GLOBAL REACH LOCAL FOCUS

2008 ANNUAL REPORT CORPORATE PROFILE

With headquarters in Calgary, Alberta,

Ensign is an industry leader in the delivery of oilfield services. Since its inception in

1987, Ensign has accumulated an extensive equipment fleet characterized by flexibility and mobility for meeting the challenging demands of the oil and natural gas CANADA industry. We have also contributed to UNITED STATES advancements in drilling and well servicing through the innovative use of technology, and have an established reputation for the highest safety standards and environmental stewardship. Ensign’s VENEZUELA shares are listed on the Toronto Stock

Exchange under the trading symbol “ESI”.

2 Financial Performance 3 Highlights 4 Operating Summary 6 Letter to Shareholders 10 Ensign’s ADR™ – The Game Changer 14 Operations Review ARGENTINA 24 Health, Safety and Environment 28 Management’s Discussion and Analysis 50 Operating Divisions Summary 52 Corporate Governance 53 Management’s Report / Auditors’ Report 54 Consolidated Financial Statements 58 Notes to the Consolidated Financial Statements 67 Additional Information 68 10 Year Financial Information 68 Share Trading Summary 70 Operating Management 73 Corporate and Field Offices 76 Directors IBC Corporate Information

Cover photo: Ensign’s Rig 52 in the Sultanate of Oman. The Company is deploying five of its proprietary ADR™ rigs to Oman in 2009. “Performance Excellence – Second to None” Ensign’s global diversity contributed to strong financial results in 2008.

LIBYA QATAR OMAN THAILAND

GABON

AUSTRALIA

NEW ZEALAND

Ensign Energy Services Inc. 2008 Annual Report 1 FINANCIAL PERFORMANCE

In 2008, we delivered on our vision – “Performance Excellence – Second to None”.

Revenue Gross Margin ($ millions) ($ millions)

2000 800 Revenue in 2008 was the second highest in the 1500 600 Company’s history after

our record year in 2006. 1000 400

500 200

0 0 04 05 06 07 08 04 05 06 07 08

Funds From Operations Funds From Operations Per Share ($ millions) ($)

500 3.00 Funds from operations 2.50 of $2.66 per common 400 share in 2008 increased 2.00 300 37 percent from $1.94 per 1.50 common share in 2007. 200 1.00

100 0.50

0 0.00 04 05 06 07 08 04 05 06 07 08

Net Income Net Income Per Share ($ millions) ($)

400 2.50 Net income in 2008 was 2.00 the second highest in the 300

Company’s history after 1.50 2006. 200 1.00

100 0.50

0 0.00 04 05 06 07 08 04 05 06 07 08

2 Ensign Energy Services Inc. 2008 Annual Report HIGHLIGHTS

For the years ended December 31 ($ thousands, except per share and operating information) 2008 2007 Change % change Revenue 1,705,579 1,577,601 127,978 8 EBITDA (1) 497,122 468,178 28,944 6 EBITDA per share (1) Basic $3.25 $3.07 $0.18 6 Diluted $3.22 $3.03 $0.19 6 Adjusted net income (1) 260,731 244,966 15,765 6 Adjusted net income per share (1) Basic $1.70 $1.61 $0.09 6 Diluted $1.69 $1.59 $0.10 6 Net income 259,959 249,765 10,914 4 Net income per share Basic $1.70 $1.64 $0.06 4 Diluted $1.68 $1.62 $0.06 4 Funds from operations (1) 406,775 296,048 110,727 37 Funds from operations per share (1) Basic $2.66 $1.94 $0.72 37 Diluted $2.63 $1.92 $0.71 37 Weighted average number of shares outstanding – basic (000s) 153,095 152,517 578 – Weighted average number of shares outstanding – diluted (000s) 154,408 154,306 102 – Drilling Number of marketed rigs Canada Conventional 163 160 3 2 Oil sands coring/coal bed methane 28 31 (3) (10) United States 75 76 (1) (1) International (includes workover rigs) 42 49 (7) (14) Operating days Canada 25,581 24,046 1,535 6 United States 19,986 19,110 876 5 International 9,918 9,291 627 7 Drilling rig utilization rate (%) Canada 36.5 34.2 2.3 7 United States 72.3 74.1 (1.8) (2) International 59.9 52.6 7.3 14 Well Servicing Number of marketed rigs/units Canada 108 116 (8) (7) United States 17 14 3 21 Operating hours Canada 142,494 168,313 (25,819) (15) United States 37,245 26,494 10,751 41 Well servicing utilization rate (%) Canada 33.7 40.4 (6.7) (17) United States 66.7 61.3 5.4 9

(1) EBITDA, EBITDA per share, adjusted net income, adjusted net income per share, funds from operations, and funds from operations per share are not measures that have any standardized meaning prescribed by Canadian generally accepted accounting principles, and accordingly, may not be comparable to similar measures used by other companies. Non-GAAP measures are defined on page 29.

Ensign Energy Services Inc. 2008 Annual Report 3 OPERATING SUMMARY

Ensign’s worldwide assets are modern, technologically sophisticated and of the highest quality.

OPERATING DIVISIONS

DIVISION CANADA UNITED STATES INTERNATIONAL Contract Drilling Ensign Drilling Partnership Ensign United States Drilling Inc. Ensign Energy Services International Limited Ensign Canadian Drilling Ensign United States Drilling (California) Inc. Ensign de Venezuela C.A. Champion Drilling Big Sky Drilling Encore Coring & Drilling Underbalanced Drilling Enhanced Petroleum Ensign United States Drilling Inc. and Rental Equipment Services Partnership Rocky Mountain Oilfield Rentals Enhanced Drill Systems Ensign United States Drilling (California) Inc. Chandel Equipment Rentals West Coast Oilfield Rentals Well Servicing Rockwell Servicing Partnership Ensign Well Services Inc. Ensign Energy Services International Limited Ensign United States Drilling (California) Inc. Ensign de Venezuela C.A. Production Services, Opsco Energy Industries Ltd. Opsco Energy Industries (USA) Ltd. Wireline and Manufacturing Transportation Ensign Drilling Partnership Ensign United States Drilling Inc. Artisan Trucking Jonah Trucking

4 Ensign Energy Services Inc. 2008 Annual Report 34 8 1,440 17 327.1 3,310 75 191 108 743.0 2,040 635.5

Employees Drilling Rigs 1 Service Rigs 2008 Revenue Workover Rigs ($ millions) Coiled Tubing Units

Canada United States International

CONTRACT DRILLING Rig Depth (metres) Total ADR™ 0-1,000 1,001-2000 2,001-3000 3,001-4000 4,001-5,000 5,001+ Canada 1 191 30 26 49 47 32 7 – United States 75 16 2 8 14 25 5 5 International 2 42 3 – 4 4 15 8 8

1 Includes oil sands coring/coal bed methane rigs 2 Includes workover rigs

SERVICE RIG CLASSIFICATIONS Medium Coiled Slant Skid Mobile Mobile and Heavy Total Tubing Units Single Single Single Double Double Canada 108 2 10 2 69 17 8 United States 17 – ––––17

Ensign Energy Services Inc. 2008 Annual Report 5 LETTER TO SHAREHOLDERS

DEAR FELLOW SHAREHOLDERS,

We had one of the most successful (and volatile) years in Ensign’s history in 2008.

From the perspective of financial performance, it was our second best year in terms of revenue and net income.

It was also a year during which our Automated Drill Rig (“ADR™”) gained a broader reach around the world through long-term contracts with customers who appreciate how our proprietary ADR™ technology helps them exploit resource plays more efficiently and safely. In effect, this is positioning Ensign in a new category – as a resource-play solution provider.

These notable successes came in the midst of a global financial Ensign has and economic storm, the scale and complexity of which few people have experienced. The global credit crisis, deepening economic recession, and a sharp decline in commodity prices one of the from record highs earlier in the year created an extremely challenging environment for our customers and Ensign alike. strongest We have positioned our company not only to weather the current storm, but also to emerge from it stronger and ready for the balance sheets opportunities that we anticipate will present themselves. The five pillars of Ensign’s strategy – financial discipline; in the oilfield opportunistic growth; diverse operations; commitment to safety; and customer focus – are designed specifically to ensure we are services prepared for both the highs and lows of the business cycle. Financial discipline has never been more important, and we are pleased to report that Ensign has one of the strongest balance industry. sheets in the North American oilfield services industry with positive working capital and minimal long-term debt.

This positions us well for opportunistic growth, particularly given the current market environment. We are constantly watchful for any potential acquisition opportunities that may meet our investment criteria. We do not believe in ’growth for growth’s sake’. Our focus will always be on acquiring the right type of assets at the right price. Our value conscious strategy is designed to ensure that the interests of all our stakeholders – including shareholders, customers and employees – will continue to be well served.

