Trinidad Drilling Ltd.

Transcription

1 Company Comment Wednesday, November 4, 2015, After Close 1 Trinidad Drilling Ltd. Taking a Defensive Stance as Activity Subsides Vladislav C. Vlad, MBA, P.Eng. - (403) (Scotia Capital Inc. - Canada) vladislav.vlad@scotiabank.com Rating: Sector Perform Target 1-Yr: C$3.00 ROR 1-Yr: 25.6% Valuation: 8.1x our 2016 EV/EBITDA estimate. Key Risks to Target: Commodity prices, labour supply, intellectual property, weather, contract risk, and balance sheet. (TDG-T C$2.42) Brady Mah, CA - (403) (Scotia Capital Inc. - Canada) Barry Liang - (403) (Scotia Capital Inc. - Canada) Div. (NTM) $0.04 Div. (Curr.) $0.04 Yield (Curr.) 1.7% Event Updating our estimates post Q3 call and our First Look note. Implications Outlook. In Canada, activity has stalled at current levels of 31 active rigs, 4 rigs higher than our rig weekly or a 14% premium to industry. Of the 72 U.S. rigs, 27 are active plus four idle but contracted. TDG guides for US$1M of stand-by in Q4. About 35% of TDG s fleet is contracted for ~1.5 years with 9 rigs rolling off in Q4/15 and 19 in In Canada spot day rates are tight with the contracted rates while the delta is 15% in the United States. Generally, NAM spot rates are down 5% in recent months and have yet to bottom. Internationally, TDG is looking to redeploy idle NAM rigs; we believe this could be a catalyst particularly if assets are deployed in LATAM (lower capex) and/or TDG enters a new region (could imply earnings step change). Focused on preserving cash. G&A is expected to be $60M in 2015 or $25M lower than original expectations (post-deal). In 2016, guidance was for $50M to $55M. Beyond cost cutting measures, TDG is able to maintain leverage through covenant easement (up 0.5x multiple through Q1), potential sales of existing assets, and JV cash repatriation. Including JV flow back, we see TDG more in line with covenants. We forecast 2016E ND/EBITDA of 3.6x w/ FCF of $34M post dividend. Recommendation We are encouraged by management's tone and direction in a tough time. Macro headwinds remain and we believe the drillers are in a shrinking market. We reiterate our SP rating until visibility improves. Qtly EBITDA (M) Q1 Q2 Q3 Q4 Year EV / EBITDA 2014A $79 A $31 A $65 A $77 A $ x 2015E $60 A $35 A $45 A $43 $ x 2016E $43 $30 $41 $47 $ x 2017E $42 $28 $37 $43 $ x (FY-Dec.) 2013A 2014A 2015E 2016E 2017E CF from Ops (M) $231 $217 $110 $75 $61 Capex (M) $99 $277 $145 $35 $40 Free Cash Flow (M) $132 $-60 $-35 $40 $21 Adj EBITDA Margin 32.0% 28.7% 31.3% 27.4% 24.5% Return on Equity 8.7% 7.3% 5.6% n.m. n.m. Net Debt/EBITDA 0.7x 1.8x 3.6x 3.9x 4.2x Adj Earnings/Share $0.71 $0.59 $0.43 $-0.10 $-0.13 Dividends/Share $0.20 $0.20 $0.15 $0.04 $0.04 Curr. BVPS: $6.44 ROE15E: 5.62% Historical price multiple calculations use FYE prices. Source: Reuters; company reports; Scotiabank GBM estimates. All values in C$ unless otherwise indicated. Pertinent Revisions New Old EBITDA15E $183 $174 EBITDA16E $161 $170 EBITDA17E $149 $154 New Valuation: 8.1x our 2016 EV/EBITDA estimate. Old Valuation: 8.0x our 2016 EV/EBITDA estimate. Capitalization Market Cap (M) $540 Net Debt + Pref. (M) $655 Enterprise Value (M) $1,195 Shares O/S (M) 223 Float O/S (M) 223 ScotiaView Analyst Link For Reg AC Certification and important disclosures see Appendix A of this report. Analysts employed by non-u.s. affiliates are not registered/qualified as research analysts with FINRA in the U.S.

2 E 2016E 2017E 2 Exhibit 1 - Snapshot Summary Trinidad Drilling Ltd. (TSX: TDG) Rating: Sector Perform Financial Statistics Valuation Analysis E 2016E 2017E Share Price $2.42 EV/EBITDA 6.9x 6.1x 4.9x 5.8x 4.6x 6.5x 7.3x 7.8x 1-Yr Target Price $3.00 P/CF 5.2x 4.3x 3.5x 5.2x 3.3x 3.7x 7.2x 8.8x Implied Return 26% P/E 45.3x 11.5x 6.6x 14.0x 8.8x 5.6x -23.4x -18.9x Dividend $0.04 P/BV 1.0x 1.1x 1.0x 1.2x 0.6x 0.4x 0.4x 0.4x Yield 1.7% P/TBV 1.1x 1.3x 1.1x 1.3x 0.7x 0.4x 0.4x 0.4x FD Share Count 223 M ROE (adjusted) 2% 10% 15% 9% 7% 6% -2% -2% Market Capitalization $540 M ROA (adjusted) 1% 5% 8% 5% 4% 3% -1% -1% Net Debt (Net Cash) $655 M Enterprise Value $1,195 M Corporate Margins E 2016E 2017E Notes: (1) Cash capex may vary from corporate capital program due to timing differences. Source: Company reports; FactSet; Scotiabank GBM estimates. Gross 37.2% 37.7% 38.3% 39.0% 36.4% 42.6% 38.2% 35.1% EBITDA 29.2% 30.9% 32.2% 32.0% 28.7% 31.3% 27.4% 24.5% Debt Summary as of Q3/15 Earnings Summary ($M) E 2016E 2017E Net Debt (Net Cash) $655 M Adjusted Revenue* $690 $818 $859 $845 $941 $542 $486 $502 Facility Size $462 M EBITDA $202 $252 $277 $270 $252 $183 $161 $149 Draw on Facility $85 M EBIT $3 $135 $92 $138 $50 ($86) $22 $9 Facility Remaining $377 M EBT ($75) $90 $50 $96 $11 ($136) ($28) ($41) % 82% Reported Earnings ($75) $76 $55 $71 $7 ($80) ($20) ($29) Adjusted Earnings $17 $81 $127 $86 $82 $72 ($23) ($28) Per FD Share (Adjusted) $0.14 $0.67 $1.05 $0.71 $0.59 $0.43 ($0.10) ($0.13) Segmented Revenue Cash Flow Summary ($M) E 2016E 2017E 100% 75% 50% 25% 0% Canada U.S. & Int'l Construction CFPS FD $1.21 $1.80 $1.95 $1.89 $1.57 $0.65 $0.34 $0.28 Funds From Operations $147 $218 $235 $231 $217 $110 $75 $61 Capex 1 $140 $182 $186 $99 $277 $145 $35 $40 Free Cash Flow $7 $35 $50 $132 ($60) ($35) $40 $21 Dividends $24 $24 $24 $25 $27 $27 $9 $9 Per FD Share $0.20 $0.20 $0.20 $0.20 $0.20 $0.15 $0.04 $0.04 Payout From CF 16% 11% 10% 11% 13% 24% 12% 14% Capex 1 /Cash Flow 1.0x 0.8x 0.8x 0.4x 1.3x 1.3x 0.5x 0.7x Net Debt (Cash)/EBITDA 3.0x 2.3x 1.8x 0.7x 1.8x 3.6x 3.9x 4.2x Net Debt/Equity 0.8x 0.7x 0.6x 0.2x 0.4x 0.5x 0.4x 0.5x Company Profile Operational Summary E 2016E 2017E Trinidad Drilling Ltd. (Trinidad) is Canada's fifthlargest Rig Count (exit) contract driller, with one of the newest, Canada deepest, and most technically advanced fleets United States & International in both Canada and the United States, and growing International exposure via the Barge Drilling Halliburton JV. Halliburton JV Drilling Utilization Rates Canada 59% 67% 57% 53% 57% 32% 31% 34% United States & International 75% 91% 83% 74% 93% 45% 37% 39% Analyst Contact Info Halliburton JV 0% 0% 0% 0% 48% 94% 93% 95% Vladislav C. Vlad, MBA, P.Eng. Gross Margins (403) Canada 39.4% 39.5% 41.7% 42.3% 43.3% 39.9% 35.9% 33.8% United States & International 39.8% 41.6% 40.5% 41.2% 35.8% 47.3% 37.4% 35.5% vladislav.vlad@scotiabank.com Halliburton JV 0.0% 0.0% 0.0% 0.0% 38.5% 44.8% 45.0% 45.8%

3 3 Exhibit 2 Q3/15 Results Summary Q3/15 YOY QOQ 2015E 2016E 2017E Figures in $M Actual Estimated Q3/14 Q2/15 New Prior New Prior New Prior Revenue Canada $51 $51 1% $85-40% $12 NA $185 $186-1% $211 $227-7% $224 $230-3% United States & International $67 $68-1% $125-47% $73-9% $291 $291 0% $248 $256-3% $251 $259-3% Manufacturing $0 $0 $21 $5 $39 $39 0% $0 $0 $0 $0 Halliburton JV (60%) $22 $21 5% $7 NA $19 15% $82 $80 2% $102 $101 1% $108 $104 4% Corporate $6 $10 $14 $5 $26 $34-21% $26 $34-21% $27 $34-21% Adjusted Revenue* $146 $149-2% $230-36% $110 33% $584 $591-1% $587 $617-5% $610 $627-3% Gross Margin 43.1% 39.1% 35.6% 46.1% 42.6% 40.4% 38.2% 38.0% 35.1% 35.0% EBITDA Canada $22 $20 7% $37-42% $3 NA $74 $73 1% $76 $86-13% $76 $83-9% United States & International $31 $29 8% $42-27% $38-19% $137 $131 5% $93 $96-4% $89 $92-4% Halliburton JV (60%) $8 $7 $0 $7 $28 $26 8% $37 $31 16% $40 $34 18% Manufacturing ($1) $0 $1 $0 $2 $3 $0 $0 $0 $0 Corporate ($14) ($13) ($16) ($14) ($58) ($58) ($44) ($44) 1% ($55) ($55) 0% Total EBITDA $45.0 $42.9 5% $65-30% $35 30% $183 $174 5% $161 $170-6% $149 $154-3% EBITDA Margin 30.7% 28.8% 28.1% 31.6% 31.3% 29.3% 27.4% 27.6% 24.5% 24.6% F.D. Per Share Data Operating Earnings ($0.48) ($0.00) NA $0.14 NA ($0.01) NA ($0.47) $0.00 NA ($0.09) ($0.08) 19% ($0.13) ($0.13) 3% Non-controlling ops. $0.00 ($0.00) $0.00 $0.00 $0.00 ($0.00) ($0.02) ($0.02) $0.00 $0.00 Adjustments/Unusual Items $0.79 $0.01 ($0.03) $0.01 $0.90 $0.05 $0.00 $0.02 $0.00 $0.02 Adjusted Net Earnings $0.31 $0.00 NA $0.11 NA ($0.00) NA $0.43 $0.05 NA ($0.10) ($0.07) 38% ($0.13) ($0.11) 17% CF From Operations $0.09 $ % $ % $ % $0.65 $ % $0.34 $0.37-8% $0.28 $0.29-6% Cash Flow Summary Funds From Operations $16 $10 56% $47-65% $25-35% $110 $99 11% $75 $84-11% $61 $65-5% Net Capex $22 $24-10% $100-78% $42-48% $145 $136 6% $35 $35 0% $40 $40 0% Net Acquisition (Disposition) $72 $60 $24 $37 $117 $86 $0 $0 $0 $0 Cash Dividends $7 $11 $7 $7 $22 $36 $9 $44 $9 $44 Net Capex/Cash Flow 1.3x 2.3x 2.2x 1.7x 1.3x 1.4x 0.5x 0.4x 0.7x 0.6x Net Debt $655 $663-1% $354 85% $508 29% $655 $624 5% $628 $627 0% $631 $674-6% Net Debt (Cash)/EBITDA 3.0x 3.1x 1.4x 2.1x 3.6x 3.6x 3.9x 3.7x 4.2x 4.4x Operational Statistics Industry Rig Count (Active) Canada % % United States ,842-55% 876-5% Market Share (Active) Canada 11.6% 11.5% 9.0% 4.1% 10.4% 10.5% 14.6% 15.0% 15.3% 15.0% United States 2.9% 3.0% 2.9% 2.8% 2.7% 2.7% 3.1% 3.1% 3.1% 3.1% Rig Count (Active) Canada % 40-43% 4 NA % % % United States & International % 52-54% 25-2% % % % Halliburton JV 6 6 8% 3 NA 6 15% 6 6 3% 7 7 1% 8 7 4% Utilization Rates Canada 34% 28% 66% 8% 32% 30% 31% 31% 34% 33% United States & International 40% 34% 96% 50% 45% 43% 37% 37% 39% 39% Halliburton JV 99% 90% 68% 95% 94% 92% 93% 92% 95% 92% Operating Time (Active Days) Canada 2,109 2,092 1% 3,424-38% 380 NA 7,434 7,507-1% 9,136 9,365-2% 10,226 10,021 2% United States & International 2,199 2,275-3% 4,906-55% 2,202 0% 9,297 9,372-1% 9,711 9,725 0% 10,333 10,347 0% Halliburton JV % 250 NA % 2,181 2,126 3% 2,710 2,680 1% 2,780 2,680 4% Day Rates Canada $23,695 $24,149-2% $24,669-4% $31,731-25% $24,690 $24,815-1% $23,063 $24,212-5% $21,929 $23,002-5% United States & International (US$) $23,582 $20,555 15% $21,092 12% $26,755-12% $24,702 $23,969 3% $19,180 $19,743-3% $18,222 $18,756-3% Halliburton JV (US$) $46,591 $49,000-5% NA $48,959-5% $48,071 $48,731-1% $47,000 $47,000 0% $48,410 $48,410 0% Gross Margins Canada 42.1% 40.0% 43.5% 27.4% 39.9% 39.1% 35.9% 38.1% 33.8% 36.2% United States & International 46.6% 42.6% 33.8% 52.1% 47.3% 45.1% 37.4% 37.7% 35.5% 35.7% Halliburton JV 45.8% 44.0% 35.7% 46.6% 44.8% 43.0% 45.0% 41.0% 45.8% 41.9% Note: Operating days & day rates are on a drill & move basis Q1/10 forward (previously spud to rig-release) Source: Company reports; Scotiabank GBM estimates.

