Operational Excellence. Annual Report 2011

Transcription

1 Operational Excellence Technical Solutions Annual Report 2011

2 Corporate Profile Trican Well Service Ltd. is a major provider of pressure pumping services in the global marketplace. A technical and operational leader, Trican s experience in pressure pumping is among the most extensive in the industry. Trican s services are offered throughout key oil and gas plays in Canada, the United States and Russia, and has growing operations in many other active regions around the world. Trican became a public company in 1996, and since then has invested more than $2.1 billion in capital expenditures and acquisitions, expanding its equipment, infrastructure and capabilities. As a result of its strategic expansion program, Trican has evolved from a regional supplier of cementing services, to one of the world s largest pressure pumping companies. Trican employs a disciplined and scientific focus to research and development that delivers innovative products and processes, while addressing a shared commitment to safety, quality and reducing our impact on the environment. Services provided include fracturing, cementing, coiled tubing, acidizing, geological and reservoir services, industrial cleaning and pipeline services. Trican s shares trade on The Toronto Stock Exchange under the symbol TCW. Notice of Annual Meeting Trican is pleased to invite its shareholders and other interested parties to the Company s Annual Meeting at 2 p.m. on May 9, 2012, in the Metropolitan Centre, th Avenue SW, Calgary, Alberta, Canada. Annual Financial Statements and MD&A For further information on Trican s 2011 financial results, please refer to Trican s financial statements and Management s Discussion and Analysis (MD&A) for the years ended December 31, 2011 and 2010, available on SEDAR at or our website at Content Financial Summary 1 Message from our CEO 3 Operational Excellence Technical Solutions 4 Operations by Geographic Region 6 Technology 16 Sustainability 19 Outlook 20 Corporate Information BC

3 2011 Annual Report Net Income ($ millions) Return on Assets (%) Return on Equity (%) Financial Summary ($ thousands, except per share amounts and operational information) Change %Change Revenue 2,309,647 1,478, ,302 56% Net income/(loss) 338, , , % Adjusted net income/(loss) 351, , , % Adjusted earnings per share: (Basic) $ 2.41 $ 1.18 $ % (Diluted) $ 2.39 $ 1.17 $ % Funds provided by operations 558, , ,783 75% Capital expenditures 578, , , % Long-term debt (excluding current portion) 400, , , % Shareholders equity 1,365, , ,988 37% Average shares outstanding - Basic 145, ,400 8,405 6% Average shares outstanding - Diluted 147, ,571 8,514 6% Shares outstanding at year end 146, ,637 3,280 2% Operational Information (unaudited) Canadian operations Number of jobs completed 25,393 21,931 3,462 16% Revenue-per-job 49,964 38,733 11,231 29% United States operations Number of jobs completed 5,065 3,130 1,935 62% Revenue-per-job 146, ,740 30,987 27% Russian operations Number of jobs completed 4,901 4, % Revenue-per-job 55,902 56,206 (304) -1% Adjusted EPS ($) Funds from Operations ($ millions) Revenue ($ millions)

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5 2011 Annual Report 05 Dale M. Dusterhoft Chief Executive Officer Message From Our CEO On behalf of the employees and Board of Directors of Trican Well Service Ltd., I am pleased to report on our Company s 2011 financial and operational results. A strong 2011 operating environment allowed us to capitalize on our reputation for operational excellence and our ability to provide customized technical solutions to our customers. Pressure pumping demand and activity levels were strong across North America, and our leading position in Canada, as well as our growing presence in the U.S., led to record financial results in We sustained our position as a leading pressure pumping company in Russia and Kazakhstan, maintained our presence in Algeria, and made progress in establishing our technical qualifications in Saudi Arabia. We also expanded our international presence in 2011 by entering the Australian market by way of an acquisition. Thanks to the dedication of our people and the support of our customers, suppliers, partners, and investors, 2011 was a tremendous year for Trican, and I look forward to continued success in 2012.