6 Ensign Energy Services Inc. 2008 Annual Report LETTER TO SHAREHOLDERS

Our established global diversity means: levels of demand due to rising natural gas and crude oil commodity prices; and concluding with a weakening fourth • we are diversified geographically, not only globally but also quarter in the midst of an unprecedented series of shocks to the within specific national or regional markets; global economic structure. • we provide a wide spectrum of oilfield services; and With a broad presence throughout the Western Canada • our worldwide assets are modern, technologically Sedimentary Basin (“WCSB”), Ensign was well positioned sophisticated and of the highest quality. geographically to benefit from increased activity levels in specific

In 2008, this diversity again proved itself to be a key strategic regions within the WCSB as many of our customers shifted activity differentiator for Ensign, contributing to strong financial results. from Alberta to Saskatchewan and British Columbia, partly in response to impending changes to Alberta’s oil and natural gas Revenue in 2008 totaled $1,705.6 million, which after our record royalty system. Our Canadian drilling operations were further year in 2006 represents the second highest revenue in the strengthened in July, when we acquired 12 specialty drilling rigs Company’s history and an increase of eight percent over revenue that have the capability of drilling shallow natural gas wells in of $1,577.6 million in 2007. The geographical segmentation of addition to having oil sands coring applications. revenue in 2008 has shifted slightly from the previous year, with Canada now accounting for 44 percent and our United States and Our United States operations had a strong 2008 overall – a year international operations together accounting for 56 percent. in which our growing ADR™ fleet captured the increased demand for technologically-advanced equipment in the service-intensive Net income was the second highest in the Company’s history resource plays of the Rocky Mountain region. Results for the first after 2006 – $260.0 million ($1.70 per common share), up four three quarters of the year met, and often exceeded, our percent from $249.8 million ($1.64 per common share) in 2007. expectations; however, similar to Canada, our United States EBITDA increased $28.9 million to $497.1 million, compared with operations began to feel the effects of weakening market $468.2 million in 2007. conditions in the fourth quarter of 2008. In light of the rapidly Key performance indicators in 2008 included: deteriorating demand for oilfield services, Ensign was proactive in working with our customers to reduce our proposed new build • Net income per common share was the second highest in the program from 20 drilling rigs to six drilling rigs for the United Company’s history, up four percent to $1.70, compared with States market. One of these drilling rigs under construction was $1.64 in 2007. delivered in the fourth quarter of 2008 and the remainder will be • Adjusted net income, which excludes the impact of stock- delivered at various times throughout the 2009 fiscal year. based compensation expense, increased six percent to $1.70 Ensign’s international operations saw steady results in 2008 as per common share from $1.61 per common share in 2007. several relocated drilling rigs enabled the Company to capitalize • Funds from operations of $2.66 per common share increased on increasing global demand for oilfield services, driven primarily 37 percent from $1.94 per common share in 2007. by crude oil commodity prices that reached historic highs mid- year before experiencing sharp declines in the fourth quarter of • Net capital expenditures totaled $274.3 million in 2008 and 2008. In response to customer demand, we commenced $272.0 million in 2007 as the Company continued to invest construction on six new drilling rigs during the year. These will be for the future. fully operational under long-term contracts by the middle of 2009. • Return on average shareholders’ equity was 18.6 percent, Safety remains a critical part of our strategy. We have created a compared with 21.2 percent in 2007. strong safety culture through our robust HSE Management System For our Canadian divisions, 2008 was a decidedly mixed year – and company-wide Driving to Zero – Injuries and Incidents starting with a first quarter weakened by an oversupply of program. In the past three years (2006-2008), we have reduced equipment in the market and reduced levels of demand for oilfield lost-time injuries by 50 percent and total incidents by 45 percent services owing to expected soft natural gas prices; followed by and we remain focused on constant improvement. We are also a relatively strong second and third quarter resulting in improved pleased with our environmental stewardship progress as the

Ensign Energy Services Inc. 2008 Annual Report 7 LETTER TO SHAREHOLDERS

Company looks for ways to reduce its environmental footprint. continues to increase as the Company continues to grow and Once again, there were no serious environmental issues in 2008. evolve. The Board of Directors declared total dividends for the 2008 fiscal year of $0.3325 per common share, a three percent Our financial strength stems from a combination of a strong increase over the total dividends of $0.3225 per common share balance sheet and a cost-conscious culture. As the unprecedented declared for 2007. Ensign has increased the cumulative amount global financial and economic events unfolded during the year, of dividends declared in each fiscal year since the Company began we took several proactive steps to ensure the Company’s balance paying a dividend in September 1995. Ensign was again sheet remained strong. recognized for this by being included as a constituent of Indxis’ In the summer of 2008 we had announced a rig build program (formerly Mergent’s) Dividend Achievers™ indices of Canadian that totaled 27 drilling rigs and nine well servicing rigs. We companies that have increased their dividend for the past five or reviewed and amended our drilling rig construction program in more years – an enviable record for any company. the third and fourth quarters, suspending construction of 15 drilling rigs and two well servicing rigs in light of the expected 2009 OUTLOOK reduced demand for oilfield services resulting from the global It is still unclear precisely how bad the economic downturn will credit crisis and recessionary conditions around the world. This become and how long it will persist. What is clear is that the initiative alone will conserve approximately $200 million of cash recent sharp decline in commodity prices both for crude oil and otherwise allocated to such construction projects. We believe natural gas, combined with the tightening of credit availability, that our response to weaker market conditions strikes the indicates that our customers will not have the same level of cash appropriate balance between the continued advancement of our flows directed to oilfield services expenditures as we have seen ADR™ technology and investment in future growth markets, with in the past, at least in the short term. the need for financial discipline in uncertain times. However, with our strong balance sheet, financial discipline, In the second quarter, we strategically restructured the Company’s technological leadership and global diversity, Ensign is well operating credit facilities to provide us more flexibility to support positioned to navigate through the current market turmoil, take our global operations and international growth initiatives. We advantage of the opportunities that present themselves in the replaced three separate facilities for our Canadian, United States inevitable recovery and act on any opportunistic growth and international operations with one $200-million global opportunities that meet our strict criteria. revolving credit facility (expressed in Canadian dollars), while As 2008 came to a close, the impact and extent of the deteriorating retaining an additional $50-million Canadian-based revolving market conditions in Canada made it clear that activity levels in credit facility. These credit facilities are expected to adequately the 2008/2009 winter drilling season would be worse than the support the Company’s future operations. previous winter. Our customers have reduced expenditure levels Ensign’s managers continually look for ways to reduce costs in to strengthen their balance sheets while they wait for commodity our operations. We are nearly half way through with our global prices to increase and improve the economics of their projects. integrated financial reporting initiative and are finding new ways Although resource plays in British Columbia and Saskatchewan to harness our purchasing power. In light of the uncertain times may buck the trend somewhat, we expect activity levels and in which we now operate, we implemented a hiring freeze in margins in the second and third quarters of 2009 to be down August 2008 across all segments of the Company and we have significantly compared with 2008. As has always been our practice, also implemented a wage freeze to further control our costs. All we will price to maintain our market share. of these measures are designed to lower costs and assist the The outlook for the United States market is not much better. As Company through a difficult period for the oilfield services our customers there reacted to lower crude oil and natural gas industry. commodity prices, activity levels started to decline in late 2008 An important use of our cash is the payment of dividends to our in our key markets of California and the Rocky Mountain region, shareholders. We are pleased to report that our dividend rate and we do not expect any meaningful turnaround until commodity

8 Ensign Energy Services Inc. 2008 Annual Report LETTER TO SHAREHOLDERS

prices recover. However, following completion of our new-build ACKNOWLEDGEMENTS program in 2009, we will have 34 drilling rigs committed under We developed a new vision statement in 2008 – “Performance long-term contracts in key United States resource plays. At this Excellence – Second to None”, and we wish to thank Ensign’s time we expect these contracts to continue and provide some nearly 7,000 employees for their continuing support of this vision protection from the deteriorating conditions in the industry. and for their efforts in building a truly global organization.

Ensign’s international division is less volatile than our North We also wish to thank our fellow Board members for their valued American operations due to the long term nature of international counsel over the past year. Mr. Jack Donald retired from the Board contracts and operations. With that said, the international market of Directors in May 2008 after 18 years of service. We wish to is not immune from the impact of falling crude oil and natural thank Jack for his contribution to Ensign’s success. gas commodity prices or deteriorating global economic conditions. Ensign is a strong company today because of the strategic We have recently noticed delays in awarding new work that has decisions and investments we have made over our history – been bid for some time and delays in requesting bids for new diversifying our geographic footprint and leveraging our existing projects. The six new ADRs we are building for the international operational bases in the United States and internationally; market will help counteract negative market factors. They will all maintaining strict cost discipline across all of our business lines; be operational by the middle of 2009 and provide a meaningful and remaining committed to developing technologies that addition to the contributions from our growing international improve the efficiency and safety of our personnel and equipment. market segment. The Board of Directors, executives and employees of Ensign are While the current industry outlook for 2009 is filled with concern excited about and proud of the enterprise we are building. We and pessimism, we believe there may be some interesting growth care deeply about its success, growth and leadership in the oilfield opportunities available to the Company. Additionally, we will services sector. Our ultimate goal will always be long-term value continue to expand the technical capabilities of our drilling fleet creation for all of Ensign’s stakeholders. through our new-build program. Our ADR™ drilling technology will continue to broaden its reach around the world as we roll On behalf of the Board, out 12 new ADRs in the United States, the Middle East and Africa in 2009. Once these are fully deployed, we will have 60 ADRs in our global fleet, operating in Canada, the United States, Australia, Oman and Gabon. N. Murray Edwards Robert H. Geddes Chairman President and Chief Operating Officer

March 16, 2009

Ensign Energy Services Inc. 2008 Annual Report 9 Ensign’s fast and flexible ADR™ is changing the way the world drills.

10 Ensign Energy Services Inc. 2008 Annual Report ENSIGN’S ADR™ – THE GAME CHANGER

Ensign customers around the world are adopting our fast, flexible and proprietary Automated Drill Rig (“ADR™”) to help them efficiently, cost effectively and safely exploit their large resource-play opportunities.

By the end of 2009, we will have completed our deployment of 12 new ADRs, and with that will have 60 ADRs operating in Canada, the United States, Australia, the Middle East and Africa.

The ADR™ is a game changer for Ensign because it positions us uniquely as a solutions provider and technology leader to the growing number of producers who are moving into resource plays.

A ’resource play’ is a geological area containing large and long-lasting reserves of crude oil or natural gas either over a large expanse or in a thick vertical area.

In contrast to conventional oil and gas exploration and development plays, resource plays are typically in concentrated geographical areas and are large-scale developments that are expected to occur over a long period of time.

Canada’s oil sands region in northern Alberta is the largest resource play in the world, with an estimated 173 billion barrels of recoverable oil representing over 100 years of production.

Other North American resource plays in which Ensign ADRs play a role include:

• The Jonah Field, an 85-square-kilometre area of Wyoming that is estimated to contain substantial reserves of natural gas.

• The Bakken formation in Saskatchewan, North Dakota and Montana, which is an accumulation of recoverable oil.

• The Montney and Horn River formations in northeastern British Columbia, which are estimated to contain large amounts of natural gas.

We introduced our first ADR™ – the ADR™-100 – in 1995 in Canada and, on the strength of growing customer demand, our ADR™ program has expanded continuously ever since.

