22%, on the Corporation’s future tax balances was

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.

The net future tax liability is comprised of the tax effect of the following temporary differences:

Liabilities:

Property, plant and equipment and intangibles

$ 296,103

268,030

2002

2001

Assets held in partnership with different tax year

Deferred financing costs

Assets:

Losses carried forward

Accrued liabilities

50,640

2,385

$ 349,128

29,070

1,511

30,581

122,124

2,805

392,959

33,449

4,432

37,881

$ 318,547

355,078

The Corporation has available losses of $150.5 million of which the benefit of $77.7 million has been

recognized. These losses expire from time to time up to 2009.

12. PER SHARE AMOUNTS:

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, 2002 was 53,701,873 (year ended

December 31, 2001 – 52,952,879; year ended December 31, 2000 – 48,722,141).

Diluted per share amounts reflect the dilutive effect of the exercise of the warrants and options outstanding.

The diluted shares for the year ended December 31, 2002 was 54,815,167 (year ended December 31, 2001 –

54,198,348; year ended December 31, 2000 – 50,431,349).

13. SIGNIFICANT CUSTOMERS:

During the years ended December 31, 2002, 2001 and 2000, no one customer accounted for more than 10%

of the Corporation’s revenue.

14. ACQUISITIONS:

During the year ended December 31, 2002, the Corporation completed the following business acquisitions:

(a) Acquisition of the business assets of NightHawk Vacuum Services Ltd. (NightHawk) in September 2002.

NightHawk provides oilfield vacuum services in northern Alberta and British Columbia.

(b) Paid additional consideration in conjunction with an acquisition made in 2001. This additional

consideration was payable based on the development of a commercially viable technology.

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

businesses included in the financial statements from effective dates of acquisition. The details of the acquisitions

are as follows:

Net assets acquired at assigned values:

Working capital

Property, plant and equipment

Goodwill

Consideration:

Cash

NightHawk

Other

Total

(47)

3,097

–

3,050

–

1,544

(47)

3,097

1,544

4,594

3,050

1,544

4,594

During the year ended December 31, 2001, the Corporation completed business acquisitions, the most

significant of which was the acquisition of all the issued and outstanding shares of BecField Drilling Services

Ltd. (BecField) in January 2001. 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.

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:

Net assets acquired at assigned values:

Working capital

Property, plant and equipment

Goodwill

Future income taxes

Consideration:

Cash

(a)
(b)

Includes cash of $1,880.
Includes cash of $1,115.

BecField

Other

Total

2,446 (a)

1,136 (b)

5,036

23,877

31,359

4,074

2,783

(800)

7,193

3,582

9,110

26,660

(800)

38,552

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.

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

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:

Net assets acquired at assigned values:

Plains

CenAlta

Geoservices

Other

Total

Working capital

11,178

(2,240)

6,717

$ 15,673

Property, plant and equipment

Intangibles

Goodwill

Other assets

Long-term debt

Future income taxes

Consideration:

122,207

2,640

188,540

(42,535)

(4,755)

219,411

–

72,351

–

(50,725)

(34,262)

20,879

64,621

–

13,793

3,608

7,972

–

376,290

70,869

268,863

(93,260)

(39,017)

$ 277,303

$ 204,535

92,217

25,391

$ 599,446

Common shares

6,555

$ 202,535

Warrants

Cash

22,897

247,851

–

2,000

–

2,500

$ 211,590

92,217

22,891

–

22,897

364,959

$ 277,303

$ 204,535

92,217

25,391

$ 599,446

The following pro forma 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

Diluted

Earnings per share:

Basic

Diluted

2000

$1,546,431

128,245

97,857

2.47

2.38

1.88

1.82

15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:

These financial statements have been prepared in accordance with Canadian GAAP which, in the case of the

Corporation conform with United States generally accepted accounting principles (U.S. GAAP) in all material

respects, except as follows:

Income taxes:

In 2000 the Corporation adopted the liability method as described in Note 1 without restatement of prior

years. As a result, the Corporation recorded an adjustment to retained earnings and future tax liability in the

amount of $70.0 million at January 1, 2000. U.S. GAAP required the use of the liability method prescribed

in the Statement of Financial Accounting Standards (SFAS) No. 109, which substantially conforms with the

Canadian GAAP accounting standard adopted in 2000. Application of U.S. GAAP in years prior to 2000

would have resulted in $70.0 million of additional goodwill being recognized at January 1, 2000 as opposed

to an implementation adjustment to retained earnings allowed under Canadian GAAP. In 2000, 2001 and

2002 the U.S. GAAP financial statements would reflect an increase in goodwill of $66.5 million, $63.0 million

and $63.0 million, respectively, and a corresponding increase in retained earnings. An additional charge to

earnings of $3.5 million would be required related to this goodwill in each of 2000 and 2001.