6 06 Trican Well Service Ltd. OPERATIONAL EXCELLENCE, TECHNICAL SOLUTIONS 2011 was a year of significant growth and success for Trican. Our North American operations continued to benefit from the development of oil and liquids-rich gas plays, which was supported by strong oil prices throughout the year. Trican s services and technology have helped rejuvenate new and existing oil plays, changing the nature of the oil and gas industry in North America. A few years ago, our industry was highly dependent on the development of natural gas wells because the technology was not available to economically develop many of the oil plays in North America. This technology is now used to unlock tight rocks of all types that contain gas, oil or gas liquids. In 2011, approximately 55 percent of wells drilled in North America were oil directed, compared to 42 percent in 2010 and 29 percent in This shift has mitigated some of the cyclicality of our industry, which is evident by our financial success in 2011, a period of weak natural gas prices. Trican continued to benefit from the growth of horizontal drilling in Horizontal drilling and completions have become the dominant method for developing unconventional oil and gas reservoirs, as approximately 58 percent of wells drilled in North America during 2011 were horizontal. In addition, the number and size of the fracture treatments performed on horizontal wells continued to grow in 2011, which directly benefitted Trican. One of the keys to our success in 2011 was our continued commitment to operational excellence. Success in our industry is dependent on the dedication and service provided by our people, our technology, and the quality of our equipment. Our strategy has always been to offer the best equipment in the industry and we believe Trican accomplished this in We continued to introduce new, innovative custom designed equipment to our industry that improved our reliability and job performance. Our operational excellence was also due to our success in attracting and retaining the best people. In order to meet the demands of our growing operations, our workforce increased by 30 percent during Trican is dedicated to providing employees with challenging career opportunities in a safe, honest, innovative and collaborative working environment, and has been named one of Alberta s top employers for five years running. Another key to our success in 2011 was our ability to offer customized technical solutions to our customers. Our strategy has always been to differentiate ourselves through technology, by listening to the needs of our customers and understanding the markets in which we operate. Trican is committed to being a technical leader within our industry and was named one of Canada s Top 100 Corporate R&D Spenders* in 2011, a list we have made in four of the past five years. We also opened a new R&D facility in Houston and expect to open a new R&D facility in Moscow during 2012, in order to provide customized technical solutions to our customers in the U.S. and Russia. We executed an aggressive capital budget during 2011, which substantially increased the size of our asset base and contributed to our financial success. These capital initiatives position us well for further growth in 2012, as we respond to the strong demand for pressure pumping services in North America. Despite the volatility in the financial markets over the second half of the year, Trican maintained a high level of success, resulting in record financial performance for Our exceptional performance was a direct result of the dedication and hard work of our employees, and our on-going commitment to providing our customers with operational excellence and innovative technical solutions. * Compiled by Research Infosource Dale M. Dusterhoft - Chief Executive Officer March 15, 2012

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8 08 Trican Well Service Ltd. OPERATIONS BY GEOGRAPHIC REGION Trican Well Service Ltd. is headquartered in Calgary, Alberta, Canada, and operates in Canada, the United States, Russia, Kazakhstan, Algeria, and Australia. The Canadian operations provide services to customers across the entire Western Canadian Sedimentary Basin (WCSB). Trican s U.S. operations are run from bases in Texas, Arkansas, Oklahoma, and Pennsylvania. In Russia and Kazakhstan, Trican conducts operations through bases in Western and Eastern Siberia, and in Kyzylorda and Aktau, Kazakhstan. Trican also has bases in Hassi Messaoud, Algeria and Roma, Australia. Canada Trican s Canadian operations provide pressure pumping services to exploration and production companies, as well as industrial cleaning and pipeline services to midstream companies. Trican operates in all the key Canadian oil and gas plays from 17 bases in Western Canada, and offers fracturing, cementing, deep coiled tubing, coalbed methane (CBM), nitrogen, acidizing, geological/engineering and reservoir services, as well as industrial cleaning and pipeline services. Trican s operational excellence and ability to provide technical solutions to our customers allowed us to capitalize on a strong Canadian operating environment in Our Canadian operations achieved record annual revenue of $1.3 billion and record operating income of $0.5 billion. Strong demand in the Canadian market was led by activity in the oil and liquids-rich gas plays, as oil prices remained strong throughout Although the year-over-year Canadian rig count was up by 21 percent, the oil well count increased by 41 percent, while gas well count decreased by 5 percent. In addition, oil represented 67 percent of annual active drilling rigs in 2011, compared to 57 percent in 2010 and 47 percent in In anticipation of strong oil prices combined with weak gas prices, we expect this trend to continue in The shift to oildirected activity has benefitted the pressure pumping industry, as the utilization and margins are typically higher for fracturing work performed on oil wells due to the specialty fluid systems required and increased jobs per day. Furthermore, given the specialized demands of fracturing work performed on oil wells, we believe Trican s technologydriven focus provides an advantage for our customers and separates us from our peers. Canadian liquids-rich gas activity was also strong throughout 2011 due to the favourable economics of these plays. Liquids-rich gas contains ethane, propane, butane, and condensate that are produced with the dry gas. Market prices for these liquids are closely correlated to the price of oil and, as a result, the liquids content provides substantial additional cash flow for the producers in an environment with strong oil prices. Trican s Canadian operations continued to benefit from the strength of horizontal drilling activity in The number of horizontal wells drilled as a percentage of total wells drilled increased to 55 percent in 2011, compared to 42 percent in The increase in horizontal drilling favourably impacts our fracturing service line, as horizontal wells typically require fracture treatments per well, compared to 2-4 for conventional wells. The size of the fracturing treatments for horizontal wells is also considerably larger compared to conventional wells, which increases the fracturing revenue per job. Our cementing