We now offer a suite of ADRs – the 100, 200, 250, 300, 350 and 500 models – and are completing the design of the ADR™-750.

Our customers are attracted to the ADR™ by numerous features and benefits that add up to a rig that is a technology leader and is unique to the industry.

Photos at left: Efficient and safe. With Ensign’s market-leading ADR™, our customers drill more efficiently and our crews conduct all drilling operations in a safe environment.

Ensign Energy Services Inc. 2008 Annual Report 11 ENSIGN’S ADR™ – THE GAME CHANGER

FAST AND MOBILE Drillers manage the process safely from a console located in a ADRs can be set up and moved two to three times faster than climate-controlled cabin on the rig. Tubulars, including drill pipe, conventional drilling rigs, thus reducing customers’ well are moved and loaded automatically, thus virtually eliminating development time by about 25 percent compared with the need for crews on the rig floor or for rig-hands to manually conventional rigs. handle the tubulars.

Many of our ADRs are mounted on trailer packages and supported On a conventional drilling rig, typically about 40 percent of injuries by dedicated tractor units that essentially make the ADRs self- occur on the rig floor and 80 percent of those are related to moving; and their modular design means ADRs can be quickly handling tubulars. The ADR™ eliminates the majority of these disassembled and moved to a new location when drilling risks to personnel. operations are completed. LOWER ENVIRONMENTAL FOOTPRINT Where it can take a conventional drilling rig four to five days to The ADR’s trailer unit is compact, which reduces the surface set up and start operating, Ensign’s ADRs take less than two days. impact during transport. For customers, this means they can drill more efficiently and The rig itself is also compact, which reduces the well pad footprint thereby significantly lower operating costs. by as much as 30 percent.

SCALABLE AND VERSATILE Our ADRs are powered with newer low emission engines and We have designed and developed our range of ADRs to suit every some ADR™ packages have been converted to operate utilizing cleaner burning natural gas fuelled engines. • type of well – oil, natural gas and geothermal; from long-reach horizontal wells to shallow gas, coal bed methane and deep ADRs are also all designed to work with environmentally friendly vertical wells; sumpless fluid handling systems.

• depth of well – from 800 metres (3,000 feet) to our latest This combination of features is particularly important for drilling offering the ADR™-750, which will be able to drill wells of up in environmentally sensitive areas. to 6,000 metres (20,000 feet); and PURPOSE BUILT • operating environment – from the arctic conditions of northern Ensign designs and assembles the ADR™ in our own facilities. Canada, the jungles of Africa, to the deserts of Australia and We work closely with our customers during the design phase for the Middle East. new builds so that we can tweak the ADR™ design to meet the We also offer the ADR™-100-CT, which is capable of drilling specific requirements of their drilling programs. shallow wells using either coiled tubing or conventional drill pipe. In 2009, we will be deploying five new ADRs under a long-term contract in the Sultanate of Oman. This will be our first ADR™ AUTOMATED AND SAFE deployment in the Middle East. Ensign’s in-house engineering We designed the ADR™ from the ground up and with maximum team worked closely with our customer to develop the first efficiency and safety in mind. “desert-style” ADR™, which addresses the unique challenges The ADR™ is designed so that the entire drilling process is associated with working in conditions of extreme heat and automated and requires fewer crew members than conventional facilitates moving across desert conditions. drilling rigs.

Facing page: On the move. Ensign Rig 52 – the first of five new ADRs being deployed in the Sultanate of Oman in 2009 – was set up in January. Inset photos (left to right) – The ADR™ awaiting shipment from Ensign’s site in Nisku, Alberta, where it was designed and assembled; being loaded onto a ship in Houston, Texas; and being transported across the desert in Oman. Main photo – Rig up in Oman.

12 Ensign Energy Services Inc. 2008 Annual Report ENSIGN’S ADR™ – THE GAME CHANGER

Interest in Ensign’s ADR™ is quickly spreading Over the past 20 years, technological across our customer base and around the world. innovations in the oil and natural gas industry have significantly improved drilling operations, After refining the concept over a period of making them more efficient, safer, and more several years in Canada, we introduced the environmentally friendly. ADR™ in the United States in 2006. In 2007, we added 13 more ADRs into the Rocky Mountain As one of the largest drilling contractors in the region. And in 2008, we took orders from world, Ensign has long been a pioneer in customers to build an additional six new ADRs, providing our customers with innovative all of which will be deployed by the end of drilling solutions. 2009 under long-term contracts in our Rocky Building on the strength of our ADR™ Mountain and California regions. technology, we plan to be the industry’s During 2009, in addition to the five new ADRs innovation leader for many years to come. in Oman, we are also deploying a new ADR™ under long-term contract in Gabon.

Ensign Energy Services Inc. 2008 Annual Report 13 OPERATIONS REVIEW

GLOBAL REACH. LOCAL FOCUS. Ensign’s operations in Canada, the United States and internationally had a good year overall in 2008, although the global financial and economic crisis and sharp decline in commodity prices started to negatively impact our operating and financial results by the end of the year.

Our geographical positioning and ability to respond locally and flexibly to our customers’ changing needs again proved to be a key strength for Ensign.

In Canada, both our geographical reach in the Western Canada Sedimentary Basin (“WCSB”) and the breadth of our service offering allowed us to capture greater opportunities in both Saskatchewan and British Columbia even as the Alberta market softened due to the growing concerns over the upcoming changes to the royalty regime.

In the United States, the 13 new Automated Drill Rigs (“ADR™”) we added in 2007 strengthened our position in that market; and we moved forward with construction of six additional ADRs, one of which was deployed in late 2008, and the remaining five ADRs will be deployed in 2009.

We are also rolling out more ADRs in our international markets. In addition to the two ADRs already operating successfully in Australia and our first ADR™ for international that is coming off contract in Gabon, we are constructing six new ADRs for deployment under long-term contracts in 2009 – five in Oman and one in Gabon.

Ensign is positioned globally as a resource-play solution provider.

14 Ensign Energy Services Inc. 2008 Annual Report OPERATIONS REVIEW

Canadian Drilling – CANADA Utilization (percent) OVERVIEW 60 Ensign is Canada’s second largest land-based drilling contractor and fourth largest well servicing

45 contractor.

We provide energy companies engaged in crude oil, natural gas and oil sands exploration and 30 production with a wide range of oilfield services including land-based contract drilling, well servicing, underbalanced drilling, oilfield rentals, manufacturing, wireline services, production 15 testing and oilfield transportation.

0 Our geographical reach extends across the WCSB – from southwest Manitoba, throughout 04 05 06 07 08 Saskatchewan and Alberta to northeastern British Columbia, the Northwest Territories and the Canadian Drilling – Yukon. Operating Days (thousands) 40

OPERATING DIVISIONS CANADA FLEET SIZE 30 Contract Drilling Ensign Drilling Partnership

20 Ensign Canadian Drilling 82 drilling rigs Champion Drilling 41 drilling rigs

10 Big Sky Drilling 21 drilling rigs Encore Coring & Drilling 47 coring/drilling rigs 0 04 05 06 07 08 Underbalanced Drilling Enhanced Petroleum Services Partnership and Rental Equipment Enhanced Drill Systems 18 underbalanced Wells Drilled – drilling packages Canada Chandel Equipment Rentals Oilfield equipment rentals 6000 Well Servicing Rockwell Servicing Partnership 108 well servicing rigs/

4500 coiled tubing units Production Services, Opsco Energy Industries Ltd. 48 production testing units 3000 Wireline and 39 wireline units Manufacturing 1500 Transportation Ensign Drilling Partnership

0 Artisan Trucking 42 trucks 04 05 06 07 08

Metres Drilled – Canada (millions) 8

6

4

2

0 04 05 06 07 08

Ensign Energy Services Inc. 2008 Annual Report 15 OPERATIONS REVIEW

2008 HIGHLIGHTS • Big Sky Drilling has the largest drilling rig fleet in • It was a mixed year in Canada, with the fundamentals of the Saskatchewan and specializes in crude oil and natural gas Canadian oilfield services market gradually strengthening drilling in southeast Saskatchewan and southwest Manitoba. through the year up until the fourth quarter when there was Big Sky operates out of its facilities in Oxbow, Saskatchewan a sharp downturn due to the effects of lower crude oil and where it is ideally situated to serve the Bakken oil play. natural gas commodity prices resulting primarily from the • Encore Coring & Drilling provides coring and drilling services credit crisis and worsening global economic conditions. to the mining and crude oil and natural gas industries • We were the most active driller in the WCSB in the second throughout the WCSB. Encore’s fleet of coring and drilling quarter of 2008, recording more metres drilled in that region rigs supports oil sands, coal bed methane, shallow gas, and than any other contractor. diamond projects. Encore is based in Calgary, Alberta.