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

and proposed legislation that is considered substantively enacted but not yet enacted into law. U.S. GAAP

requires that only enacted income tax legislation be used for calculation of future tax amounts. In 2000 the

Federal Government of Canada introduced tax rate reductions that were substantively enacted at December

31, 2000 but that were not passed into legislation until 2001. The resulting reduction of future tax balances

recognized under Canadian GAAP in 2000 would not be recognized under U.S. GAAP until 2001.

The application of U.S. 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 U.S. GAAP:

Goodwill amortization

Income tax rate

2002

2001

2000

$ 91,265

$ 186,534

$ 130,113

–

(3,502)

19,934

(3,502)

(19,934)

Net income and comprehensive income under U.S. GAAP

$ 91,265

$ 202,966

$ 106,677

Earnings per share under U.S. GAAP:

Basic

Diluted

Balance Sheets

1.70

1.66

3.83

3.74

2.19

2.12

Current assets

$ 601,827

$ 599,152

Property, plant and equipment

1,521,444

1,418,609

December 31, 2002

December 31, 2001

As reported

U.S. GAAP

As reported

U.S. GAAP

Intangibles

Goodwill

Other assets

Current liabilities

Long-term debt

Future income taxes

Non-controlling interest

Shareholders’ equity

72,380

546,921

17,443

72,380

609,950

17,443

74,004

545,377

14,216

74,004

608,406

14,216

$ 2,760,015

$ 2,823,044

$ 2,651,358

$ 2,714,387

391,571

$ 383,233

514,878

318,547

2,019

514,878

318,547

2,019

496,200

355,078

868

496,200

355,078

868

1,533,000

1,596,029

1,415,979

1,479,008

$ 2,760,015

$ 2,823,044

$ 2,651,358

$ 2,714,387

Consolidated Statement of Cash Flows

The application of U.S. accounting principles would have no impact on the consolidated statement of cash

flows.

Stock Compensation

In 2002 Canadian GAAP and U.S. GAAP were substantially the same with respect to stock compensation.

Prior to 2002, U.S. GAAP required the disclosure of the impact of using fair value accounting for stock

options if in fact this alternative was not used. Canadian GAAP did not require such disclosure. The per share

weighted average fair value of stock options granted during the year ended December 31, 2001 was $19.87

(year ended December 31, 2000 - $18.21) on the date of grant using the Black-Scholes option pricing model

with the following assumptions: risk free interest rate of 5.75%, expected life of 5 years and expected

volatility of 49% (year ended December 31, 2000 – risk free rate of 6%, expected life of 5 years and expected

volatility of 61%).

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 U.S. GAAP would have decreased by $12.2 million

to $190.8 million (basic EPS - $3.60) for the year ended December 21, 2001 and decreased by $16.8 million

to $89.9 million (basic EPS - $1.84) for the year ended December 31, 2000.

16. SEGMENTED INFORMATION:

The Corporation operates in three industry segments. The Contract Drilling Group includes drilling rigs,

service rigs and hydraulic well assist snubbing units, procurement and distribution of oilfield supplies, camp and

catering services, and manufacture, sale and repair of drilling equipment. The Technology Services Group

includes wireline, directional drilling, measurement-while-drilling/logging-while-drilling services, well testing,

pumping services for cementing, fracturing and well stimulation, the design, manufacture and marketing of

downhole completion tools and the design, manufacture and marketing of polycrystalline diamond compact drill

bits. The Rental and Production Group includes oilfield equipment rental services, industrial process services and

compression equipment packaging, rental, sales and service.

2002

Revenue

Operating earnings

Research and engineering

Depreciation and amortization

Total assets

Goodwill
Capital expenditures (a)

(a) Excludes business acquisitions

Contract
Drilling
Group

Technology
Services
Group

Rental and
Production
Group

Corporate
and Other

Total

$ 773,949

$ 639,367

$ 274,403

1,431

$ 1,689,150

183,400

(40,646)

43,618

(27,351)

159,021

–

63,045

34,862

58,935

1,312,459

1,127,550

257,531

50,686

251,589

189,092

–

15,095

240,842

37,801

22,346

–

4,354

34,862

141,429

79,164

2,760,015

–

9,868

546,921

271,992

2001

Revenue

Operating earnings

Research and engineering

Depreciation and amortization

Total assets

Goodwill
Capital expenditures (a)

2000

Revenue

Operating earnings

Research and engineering

Depreciation and amortization

Total assets

Goodwill
Capital expenditures (a)

(a) Excludes business acquisitions

Contract
Drilling
Group

Technology
Services
Group

Rental and
Production
Group

Corporate
and Other

Total

$1,010,020

$ 669,439

$ 271,880

2,224

$1,953,563

298,100

–

75,511

1,367,682

257,531

122,575

60,428

32,440

51,656

987,061

250,045

203,547

51,678

(28,574)