4 Jan.06 Apr.06 Jul.06 Nov.06 Feb.07 Jun.07 Sep.07 Jan.08 Apr.08 Aug.08 Nov.08 Mar.09 Jun.09 Sep.09 Jan.10 Apr.10 Aug.10 Nov.10 Mar.11 Jun.11 Oct.11 Jan.12 Apr.12 Aug.12 Nov.12 Mar.13 Jun.13 Oct.13 Jan.14 May.14 Aug.14 Dec.14 Mar.15 Jun.15 Oct.15 4 Macro Headwinds Remain We are maintaining our one-year price target of $3.00. Our one-year target price is predicated on 8.1x our 2016 EV/EBITDA estimate and is supported by historical trading multiples and comparative valuation. Our price target compares to our one standard deviation historical trading band of 4.8x to 7.2x. Exhibit 3 Forward Year EV/EBITDA - Consensus Estimates 9.5x 8.5x 7.5x 6.5x 5.5x 4.5x 3.5x 2.5x 9.5x 8.5x 7.5x 6.5x 5.5x 4.5x 3.5x 2.5x TDG GBM Drillers - 1 σ TDG + 1 σ TDG Source: Bloomberg; Company reports; Scotiabank GBM estimates. Trinidad trades at 7.3x 2016E EV/EBITDA, a 0.4x discount to its North American peers. On P/BV TDG trades at 0.4x versus Canadian peer group average of 0.5x. Exhibit 4 Comparable Company Analysis GBM Share Target Total Div. Mkt Cap EV/EBITDA 2 P/CF P/E Company Ticker Analyst Rating 1 Price Price Return Yield ($M) 2015E 2016E 2015E 2016E 2015E 2016E Drillers Ensign Energy Services ESI VV SP $8.70 $ % 5.5% $1, x 7.6x 4.4x 5.3x nmf nmf Precision Drilling PD VV SP $5.52 $ % 5.1% $1, x 8.1x 4.5x 5.4x nmf nmf Savanna Energy Services SVY VV SP $1.37 $ % 0.0% $ x 4.5x 1.5x 1.8x nmf nmf Trinidad Drilling TDG VV SP $2.42 $ % 1.7% $ x 7.3x 3.7x 7.2x 5.6x nmf Western Energy Services WRG VV SU $4.06 $4.00 3% 4.9% $ x 11.3x 5.7x 7.4x nmf nmf Basic Energy Services BAS KBH* SO $4.20 $ % 0.0% $ x 60.7x 4.0x 12.1x nmf nmf Helmerich & Payne HP DW* SO $60.27 $ % 4.6% $6, x 9.9x 5.8x 10.6x 19.8x nmf Nabors Industries NBR KBH* SP $11.09 $ % 2.2% $3, x 7.7x 3.3x 4.3x nmf nmf Patterson-UTI PTEN KBH* SO $16.49 $ % 2.4% $2, x 11.3x 3.7x 6.7x nmf nmf Average 2.9% 10.0x 14.3x 4.1x 6.8x 12.7x nmf Average - Canada 3.4% 6.6x 7.7x 4.0x 5.4x 5.6x nmf Average - United States 2.3% 14.3x 22.4x 4.2x 8.4x 19.8x nmf Notes: 1. Number of analysts who make up consensus (i.e., Scotiabank GBM does not cover the name) or our rating (*Scotia Howard Weil). 2. Adjusted for stock-based compensation and non-recurring items. 3. Figures for U.S.-listed companies are in U.S. dollars. Analyst legend: VV = Vladislav Vlad, BH=Blake Hutchinson, DW=Dave Wilson Ratings legend: FS - Focus Stock, SO = Sector Outperform, SP = Sector Perform, SU = Sector Underperform. Source: Bloomberg; Company reports; FactSet; Scotiabank GBM estimates (CDI, ESI, PD, SVY, WRG); Scotia Howard Weil estimates (ratings and targets for BAS, HP, NBR, PTEN).