9 2011 Annual Report 09 service line also benefits from the increase in horizontal drilling, as horizontal wells require larger, more technical cementing treatments than vertical wells. Pressure pumping demand was strong across the WCSB during 2011, particularly in the areas with strong oil and/or liquids-rich gas, including the Montney, Bakken, Cardium and Deep Basin regions. We believe that many of the Canadian plays are still in the early stages of development, which is supportive of our view that the Canadian pressure pumping market will continue to grow in the future. Growth in the Canadian market will also be driven by new plays such as the Duvernay, Alberta Bakken, Nordegg and Muskwa. In addition, we continue to see an increase in fracturing treatments - or stages per horizontal well - in Canada. The average number of stages per well in 2011 increased by over 50 percent, compared to We expect this trend to continue in 2012, although the rate of growth will slow down as the plays become more mature. Strong market conditions throughout 2011 led to record financial results for our Canadian operations. Year-overyear operating income increased by 65 percent to $465 million and operating margins increased to 36.2 percent, compared to 32.8 percent in A key factor in the margin improvement was a 14 percent increase in 2011 pricing compared to Financial results for the first, third and fourth quarters saw strong utilization levels, driven by oil and liquids-rich gas-directed activity and the continued strength of horizontal drilling. Financial results for the second quarter, which are negatively impacted by spring break-up conditions, were considerably stronger than historical second quarter results due to the emergence of pad well project work. The practice of placing several wells on one pad is advantageous for Trican, as we can perform pressure pumping services on several wells without moving our equipment. This is particularly beneficial in the second quarter when road bans limit our ability to move equipment. Our Canadian operations executed on a large scale 2011 capital budget, and the size of our equipment fleet grew accordingly. The Canadian fracturing fleet increased by 62,500 horsepower, during 2011, and the size of our cementing, acidizing and nitrogen fleets also expanded during the year. The new equipment was deployed throughout the second half of 2011 and contributed to the substantial increase in year-over-year revenue. Our 2012 proposed Canadian capital budget of $183 million includes the addition of 92,500 fracturing horsepower, 5 cementing units, 5 nitrogen pumpers, and 2 acid units. These aggressive capital initiatives reflect our expectation of growth in Canadian pressure pumping demand, due to HORN RIVER SHALE Fort Nelson BRITISH COLUMBIA MONTNEY SHALE Fort St. John High Level ALBERTA Red Earth SASKATCHEWAN MANITOBA TIGHT GAS Grande Prairie DUVERNAY SHALE Whitecourt Hinton Drayton Valley Nisku Lloydminster CARDIUM TIGHT OIL Red Deer Provost Drumheller VIKING TIGHT OIL CALGARY Brooks BAKKEN SHALE Medicine Hat LOWER SHAUNAVON Estevan TIGHT OIL Brandon

10 10 Trican Well Service Ltd. the continued strength of the oil and liquids-rich gas plays, an increase in fracturing treatments per well, and new play growth in areas such as the Duvernay, Muskwa, and Nordegg. One of the key success factors in the pressure pumping industry is capable supply chain management. During periods of strong demand, the availability of key inputs such as sand, guar, chemicals and acid is limited. Any disruptions in the supply chain will result in lost revenue and have a significant impact on financial and operating performance. In anticipation of strong 2011 demand, Trican s focus on supply chain management allowed us to secure adequate levels of key inputs throughout the year. As a result, we experienced no major disruptions in the supply chain, which contributed to our record financial results in In order to achieve operational excellence and provide the best technical solutions to our customers, Trican must rely on the experience, work ethic, and dedication of our people. Availability of people within the oil and gas sector remained a challenge in the Canadian market, as the industry continued to thrive throughout the year. During 2011, Trican placed significant importance on retaining our employees and attracting and training new people to the industry. Our recruiting efforts resulted in a year-over-year staffing increase of 33 percent for our Canadian operations, as our total Canadian workforce reached approximately 2,100 at the end of Given the strong demand expected for 2012, we expect our Canadian workforce growth to continue and we will maintain a strong focus on both retention and the addition of people by offering them rewarding career opportunities. Geological Services Trican Geological Solutions Ltd. consists of world-renowned shale gas experts who are able to analyze rock from wells and provide expert evaluation of a reservoir s potential to our fracture design engineers. This integrated approach gives Trican a significant advantage over most of our competitors. The data generated by this division is also used to provide customers with valuable reservoir information. During 2011, Trican Geological Solutions Ltd. completed several research studies on key unconventional plays in the WCSB, including the Duvernay, Nordegg, and Montney. This division continues to have ongoing research projects that will provide valuable information to customers and improve fracture designs in shale gas reservoirs. Number of Units at year end (Canada) B 2012 C Fracturing Crews A HP 135, , , , , ,700 Cement Pumpers Deep Coiled Tubing Units Nitrogen Pumpers Acidizing Units A A fracturing crew is made up of several pieces of specialized equipment B Operational or in the final stages of construction C Expected equipment capacity at year end, based on approved budgets, which are subject to change