–

14,934

241,044

37,801

27,352

–

3,019

55,571

–

18,218

381,632

32,440

145,120

2,651,358

545,377

371,692

$ 743,544

$ 372,425

$ 239,220

264

$1,355,453

212,633

–

58,194

1,376,007

272,779

97,498

30,620

20,288

27,969

722,461

237,328

78,468

43,289

(28,328)

–

13,995

203,132

40,395

21,828

–

1,142

6,326

–

3,210

258,214

20,288

101,300

2,387,926

550,202

201,004

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

2002

Revenue

Assets

2001

Revenue

Assets

2000

Revenue

Assets

17. FINANCIAL INSTRUMENTS:

(a) Fair value:

Canada

International

Total

$1,118,020

$ 571,130

$1,689,150

2,081,200

678,815

2,760,015

$ 1,412,370

$ 541,193

$1,953,563

2,175,877

475,481

2,651,358

$ 1,105,183

$ 250,270

$1,355,453

2,048,009

339,917

2,387,926

The carrying value of cash, accounts receivable and 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 $210.5 million as

at December 31, 2002 (December 31, 2001 – $201.5 million) and the $150 million Series 2 unsecured

debentures have a fair value of approximately $161.1 million at December 31, 2002 (December 31, 2001

- $153.2 million). As at December 31, 2002 investments have a carrying value of $11.1 million (December

31, 2001 - $6.6 million) and a fair value of approximately $12.7 million (December 31, 2001 - $7.8

million).

(b) Credit risk:

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. As at December 31, 2002 the Corporation’s allowance for doubtful accounts was $14.9

million (December 31, 2001 - $13.0 million).

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

rate borrowings. As at December 31, 2002, 43% of its total long-term debt was in floating rate

borrowings.

(d) Foreign currency risk:

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.

18. SUPPLEMENTAL 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

2002

2001

2000

$ 35,660

$ 45,967

$ 29,504

89,856

11,066

34,771

$ 30,829

$ (41,608)

$ (120,686)

(21,516)

15,707

(20,568)

(24,024)

17,503

14,686

(6,391)

64,479

1,610

4,452

$ (33,443)

$ (60,988)

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

Accounts payable

Accrued liabilities:

Payroll

Other

19. CONTINGENCIES:

2002

2001

$ 69,940

$ 58,228

45,115

153,513

58,117

136,997

$ 268,568

$ 253,342

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.

20. SUBSEQUENT EVENT:

On March 6, 2003 the Corporation sold Energy Industries Inc., a wholly owned subsidiary, for $60 million

cash. The effective date of the transaction is January 1, 2003.

Supplementary Information

THE TORONTO STOCK EXCHANGE – SHARE TRADING SUMMARY

Canada

2002

March 31

June 30

September 30

December 31

2001

March 31
June 30
September 30
December 31

2000

March 31
June 30
September 30
December 31

High
($)

51.58

61.30

54.30

58.23

61.30

72.00
68.00
49.50
42.75
72.00

48.95
59.50
59.00
57.15
59.50

Low
($)

36.74

47.61

42.50

43.60

36.74

50.00
46.36
30.65
31.58
30.65

33.90
43.80
47.90
39.30
33.90

THE NEW YORK STOCK EXCHANGE – SHARE TRADING SUMMARY

High
($)

32.35

39.24

35.00

37.45

39.24

46.40
44.50
32.46
27.19
46.40

33.75
40.38
39.56
37.94
40.38

Low
($)

23.10

30.00

26.66

27.38

23.10

33.06
30.50
19.45
19.99
19.45

23.31
29.38
32.38
25.56
23.31

United States

2002

March 31

June 30

September 30

December 31

2001

March 31
June 30
September 30
December 31

2000

March 31
June 30
September 30
December 31

Close
($)

50.97

52.61

47.90

50.95

56.60
47.35
33.40
41.06
41.06

48.55
57.20
53.85
56.25
56.25

Close
($)

31.96

34.74

30.10

32.54

35.67
31.24
21.16
25.82
25.82

33.38
38.63
35.63
37.53
37.53

Volume
of Shares

Value
($)

19,417,580

841,050,535

18,359,677

1,008,242,529

15,770,027

763,653,639

17,546,936

922,073,312

71,094,220

3,535,020,015

17,872,755
15,507,944
25,231,371
22,194,662
80,806,732

15,684,504
15,846,874
13,604,034
15,461,804
60,597,216

1,086,989,966
911,351,354
998,766,128
828,520,975
3,825,628,423

643,952,179
851,428,913
731,986,873
747,323,156
2,974,691,121

Volume
of Shares

Value
($)