• We enjoyed increased levels of activity in the Horn River and • Artisan Trucking was recently established to consolidate our Montney basins of British Columbia; and the Bakken play in trucking operations into one division. This division is a strong southeastern Saskatchewan. complement to our contract drilling services, increasing our competitiveness by allowing us to deploy our highly mobile • Revenue generated by Ensign’s Canadian oilfield services ADR™ rigs quickly and efficiently. division totaled $743.0 million in 2008, a decline of four percent from $777.2 million in 2007. The Canadian segment accounted During 2008, the Company’s Canadian drilling divisions recorded for 44 percent of consolidated revenue in 2008. 25,581 operating days (36.5 percent utilization), which represents a six percent increase from the 24,046 operating days (34.2 percent • In July 2008 Ensign acquired 12 specialty drilling rigs and utilization) in the prior year. related equipment from Terracore Specialty Drilling Ltd., thereby expanding our capabilities in the oil sands coring and Ensign’s contract drilling divisions played to their geographical specialized drilling markets. and technological strengths in 2008 to turn in a good performance relative to the prior year in a highly competitive and volatile CONTRACT DRILLING AND TRANSPORTATION external market. In 2008, the Canadian market was characterized We operate our Canadian drilling rig fleet, the second largest in by an oversupply of oilfield services equipment, rising and then Canada, and our transportation department through the Ensign quickly falling commodity prices, fluctuating Canada/United States Drilling Partnership, which is comprised of five divisions: dollar exchange rates, producers’ concerns about the new royalty rate structure in Alberta that came into effect on January 1, 2009, • Ensign Canadian Drilling was formed through the consolidation and, in the fourth quarter, a rapidly spreading global financial of our Ensign Drilling and Tri-City Drilling divisions in January crisis and economic downturn. 2008. This division is a leading provider of specialized drilling services to crude oil and natural gas exploration and production During the year, our customers redirected capital from Alberta, companies. The division’s capabilities include: horizontal drilling; primarily in anticipation of unfavorable royalty regime changes underbalanced drilling; horizontal re-entry services; slant drilling in the province, to Saskatchewan and British Columbia. Ensign for steam assisted gravity drainage (“SAGD”) applications in was geographically well positioned to benefit from this shift. Alberta’s oil sands; and shallow and intermediate depth well The Company has strategically expanded its operations in drilling. Ensign Canadian Drilling operates primarily in northern Saskatchewan since its acquisition of Big Sky Drilling in 2003. A and central Alberta and northeastern British Columbia. The major focus for Big Sky is southeast Saskatchewan where our division is based in Nisku, Alberta, and has an office in Grande customers are actively developing the Bakken formation. We are Prairie, Alberta. well-positioned to capture any future increase in exploration and • Champion Drilling is the largest drilling contractor in southern development activity in that province. Alberta. Based in Brooks, Alberta, Champion specializes in drilling shallow natural gas wells in the southern Alberta and southwest Saskatchewan regions of the WCSB.

16 Ensign Energy Services Inc. 2008 Annual Report OPERATIONS REVIEW

Similarly, the Company experienced steady demand for its Rockwell added two new well servicing rigs during 2008 and will services in northeast British Columbia, where Ensign has a strong add another four well servicing rigs in the first three quarters position and activity levels in shale gas resource plays such as of 2009. We also disposed of two well servicing rigs and the Montney and Horn River basins that are not as susceptible decommissioned eight coiled tubing units in 2008. As a result, to short-term fluctuations in natural gas prices given the longer our service rig fleet will total 112 towards the end of 2009. life spans of these reservoirs compared with conventional natural One of the four new service rigs we will commission in early 2009 gas plays. is a freestanding double well servicing rig that we developed to In July, Ensign acquired 12 specialty drilling rigs and related our own design. We believe our customers will find this new rig equipment from Terracore Specialty Drilling Ltd., thus further design to be very beneficial in terms of efficiency, cost savings expanding our capabilities in the oil sands coring and specialized and minimized environmental impact. drilling markets. The rigs, which were newly built within the last four years, are designed for coring operations used primarily in UNDERBALANCED DRILLING AND the oil sands industry. The highly versatile rigs are also capable RENTAL EQUIPMENT of conventional crude oil and natural gas drilling, coal bed Our Enhanced Petroleum Services Partnership division operates methane drilling, and the re-entry of existing crude oil and natural two businesses: Enhanced Drill Systems and Chandel Equipment gas wells. The rigs are being operated through our Encore Coring Rentals. & Drilling division. Enhanced Drill Systems Ensign exited 2008 with a fleet of 191 drilling and coring rigs in Enhanced Drill Systems, the largest supplier of underbalanced Canada, the second largest drilling fleet in the Canadian industry. drilling services in the WCSB, has 18 underbalanced drilling The addition of the 12 specialty drilling rigs in July 2008 was packages, unchanged from 2007. offset by the removal of 12 drilling and coring rigs from its marketed fleet of equipment in 2008. We routinely review our Based in Red Deer, Alberta, Enhanced provides interactive fleet and retire equipment as needed to ensure our drilling rig underbalanced drilling packages comprised of a completely self- fleet is maintained in the most cost-effective manner. contained system, including nitrogen generation, compression equipment, and surface control systems. Our most advanced WELL SERVICING underbalanced drilling equipment incorporates the same Through our Rockwell Servicing Partnership division, Ensign offers interactive process control technology that refineries use, which crude oil and natural gas producers throughout most of the WCSB allows us to run our equipment with more precision and fewer all facets of well servicing including completions, abandonments, personnel than our competitors. production workovers and bottom hole pump changes. Enhanced’s proprietary Genesis I™ Underbalanced Drilling Package Rockwell recorded 142,494 operating hours (33.7 percent was first introduced in 2003. In 2008, Enhanced Drill Systems utilization) for the full year, compared with 168,313 operating leveraged this proprietary technology to add another component hours (40.4 percent utilization) in 2007. to their suite of products called Managed Pressure Drilling (“MPD”), which is presently being used for well control in northeast British Activity in the Alberta market in 2008 was the most negatively Columbia. MPD utilizes many of the same tools as underbalanced impacted by a combination of lower commodity prices and drilling and has enabled Enhanced to diversify its product offering anticipation of the province’s new royalty regime. We did, to its customers and to offer innovative solutions to their drilling however, experience increased levels of activity in southeast problems. While underbalanced drilling allows formation gas to Saskatchewan on the strength of its significant Bakken oil play, flow during the drilling process, MPD allows gas influxes to be and good levels of activity in northeast British Columbia and the circulated out while continuing to drill. This avoids having to heavy oil regions of Alberta. suspend operations in order to remove nuisance gas from the We are continuing to advance our service rig modernization drilling fluid system. program, which is based on commitment from our customers and our history of providing them the best fit-for-purpose equipment.

Ensign Energy Services Inc. 2008 Annual Report 17 OPERATIONS REVIEW

Chandel Equipment Rentals Manufacturing Chandel Equipment Rentals’ business grew in 2008 as tougher Opsco’s manufacturing division, which designs and manufactures external market conditions drove more customers to rent customized crude oil and natural gas production equipment, had equipment instead of buying. a very good and productive year in 2008. We delivered some of the largest diameter and thickest vessels we have ever built for Chandel’s product mix is designed around the drilling and customers and successfully executed some spooling projects for completions components of the Canadian oilfield services oil sands developments. Entering 2009, the division had a backlog industry. Chandel offers an extensive and expanding inventory of work that should take it well into 2009. of drill strings, loaders, tanks, pumps, rig matting and blow-out preventers. Chandel has four field offices in Alberta and one in Opsco’s purpose-built, 43,500 square-foot manufacturing facility Saskatchewan. is located in Calgary, Alberta. Our Opsco team provides customers a full range of services – from engineered drawings and fabrication PRODUCTION SERVICES AND MANUFACTURING to fully assembled enclosed packages in support of natural gas Ensign provides wireline services, production testing, and production in the WCSB. manufacturing services through our Opsco Energy Industries Ltd. subsidiary. SAFETY, TRAINING AND RECRUITMENT Ensign’s Canadian divisions continued to make excellent progress Opsco is headquartered in Calgary, Alberta. We also have a in lowering their injury incident rate in 2008. We do not take this commercial welding services business, Hi-Calibre Industries Ltd., progress for granted. We are continuously reinforcing our safety based in Brooks, Alberta. message through on-site safety meetings and training programs supported by our company-wide HSE Management System. Our Wireline Services safety management system is the foundation for all of our safety Opsco Wireline Services, a leading provider of slickline and processes and establishes an international standard for the way braided line completion services in the WCSB, currently operates we manage, practice and monitor our health, safety and 39 wireline units. environmental programs. Our long-standing safety initiative – The division retained its market share in 2008 but overall it was Driving to Zero – also helps provide focus for our ongoing drive a year in which utilization declined in the midst of a weakening toward zero safety incidents, zero injuries and zero days off work and overbuilt sector that was impacted by lower commodity due to injury. prices. During the first half of 2008, we ramped up our recruiting and

Production Testing training efforts to attract and retain personnel to handle what Opsco is a leader in production testing for high-volume, high- was then a rising level of demand. We expect the economic pressure sweet or sour natural gas applications as well as downturn that started in the latter half of the year will remove fracturing recovery. Opsco’s Canadian operations provide some of the competitive pressure for attracting skilled labour production testing services throughout the WCSB. that has been a challenge in the WCSB for several years now. However, we will continue to gear our recruitment and training The division enjoyed solid utilization and growth in 2008 as we programs towards ensuring that we attract and retain the highest met market demand with fit-for-purpose equipment. We added calibre employees and that they are fully trained in safe work two testing units as well as some ancillary equipment and practices and are aware of their HSE responsibilities and transferred three units to the United States. We exited 2008 with accountabilities. We will also continue to improve our training a total of 48 production testing units. programs in an effort to demonstrate to our employees that there is an opportunity for them to have a good long-term career in our industry and with Ensign.

18 Ensign Energy Services Inc. 2008 Annual Report OPERATIONS REVIEW

United States Drilling – UNITED STATES Utilization (percent) 80 OVERVIEW Ensign United States Drilling Inc. and Ensign United States Drilling (California) Inc. comprise the

60 fourth largest land-based drilling contractor in the United States, with a dominant position in the Rocky Mountain and California regions. Ensign Well Services Inc. and Opsco Energy Industries 40 (USA) Ltd. also have a growing presence in well servicing and production testing, respectively, in the Rocky Mountain region. 20

0 04 05 06 07 08 OPERATING DIVISIONS UNITED STATES FLEET SIZE

United States Drilling – Contract Drilling Ensign United States Drilling Inc. 55 drilling rigs Operating Days (thousands) Ensign United States Drilling (California) Inc. 20 drilling rigs 20 Rental Equipment Ensign United States Drilling Inc. Rocky Mountain Oilfield Rentals Oilfield equipment rentals 15 Ensign United States Drilling (California) Inc.

10 West Coast Oilfield Rentals Oilfield equipment rentals Well Servicing Ensign Well Services Inc. 13 well servicing rigs 5 Ensign United States Drilling (California) Inc. 4 well servicing rigs

0 Production Services Opsco Energy Industries (USA) Ltd. 19 production testing units 04 05 06 07 08 Transportation Ensign United States Drilling Inc.