11 2011 Annual Report 11 United States Trican s U.S. operations provide fracturing, cementing, acidizing, nitrogen and coiled tubing services from our eight operating bases in Texas (Longview, Springtown, Mathis and Odessa), Arkansas (Searcy), Oklahoma (Woodward and Shawnee) and Pennsylvania (Mill Hall). Trican currently operates within several of the major U.S. oil and gas plays, such as the Barnett Shale, the Woodford Shale, the Fayetteville Shale, the Haynesville Shale, the Marcellus Shale, the Eagle Ford Shale, and the Permian basin. Our initial 2012 capital budget includes expansion into new regions, as we continue to expand our U.S. geographic footprint. Our U.S. operations had a very successful year and achieved record financial results. Our U.S. revenue of $739 million in 2011 was 105 percent higher than in 2010, and our operating income of $191 million was a 173 percent increase compared to Operating income as a percentage of revenue was 25.8 percent compared to 19.4 percent in 2010, and benefitted from year-over-year pricing increases of 34 percent. Strong financial results were also attributable to increased utilization of our equipment, effective contractual positions for several fracturing crews, and execution of our geographic and service line expansion initiatives. However, our aggressive expansion initiatives also resulted in start-up costs in the second half of 2011 that negatively impacted operating margins in the third and fourth quarters was a year of significant growth for our U.S. operations. Our U.S. fracturing service line grew by 41 percent as total fracturing horsepower increased from 364,500 in 2010 to 515,000 at the end of These growth initiatives included commencement of fracturing operations in the Eagle Ford and Permian regions and the addition of a second fracturing crew in the Marcellus region. The expansion was focused on oil and liquids-rich gas areas, as growth in the U.S. market was driven by these plays. The U.S. oil and gas industry saw a substantial shift towards more oil and less gas-directed activity in 2011, with oil wells representing 53 percent of the average active U.S. drilling rigs compared to 39 percent in Demand for U.S. pressure pumping services grew in 2011, as the overall U.S. rig count increased by 22 percent. However, most of the growth was generated from areas containing oil and liquids-rich gas, such as the Eagle Ford, Permian and Oklahoma regions. Conversely, dry gas areas, such as the Haynesville, Fayetteville and Barnett shales all experienced a decrease in year-over-year rig count. Yearover-year rig count in the oil and liquids-rich gas areas where Trican operates increased by 53 percent, compared to a 21 percent decline in the dry gas areas where we operate. Despite these decreases, our utilization in dry gas areas remained strong throughout most of the year, due to the strength of our contracted positions. Activity levels did decline in these areas in the fourth quarter of 2011, and as a result, two of our dry gas crews were moved into oil/liquids-rich gas areas in December; one of our Haynesville crews was re-deployed into the Eagle Ford, and our Fayetteville crew became a travelling crew, working in several different oil/liquids-rich gas areas.

12 12 Trican Well Service Ltd. Although the Marcellus is a dry gas region, utilization and margins for our Pennsylvania base were very strong throughout Financial results for this base benefitted from the long-term contracted positions of both fracturing crews. In addition, the Marcellus is a large, low cost reservoir situated close to the eastern U.S. natural gas consuming market, which helped keep activity levels stable despite the weak gas prices. Horizontal drilling continued to grow in the U.S. during Horizontal wells represented 57 percent of active U.S. drilling rigs in 2011, compared to 53 percent in 2010 and 45 percent in The growth of horizontal drilling benefited all of our U.S. service lines in 2011 and we expect this growth trend to continue in The number of fracturing treatments performed per horizontal well in the U.S. also continued to increase in Although some of Number of Units at year end (U.S.) B 2012 C Fracturing Crews A HP 173, , , , , ,000 Cement Pumpers Nitrogen Pumpers Acidizing Units Coiled Tubing Units A A fracturing crew is made up of several pieces of specialized equipment B Operational or in the final stages of construction C Expected equipment capacity at year end, based on approved budgets, which are subject to change Mill Hall PENNSYLVANIA MARCELLUS SHALE Woodward Odessa PERMIAN BASIN WOODFORD SHALE BARNETT SHALE Shawnee OKLAHOMA Denton Springtown FAYETTEVILLE SHALE Searcy ARKANSAS Longview HAYNSEVILLE SHALE TEXAS EAGLE FORD SHALE Mathis Houston LOUISIANA

13 2011 Annual Report 13 the mature plays, such as the Barnett shale, have seen a plateau in stages per well, other plays such as the Permian and Eagle Ford are continuing to see stage growth. We continued to expand our U.S. service lines during 2011 as part of our strategic initiative to become a full service pressure pumping company in this market. We initiated coiled tubing services from our Woodward, Oklahoma base during the second quarter, and from our Mathis, Texas base during the third quarter. We also expanded our U.S. cementing service line to our Mathis, Texas base during the third quarter and increased the size of our nitrogen and acidizing fleets throughout the year. As a result of these expansion initiatives, the number of non-fracturing jobs performed in 2011 compared to 2010 increased by 123 percent. We will continue to expand our non-fracturing service lines in 2012, as our planned U.S. capital budget includes the addition of 12 cement, 7 coiled tubing, 9 nitrogen, and 10 acidizing units. During the second quarter of 2011, our U.S. regional office was officially moved from Denton, Texas to Houston, Texas. This move has brought us closer to many of our key U.S. customers and has allowed us to better serve and expand our growing U.S. customer base. In addition, we opened a new research and development center in Houston in late 2012, which will allow us to provide customized technical solutions for our U.S. customers. The U.S. pressure pumping market remains an important growth area for Trican, and we will continue to execute on our geographic and service line expansion initiatives in an effort to grow our U.S market share. We have grown to become a leading pressure pumping company in Canada and Russia by establishing a reputation for operational excellence and technical solutions. We have taken important steps during 2011 in establishing this reputation in the U.S. and will continue to expand these efforts as we move into 2012.