5 5 Exhibit 5 Operational Summary Figures in $M Q1/15 Q2/15 Q3/15 Q4/15E 2015E Q1/16E Q2/16E Q3/16E Q4/16E 2016E 2017E Revenue Canada $270 $312 $304 $299 $314 $60 $12 $51 $61 $185 $62 $21 $59 $68 $211 $224 United States $377 $446 $500 $493 $481 $91 $73 $67 $60 $291 $59 $63 $63 $63 $248 $251 Halliburton JV (60%) $0 $0 $0 $0 $26 $16 $19 $22 $25 $82 $25 $25 $26 $26 $102 $108 Manufacturing $0 $0 $0 $0 $89 $34 $5 $0 $0 $39 $0 $0 $0 $0 $0 $0 Corporate $43 $61 $56 $54 $58 $8 $5 $6 $7 $26 $8 $5 $6 $7 $26 $27 Adjusted Revenue* $690 $818 $859 $845 $878 $176 $110 $146 $153 $584 $154 $115 $155 $164 $587 $610 YOY Growth 18% 19% 5% -2% 4% -27% -33% -36% -37% -33% -12% 4% 6% 8% 1% 4% Gross Margin 37.2% 37.7% 38.3% 39.0% 36.4% 43.2% 46.1% 43.1% 39.1% 42.6% 38.2% 38.9% 38.1% 37.9% 38.2% 35.1% EBITDA Canada $106 $123 $127 $126 $136 $26 $3 $22 $23 $74 $22 $7 $22 $25 $76 $76 United States $150 $185 $202 $203 $172 $43 $38 $31 $25 $137 $23 $24 $23 $23 $93 $89 Halliburton JV (60%) $0 $0 $0 ($1) $2 $4 $7 $8 $9 $28 $9 $9 $9 $9 $37 $40 Manufacturing $0 $0 $0 $0 $6 $3 $0 ($1) $0 $2 $0 $0 $0 $0 $0 $0 Corporate, Other, and Adjustments ($55) ($56) ($52) ($59) ($63) ($16) ($14) ($14) ($14) ($58) ($11) ($10) ($13) ($10) ($44) ($55) Adjusted EBITDA $202 $252 $277 $270 $252 $60 $35 $45 $43 $183 $43 $30 $41 $47 $161 $149 YOY Growth 4% 25% 10% -2% -7% -24% 13% -30% -44% -28% -28% -14% -10% 10% -12% -7% EBITDA Margin 29.2% 30.9% 32.2% 32.0% 28.7% 34.1% 31.6% 30.7% 28.2% 31.3% 28.1% 26.0% 26.3% 28.7% 27.4% 24.5% F.D. Per Share Data Operating Earnings ($0.62) $0.63 $0.46 $0.58 $0.05 $0.09 ($0.01) ($0.48) ($0.01) ($0.47) ($0.01) ($0.05) ($0.01) ($0.01) ($0.09) ($0.13) Discontinued Operations $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 ($0.00) $0.00 ($0.00) ($0.00) ($0.00) ($0.00) ($0.02) $0.00 Adjustments/Unusual Items $0.76 $0.04 $0.59 $0.12 $0.54 $0.04 $0.01 $0.79 $0.00 $0.90 $0.00 $0.01 ($0.01) $0.00 $0.00 $0.00 Adjusted Net Earnings $0.14 $0.67 $1.05 $0.71 $0.59 $0.13 ($0.00) $0.31 ($0.01) $0.43 ($0.02) ($0.05) ($0.03) ($0.01) ($0.10) ($0.13) CF From Operations $1.21 $1.80 $1.95 $1.89 $1.57 $0.27 $0.19 $0.09 $0.15 $0.65 $0.04 $0.09 $0.04 $0.17 $0.34 $0.28 YOY Growth -9% 48% 8% -3% -17% -38% -14% -73% -75% -58% -84% -53% -55% 13% -48% -18% Cash Flow Summary Funds From Operations $147 $218 $235 $231 $217 $36 $25 $16 $33 $110 $10 $20 $9 $37 $75 $61 Capex $140 $182 $186 $99 $277 $50 $42 $22 $31 $145 $9 $9 $9 $9 $35 $40 Net Acquisition (Disposition) ($24) ($47) ($23) ($13) $33 $8 $37 $72 $1 $117 $0 $0 $0 $0 $0 $0 Cash Dividends $24 $24 $24 $24 $28 $7 $7 $7 $2 $22 $2 $2 $2 $2 $9 $9 Capex/Cash Flow 1.0x 0.8x 0.8x 0.4x 1.3x 1.4x 1.7x 1.3x 1.0x 1.3x 0.9x 0.4x 1.0x 0.2x 0.5x 0.7x Net Debt $599 $585 $505 $201 $457 $557 $508 $655 $655 $655 $651 $596 $637 $628 $628 $631 Net Debt (Cash)/EBITDA 3.0x 2.3x 1.8x 0.7x 1.8x 2.4x 2.1x 3.0x 3.6x 3.6x 3.9x 3.7x 4.1x 3.9x 3.9x 4.2x Operational Statistics Rig Count (Exit) Canada United States & International Barge Drilling Halliburton JV Utilization Rates (Active) Canada 59% 67% 57% 53% 57% 50% 8% 34% 34% 32% 37% 12% 34% 39% 31% 34% United States & International 75% 91% 83% 74% 93% 61% 50% 40% 33% 45% 35% 37% 38% 38% 37% 39% Barge Drilling 88% 94% 85% 93% 57% 13% 0% 0% 0% 6% 0% 0% 0% 0% 0% 0% Halliburton JV 0% 0% 0% 0% 48% 94% 95% 99% 90% 94% 92% 93% 93% 94% 93% 95% Operating Time Canada 11,650 13,345 11,543 11,585 12,202 2, ,109 2,602 7,434 2, ,585 2,974 9,136 10,226 United States & International 18,143 21,384 20,378 18,234 18,478 2,695 2,202 2,199 2,201 9,297 2,274 2,443 2,490 2,504 9,711 10,333 Barge Drilling 1,441 1,708 1,555 1,703 1, Halliburton JV , ,710 2,780 Day Rates Canada $19,456 $21,338 $24,637 $24,893 $25,638 $25,764 $31,731 $23,695 $23,500 $24,690 $22,903 $24,335 $22,994 $22,891 $23,063 $21,929 United States & International (US$) $17,630 $19,153 $22,285 $23,381 $21,749 $27,778 $26,755 $23,582 $20,000 $24,702 $19,500 $19,250 $19,000 $19,000 $19,180 $18,222 Barge Drilling (US$) $24,050 $24,087 $28,612 $31,605 $34,424 $26,051 $0 $0 $0 $26,051 $0 $0 $0 $0 $0 $0 Halliburton JV (US$) NA NA NA NA NA $50,825 $48,959 $46,591 $47,000 $48,071 $47,000 $47,000 $47,000 $47,000 $47,000 $48,410 Gross Margins Canada 39.4% 39.5% 41.7% 42.3% 43.3% 42.4% 27.4% 42.1% 38.2% 39.9% 36.2% 32.9% 36.3% 36.2% 35.9% 33.8% United States & International 39.8% 41.6% 40.5% 41.2% 35.8% 47.5% 52.1% 46.6% 41.3% 47.3% 38.5% 37.7% 36.8% 36.8% 37.4% 35.5% Halliburton JV 0.0% 0.0% 0.0% 0.0% 38.5% 40.5% 46.6% 45.8% 45.0% 44.8% 45.0% 45.0% 45.0% 45.0% 45.0% 45.8% Note: Operating days & day rates are on a drill & move basis Q1/10 forward (previously spud to rig-release) Source: Company reports; Scotiabank GBM estimates.