Wells Drilled – Jonah Trucking 12 trucks United States

2500

2000

1500

1000

500

0 04 05 06 07 08

Metres Drilled – United States (millions) 5

4

3

2

1

0 04 05 06 07 08

Ensign Energy Services Inc. 2008 Annual Report 19 OPERATIONS REVIEW

2008 HIGHLIGHTS Ensign Rockies and Ensign California experienced good levels • Our United States operations enjoyed a strong year but the of demand for contract drilling services through to the end of the market slowed in the last two months of 2008 as declining third quarter of 2008 at which point activity levels slowed as the crude oil and natural gas commodity prices and growing global economic downturn took hold. Operating days in 2008 recessionary fears curtailed demand for oilfield services. totaled 19,986 (72.3 percent utilization), which represents a five percent increase over the 19,110 operating days (74.1 percent • The Company was the most active driller in the Rocky utilization) recorded in 2006. Mountain region in 2008, recording more wells and footage drilled than any other contractor. We experienced higher utilization rates than many of our competitors partly due to the fact that the ADRs we have deployed • In 2008, revenue from Ensign’s United States oilfield services in the United States are supported by long-term contracts with division totaled $635.5 million, up 14 percent from $555.1 our customers. We had 16 ADRs operating in the United States million in 2007. The United States segment accounted for 37 at the end of 2008 and currently are constructing an additional percent of consolidated revenue in 2008. five ADRs, all supported by ’take-or-pay’ contracts, for deployment • The 13 new ADRs that we added to our United States drilling in the Rocky Mountain and California markets in 2009. rig fleet in 2007 enabled us to respond to increased demand By the end of 2008, our United States operations had a total of for the specialty, technologically-advanced equipment required 75 marketed drilling rigs – 55 with Ensign Rockies and 20 with to explore and develop the unconventional natural gas Ensign California. We are continuing to look for opportunities to resource plays in the Rocky Mountain region. enter new geographical areas in the United States. • Supported by long term contracts with key customers, we The transportation group performed strongly in 2008. Our fleet initiated a six rig construction program in 2008, delivering of 12 (2007 – 11) trucks supports our operations in Colorado, one new ADR™-500 drilling rig in the fourth quarter. The Wyoming and California. remaining five new ADRs will be deployed in the United States in 2009. Additionally, we constructed three new well servicing DIRECTIONAL DRILLING rigs to meet growing demand for our services in the Rocky In 2008, the Company expanded its service offering in the United Mountain region. An additional two well servicing rigs will States to include directional drilling services, which complement be constructed in 2009. the Company’s ADR™ technology and provide seamless service • The Company expanded its service offering in the United and cost savings to our customers. This new business line States to include directional drilling services, a strong contributed to the record revenue levels achieved by the United complement to our ADR™ technology. States division in 2008 as a greater proportion of wells are now being drilled on a directional basis, particularly in the resource • Our Opsco (USA) division added two new production testing plays of the Rocky Mountain region where the Company remained units and constructed a new facility to manage its growing the most active driller in 2008. market share in the Rocky Mountain region.

WELL SERVICING CONTRACT DRILLING Ensign Well Services Inc. expanded its well servicing operation Ensign has two contract drilling operations in the United States: in 2008, adding three new well servicing rigs to its fleet and exiting • Ensign United States Drilling Inc. (“Ensign Rockies”) is the premier the year with 17 well servicing rigs. An additional two well drilling contractor operating in the Rocky Mountain region. Based servicing rigs are under construction for deployment in 2009 in in Denver, Colorado, Ensign Rockies’ operations span nine states the Rocky Mountain and California markets. – Montana, Wyoming, Colorado, Utah, North Dakota, South Our United States well servicing operations recorded 37,245 well Dakota, Nebraska, Oklahoma and Nevada. servicing hours (66.7 percent utilization) in 2008, an increase of • Ensign United States Drilling (California) Inc. (“Ensign California”) 41 percent over the 26,494 hours (61.3 percent utilization) in 2007. operates in the San Joaquin, Los Angeles and Sacramento basins, with operations based in Bakersfield, California.

20 Ensign Energy Services Inc. 2008 Annual Report OPERATIONS REVIEW

RENTAL EQUIPMENT Our Rocky Mountain Oilfield Rentals (“RMOR”) and West Coast Oilfield Rentals (“WCOR”) divisions provide ancillary equipment used in drilling operations.

In 2008, both RMOR and WCOR continued to build their equipment inventory, which includes blow-out preventers, mud motors, hevi- weight drill pipe, top drives, iron roughnecks, forklifts, and loaders.

PRODUCTION SERVICES Supported by growing demand, we expanded our production testing services operations in 2008 that we offer through our Opsco Energy Industries (USA) Ltd. (“Opsco USA”) subsidiary based in Casper, Wyoming.

In addition to building two new testing units for Opsco USA, we temporarily transferred from Canada three production testing units to meet opportunities we had identified in Wyoming and Utah, exiting the year with 19 units. An additional three new production testing units are under construction and are scheduled for delivery in the first and second quarters of 2009.

We also added two pressure trucks for the Wyoming market and built an operations facility in Sand Draw, Wyoming, to support our activities in the area.

SAFETY, TRAINING AND RECRUITMENT All levels of management and staff continue to reinforce the importance of our company-wide HSE Management System and Driving to Zero program, and focus their efforts to improve safety and broaden training at all levels of the organization. We can credit our wide range of safety and training programs for a steady decrease in injury incident rates, which is lowering our workmen’s compensation and insurance costs. Our United States division continued its major focus on training of rig managers, drillers, and other personnel through formal, comprehensive training programs. Our training programs cover a wide range of subjects – practical skills, including ADR-specific training; hiring practices; workplace behaviour; communication skills; and coaching and mentoring.

Ensign Energy Services Inc. 2008 Annual Report 21 OPERATIONS REVIEW

International Drilling – INTERNATIONAL Utilization (percent) 80 OVERVIEW We currently provide contract drilling services in Australia, New Zealand, Southeast Asia,

60 the Middle East, Africa, and South America.

• Ensign Energy Services International Limited (“EESIL”) specializes in the drilling of all 40 forms of hydrocarbon and geothermal wells, and oversees our operations in Australasia, the Middle East and Africa. EESIL is based in Adelaide, Australia. 20 • Ensign International Energy Services Inc., which is based in Houston, Texas, oversees 0 04 05 06 07 08 our South America operations in Venezuela and Argentina.

International Drilling – OPERATING DIVISIONS INTERNATIONAL FLEET SIZE Operating Days (thousands) Contract Drilling/ Ensign Energy Services International Limited 33 drilling/workover rigs 12 Workover Services Ensign de Venezuela C.A. 9 drilling/workover rigs

9 DRILLING RIGS CURRENT 2007

6 Argentina 66 Australia 77 3 Gabon 11 Indonesia – 2 0 04 05 06 07 08 Libya 57 New Zealand 11 Wells Drilled – Oman 34 International Qatar 11 800 Thailand 22 Venezuela 89 600 34 40

400 WORKOVER RIGS CURRENT 2007

200 Argentina 44 Australia 23

0 New Zealand 11 04 05 06 07 08 Venezuela 11 89 Metres Drilled – International (millions) 1.2

0.9

0.6

0.3

0.0 04 05 06 07 08

22 Ensign Energy Services Inc. 2008 Annual Report OPERATIONS REVIEW

2008 HIGHLIGHTS Libya, where we have five rigs, continued to be a steady market • Revenue from the Company’s international oilfield services for us in 2008. division increased 33 percent to $327.1 million, compared with Our one drilling rig in Qatar and two in Thailand all completed revenue of $245.3 million in 2007. The international segment their contracts in 2008 and will be redeployed within the accounted for 19 percent of consolidated revenue in 2008. international division’s jurisdiction as soon as contracts are • We advanced construction of six new ADRs to be deployed under secured. long-term contracts in 2009 – five for Oman and one for Gabon. The two ADRs we moved into Australia from Canada in 2007 are currently deployed on the east coast drilling coal bed methane, CONTRACT DRILLING/WORKOVER SERVICES a market that has strong upside potential. We now have seven The Company repositioned several drilling rigs late in 2007 and drilling rigs and two workover rigs deployed in Australia. We also early 2008 to better capture business in the international arena, have one drilling rig and one workover rig based in New Zealand. where demand for oilfield services is more influenced by crude oil prices compared with the WCSB and Rocky Mountain region In South America, our operations in Venezuela, where we have of the United States which are predominantly natural gas focused. eight drilling rigs and one workover rig under term contracts, were steady in 2008. These equipment transfers resulted in meaningful financial improvements for the international segment. In Argentina, our six drilling rigs and four workover rigs were active for most of the year. However, towards the end of the third Although the international market was not immune to the impacts quarter we started to see some market softening as a result of of the global credit crisis and recessionary pressures, a feature of the global credit crisis and the country’s high inflation and political international drilling projects is that producers take a longer term environment. We expect to see further weakness in this market view. in 2009 until industry fundamentals improve. Operating days in 2008 totaled 9,918 (59.9 percent utilization), which represents a seven percent increase from the 9,291 SAFETY, TRAINING AND RECRUITMENT operating days (52.6 percent utilization) in 2007. Ensign’s international operations seek continuous improvement of its health, safety and environmental performance and to provide In 2008, we began construction of six new ADRs for the Middle East a safe working environment for all its personnel. and Africa markets to be deployed over the course of 2009. Our overall focus is to strengthen our position in countries where we We have many ongoing practices to help us achieve this, such already have strong operations to benefit from economies of scale. as senior management visits to rig sites, crew training programs, and rig-specific safety improvement plans. We are deploying five of the six new ADRs in Oman to augment the three rigs we already have there. All five ADRs are under We look for ways to share our safety and training knowledge long-term contract for an 840-well drilling program. Ensign has between our three geographic segments. For example, we have worked in Oman continuously for over 20 years. been translating into Spanish some of our United States safety training programs and implementing them in our operations in We will deploy the other new ADR™ under long-term contract Venezuela and Argentina. We have also transferred some of the in Gabon in 2009. The one rig we have had operating in Gabon safety programs developed by our operation in Australia to the since 2004 will be transferred back to Canada pursuant to the United States and the Middle East. This cross-fertilization is terms of the contract that is just being completed. helping to build a consistent company-wide safety culture. The upcoming deployment of six new ADRs to the international The health and safety of all employees is paramount, not only market highlights Ensign’s core competencies: leveraging our to Ensign but also to our energy industry customers who place diverse, worldwide operational bases; utilizing in-house engineering a high safety requirement on the Company. We achieve this by expertise to collaborate with customers to design and construct implementing, reinforcing, and renewing the company-wide HSE fit-for-purpose equipment to meet their unique drilling needs; and, Management System and Driving to Zero vision. reinforcing our commitment to employee safety through the deployment of our ADR™ technology around the globe.