14 14 Trican Well Service Ltd. INTERNATIONAL Russia and Kazakhstan Trican Well Service LLC began operating in Russia in 2000 and has grown into one of the country s leading fracturing companies. Trican s services in Russia also include cementing, coiled tubing, acidizing and nitrogen. Russian operations are based predominantly in the Tyumen Region of western Siberia, but also extend into the Arctic North of the eastern Siberian region of Vankor. Trican Russia services these regions from its bases in Nefteyugansk, Raduzhny, Nyagan, Gubkinsky, Novy Urengoy, and the Vankor Oilfield, Russia. Trican Russia s Regional Office is located in Nizhnevartovsk, Russia. The majority of Trican Russia s customers develop and produce oil reserves. Oil prices were strong throughout most of 2011 and this supported an overall increase in Russian pressure pumping activity. However, the Russian market remained competitive, with several firms attempting to gain market share, limiting our ability to increase Russian operating margins through pricing increases. Cost inflation in Russia was also a factor, as the annual 2011 inflation rate was approximately 9 percent. Russian oil and gas activity has been challenged by the current Russian tax structure over the past several years. Industry experts have noted that the oil and gas industry pays higher taxes relative to other industries in Russia, which reduces the cash flows available to Russian oil and gas companies to reinvest into the market. Small improvements to the tax structure were made during 2011, but Trican believes that further improvements will need to be made to encourage Russian oil and gas companies to invest in additional production, maintenance and expansion activities. The 2011 financial results for our Russian operations were as expected, based on the contracts awarded during the tendering process. Activity levels increased by approximately 7 percent and operating margins were relatively flat, as pricing increases were fully offset by higher costs. Cost inflation was a factor during the first half of the year, but stabilized during the second half. Despite the slowdown in overall inflation, Trican Russia experienced cost increases for items such as hauling, fuel and product during the second half of the year. Cost control was a focus for our Novy Urengoy RUSSIA Gubkinsky Nyagan Nefteyugansk Raduzhny Nizhnevartovsk Moscow Krasnoyarsk Aktau KAZAKHSTAN Kyzylorda

15 2011 Annual Report 15 Number of Units at year end (Russia and Kazakhstan) B 2012 C Fracturing Crews A Conventional HP 79,150 79,150 88, , , ,800 Cement Pumpers Deep Coiled Tubing Units Nitrogen Pumpers A A fracturing crew is made up of several pieces of specialized equipment B Operational or in the final stages of construction C Expected equipment capacity at year end, based on approved budgets, which are subject to change Russian operations throughout 2011 and remains a focus in 2012, as we look to optimize our Russian cost structure. The 2011 capital program for Russia was $24 million and was largely directed at maintaining the current Russian fleet. Our capital program also included the addition of a new R&D facility in association with Moscow s Gubkin University, which we expect to open in Gubkin boasts a world renowned Petroleum School. We look forward to a long partnership with Gubkin in developing products for the Russian market. The Russian pressure pumping market requires advanced technical capabilities due to the geological complexities and fluids required to maximize the production of the formations. We believe that investing in an R&D facility in Russia will allow us to provide customized technical solutions for our Russian customers and give us an advantage in a very competitive market. Trican was also recognized as a technical leader in Russia during 2011, by winning 2 technology and innovation awards for the application of our IsoJet technology. We continue to believe in the long-term potential of the Russian pressure pumping market. The Russian government has set targets to maintain or increase oil and gas production over the next 20 years to meet domestic and export demand. In addition, horizontal drilling and completions have been used on a very limited basis by the Russian oil and gas industry thus far. During 2011, there were several successful horizontal drilling pilot projects that included multi-stage fracturing. We expect horizontal drilling and completions to gain momentum in 2012 and become a significant component of future Russian industry activity. This development would substantially increase the fracturing horsepower demands in Russia. Trican Well Service LLC began operating in Kazakhstan in Trican provides fracturing services to the Kazakhstan market, with two fracturing crews operating out of bases in Kyzylorda and Aktau. The Kazakhstan regional office is located in Kyzylorda, Kazakhstan. The majority of the activity within the region is directed at oil wells, as Kazakhstan has approximately 8 billion tonnes of proven recoverable oil reserves. The oil and gas industry in Kazakhstan is still in the early stages of development and the pressure pumping market is small with relatively basic technological needs. However, we believe the Kazakhstan market will continue to grow and technical solutions will become increasingly important within the region. Our global reputation as a leading pressure pumping company and our existing presence within the region should allow us to capitalize on this growth.