6 6 Exhibit 6 Income Statement Figures in $M Q1/15 Q2/15 Q3/15 Q4/15E 2015E Q1/16E Q2/16E Q3/16E Q4/16E 2016E 2017E Margins Gross 37.2% 37.7% 38.3% 39.0% 36.4% 43.2% 46.1% 43.1% 39.1% 42.6% 38.2% 38.9% 38.1% 37.9% 38.2% 35.1% EBITDA 29.2% 30.9% 32.2% 32.0% 28.7% 34.1% 31.6% 30.7% 28.2% 31.3% 28.1% 26.0% 26.3% 28.7% 27.4% 24.5% EBIT 0.4% 16.5% 10.7% 16.3% 5.7% 15.9% 7.3% -89.4% 5.8% -14.7% 5.3% -3.4% 6.1% 5.0% 3.7% 1.5% Adjusted Earnings 2.4% 10.0% 14.7% 10.2% 9.3% 10.0% -0.5% 38.7% -1.1% 12.3% -2.4% -9.7% -3.6% -1.5% -3.9% -4.7% Revenue Canada $270 $312 $304 $299 $314 $60 $12 $51 $61 $185 $62 $21 $59 $68 $211 $224 United States & International $377 $446 $500 $493 $481 $91 $73 $67 $60 $291 $59 $63 $63 $63 $248 $251 Halliburton JV (60%) $0 $0 $0 $0 $26 $16 $19 $22 $25 $82 $25 $25 $26 $26 $102 $108 Manufacturing $0 $0 $0 $0 $89 $34 $5 $0 $0 $39 $0 $0 $0 $0 $0 $0 Corporate/Other/Eliminations $43 $61 $56 $54 $58 $8 $5 $6 $7 $26 $8 $5 $6 $7 $26 $27 Adjusted Revenue* $690 $818 $859 $845 $878 $176 $110 $146 $153 $584 $154 $115 $155 $164 $587 $610 Expenses Operating Costs ($434) ($510) ($530) ($515) ($626) ($122) ($53) ($72) ($79) ($327) ($82) ($56) ($82) ($88) ($307) ($337) General and Administrative ($59) ($61) ($58) ($71) ($66) ($17) ($15) ($12) ($15) ($60) ($14) ($14) ($14) ($14) ($55) ($56) EBITDA 1 $202 $252 $277 $270 $252 $60 $35 $45 $43 $183 $43 $30 $41 $47 $161 $149 Depreciation ($107) ($113) ($114) ($117) ($125) ($24) ($20) ($27) ($28) ($98) ($30) ($28) ($29) ($33) ($119) ($117) FX (Loss) Gain ($7) $3 $1 ($1) ($5) ($6) ($0) ($3) $0 ($10) $0 $0 $0 $0 $0 $0 One-Time Charges ($81) ($3) ($67) ($1) ($69) $1 $0 ($143) $0 ($142) $0 $0 $0 $0 $0 $0 Income From Equity Holdings $0 $0 $0 ($1) $0 $1 $1 $3 $4 $9 $5 $4 $4 $4 $18 $17 Operating Income (EBIT) $3 $135 $92 $138 $50 $28 $8 ($131) $9 ($86) $8 ($4) $9 $8 $22 $9 Interest ($78) ($45) ($42) ($42) ($40) ($11) ($13) ($13) ($12) ($50) ($13) ($12) ($13) ($12) ($50) ($50) Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Earnings Before Taxes (EBT) ($75) $90 $50 $96 $11 $16 ($5) ($144) ($4) ($136) ($5) ($16) ($3) ($4) ($28) ($41) Total Tax $0 ($14) $5 ($25) ($4) ($4) $3 $56 $1 $56 $1 $5 $1 $1 $8 $12 Net Earnings ($75) $76 $55 $71 $7 $12 ($1) ($88) ($3) ($80) ($3) ($12) ($2) ($3) ($20) ($29) Non-controlling ops. $0 $0 $0 $0 $0 $0 $0 $0 ($0) $0 ($1) ($1) ($1) ($1) ($4) $0 Adjustments/Unusual Items $92 $5 $72 $15 $75 $5 $1 $144 $1 $152 $0 $1 ($2) $1 $1 $1 Adjusted Net Earnings $17 $81 $127 $86 $82 $18 ($1) $57 ($2) $72 ($4) ($11) ($6) ($3) ($23) ($28) Cash Flow 2 From Operations $147 $218 $235 $231 $217 $36 $25 $16 $33 $110 $10 $20 $9 $37 $75 $61 Funds From (For) Investments ($116) ($136) ($163) ($85) ($310) ($58) ($79) ($94) ($32) ($263) ($9) ($9) ($9) ($9) ($35) ($40) Funds From (For) Financing ($2) ($64) ($87) $65 ($29) $35 ($2) $8 ($21) $21 ($6) ($57) $39 ($11) ($36) ($6) F.D. Per Share Data Operating Earnings ($0.62) $0.63 $0.46 $0.58 $0.05 $0.09 ($0.01) ($0.48) ($0.01) ($0.47) ($0.01) ($0.05) ($0.01) ($0.01) ($0.09) ($0.13) Non-controlling ops. $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 ($0.00) $0.00 ($0.00) ($0.00) ($0.00) ($0.00) ($0.02) $0.00 Adjustments/Unusual Items $0.76 $0.04 $0.59 $0.12 $0.54 $0.04 $0.01 $0.79 $0.00 $0.90 $0.00 $0.01 ($0.01) $0.00 $0.00 $0.00 Adjusted Net Earnings $0.14 $0.67 $1.05 $0.71 $0.59 $0.13 ($0.00) $0.31 ($0.01) $0.43 ($0.02) ($0.05) ($0.03) ($0.01) ($0.10) ($0.13) CF From Operations $1.21 $1.80 $1.95 $1.89 $1.57 $0.27 $0.19 $0.09 $0.15 $0.65 $0.04 $0.09 $0.04 $0.17 $0.34 $0.28 Book Value $6.18 $6.87 $7.08 $8.02 $8.35 $8.92 $8.79 $6.44 $6.42 $6.42 $6.40 $6.33 $6.31 $6.28 $6.28 $6.11 Tangible Book Value $5.49 $6.15 $6.37 $7.36 $7.62 $8.11 $7.99 $6.37 $6.36 $6.36 $6.34 $6.28 $6.26 $6.24 $6.24 $6.08 Dividends $24 $24 $24 $25 $27 $7 $7 $11 $2 $27 $2 $2 $2 $2 $9 $9 Per Share $0.20 $0.20 $0.20 $0.20 $0.20 $0.05 $0.05 $0.05 $0.01 $0.15 $0.01 $0.01 $0.01 $0.01 $0.04 $0.04 Payout From CF 16% 11% 10% 11% 13% 18% 27% 68% 7% 24% 23% 11% 25% 6% 12% 14% Payout From FCF NA 68% 49% 19% NA NA NA NA NA NA 286% 20% 865% 8% 22% 41% Share Information (M) Basic - Period End Weighted Average - Basic Weighted Average - F.D Notes: (1) Adjusted for stock-based compensation, FX, unusual, and infrequent items. (2) Before changes in working capital. Source: Company reports; FactSet; Scotiabank GBM estimates.