Ensign Energy Services Inc. 2008 Annual Report 23 HEALTH, SAFETY AND ENVIRONMENT

Ensign is engaged in numerous initiatives to build and reinforce our focus on health, safety and the environment at every level of the Company and in every geographical region.

MISSION. VALUES. VISION. Ensign’s senior managers from around the globe and from all service lines met in early 2008 to discuss the Company’s mission, core values and vision – and health, safety and the environment (“HSE”) emerged as a unifying theme.

A key part of Ensign’s mission is “to create a workplace that protects worker health and safety with due respect for the environment”.

Our senior managers agreed that Ensign’s three “non-negotiable and timeless values” are – INTEGRITY. TEAMWORK. LEARNING. Included in our Core Values statement is the affirmation that “we are a financially responsible corporate citizen committed to the heath and safety of people and the environment.”

The managers also established a new Vision Statement – “Performance Excellence – Second to None”, which means we will “grow through collaborative learning, exploring the potential of our people and technology, and creating excellence in who we are, second to none.”

Key to achieving performance excellence will be achieving excellence – second to none – in workplace health and safety and environmental responsibility.

24 Ensign Energy Services Inc. 2008 Annual Report HEALTH, SAFETY AND ENVIRONMENT

HSE MANAGEMENT SYSTEM Management System helps us achieve these by providing the Our HSE Management System is helping us realize the HSE framework and processes to look at risks to our employees, the aspects of our mission, values and vision. The system’s twofold public, our property, and the environment in which we operate purpose is to: and determine what actions we need to take to control those risks. • establish an international standard for the way we manage, practice, and monitor our HSE programs; and DRIVING TO ZERO • bring our safety programs under one, Company-wide umbrella. Through our Driving to Zero vision – which aims for zero safety incidents, zero injuries, and zero days off work due to injury – we Our promise to our employees and shareholders and the wider have seen continuous year-over-year improvement of our safety public is that we will strive for continuous improvement in every performance. area of our HSE efforts. That means continuous improvement of our standards, systems, programs, safety performance, In 2008, the number and severity of injuries and the amount of management leadership, and employees’ awareness, knowledge, time lost due to injuries declined for the third consecutive year. commitment and involvement. In the three-year period 2006-2008, we have achieved a 45 percent reduction in total recordable incidents and a 50 percent reduction Underpinning our efforts for continuous improvement is our first in injuries that resulted in workers losing time from work. Company-wide safety audit, which is being conducted by independent external auditors. As of the end of 2008, they had As a global oilfield services company, we train our workers to audited all of Ensign’s geographical locations except Australia, make safety on and off the job an everyday priority. Training whose first audit will be completed in 2009. starts on the first day of employment and is reinforced constantly through job safety analysis programs, personal injury prevention Each jurisdiction addresses the same audit questions, providing training, safety coaching, daily pre-job safety meetings, and daily us a consistent, global picture of the effectiveness of our safety work observation practices. standards and processes and where improvement is needed. We post the audit results on our company intranet so all employees Over the years, we have developed our own in-house training can see how their jurisdiction is performing and how they compare programs – in Canada, the United States and Australia – to with their Ensign peers elsewhere in the world. increase competency within core functions, such as for rig managers and drillers. By mid-2009, we expect to have The audit process, too, is a continuous one. We are launching competency programs in place for all our major service groups. our second round of global safety audits in 2009, starting with Canada. These will show us how we have improved after In another example of our focus on globalization and addressing what we learned from the first audit and where we standardization, we are sharing our training and competency need to make further improvements. programs internationally within Ensign to further improve safety performance throughout the organization. For example, training In addition to being a tool through which we can communicate programs developed in the United States have been translated the Company’s safety priorities, the audit helps us achieve greater into Spanish and implemented in our South American operations; standardization and harmonization of our safety practices globally. and programs developed in Australia have been transferred to Through the audit, we raise awareness about Ensign’s safety our operations in the Middle East and Africa. philosophy and performance expectations, as well as the risk issues we expect our employees to monitor and address. We are also working with industry groups to help establish apprenticeship and certification programs. We believe that Through effective and transparent HSE management, Ensign ultimately this will improve the level of skills within the oilfield aims to protect its employees, be the preferred contractor for services industry as a whole and encourage individuals to develop customers and the favoured employer in the oilfield services careers in our industry. sector, and lower its workers compensation costs. Our HSE

Ensign Energy Services Inc. 2008 Annual Report 25 HEALTH, SAFETY AND ENVIRONMENT

ENSIGN’S HEALTH, SAFETY • From top management through to entry level, everyone is AND ENVIRONMENT POLICY responsible and accountable for HSE. Our goal is to protect our people, the public, our property, and We are committed to the integration of HSE objectives into our the environment in which we work and live. It is a commitment management systems at all levels. This will enhance our business that is in the best interests of our customers, our employees, and success by reducing risk and adding value to our services. all other stakeholders.

We believe it is possible to run all operations without injuries or ENVIRONMENTAL STATEMENT damage to equipment or the environment: Ensign actively works to reduce, reuse, recycle and reclaim materials used in our operations. As part of our efforts to innovate • We will comply with all applicable laws and relevant industry and develop new technologies, we strive to utilize environmentally standards of practice. friendly procedures and materials in providing our services. Any • We will continuously evaluate the HSE aspects of our incidents are dealt with on a timely basis to ensure they are equipment and services. properly contained. This is a responsibility we take seriously and it is a responsibility to our children, grandchildren and to society • We believe that effective HSE management is good business in general. We are pleased to report that there have not been any and we are committed to the continuous improvement of HSE serious environmental incidents in the Company’s history. management practices.

SAFETY STAND DOWN GOES GLOBAL Normally held in the third week of January, the Safety Stand Safety Stand Down Week Down Week industry blitz is designed to raise awareness, has been a popular reinforce our commitment to workers’ safety and get the fixture on Ensign’s year’s safety activities off to a strong start. calendar of annual safety activities in Canada for Building on the success of our annual Safety Stand Down many years. So popular Week in Canada, we decided to adopt Safety Stand Down in fact, that in 2009, we Week as a Company-wide initiative. In January 2009, meetings took it global. were held worldwide under the common theme ’Hazard Recognition – Take action before it’s too late’. During Safety Stand Down Week, Ensign’s senior Executives met face to face with our rig crews and other field executives visit job sites employees to discuss the Company’s safety priorities, listen in the field to discuss to employees’ concerns and suggestions, and reinforce our safety issues with our vision of eliminating injuries and incidents. The results of frontline workers as well as our customers and subcontractors. these meetings were shared with all employees. We also solicited feedback on the effectiveness of the Company’s Our frontline workers – the crews who work on our rigs and safety systems and initiatives and management’s commitment employees who interact regularly with our customers – form to building a safety culture. The feedback is important to the largest group in our workforce. Most of the Company’s ensure we truly are “Driving to Zero – Injuries and Incidents”. recordable incidents and injuries occur within this group, particularly among crews working together for the first time or those who are new to their job.

26 Ensign Energy Services Inc. 2008 Annual Report HEALTH, SAFETY AND ENVIRONMENT

REDUCING OUR ENVIRONMENTAL FOOTPRINT Ensign strives to use fewer material resources to reduce both significantly decrease surface impacts by reducing the number our environmental footprint and input costs. of well sites.

Our potential impacts occur in the manufacturing, transport and Most of our drilling operations incorporate closed drilling fluid operation of our drilling rigs and other oilfield services equipment, systems that reduce and in some cases eliminate site preparation as well as in the manufacturing of customized crude oil and natural and clean up. Additionally, Opsco’s production testing equipment gas production equipment carried out by our subsidiary, Opsco is designed to recycle production testing emissions back into the Energy Industries Ltd. production line and reduce or eliminate flaring of hydrocarbons. These are two excellent examples of how Ensign works with its For several years, Ensign has pursued a program of replacing older, customers to utilize equipment in our operations that are designed less efficient engines used on our equipment with newer engines. to better protect the environment. The engines we now purchase represent the latest technology to achieve fuel efficiency and reduced emissions. We are committed Ensign also works with its customers to experiment with the use to purchasing new engines that meet the current North American of alternative fuels. Currently, at one large drilling project in the emissions standards and meet or exceed the emissions standards United States we are using natural gas sourced from the field to in various host countries. Wherever possible, we select engines power our equipment. We believe that this type of initiative that consume less fuel for a given power output level. significantly reduces harmful emissions from the overall operation, especially when one factors in the added benefit of a reduction For our new drilling rigs, such as our proprietary Automated Drill in fossil fuel emissions resulting from not having to transport fuel Rig (“ADR™”), which we design and assemble ourselves, we use to the rig site. more complex and flexible designs. This results in a smaller drilling rig that accomplishes more work. These more compact Our global drilling rig fleet includes a number of “electric” drilling drilling rigs move and rig up in a fraction of the time compared rigs that allow ’pooling of demand’, which means that dedicated with older designs. Our newer rigs also incorporate drilling engines are no longer required and engines can be shut down systems that reduce the overall time and energy to drill and when power demand declines. While the industry as a whole still complete a given well. Due to design efficiencies, we use less operates a large number of older style “mechanical” drilling rigs, construction material on our new rigs, which reduces emissions most new-build drilling rig designs incorporate technology that and CO2 production from the manufacturing process. Whenever allows for more efficient generation and delivery of power at the practical, we use low-VOCs (volatile organic compounds) and rig site, which results in less fuel used and, consequently, lower lead-free paints to reduce emissions and minimize pollutants. emissions.