15,502,400

419,853,448

17,441,600

616,795,917

18,290,300

560,468,184

19,727,900

665,228,176

70,962,200

2,262,345,725

20,504,400
20,689,100
18,847,500
23,462,000
83,503,000

14,504,500
14,323,200
12,586,000
15,878,300
57,292,000

816,043,158
808,735,284
523,502,280
555,447,564
2,703,728,286

416,080,112
512,362,421
455,927,521
491,100,502
1,875,470,556

STATEMENTS OF EARNINGS AND RETAINED EARNINGS

($ millions except per share amounts)

Years ended December 31

2002

2001

2000

1999

Years ended April 30
1995

1990

1999

Revenue
Expenses:

Operating
General and administrative
Depreciation and amortization
Research and engineering
Foreign exchange

Operating earnings
Interest, net
Dividend income
Gain on disposal of investments and subsidiary
Reduction of carrying amount of investments
Reduction of carrying amount of property,

plant and equipment
Forgiveness of long-term debt
Earnings before taxes, non-controlling
interest and goodwill amortization

Income taxes
Earnings before non-controlling interest and

goodwill amortization

Non-controlling interest
Earnings before goodwill amortization
Goodwill amortization
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

1,689.2 1,953.6 1,355.5

734.7

693.9

178.6

31.7

4.4

34.9

141.4

158.5

1,191.0 1,238.9
153.5
145.1
32.5
2.0
381.6
43.5
(1.1)
(1.8)
–

159.0

(0.9)

35.2

–

871.0
102.9
101.3
20.3
1.8
258.2
28.7
–
–
–

486.3
58.4
67.2
3.6
(0.7)
119.9
16.5
(1.4)
(24.9)
13.1

450.5
51.1
61.1
–
(0.4)
131.6
18.9
(17.8)
(17.0)
11.0

122.4
12.1
9.8
–
–
34.3
1.5
(0.7)
–
–

24.7
3.9
1.1
–
–
2.0
1.2
–
–
–

–

–
–

10.2
–

–
–

5.1
(5.2)

124.7

32.3

341.0
121.8

229.5
76.6

106.4
55.0

126.3
58.0

219.2
0.9
218.3
31.8
186.5
342.3

152.9
–
152.9
22.8
130.1
282.2

51.4
–
51.4
15.8
35.6
246.6

68.3
–
68.3
14.9
53.4
206.9

92.4

1.1

91.3

–

91.3

528.8

–

(70.0)

–

–
528.8

–
342.3

–
282.2

–
260.3

(0.2)
37.4

33.5
16.4

17.1
0.2
16.9
–
16.9
20.7

0.9
–

0.9
–
0.9
–
0.9
5.7

–

–
6.6

Retained earnings, end of period
Earnings before goodwill amortization per share:

620.1

Basic ($)
Diluted ($)
Earnings per share:

Basic ($)
Diluted ($)

(1) Not available.

1.70

1.66

1.70

1.66

4.12
4.03

3.52
3.44

3.14
3.03

2.67
2.58

1.16
1.14

0.80
0.79

1.62
1.60

1.27
1.25

1.03
1.00

0.08
– (1)

Additional Selected Financial Data

($ millions except per share amounts)
Returns:

Return on sales (1)
Return on assets (2)
Return on equity (3)

Financial position:
Working capital
Current ratio
Property, plant, equipment

and intangibles

Total assets
Long-term debt
Shareholders’ equity
Long-term debt to shareholders’ equity

Other Financial Data:

Net capital expenditures excluding

business acquisitions

EBITDA (4)
EBITDA – % of revenue
Operating earnings
Operating earnings – % of revenue
Cash flow (5)
Cash flow per share ($)

Basic
Diluted

Book value per share ($) (6)
Price earnings ratio (7)
Weighted average common shares

Years ended December 31

2002

2001

2000

1999

Years ended April 30
1995

1990

1999

9.6%
5.4% 9.5%
3.4% 7.3%
7.5%
6.1% 14.0% 13.4%

9.5%
7.7%
4.8%
2.7%
9.3% 14.7%
4.4% 15.9% 29.1%

2.8%
3.2%
7.0%

210.3

1.54

215.9
1.56

157.7
1.42

162.9
1.85

91.2
1.54

8.4
1.21

761.6

683.5
1,593.8 1,492.6 1,287.9
2,760.0 2,651.4 2,387.9 1,436.3 1,247.7
215.0
548.1
496.2
768.3
1,533.0 1,416.0 1,206.8
0.28
0.45

226.8
910.1
0.25

514.9

0.34

0.35

66.8
119.1
1.4
67.0
0.02

239.5

340.7
526.8

41.1
187.1

88.3
192.7

180.5
359.5

11.8
44.1
300.5
17.8% 27.0% 26.5% 25.5% 27.8% 24.7%
34.3
159.0
9.4% 19.5% 19.1% 16.3% 19.0% 19.2%
28.3
194.8