7 7 Exhibit 7 Cash Flow Analysis and Capital Expenditure Summary Figures in $M Q1/15 Q2/15 Q3/15 Q4/15E 2015E Q1/16E Q2/16E Q3/16E Q4/16E 2016E 2017E Cash Flow Analysis CF From Operations $147 $218 $235 $231 $217 $36 $25 $16 $33 $110 $10 $20 $9 $37 $75 $61 less Capital Program ($140) ($182) ($186) ($99) ($277) ($50) ($42) ($22) ($31) ($145) ($9) ($9) ($9) ($9) ($35) ($40) Free Cash Flow $7 $35 $50 $132 ($60) ($14) ($17) ($5) $1 ($35) $1 $11 $0 $28 $40 $21 less Cash Dividends ($24) ($24) ($24) ($24) ($28) ($7) ($7) ($7) ($2) ($22) ($2) ($2) ($2) ($2) ($9) ($9) Excess (Short) FCF ($17) $11 $25 $108 ($87) ($21) ($23) ($12) ($1) ($57) ($1) $9 ($2) $26 $31 $13 less Acquisitions/Investments $0 $0 $0 $0 ($170) ($9) ($39) ($74) ($1) ($122) $0 $0 $0 $0 $0 $0 plus Disposition/Divestures $24 $47 $23 $13 $137 $2 $2 $1 $0 $5 $0 $0 $0 $0 $0 $0 Surplus (Deficit) Cash Flow $7 $58 $48 $122 ($121) ($28) ($60) ($84) ($2) ($174) ($1) $9 ($2) $26 $31 $13 CF From (For) Financing $23 ($40) ($63) $89 ($2) $41 $5 $15 ($18) $43 ($4) ($55) $41 ($9) ($27) $3 Other/Non-cash w.c. changes ($26) ($31) $25 $53 ($75) ($15) $101 ($22) $1 $65 $6 $46 ($39) ($17) ($4) ($15) Net Change In Cash Position $4 ($13) $10 $263 ($197) ($2) $46 ($91) ($20) ($66) $0 $0 $0 $0 ($0) $0 Total Capex $140 $182 $186 $99 $277 $50 $42 $22 $31 $145 $9 $9 $9 $9 $35 $40 Source: Company reports; Scotiabank GBM estimates. Exhibit 8 Capitalization, Valuation, and Ratio Analysis Figures in $M Q1/15 Q2/15 Q3/15 Q4/15E 2015E Q1/16E Q2/16E Q3/16E Q4/16E 2016E 2017E Capitalization Summary 1 Share Price $6.30 $7.77 $6.88 $9.85 $5.20 $4.07 $4.04 $2.21 $2.42 $2.42 $2.42 $2.42 $2.42 $2.42 $2.42 $2.42 Market Capitalization $794 $952 $840 $1,369 $707 $546 $543 $493 $540 $540 $540 $540 $540 $540 $540 $540 Net Debt $599 $585 $505 $201 $457 $557 $508 $655 $655 $655 $651 $596 $637 $628 $628 $631 Enterprise Value $1,392 $1,537 $1,345 $1,569 $1,164 $1,103 $1,051 $1,148 $1,195 $1,195 $1,191 $1,136 $1,177 $1,168 $1,168 $1,171 Net Debt (Cash)/EBITDA 3.0x 2.3x 1.8x 0.7x 1.8x 2.4x 2.1x 3.0x 3.6x 3.6x 3.9x 3.7x 4.1x 3.9x 3.9x 4.2x Net Debt (Cash)/Cash Flow 4.1x 2.7x 2.1x 0.9x 2.1x 2.9x 2.7x 4.2x 6.0x 6.0x 7.8x 7.6x 9.0x 8.4x 8.4x 10.3x Net Debt (Cash)/Equity 77% 70% 58% 18% 40% 46% 43% 46% 46% 46% 46% 42% 45% 45% 45% 46% Net Debt/Total Capitalization 43% 41% 37% 15% 29% 32% 30% 31% 31% 31% 31% 30% 31% 31% 31% 32% Net Debt/Enterprise Value 43% 38% 38% 13% 39% 50% 48% 57% 55% 55% 55% 52% 54% 54% 54% 54% Capex/Cash Flow 1.0x 0.8x 0.8x 0.4x 1.3x 1.4x 1.7x 1.3x 1.0x 1.3x 0.9x 0.4x 1.0x 0.2x 0.5x 0.7x Current Ratio 2.9x 2.5x 2.2x 3.0x 1.9x 2.4x 2.4x 1.7x 1.4x 1.4x 1.9x 1.1x 1.5x 1.4x 1.4x 1.5x Interest Coverage Ratio 0.0x 3.0x 2.2x 3.3x 1.3x 0.7x 1.3x -2.3x -1.7x -1.7x -2.1x -2.3x 0.4x 0.4x 0.4x 0.2x Valuation Analysis EV/EBITDA 6.9x 6.1x 4.9x 5.8x 4.6x 4.7x 4.4x 5.3x 6.5x 6.5x 7.2x 7.1x 7.5x 7.3x 7.3x 7.8x P/CF 5.2x 4.3x 3.5x 5.2x 3.3x 2.8x 2.9x 2.6x 4.9x 3.7x 6.4x 6.9x 7.6x 7.2x 7.2x 8.8x P/E 45.3x 11.5x 6.6x 14.0x 8.8x 7.2x 7.2x 3.5x 7.4x 5.6x 10.6x 13.4x -24.4x -23.4x -23.4x -18.9x P/BV 1.0x 1.1x 1.0x 1.2x 0.6x 0.5x 0.5x 0.3x 0.4x 0.4x 0.4x 0.4x 0.4x 0.4x 0.4x 0.4x P/TBV 1.1x 1.3x 1.1x 1.3x 0.7x 0.5x 0.5x 0.3x 0.4x 0.4x 0.4x 0.4x 0.4x 0.4x 0.4x 0.4x Ratio Analysis 2 ROE 2.0% 10.1% 14.9% 8.7% 7.3% 6.4% 6.6% 9.0% 5.6% 5.6% 3.9% 3.1% -1.6% -1.6% -1.6% -2.1% ROA 1.1% 5.2% 8.1% 5.1% 4.3% 3.8% 3.8% 5.4% 3.4% 3.4% 2.3% 1.9% -0.9% -1.0% -1.0% -1.2% ROCE 0.2% 9.1% 6.2% 8.9% 2.9% 1.4% 3.1% -5.7% -4.7% -4.7% -5.7% -6.6% 0.2% 0.2% 0.2% -0.4% ROIC 5.1% 9.4% 10.5% 6.8% 6.3% 5.7% 5.6% 7.1% 5.0% 5.0% 3.9% 3.7% 0.6% 0.6% 0.6% 0.3% Notes: (1) Historicals based on closing pricing. (2) Based on two-year average capital and adjusted earnings. Source: Company reports; FactSet; Scotiabank GBM estimates.