We are also focused on reducing our impact on the physical Recycling is another priority for us. We practice recycling in all environments in which we operate. The lay-out and size of our of our offices, and wherever possible our shops recycle oils and new drilling rigs means our customers’ ’well sites’ require a scrap steel. smaller footprint, resulting in less impact on terrain and vegetation. While we have made much progress, we are continually searching Ensign also constructs its equipment and trains its people to be for ways to further reduce and minimize our environmental able to undertake directional drilling and multi-bore wells, which impacts.

Ensign Energy Services Inc. 2008 Annual Report 27 MANAGEMENT’S DISCUSSION AND ANALYSIS

As of March 16, 2009

This Management’s Discussion and Analysis (“MD&A”) for Ensign Energy Services Inc. and all of its subsidiaries and partnerships (the “Company”) should be read in conjunction with the consolidated financial statements and the notes thereto contained in the Company’s 2008 Annual Report. The Company prepared its consolidated financial statements for the year ended December 31, 2008 in accordance with Canadian generally accepted accounting principles (“GAAP”). All financial measures presented in this MD&A are expressed in Canadian dollars unless otherwise indicated. Additional information, including the Company’s Annual Information Form, is available on SEDAR at www.sedar.com.

ADVISORY REGARDING FORWARD-LOOKING STATEMENTS Certain statements in this document constitute forward-looking statements or information (collectively referred to herein as “forward-looking statements”) within the meaning of applicable securities legislation. Forward-looking statements can be identified by the words “believe”, “anticipate”, “expect”, “plan”, “estimate”, “target”, “continue”, “could”, “intend”, “may”, “potential”, “predict”, “should”, “will”, “objective”, “project”, “forecast”, “goal”, “guidance”, “outlook”, “effort”, “seeks”, “schedule” or expressions of a similar nature suggesting future outcome or statements regarding an outlook. Disclosure related to expected future commodity pricing, revenue rates, equipment utilization or operating activity levels, operating costs, capital expenditures and other 2009 guidance provided throughout this MD&A, including the information provided in the “Outlook” section, constitutes forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks and the reader should not place undue reliance on these forward-looking statements as there can be no assurance that the plans, initiatives or expectations upon which they are based will occur. The forward-looking statements are based on current expectations, estimates and projections about the Company and the industry in which the Company operates, which speak only as of the date such statements were made or as of the date of the report or document in which they are contained, and are subject to known and unknown risks, uncertainties and other factors that could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others: general economic and business conditions which will, among other things, impact demand for and market prices of the Company’s services; volatility of and assumptions regarding crude oil and natural gas prices; fluctuations in currency and interest rates; assumptions on which the Company’s current guidance is based; economic conditions in the countries and regions in which the Company conducts business; political uncertainty; ability of the Company to implement its business strategy; impact of competition; the Company’s defense of lawsuits; availability and cost of labour and other equipment, supplies and services; ability of the Company and its subsidiaries to complete their capital programs; operating hazards and other difficulties inherent in the operation of the Company’s oilfield services equipment; availability and cost of financing; timing and success of integrating the business and operations of acquired companies; actions by governmental authorities; government regulations and the expenditures required to comply with them (including safety and environmental laws and regulations and the impact of climate change initiatives on capital and operating costs); the adequacy of the Company’s provision for taxes; and other circumstances affecting revenues and expenses. The Company’s operations and levels of demand for its services have been, and at times in the future may be, affected by political developments and by federal, provincial and local laws and regulations such as changes in taxes, royalties and other amounts payable to governments or governmental agencies and environmental protection regulations. Should one or more of these risks or uncertainties materialize, or should any of the Company’s assumptions prove incorrect, actual results may vary in material respects from those projected in the forward-looking statements. The impact of any one factor on a particular forward-looking statement is not determinable with certainty as such factors are interdependent upon other factors, and the Company’s course of action would depend upon its assessment of the future considering all information then available. For additional information refer to the “Risks and Uncertainties” section of this MD&A. Readers are cautioned that the foregoing list of important factors is not exhaustive. Unpredictable or unknown factors not discussed in this report could also have material adverse effects on forward-looking statements. Although the Company believes that the expectations conveyed by the forward-looking statements are reasonable based on information available to it on the date such forward-looking statements are made, no assurances can be given as to future results, levels of activity and achievements. All subsequent forward-looking statements, whether written or oral, attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Except as required by law, the Company assumes no obligation to update forward-looking statements should circumstances or the Company’s estimates or opinions change.

NON-GAAP MEASURES This MD&A contains references to EBITDA, adjusted net income and funds from operations and related per share amounts. These financial measures are not measures that have any standardized meaning prescribed by GAAP and are therefore referred to as non-GAAP measures. The non-GAAP measures used by the Company may not be comparable to similar measures used by other companies. Non-GAAP measures are defined in the “Overview and Selected Annual Information” section of this MD&A.

28 Ensign Energy Services Inc. 2008 Annual Report MANAGEMENT’S DISCUSSION AND ANALYSIS

OVERVIEW AND SELECTED ANNUAL INFORMATION ($ thousands, except per share data) 2008 2007 Change % change 2006 Change % change Revenue 1,705,579 1,577,601 127,978 8 1,807,230 (229,629) (13) EBITDA 1 497,122 468,178 28,944 6 593,334 (125,156) (21) EBITDA per share Basic $3.25 $3.07 $0.18 6 $3.91 $(0.84) (21) Diluted $3.22 $3.03 $0.19 6 $3.80 $(0.77) (20) Adjusted net income 2 260,731 244,966 15,765 6 337,352 (92,386) (27) Adjusted net income per share Basic $1.70 $1.61 $0.09 6 $2.22 $(0.61) (27) Diluted $1.69 $1.59 $0.10 6 $2.16 $(0.57) (26) Net income 259,959 249,765 10,194 4 341,284 (91,519) (27) Net income per share Basic $1.70 $1.64 $0.06 4 $2.25 $(0.61) (27) Diluted $1.68 $1.62 $0.06 4 $2.18 $(0.56) (26) Funds from operations 3 406,775 296,048 110,727 37 420,173 (124,125) (30) Funds from operations per share Basic $2.66 $1.94 $0.72 37 $2.77 $(0.83) (30) Diluted $2.63 $1.92 $0.71 37 $2.69 $(0.77) (29) Long-term financial liabilities 20,000 – 20,000 – – – – Cash dividends per share $0.3325 $0.3225 $0.01 3 $0.28 $0.0425 15 Total assets 2,228,836 1,786,560 442,276 25 1,762,149 24,411 1

1 EBITDA is defined as “income before interest expense, income taxes, depreciation, and stock-based compensation expense”. Management believes that in addition to net income, EBITDA is a useful supplemental measure as it provides an indication of the results generated by the Company’s principal business activities prior to consideration of how these activities are financed, how the results are taxed in various jurisdictions, or how the results are impacted by the accounting standards associated with the Company’s stock-based compensation plan. ($ thousands) 2008 2007 2006 Income before income taxes 363,119 377,676 513,336 Interest 7,006 5,249 5,127 Depreciation 125,809 92,636 80,921 Stock-based compensation 1,188 (7,383) (6,050) EBITDA 497,122 468,178 593,334

2 Adjusted net income is defined as “net income before stock-based compensation expense, tax-effected using an income tax rate of 35 percent”. Adjusted net income is a useful supplemental measure as it provides an indication of the results generated by the Company’s principal business activities prior to consideration of how the results are impacted by the accounting standards associated with the Company’s stock-based compensation plan, net of income taxes. ($ thousands) 2008 2007 2006 Net income 259,959 249,765 341,284 Stock-based compensation, net of income taxes 772 (4,799) (3,932) Adjusted net income 260,731 244,966 337,352

3 Funds from operations is defined as “cash provided by operating activities before the change in non-cash working capital”. Funds from operations is a measure that provides shareholders and potential investors additional information regarding the Company’s liquidity and its ability to generate funds to finance its operations. Management utilizes this measure to assess the Company’s ability to finance operating activities and capital expenditures. ($ thousands) 2008 2007 2006 Net income 259,959 249,765 341,284 Non-cash items: Depreciation 125,809 92,636 80,921 Stock-based compensation, net of cash paid (7,266) (31,418) (42,648) Future income taxes 28,273 (14,935) 40,616 Funds from operations 406,775 296,048 420,173

Ensign Energy Services Inc. 2008 Annual Report 29 MANAGEMENT’S DISCUSSION AND ANALYSIS

Nature of Operations The Company is in the business of providing oilfield services to the crude oil and natural gas industry in Canada, the United States and internationally. Oilfield services provided by the Company include drilling and well servicing, oil sands coring, underbalanced drilling, equipment rentals, transportation, wireline services, production testing services and custom manufacturing.

The Company’s Canadian operations span the four western provinces of British Columbia, Alberta, Saskatchewan and Manitoba. In the United States, the Company operates predominantly in the Rocky Mountain and California regions. Internationally, the Company operates in Australia, Argentina, Gabon, Libya, New Zealand, Oman, Qatar, Thailand and Venezuela. In addition to these international locations, the Company may relocate equipment to other regions depending on bidding opportunities and anticipated levels of future demand.

2008 Compared with 2007 The Company recorded net income of $260.0 million ($1.70 per common share) in the year ended December 31, 2008, an increase of four percent from $249.8 million ($1.64 per common share) recorded in 2007. Funds from operations increased 37 percent to $406.8 million ($2.66 per common share) in 2008 compared with $296.0 million ($1.94 per common share) recorded in 2007, a result second only to that achieved in the Company’s record year of 2006. The main contributors to the strong financial results in 2008 are the Company’s long standing diversification strategy and the wider deployment of its proprietary Automated Drill Rig (“ADR™”) technology. The Company expanded its United States-based ADR™ fleet throughout 2007 and, as a result, was well positioned to capture growing demand for technologically-advanced equipment in the service intensive resource plays of the Rocky Mountain region of the United States that persisted throughout most of 2008.