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17 2011 Annual Report 17 Africa and the Middle East Trican began operations in Algeria in 2007, establishing a base in Hassi Messaoud. Trican offers coiled tubing, cementing, and nitrogen services to Algeria s largest stateowned oil company, Sonatrach, as well as other international operating companies that are in partnership with Sonatrach. In 2010, Sonatrach underwent an internal reorganization, which delayed production activities and led to low utilization of our equipment. These delays carried into the first half of 2011 and it wasn t until the latter part of 2011 that we began to see increased activity levels. This resulted in financial results that were below our expectations for this region. However, supply commitments by Algeria to Europe indicate that Algeria must increase its local gas and oil production over the next 2-3 years. Due to the longterm potential of this region, our strategy in 2012 will be to maintain our presence in Algeria and increase utilization on existing equipment to acceptable levels. In 2010, Trican entered into a joint venture agreement with a partner in Saudi Arabia. During 2011, we made substantial progress in establishing our technical qualifications with customers in Saudi Arabia and developing a sales presence within the region. We expect to submit bids for work tenders in 2012 with our cementing service line. In addition, we plan on initiating industrial services in Saudi Arabia in We expect the demand for pressure pumping services in Saudi Arabia to grow over the next several years. With OPEC quotas restricting the production of oil, we believe the Saudi government will look to meet domestic energy needs by increasing gas production so that the majority of the country s oil production can be exported. If horizontal drilling and completions technology is required to unlock the potential of the country s gas reserves, the demand for pressure pumping services should increase in the future. Australia In July of 2011, Trican entered the Australian market through the acquisition of a privately owned company that provides cementing and environmental services in Eastern Australia. Trican s Australian operating base is in Roma, Queensland. Our Australian operations are small, but our acquisition provided us with a strategic entry point into the growing Australian pressure pumping market. Australia has supply commitments for significant liquefied natural gas exports and plans to meet these commitments through increased gas production. A significant portion of this production will be from coal seam and shale gas plays that will require pressure pumping services. We believe that our reputation for operational excellence and technical solutions should provide us with an opportunity to grow in this market in the future. Number of Units at year end (Algeria) A 2012 B Deep Coiled Tubing Units Nitrogen Pumpers Acidizing Units Cementing Units A Operational or in the final stages of construction B Expected equipment capacity at year end, based on approved budgets, which are subject to change

18 18 Trican Well Service Ltd. TECHNOLOGY Trican is the only pumping services company to make RE$EARCH Infosource s list of Canada s Top 100 Corporate R&D Spenders in 2007, 2008, 2009 and Trican s operational excellence is a product of our commitment to Research and Development. Innovation and technology are key drivers for Trican, and a recognized competitive advantage. Trican s R&D initiatives developed more than 20 new products in 2011, helping our customers produce their wells safely, effectively and efficiently, and helping us all reduce the impact of our operations on the environment. To improve our technical capabilities and knowledge, Trican has expanded its R&D activities with a new facility in Houston and with additional tool development in Calgary. In addition, we expect to open a new R&D facility in Moscow during With this added capacity, Trican will: Develop new options that continue to address environmental concerns; Maintain our technical leadership in each of our service lines; Keep product development as a quick, customer-focused process; Learn from worldwide operations and personnel. In addition to innovative equipment, tools and products, Trican also launched the Drilling Services line in early Drilling Services provides a comprehensive package that delivers post stimulation drilling following various completion methods, and restores the wellbore back to its full drift diameter. Other services are offered, such as drift runs and additional drill-outs, including cement, float equipment, stage tools and debris subs. By adding Drilling Services to our offering, Trican is able to reduce costs and increase job efficiency for horizontal drilling applications, and offer customers a streamlined, single call approach. Deep Coiled Tubing Unit

19 2011 Annual Report 19 Innovative Equipment Mast Coiled Tubing Unit Trican s mast units are built specifically to safely perform work on slant wells, but are also used for conventional coiled tubing jobs. These units are used primarily for 60.3 mm (2 3/8 in) and 73 mm (2 7/8 in) coiled tubing applications. The 24-wheel trailer, coupled with the crane truck used to transport coiled tubing tools and lubricator, corresponds to a package that presents a relatively small footprint on a lease. Deep Coiled Tubing Unit Trican began operating in the Texas Eagle Ford Shale with a state-of-the-art deep coiled tubing unit. The first of its kind, this high capacity unit is capable of carrying more than 7,000 meters (23,000 feet) of 60.3 mm (2 3/8 inches) coil. Generation II Dry Blend Unit Trican s new version Dry Blend unit mixes powder and liquid together on location to create less expensive, more environmentally friendly fracturing fluids. Horizontal Well Fracturing MVP Frac Trican s MVP Frac (Maximum Volume Placement) is an enhanced proppant conductivity treatment that involves adding a low volume of nitrogen to Trican s FlowRider additive. The MVP Frac process was designed to dramatically reduce proppant settling that occurs during slick water fractures. The process fluidizes and suspends the sand, carrying it deeper and distributing it more effectively into the reservoir. The net result: a more effective proppant distribution across the fracture network, which enhances well production. SRVmax (Integrated Production Optimization Process) SRVmax is our integrated process for helping customers recover as much as possible from their oil and gas reserves. It integrates a series of services and technology to provide a complete understanding of all available reservoir data, allowing operators to utilize the most advantageous wellbore spacing, fracture spacing and fracture design, leading to maximum production from their wells. Trican s SRVmax process includes: Trican s Geological Services; Reservoir Characterization; Reservoir Services (Microseismic fracture mapping, fracture modelling and reservoir simulation); Job execution; Post job analysis. Navigator The Navigator tool is used to perform work over services in multi-leg wells using coiled tubing. This tool allows customers selective access to multiple legs in a horizontal wellbore, reducing overall job time and increasing the well s potential to produce, due to improved work over opportunities. Recent developments with Navigator include increased coil size and capabilities. IsoJet Frac IsoJet is an effective method of selectively stimulating multiple zones using jet perforation through coiled tubing. Trican recently won two product innovation awards for IsoJet in Russia. These awards recognized the IsoJet method and its application of sand jet perforating technology in combination with the multi-stage fracturing of a horizontal well.