8 8 Exhibit 9 Balance Sheet & Debt Position Analysis Figures in $M Q1/15 Q2/15 Q3/15 Q4/15E 2015E Q1/16E Q2/16E Q3/16E Q4/16E 2016E 2017E Cash & Equivalents $8 ($5) $5 $268 $71 $69 $116 $25 $5 $5 $5 $5 $5 $5 $5 $5 Accounts Receivables $160 $207 $182 $167 $224 $248 $108 $169 $167 $167 $115 $98 $140 $180 $180 $182 Inventory $25 $18 $9 $8 $30 $10 $14 $16 $17 $17 $12 $12 $18 $19 $19 $41 Prepaids $5 $6 $5 $6 $20 $6 $5 $8 $8 $8 $8 $8 $8 $8 $8 $8 Income Tax $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Other $0 $9 $1 $4 $0 $0 $13 $0 $0 $0 $0 $0 $0 $0 $0 $0 Current Assets $198 $235 $201 $452 $344 $333 $256 $218 $197 $197 $140 $123 $171 $212 $212 $236 Future Income Tax $0 $0 $0 $0 $8 $24 $30 $50 $50 $50 $50 $50 $50 $50 $50 $50 Investments $0 $0 $0 $8 $164 $189 $227 $249 $253 $253 $257 $262 $266 $270 $270 $287 Property, Plant, & Equipment $1,254 $1,280 $1,254 $1,275 $1,326 $1,422 $1,404 $1,841 $1,847 $1,847 $1,827 $1,809 $1,790 $1,767 $1,767 $1,693 Intangibles $2 $87 $85 $92 $100 $109 $108 $15 $13 $13 $12 $11 $10 $9 $9 $6 Goodwill $85 $2 $1 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total Assets $1,539 $1,604 $1,541 $1,827 $1,942 $2,078 $2,024 $2,373 $2,360 $2,360 $2,285 $2,255 $2,287 $2,308 $2,308 $2,272 Bank Indebtedness $1 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Current Long Term Debt $0 $1 $1 $0 $0 $0 $0 $3 $3 $3 $3 $3 $3 $3 $3 $3 A/P & Accrued Liabilities $62 $89 $82 $110 $156 $131 $94 $109 $120 $120 $56 $98 $95 $131 $131 $139 Income Tax Payables $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Dividend Payables $6 $6 $6 $7 $7 $7 $7 $11 $11 $11 $11 $11 $11 $11 $11 $11 Other $0 $0 $3 $32 $15 $2 $4 $3 $3 $3 $3 $3 $3 $3 $3 $3 Current Liabilities $69 $96 $92 $149 $178 $139 $105 $125 $136 $136 $73 $115 $111 $147 $147 $156 Risk Management $2 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Credit Facility $167 $131 $68 $0 $15 $65 $70 $85 $66 $66 $62 $7 $48 $39 $39 $42 Senior Notes $439 $449 $441 $469 $513 $561 $554 $592 $591 $591 $591 $591 $591 $591 $591 $591 Non-controlling Interest $0 $0 $0 $0 $0 $0 $0 $17 $17 $17 $18 $19 $20 $21 $21 $21 Future Income Taxes $83 $87 $76 $95 $100 $115 $115 $116 $115 $115 $114 $110 $110 $109 $109 $99 Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total Liabilities $760 $762 $677 $713 $806 $880 $843 $936 $927 $927 $859 $843 $880 $908 $908 $909 Share Capital $952 $952 $952 $1,117 $1,093 $1,079 $1,079 $1,375 $1,375 $1,375 $1,375 $1,375 $1,375 $1,375 $1,375 $1,375 Contributed Surplus $56 $49 $50 $51 $59 $65 $65 $65 $65 $65 $65 $65 $65 $65 $65 $65 Retained Earnings (Deficit) ($149) ($135) ($104) ($58) ($79) ($74) ($82) ($180) ($185) ($185) ($192) ($206) ($212) ($218) ($218) ($255) Comprehensive Income/Other ($81) ($25) ($34) $4 $62 $127 $118 $177 $179 $179 $179 $179 $179 $179 $179 $179 Total Shareholders' Equity $778 $841 $864 $1,114 $1,136 $1,198 $1,181 $1,437 $1,433 $1,433 $1,426 $1,412 $1,406 $1,400 $1,400 $1,363 Total Liabilites & Equities $1,539 $1,604 $1,541 $1,827 $1,942 $2,078 $2,024 $2,373 $2,360 $2,360 $2,285 $2,255 $2,287 $2,308 $2,308 $2,272 Debt Position Analysis Net Debt $599 $585 $505 $201 $457 $557 $508 $655 $655 $655 $651 $596 $637 $628 $628 $631 Net Debt + NCWC 1,2 $477 $440 $400 $166 $361 $432 $472 $584 $597 $597 $587 $590 $580 $566 $566 $553 Total Credit Facility $301 $302 $299 $305 $427 $448 $446 $462 $467 $467 $467 $467 $467 $467 $467 $467 Drawn $168 $135 $68 $0 $15 $65 $70 $85 $66 $66 $62 $7 $48 $39 $39 $42 Available Lines $134 $167 $231 $305 $412 $383 $376 $377 $400 $400 $404 $460 $418 $427 $427 $425 Available Lines (%) 44% 55% 77% 100% 96% 85% 84% 82% 86% 86% 87% 98% 90% 92% 92% 91% Credit Facility Covenants 3 Threshold Senior Debt to EBITDA [ < 3.00x ] -0.1x 0.0x -0.1x 0.3x 0.4x 0.4x 0.4x 0.1x 0.4x 0.3x 0.3x 0.4x Total Debt to EBITDA [ < 4.00x ] 1.4x 1.9x 1.8x 2.6x 3.6x 3.6x 4.4x 4.4x 5.2x 5.0x 5.0x 5.6x Interest Coverage Ratio [ > 2.75x ] 8.8x 7.5x 7.0x 4.8x 3.6x 3.6x 2.7x 2.5x 2.5x 2.6x 2.6x 2.3x Notes: (1) Working capital adjusted. (2) Definition matches traditional E&P net debt calculation. (3) Total Debt to EBITDA covenant is relaxed to < 4.5x for Q4/15 and Q1/16 pursuant to the CDI acquisition; repatriation of JV cash is not included. Source: Company reports; FactSet; Scotiabank GBM estimates.