465.7

297.9

258.2

131.6

381.6

119.9

101.5

95.8

3.63

3.55

28.35

30.0

8.79
8.59
26.63
11.7

6.11
5.91
23.08
21.1

2.28
2.24
19.30
46.3

2.27
2.25
18.12
19.8

1.73
1.68
4.09
6.7

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
–(8)
1.12
17.4

outstanding (000’s)

53,702 52,953 48,722 44,500 42,086 16,398

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 quarter average total assets.
(3) Return on equity was calculated by dividing net earnings by quarter average total shareholders’ equity.
(4) Earnings before net interest, taxes, depreciation, amortization, non-controlling interest, dividend income, gain on disposal of

investments and subsidiary, reduction in carrying amounts of investments and property, plant and equipment and forgiveness
of long-term debt. EBITDA is not a recognized measure under Canadian GAAP. Management believes that in addition to net
earnings, EBITDA is a useful supplemental measure as it provides an indication of the results generated by the Corporation's
principal business activities prior to consideration of how those activities are financed or how the results are taxed in various
jurisdictions and prior to the impact of depreciation and amortization. Investors should be cautioned, however, that EBITDA
should not be construed as an alternative to net earnings determined in accordance with GAAP as an indicator of Precision's
performance. Precision's method of calculating EBITDA may differ from other companies and, accordingly, EBITDA may not be
comparable to measures used by other companies.

(5) Funds provided from operations excluding forgiveness of debt for 1990.
(6) Book value per share was calculated by dividing shareholders’ equity by common shares outstanding.
(7) Year end closing price divided by basic earnings per share.
(8) Not available.

Guidance and

Stewardship

Corporate Governance

INTRODUCTION

Precision’s Board of Directors is comprised of experienced, proven leaders representing a diverse group of

professions and industries in Canada and the U.S. There were eight Directors as of December 31, 2002.

Together, the Directors work to help our Corporation realize its full potential by sharing their creative vision,

initiative and sense of how outside events and developments can affect Precision’s future. They bring sound

judgment, integrity and independence of thought to the task and are encouraged to speak their minds, while

respecting others, so that different viewpoints can flourish in the process of developing a sensible consensus.

Precision’s Board is responsible for maintaining our Corporation’s high standards, managing the evolution of

our Corporate Governance program to comply with current regulatory trends, and providing stewardship of the

Corporation.

STEWARDSHIP

The Board oversees the management of the business affairs of the Corporation, discharging its responsibilities

either directly or through Board committees. The Board encourages Precision’s management, led by the President

and Chief Executive Officer (CEO), to be strong leaders and make clear and appropriate executive decisions.

Among its many specific duties, the Board:

selects, evaluates, sets the compensation for and, if necessary, replaces the CEO;

provides advice and counsel to the CEO, nominates Directors and evaluates Board performance;

holds an annual formal strategic planning session and approves strategic plans and objectives, major

decisions and corporate plans;

oversees the ethical, legal and social conduct of the organization, and reviews the financial performance

and condition of the Corporation;

identifies and considers risks in the operations of Precision and establishes policies for monitoring and

managing those risks;

provides succession planning for senior management;

represents the interests of all shareholders in general and not of just one group.

An orientation program for new Directors is in place and individual Directors can engage outside consultants

with the authorization of the Corporate Governance and Nominating Committee.

Board policy limits non-employee Directors to terms of no longer than 15 years on the Board, with an age

limit of 70 years.

BOARD COMMITTEES

The Board of Directors has established an Audit Committee, a Compensation Committee and a Corporate

Governance and Nominating Committee. All Board committees are composed of outside, independent directors.

Full details of committee mandates are set out in the Management Information Circular.

All members of each committee attended all meetings either in person or by telephone. In 2002, the Audit

Committee met five times, the Compensation Committee met three times and the Corporate Governance and

Nominating Committee met six times.

❚
❚
❚
❚
❚
❚
❚
Summary of Meeting Attendance

Director

W. C. (Mickey) Dunn
Robert J. S. Gibson
Steven C. Grant
Murray K. Mullen
Patrick M. Murray (appointed July 31, 2002)
Fred W. Pheasey (appointed July 31, 2002)
Hank B. Swartout
H. Garth Wiggins

(1) Attendance in person or by telephone.
(2) Five meetings were held prior to July 31, 2002.
(3) Four meetings were held prior to July 31, 2002.

INDEPENDENCE AND ACCOUNTABILITY

Board
Meetings (1)

Attended

Committee

Meetings (1)

Attended

8 of 9
7 of 9
9 of 9
9 of 9
4 of 4 (2)
4 of 4 (2)
9 of 9
8 of 9

6 of 6
11 of 11
8 of 8
3 of 3
1 of 1 (3)
2 of 2 (3)
0 of 0
5 of 5

The Corporate Governance and Nominating Committee is responsible for recommending to the Board its size,

composition and membership, succession planning for Directors and Board committee structure. Seven members

of Precision’s Board are independent and “unrelated” to our Corporation.