20 20 Trican Well Service Ltd. Greener Products Trican continues to invest in minimizing the impact of our operations on the environment. We re working to make greener choices available to our customers in every service line we offer. Some of the developments in this area include Trican s expanding line of EcoClean fracturing fluids. EcoClean Fracture Fluids Trican continues to expand the line of EcoClean products, adding EcoClean-XB, a crosslinked gelled water frac fluid used in higher permeability reservoirs where greater viscosity is required. Like others in the EcoClean line, this product includes additives that are non-toxic, biodegradable and non-bioaccumulating, individually or in combination, and each will pass the stringent Microtox test. The EcoClean line also includes EcoClean-LW, a linear (gelled) water system, and EcoClean-GSW, designed for high performance slick water fracturing. Trican has developed 79 stimulation, 26 cementing and 44 coiled tubing products, tools and processes in the past 4 years. Research Trican is heavily committed to investing in pure research in areas such as water reduction and reclamation, as well as safer and more efficient operations. Trican is the only pumping services company to make RE$EARCH Infosource s list of Canada s Top 100 Corporate R&D Spenders in 2007, 2008, 2009 and The list is compiled from a variety of data sources, including company statements, security filings and surveys. Trican is continuing to examine ways to reduce the large scale use of fresh water as the base fluid for fracturing by enabling the use of produced/flowback waters or salt water from source wells. Previous techniques involved chemically or otherwise treating these waters to make them serviceable, however, Trican has developed friction reducers that work with these high salt waters without having to treat them. Trican s salt-tolerant friction reducers pass the Microtox test at a very high threshold value. These friction reducers are also cost effective, as they are shown to perform well at nearly half the concentration when compared to conventional friction reducers, and lower horsepower is required to place the treatment. Our new R&D facilities in Moscow and Houston will enable us to learn from different regions and develop capabilities to address local issues. In Calgary, Trican has also expanded our tool development facility space by more than 50 percent, including a coiled tubing assembly line for our Burst Port System, and a new Bend Fatigue machine for coiled tubing. This machine is expected to extend the life of coiled tubing. Trican is also developing larger diameter tools for use with larger diameter coil in horizontal wells. Trican s comprehensive research and development program is the key to providing customized technical solutions for our customers. We take pride in differentiating ourselves through technology by investing in R&D initiatives, and by encouraging innovation in our people. Through these efforts, we strive to improve or enhance our existing products and services and bring new products and services to the market.

21 2011 Annual Report 21 SUSTAINABILITY Best practices in sustainability and protecting our environment are important to Trican. We comply with local environmental regulations in our operations and emergency preparedness in response to spills, equipment failure, accidents, or other incidents that could result in environmental damage. We also participate in the voluntary and regulatory disclosure programs that have been established in many jurisdictions. Trican recognizes that a responsible environmental program goes beyond what is regulated and adopts what is best for our environment and long-term sustainability. Trican s policies and procedures on sustainability are communicated to our employees on a regular basis. In addition to classroom time, employees take part in emergency drills that involve spill prevention, incident mitigation and additional safe practices. Regular practices contributing to the safeguarding of the environment include: Trican s expanding line of EcoClean products, designed to reduce the impact of our operations on the environment; Recovering and re-using water and chemicals used in industrial cleaning; Re-engineering processes and practices to reduce energy and resource consumption; Recycling shop materials and lubricants; Re-furbishing vehicle tires; Prevention and containment practices to keep job sites clean; Purchasing energy efficient and emission reducing vehicles and equipment. During 2011, Trican also participated in the Carbon Disclosure Project (CDP). The CDP is an organization that works with corporations around the world to disclose carbon emissions information to the public. Trican will use the CDP data to set emission reduction targets for the Company.