9 9 Appendix A: Important Disclosures Company Ticker Disclosures (see legend below)* Basic Energy Services, Inc. BAS V19 Ensign Energy Services Inc. ESI J Helmerich & Payne, Inc. HP V19 Nabors Industries, Inc. NBR V19 Patterson-UTI Energy, Inc. PTEN V19 Precision Drilling Corp. PD VS102 Savanna Energy Services Corp. SVY J, VS161 Western Energy Services Corp. WRG VS32 The following analysts certify that (1) the views expressed in this report in connection with securities or issuers they analyze accurately reflect their personal views and (2) no part of their compensation was, is, or will be directly or indirectly, related to the specific recommendations or views expressed by them in this report: Vladislav Vlad, K. Blake Hancock, and Dave Wilson This research report was prepared by employees of Scotia Capital Inc. and/or its affiliates who have the title of Analyst. All pricing of securities in reports is based on the closing price of the securities principal marketplace on the night before the publication date, unless otherwise explicitly stated. All Equity Research Analysts report to the Head of Equity Research. The Head of Equity Research reports to the Managing Director, Head of Institutional Equity Sales, Trading and Research, who is not and does not report to the Head of the Investment Banking Department. Scotiabank, Global Banking and Markets has policies that are reasonably designed to prevent or control the sharing of material non-public information across internal information barriers, such as between Investment Banking and Research. The compensation of the research analyst who prepared this report is based on several factors, including but not limited to, the overall profitability of Scotiabank, Global Banking and Markets and the revenues generated from its various departments, including investment banking. Furthermore, the research analyst s compensation is charged as an expense to various Scotiabank, Global Banking and Markets departments, including investment banking. Research Analysts may not receive compensation from the companies they cover. Non-U.S. analysts may not be associated persons of Scotia Capital (USA) Inc. and therefore may not be subject to NASD Rule 2711 restrictions on communications with subject company, public appearances and trading securities held by the analysts. For Scotiabank, Global Banking and Markets Research analyst standards and disclosure policies, please visit gbm.scotiabank.com/disclosures. Scotiabank, Global Banking and Markets Research, 40 King Street West, 33rd Floor, Toronto, Ontario, M5H 1H1. * Legend J V19 VS102 VS161 Scotia Capital (USA) Inc. or its affiliates expects to receive or intends to seek compensation for investment banking services in the next 3 months. Scotia Howard Weil is a Division of Scotia Capital (USA) Inc., a U.S. registered broker-dealer and a member of the New York Stock Exchange and FINRA. Scotia Capital (USA) Inc. is a wholly owned subsidiary of Scotia Capital Inc., a Canadian registered investment dealer, and indirectly owned by The Bank of Nova Scotia. Scotia Howard Weil Research Analysts and Scotiabank Research Analysts are independent from one another and their respective coverage of issuers is different. In addition, because they are independent from one another, Scotia Howard Weil Research Analysts and Scotiabank Research Analysts may have different opinions on the short-term and long-term outlooks of local and global markets and economies. Our Research Analyst visited PD's Marcellus operation, a drilling operation, on October 1, Partial payment was received from the issuer for the travel-related expenses incurred by the Research Analyst to visit this site. Our Research Analyst visited Australian Operations, including various corporate offices in Brisbane (Savanna, APLNG, Santos),

10 10 VS32 Toowoomba, Gladstone, and a Talinga field tour, on June 9 to June 14, Partial payment was received from the issuer for the travel-related expenses incurred by the Research Analyst to visit this site. Our Research Analyst visited Rig 51 at Nisku, Alberta, a drilling rig, on September 6, Full payment was received from the issuer for the travel-related expenses incurred by the Research Analyst to visit this site.

11 11 Definition of Scotiabank, Global Banking and Markets Equity Research Ratings We have a four-tiered rating system, with ratings of Focus Stock, Sector Outperform, Sector Perform, and Sector Underperform. Each analyst assigns a rating that is relative to his or her coverage universe or an index identified by the analyst that includes, but is not limited to, stocks covered by the analyst. The rating assigned to each security covered in this report is based on the Scotiabank, Global Banking and Markets research analyst s 12-month view on the security. Analysts may sometimes express to traders, salespeople and certain clients their shorter-term views on these securities that differ from their 12-month view due to several factors, including but not limited to the inherent volatility of the marketplace. Ratings Focus Stock (FS) The stock represents an analyst s best idea(s); stocks in this category are expected to significantly outperform the average 12-month total return of the analyst s coverage universe or an index identified by the analyst that includes, but is not limited to, stocks covered by the analyst. Sector Outperform (SO) The stock is expected to outperform the average 12-month total return of the analyst s coverage universe or an index identified by the analyst that includes, but is not limited to, stocks covered by the analyst. Sector Perform (SP) The stock is expected to perform approximately in line with the average 12- month total return of the analyst s coverage universe or an index identified by the analyst that includes, but is not limited to, stocks covered by the analyst. Sector Underperform (SU) The stock is expected to underperform the average 12-month total return of the analyst s coverage universe or an index identified by the analyst that includes, but is not limited to, stocks covered by the analyst. Other Ratings Tender Investors are guided to tender to the terms of the takeover offer. Under Review The rating has been temporarily placed under review, until sufficient information has been received and assessed by the analyst. Risk Ranking As of June 22, 2015, Scotiabank, Global Banking and Markets discontinued its Low, Medium, and High risk rankings. The Speculative risk ranking reflects exceptionally high financial and/or operational risk, exceptionally low predictability of financial results, and exceptionally high stock volatility. The Director of Research and the Supervisory Analyst jointly make the final determination of the Speculative risk ranking. Scotiabank, Global Banking and Markets Equity Research Ratings Distribution* Distribution by Ratings and Equity and Equity-Related Financings* Percentage of companies covered by Scotiabank, Global Banking and Markets within each rating category. Percentage of companies within each rating category for which Scotiabank, Global Banking and Markets has undertaken an underwriting liability or has provided advice for a fee within the last 12 months. Source: Scotiabank GBM. For the purposes of the ratings distribution disclosure FINRA requires members who use a ratings system with terms different than buy, hold/neutral and sell, to equate their own ratings into these categories. Our Focus Stock, Sector Outperform, Sector Perform, and Sector Underperform ratings are based on the criteria above, but for this purpose could be equated to strong buy, buy, neutral and sell ratings, respectively.

12 12 General Disclosures This report has been prepared by analysts who are employed by the Research Department of Scotiabank, Global Banking and Markets. Scotiabank, together with Global Banking and Markets, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including Scotia Capital Inc. All other trademarks are acknowledged as belonging to their respective owners and the display of such trademarks is for informational use only. Scotiabank, Global Banking and Markets Research produces research reports under a single marketing identity referred to as Globally-branded research under U.S. rules. This research is produced on a single global research platform with one set of rules which meet the most stringent standards set by regulators in the various jurisdictions in which the research reports are produced. In addition, the analysts who produce the research reports, regardless of location, are subject to one set of policies designed to meet the most stringent rules established by regulators in the various jurisdictions where the research reports are produced. Scotia Capital Inc. or an affiliate thereof owns or controls an equity interest in TMX Group Limited and in excess of 1% of the issued and outstanding equity securities thereof. In addition, an affiliate of Scotia Capital Inc. is a lender to TMX Group Limited under its credit facilities. As such, Scotia Capital Inc. may be considered to have an economic interest in TMX Group Limited. This report is provided to you for informational purposes only. This report is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any securities and/or commodity futures contracts. 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