Hank B. Swartout is the only “related” Director, serving as Chairman of the Board and Precision’s President

and Chief Executive Officer. The Corporate Governance and Nominating Committee has concluded this dual role

does not impair the Board’s ability to function independently of management. Mr. Swartout’s extensive

knowledge of Precision’s business is beneficial to the rest of the Directors. To further reinforce independence, the

Board appoints a Chairman from the independent Directors present at each regularly held in-camera session.

COMPENSATION

The Compensation Committee annually reviews and recommends the compensation for non-employee

Directors. Those Directors receive an annual retainer of US $16,000 per year. They also receive board and

committee meeting fees of US $1,000 for attendance in person and US $500 for attendance by telephone.

Committee Chairs receive a retainer of US $5,000. Related travel and out-of-pocket expenses are reimbursed.

Shareholdings of Board Members

Total Common Shares held by the non-employee Directors: 54,000.

Total Stock Options held by the non-employee Directors: 160,000.

REGULATORY INITIATIVES

As a result of the many recently reported bankruptcies and other failures of large United States companies
which stem from apparent inadequacies in corporate governance and appropriate disclosure to the public, the
Congress of the United States has passed legislation known as the Sarbanes-Oxley Act which has mandated
numerous changes in how companies govern themselves and disclose information. Precision Drilling Corporation
is now subject to the new U.S. rules due to the fact that it is listed on the New York Stock Exchange.

The New York Stock Exchange has also mandated additional corporate governance requirements for listed

corporations.

In response, the Corporate Governance and Nominating Committee has determined that the Board of
Directors and its Committees and the Corporation have processes in place or are implementing further steps to
comply with these new rules and initiatives within the prescribed timeframe.

❚
❚
Directors

W.C. (Mickey) Dunn (3) — Edmonton, Alberta

A member of Precision’s Board of Directors since September 1992, Mr. Dunn has been Chairman of True
Energy Ltd., a publicly traded oil and gas exploration company, since January 2000. Previously, he was President
and a Director of Cardium Service and Supply Limited.

Robert J. S. Gibson (1) (3) — Calgary, Alberta

Mr. Gibson has been President of a private investment firm, Stuart & Company Limited, since 1973 and is

also Managing Director of Alsten Holdings Ltd. He has been a Director of Precision since June 1996.

Steven C. Grant (2) — Houston, Texas

Mr. Grant is currently the Managing Director of Investment Banking at Raymond James & Associates in
Houston. Previously, he was the Senior Vice President and Chief Financial Officer of Enterra Corporation in
Houston, Texas. He has been a Director of Precision since May 2000.

Murray K. Mullen (2) — Calgary, Alberta

Mr. Mullen joined Mullen Trucking Ltd. in 1977 and is currently Chairman, President and Chief Executive
Officer of Mullen Transportation Inc., a publicly traded company whose shares are listed on the Toronto Stock
Exchange. Mr. Mullen has been a Director of Precision since September 1996 and is active in professional and
community organizations.

Patrick M. Murray (1) — Dallas, Texas

Mr. Murray is President and Chief Executive Officer of Dresser, Inc. and has been a Director of Precision since
July 2002. A member of the American Petroleum Institute, and the Society of Petroleum Engineers, he is also a
board member of the Valve Manufacturers Association, the Petroleum Equipment Suppliers Association and
Houston-based Harvest Natural Resources, Inc.

Frederick W. Pheasey (3) — Edmonton, Alberta

Mr. Pheasey is currently the Executive Vice President and a Director of National-Oilwell, Inc. Previously, he
was the founder and Board Chairman of Dreco Energy Services, which was acquired by National-Oilwell in 1987.
Mr. Pheasey has been a Director of Precision since July 2002.

Hank B. Swartout — Calgary, Alberta

Mr. Swartout has been Chairman, President and Chief Executive Officer of Precision Drilling Corporation
since 1985. Previously, he held positions as Manager of Bawden Western Oceanic Offshore, Vice President of Rig
Design and Construction for Dreco, and Manager of Construction for Nabors Drilling Canada.

H. Garth Wiggins (1) — Calgary, Alberta

Mr. Wiggins has been the President of a private investment firm, Kamloops Money Management, since 1993.
He is also currently a Principal at Kenway, Mack, Slusarchuk, Stewart Chartered Accountants. Previously, he was
Vice President Finance and Chief Financial Officer of Tri Link Resources Ltd. and a partner of Farvolden, Wiggins,
Balderston Chartered Accountants. He has been a Director of Precision since September 1997.

(1) Audit Committee member.
(2) Compensation Committee member.
(3) Corporate Governance and Nominating Committee member.