22 22 Trican Well Service Ltd. OUTLOOK Canadian Operations Canadian demand for pressure pumping services was strong in 2011 and we expect this trend to continue in Recent industry forecasts predict a 10 percent increase in drilling activity in 2012, compared to Oil and liquidsrich gas directed activity is expected to lead the increase, with strong oil prices anticipated throughout High demand in the oil and liquids-rich gas plays is expected to be partially offset by a decline in dry gas activity, as natural gas prices are expected to remain weak throughout However, activity in the Canadian oil and gas industry is currently dominated by oil and liquids-rich gas activity. This trend is expected to continue with recent industry forecasts suggesting that oil and liquids-rich gas activity could represent above 80 percent of Canadian drilling activity in We expect strong Canadian demand to be supported by the continued strength of horizontal drilling. The number of Canadian horizontal wells drilled during 2011 increased by 43 percent compared to 2010, and represented 55 percent of all Canadian oil and gas wells drilled, compared to 42 percent in 2010 and 30 percent in We expect this trend to continue in 2012 due to the favourable economics of horizontal wells compared to conventional vertical wells. New play development is also expected to support growth in the Canadian pressure pumping industry. We expect to see increased activity in new plays, such as the Duvernay, Nordegg, and Muskwa. These plays contain oil and liquidsrich gas reserves and with strong oil prices anticipated, the 2012 well count in these areas is expected to increase compared to The Canadian equipment built under our 2011 capital program has now been deployed and we expect an increase in year-over-year revenue as a result of the increased capacity. Furthermore, our 2012 budget includes an additional 92,500 of fracturing horsepower, as well as additional cement, nitrogen and acid equipment that we expect to deploy throughout the second half of As well, we expect to maintain our strong Canadian operating margins in Cost increases for key inputs such as sand, acid and guar, as well as higher employee costs, are anticipated. However, pricing increases are expected to offset the higher costs and result in 2012 margins that are consistent with U.S. Operations We anticipate U.S. activity to grow in oil and liquids-rich gas regions and slow in most dry gas regions. The rig count declines in the Haynesville, Fayetteville, and Barnett regions have resulted in a redeployment of equipment out of the dry gas areas and into the oil and liquids-rich gas areas. This redeployment has moderated management s expectations regarding growth in the U.S. market for However, we continue to anticipate U.S. activity to remain strong as additional oil and liquids-rich gas plays are developed. The shift from dry gas into oil and liquids-rich gas plays will negatively impact revenue and operating margins for our U.S. operations during the first quarter of In addition, first quarter operating margins for our new fracturing, cement and coiled tubing crews in the U.S. will be negatively impacted by low utilization levels as we establish our work programs with new customers in new regions. However, we believe that as we work through these issues during the first quarter and as the market shifts to more oil and liquids-rich gas activity, operating conditions will improve in the U.S. and operating margins will increase. In addition, we expect 2012 results to benefit from our strong U.S. contracted position. 62 percent of our existing U.S. fracturing fleet will be under contract during 2012, which is up from 55 percent in 2011, as two new contracts were added in the Permian during the first quarter of We expect our U.S. operations will benefit from substantial equipment growth in Our 2011 capital budget included 205,000 of additional fracturing horsepower, and substantial increases to our cementing and coiled tubing service lines. The majority of this equipment was deployed

23 2011 Annual Report 23 in the second half of 2011 and in early 2012, therefore our 2012 financial results should benefit from deployment of this new equipment. Additionally, equipment from our 2012 capital budget is expected to be deployed throughout the second half of the year. We intend to deploy the new equipment from our 2012 budget into oil and liquidsrich gas focused areas, which is expected to include new geographic regions for Trican. International Operations Based on the results of the 2012 contract tendering process for our Russian and Kazakhstan operations, we expect 2012 revenue to increase by approximately 10 percent compared to The revenue increase is based on an 8 percent expected rise in activity, combined with a 2 percent expected increase in average revenue per job. The expected increase in average revenue per job is the combined result of increased pricing, partially offset by the impact of smaller fracturing job sizes, and a shift in the sales mix toward the cementing, coiled tubing and nitrogen service lines. These service lines typically experience lower average revenue per job relative to the fracturing service line. Cost inflation continues to be an issue for our Russian and Kazakhstan operations. However, we expect a modest increase in operating margins in 2012, as a result of a shift in our work scope to higher margin jobs and continued focus on optimizing our cost structures in Russia and Kazakhstan. strategy in Algeria will be to increase equipment utilization levels, which is expected to lead to improved profitability in the region. Our 2012 strategy in Australia will be to expand our cementing service line by building new customer relationships and offering high quality service. We expect to add to the current cementing fleet during 2012 as we continue to establish ourselves in the region. We do not expect the growth of the Australian operations to be significant to our overall financial results during 2012; however, we do anticipate establishing a meaningful presence in this market during the year. In Saudi Arabia, we are working to establish our presence in the market and continue to expect to submit bids for pressure pumping tenders in Revenue from this region is not expected to be significant during 2012, as we will focus on establishing customer relationships and a reputation as a high quality service provider. Description of Services For a description of Trican s services, visit Customer interest in horizontal completions and multistage fracturing is expected to increase in Russia during Several successful pilot projects were completed in 2011 and we expect this momentum to continue in Although 2011 results for our Algeria operations were disappointing, we began to see increased activity in the second half of 2011, as bureaucratic issues within Sonatrach began to ease. Algeria also has gas supply commitments to Europe and will need to increase production in order to meet these contracts. Given these positive signs, our 2012