Shareholder Information

HEAD OFFICE

Precision Drilling Corporation
4200, 150-6th Avenue S.W.
Calgary, Alberta, Canada T2P 3Y7
Telephone: 403-716-4500
Facsimile: 403-264-0251
Website: www.precisiondrilling.com

INTERNATIONAL CENTERS

United States
Suite 1700
363 N. Sam Houston Parkway East
Houston, Texas 77060, US
Telephone: 281-260-5600
Facsimile: 281-260-5670

Latin America
Avenida la Estancia
Centro Ciudad Comercial
Tamanaco (CCCT)
Torre B, Piso 1, Oficina B-105
Chuao, Caracas, Venezuela
Codigo Postal 1064
Telephone: 58-212-959-6211
Facsimile: 58-212-959-3595

DIRECTORS

(See page 76 for listing
and biographies.)

OFFICERS

Hank B. Swartout
Chairman of the Board,
President and Chief Executive
Officer

Dale E. Tremblay
Senior Vice President Finance
and Chief Financial Officer

John R. King
Senior Vice President
Technology Services Group

OTHER INTERNATIONAL OFFICES

Europe/Africa
Eddesser Strasse 1
31234 Edemissen, Germany
Telephone: 49-5176-989650
Facsimile: 49-5176-989670

Middle East
P. O. Box 2146 Bin Arrar Building
Floor 2, Office Number 2
Al Najda Street, Abu Dhabi,
United Arab Emirates
Telephone: 971-2-6747-333
Facsimile: 971-2-6747-373

Asia/Pacific
4th Floor,
Graha Elnusa
JL. T.B. Sirnatupang
Kav 1B
Jakarta, 12560
Indonesia
Telephone: 62-21-7854-6300
Facsimile: 62-21-7884-1266

Barbados
2nd Floor Trident House,
Broad Street, Bridgetown,
Barbados, West Indies
Telephone: 246-228-4293
Facsimile: 246-426-5992

Mexico
Av. Ind. Rio San Juan
Manzana 7, Lote 6,
Parque Industrial del Norte,
Cd. Reynosa, Tamaulipas,
Mexico C.P. 88730
Telephone: 52-8-929-5104
Facsimile: 52-8-929-5114

Venezuela
Avenida Intercomunal El
Tigre-El Tigrito,

Al Lado de American Diesel,
El Tigre, Estado Anzoategui,
Venezuela
Telephone: 58-2832-412701
Facsimile: 58-2832-412228

M.J. (Mick) McNulty
Senior Vice President
Operations Finance

R.T. (Bob) German
Vice President and
Chief Accounting Officer

Jan M. Campbell
Corporate Secretary

BANKER
Royal Bank of Canada
Calgary, Alberta

LEGAL COUNSEL
Borden Ladner Gervais LLP
Calgary, Alberta

AUDITORS
KPMG LLP
Calgary, Alberta

Shareholder Information

STOCK EXCHANGE LISTINGS

As a Precision Drilling Corporation

QUARTERLY UPDATES

Common
shares of Precision
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.

SHARE SPLIT

In 1997, Precision’s Board of
Directors authorized a two for one
split of the Corporation’s common
shares. The record date for the split
was September 30, 1997.

TRADING PROFILE

Toronto (TSX)
January 1, 2002,
to December 31, 2002
High: $61.30
Low: $36.74
Volume traded: 71,094,220

New York (NYSE)
January 1, 2002,
to December 31, 2002
High: US $39.24
Low: US $23.10
Volume traded: 70,962,200

Annual Share Trading Volumes

100

Millions

NYSE

TSX

shareholder,

If you would like to receive
quarterly reports but are not a
registered
please
write or call us with your name and
address. To receive our news
releases by fax, please forward your
fax number to us.

ONLINE INFORMATION

To receive our news releases by
e-mail, or to view this annual
report, please visit our website at
www.precisiondrilling.com and refer
to the Investor Relations section.

PUBLISHED INFORMATION

If you wish to receive copies of
the 2002 Renewal Annual
Information Form as filed with the
Canadian securities commissions
and as filed under Form 40-F with
the U.S. Securities and Exchange
Commission, 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
Facsimile: 403-264-0251

ESTIMATED QUARTERLY
RELEASE DATES

2003 First Quarter
May 1, 2003

2003 Second Quarter
August 1, 2003

2003 Third Quarter
October 30, 2003

shareholder, you are invited to take

advantage of shareholder services

or to request more information

about the Corporation.

TRANSFER AGENT
AND REGISTRAR

Computershare Trust

Company of Canada

Calgary, Alberta

TRANSFER POINT

Computershare Trust
Company, Inc.
New York, New York

ACCOUNT QUESTIONS

Our Transfer Agent can help you
with a variety of shareholder
related services, including:

Change of address

Lost share certificates

Transfer of stock to another

person

Estate Settlement

You can call our Transfer Agent
toll free at: 1-888-267-6555

You can write to them at:

Computershare Trust Company

of Canada

100 University Avenue, 9th Floor
Toronto, Ontario M5J 2Y1

Or you can email them at:
caregistryinfo@computershare.com

Shareholders of record who receive
more than one copy of this annual
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.

❚
❚
❚
❚
Glossary of Terms

Borehole. Also known as the
wellbore, this is the hole made by
the drillbit, including the open or
uncased part of the well.

Cased hole. The part of the wellbore
which has been protected by metal
casing to prevent fluid, pressure, and
stability problems.

Carbonate. A class of sedimentary
rock; common examples include
limestone, dolomite and chalk.

Coiled tubing. A length of
continuous steel tubing wound on a
spool that is used for various well
drilling or workover operations.

Coke. The hard black carbon
substance that remains in refining
processes after distillation of
hydrocarbons.

Completion. The process of
assembling downhole tubing and
equipment to finish a well so that it
can safely produce oil or gas.

Controlled pressure drilling. Uses a
drilling fluid with a hydrostatic
pressure that is lower than that
traditionally used to drill through a
zone. The hydrostatic pressure may
be reduced to allow the well to flow
during the drilling operation in a
controlled manner.

Dogleg. The rate of directional
change in a wellbore, usually
expressed as degrees per 100 feet.

Deviation. The angle a wellbore takes
from the vertical direction (drift
angle).

Directional drilling. The use of
equipment and engineering to
intentionally change the angle of
the wellbore so that drilling
efficiency can be enhanced or
formations or obstructions can be
circumvented in order to reach the
pay zone.

Drillstring. Comprised of a string of
tools, including the drillpipe, bottom
hole assembly and any other tools
needed to make the drill bit rotate at
the bottom of the wellbore.

Open hole. The part of a well that is
not cased. This can be the complete
wellbore immediately after the well
is drilled, or the section of the
wellbore that occurs below the
casing after completion.

Point-the-bit technology. Method of
changing the direction of the
wellbore by deflecting the drillstring,
causing the bit to drill in the
opposite direction from the
deflection.

Polycrystalline diamond compact
(PDC) bits. A type of bit that uses
cutters with synthetic diamond disks
to shear rock with a continuous
scraping motion.

Ranging tool. A device used during
SAGD to steer a well path alongside
a previously drilled well.

Rotary steerable system. A tool
designed for directional drilling that
allows wellbore direction to be
changed while drilling with
continuous rotation from the
surface.

Steam assisted gravity drainage
(SAGD). A technique used to extract
heavy oils. A horizontal production
well is drilled through the reservoir,
and a second horizontal well, used
for steam injection, is drilled a few
meters above the first well. Steam is
injected into the upper well, heating
the oil in the lower well and
allowing it to flow more easily.

Snubbing. A procedure moving
drillpipe or tubing in and out of a
wellbore when the well is under
pressure.

Wireline. Single-strand or
multistrand cable used to lower
evaluation tools into the borehole
and to transmit data

Workover. The repair or servicing of
a producing well to restore or
increase production.

Electromagnetic (EM) telemetry. A
data communication method that
works on the principle of
transmission of an electromagnetic
wave along the drillstring to surface
where the data is detected and
decoded by a surface transceiver.

Formation evaluation. Measurement
of formation properties in the
wellbore to determine the presence
of hydrocarbons.

Fracturing. A method of stimulating
production in formations which have
low permeability. High-pressure
fluids and solids are pumped into the
face of the formation to create
fractures and fissures through which
hydrocarbons can flow.

Gamma ray technology. Measures the
natural occurring radiation in
formations. Primarily used as a
lithology indicator to differentiate
between shales and sandstones.

Heavy oil. Viscous, high-density oil.

Oil sands. A porous sandstone
formation that contains oil.

Horizontal drilling. Directional
drilling technique where the
wellbore inclination approaches or
exceeds 90 degrees from vertical.

Liner hanger. Devices used during
well completion to attach liners to
the internal well instead of full
casing strings. Liners that hang from
the end of larger casing can save
significant money on casing costs.

Logging-while-drilling (LWD)
technology. Uses downhole tools to
measure formation properties in real
time while the well is being drilled.
Properties measured include
formation resistivity, porosity and
density.

Measurement-while-drilling (MWD)
technology. Uses downhole tools to
measure wellbore properties in real
time while the well is being drilled.
Properties measured include
wellbore inclination and azimuth,
downhole pressure, temperature,
drillstring vibration and shock.

Mud-pulse telemetry. The
transmission of downhole
information to the surface while
drilling by pressure pulses in the
drilling mud.

Precision Drilling Corporation

4200, 150-6th Avenue SW

Calgary, Alberta, Canada T2P 3Y7

Telephone: 403-716-4500

Facsimile: 403-264-0251

Website: www.precisiondrilling.com

2002 ANNUAL REPORT