The Company delivered strong financial results in 2008 amidst a wavering Canadian market, and later in the year, a global economic crisis that is unprecedented in the Company’s 21-year history. As these economic events unfolded across the globe, the Company continued to focus on items within its control, namely its proven business model – financial discipline, diverse operations, measured growth and commitment to safety – and delivered a solid return on average shareholders equity of 18.6 percent in 2008. While this represents a decline from previous years, it demonstrates the Company’s ability to generate positive returns throughout the business cycle.

The Company’s total assets surpassed $2 billion in 2008, totaling $2,228.8 million as at December 31, 2008, an increase of 25 percent over the balance as at December 31, 2007. The Company expanded its asset base in strategic markets in 2008, including the acquisition of 12 specialty drilling rigs in Canada and the construction of two drilling rigs for the Middle East and Africa markets. The Company also commenced a significant new-build program in the second quarter of 2008 that added one ADR™ and one well servicing rig to the United States market in the fourth quarter of 2008, and will add an additional five ADRs to the United States market, six ADRs to its international markets and six well servicing rigs to its North American equipment fleet in 2009.

The Company’s long-term financial liabilities as at December 31, 2008 comprised a promissory note payable with a face value of $20.0 million. The promissory note was issued in July 2008 in connection with the purchase of 12 specialty drilling rigs and related equipment and has a term of three years. The Company has no other long-term debt.

Depreciation expense increased $33.2 million in 2008 compared with 2007, largely due to increased operating activity levels and a higher valued asset base, but also the result of revisions to the estimated useful lives of several classes of equipment. Depreciation expense for the year ended December 31, 2008 also includes additional depreciation of $11.3 million, incurred to adjust property and equipment to fair value as at December 31, 2008. These revisions and adjustments impact the comparability of 2008 net income with that of 2007.

30 Ensign Energy Services Inc. 2008 Annual Report MANAGEMENT’S DISCUSSION AND ANALYSIS

2007 Compared with 2006 Financial results declined in 2007 compared with 2006 on all measures. The year-over-year decline was largely due to the relative weakness in the Canadian market in 2007 compared with the prior year. The industry malaise that started in the second half of 2006 continued into 2007 as the Company’s Canadian customers reacted to issues undermining the economics of their opportunities in the Western Canada Sedimentary Basin (“WCSB”) – including moderate natural gas prices, a strong Canadian dollar, and proposed changes to the structure of oil and natural gas royalties in the Province of Alberta – and adjusted their drilling programs accordingly. Despite the decline in operating activity levels associated with the exploration and development of natural gas in Canada, the Company’s operating divisions focused on the oil sands and crude oil sectors, which were supported by strong crude oil commodity prices throughout 2007, performed strongly. Expansion of the Company’s ADR™ fleet led the growth achieved in the United States oilfield services division in 2007, and partially mitigated the negative influences impacting the Canadian market. The Company’s international operations also showed signs of growth as bidding activity increased in select markets.

REVENUE AND OILFIELD SERVICES EXPENSE ($ thousands) 2008 2007 Change % change Revenue Canada 742,968 777,228 (34,260) (4) United States 635,465 555,072 80,393 14 International 327,146 245,301 81,845 33 1,705,579 1,577,601 127,978 8 Oilfield services expense 1,145,884 1,054,334 91,550 9 559,695 523,267 36,428 7 Gross margin 32.8% 33.2%

Revenue recorded in the year ended December 31, 2008 totaled $1,705.6 million, an increase of eight percent over the prior year and nearing the record year of 2006 in which revenue totaled $1,807.2 million. The revenue growth in 2008 over 2007 is owing to capital expansion initiatives completed by the Company in recent years as it increased its ADR™ fleet in the United States and bolstered its international operations through several drilling rig construction and relocation projects.

Despite the market turbulence experienced in Canada in 2008, and the deterioration of the wider global economy in the fourth quarter of 2008, the Company achieved gross margin of 32.8 percent in 2008 (2007 – 33.2 percent). The significant inflationary pressures driving input costs in recent years began to ease somewhat in 2008; although, the attraction and retention of skilled labour remained a challenge for most of the Company’s operating divisions in 2008 due to a competitive labour market. In order to protect operating margins during periods of volatile demand, the Company aims to maintain a highly variable cost structure that allows it to react quickly to changes in market conditions. In 2008, in addition to maintaining several cost control initiatives implemented in 2007 when weakness in the Canadian market was prevalent, Ensign implemented several Company-wide cost control initiatives including an increased focus on supply chain management, operational consolidations, and a rationalization of the drilling rig fleet that resulted in retiring equipment that is no longer cost-effective to operate in the current environment.

Ensign Energy Services Inc. 2008 Annual Report 31 MANAGEMENT’S DISCUSSION AND ANALYSIS

Canadian Oilfield Services 2008 2007 Change % change Conventional drilling rigs Opening balance 160 164 Addition 12 3 Transfer – (2) Decommission/Disposal (9) (5) Ending balance 163 160 3 2 Oil sands coring/coal bed methane rigs Opening balance 31 22 Addition – 9 Decommission/Disposal (3) – Ending balance 28 31 (3) (10) Drilling operating days 25,581 24,046 1,535 6 Drilling rig utilization % 36.5 34.2 2.3 7 Well servicing rigs/units Opening balance 116 114 Addition 2 3 Transfer – (1) Decommission/Disposal (10) – Ending balance 108 116 (8) (7) Well servicing operating hours 142,494 168,313 (25,819) (15) Well servicing utilization % 33.7 40.4 (6.7) (17)

A multitude of challenging, external market forces weighed on the Company’s Canadian oilfield services division in 2008, with volatile swings in demand playing out as the year progressed.

Initial expectations of financial and operational performance for the division were reduced heading into the 2007/08 winter drilling season. The first quarter, typically the most active in Canada due to winter weather conditions that facilitate drilling in northern regions, had been expected to be negatively impacted by lingering concerns over natural gas commodity prices and expected changes to the royalty regime in the Province of Alberta. The Canadian industry continued to face an oversupply of oilfield services equipment, an issue that arose out of the significant industry-wide capital expansion that followed the robust oilfield service activity levels of 2006. Although these issues did result in lower equipment utilization levels and financial contributions from the Canadian oilfield services division in the first quarter of 2008 compared with the first quarter of 2007, results exceeded initial expectations as demand for oilfield services began to recover with improved natural gas commodity prices.

As the division progressed through the second and third quarters of 2008, the fundamentals of the Canadian market began to improve. Drilling operating days recorded by the division in the second quarter surpassed the comparable period of the prior year by seven percent and peaked in the third quarter when drilling operating days increased 32 percent over the third quarter of 2007. The Company’s operational reach across the WCSB was a key contributor to improved operating activity levels in these quarters. The Company responded quickly to its customers’ changing focus as many of them shifted capital expenditures away from the Province of Alberta to Saskatchewan and British Columbia and directed more capital towards crude oil projects and shale gas plays. The Company leveraged its established operational base in Saskatchewan to capture the increase in crude oil-driven exploration and development

32 Ensign Energy Services Inc. 2008 Annual Report MANAGEMENT’S DISCUSSION AND ANALYSIS

activity in that province. Similarly, the Company experienced steady demand for its services in northeast British Columbia, where activity levels in shale gas resource plays, such as the Montney and Horn River basins, are not as susceptible to short-term fluctuations in natural gas prices given the longer life spans of these reservoirs compared with conventional plays. The Company also expanded its equipment fleet during this period, acquiring 12 specialty drilling rigs that have the ability to drill conventional wells and perform oils sands coring.

Activity levels in the fourth quarter of 2008 began strong but were negatively impacted as the quarter progressed as the Company’s customers reacted to the series of unprecedented events that shocked the global economy. As credit markets tightened, global recessionary conditions worsened and commodity prices declined sharply, the Company’s customers began to cut back their drilling programs and equipment utilization levels declined accordingly. These events only further increased the highly competitive conditions of the Canadian marketplace and, as a result, the oilfield services industry experienced additional pricing pressure.

In response to the changing conditions of the Canadian market, the Company took several steps to streamline its operations in 2008. The Company consolidated management of some drilling operations and consolidated its transportation assets to improve customer focus amidst a highly competitive marketplace and realize cost savings for the Company. In addition, and in order to maintain its drilling rig fleet in the most cost-effective manner, the Company removed 12 drilling and coring rigs and eight coiled tubing units from its Canadian marketed fleet of equipment in 2008. The Company will retain the serviceable components from these drilling rigs to support the remainder of its drilling rig fleet.

United States Oilfield Services 2008 2007 Change % change Conventional drilling rigs Opening balance 76 64 Addition 1 13 Decommission/Disposal (2) (1) Ending balance 75 76 (1) (1) Drilling operating days 19,986 19,110 876 5 Drilling rig utilization % 72.3 74.1 (1.8) (2) Well servicing rigs/units Opening balance 14 11 Addition 3 2 Transfer – 1 Ending balance 17 14 3 21 Well servicing operating hours 37,245 26,494 10,751 41 Well servicing utilization % 66.7 61.3 5.4 9

The Company’s United States oilfield services division recorded revenue of $635.5 million in the year ended December 31, 2008, a 14 percent increase over 2007. Drilling operating days totaled 19,986, a five percent increase over the prior year. These results represent the highest level of revenue and operating activity levels achieved by this division since the Company entered the United States market in 1994, and highlights the importance of the Company’s initiatives to lessen its exposure to the cyclicality of any one particular geographical market segment. While revenues declined year-over-year in Canada, the United States market has grown and provided a measure of stability to the Company’s earnings. This growth is largely attributable to the ADR™ expansion program that added 13 ADRs to the United States market under long-term contracts throughout 2007, largely focused on resource development plays. This further enabled the Company to participate in historic levels of oilfield service activity in 2008 in the United States, a market that saw

Ensign Energy Services Inc. 2008 Annual Report 33 MANAGEMENT’S DISCUSSION AND ANALYSIS

its active drilling rig count peak at a 22-year high in the third quarter. Similarly, the United States well servicing division performed well and benefited from the addition of three well servicing rigs in 2008, increasing operating hours by 41 percent over the prior year.

In 2008, the Company expanded its service offering in the United States to include directional drilling services, which complement the Company’s ADR™ technology and provide seamless service and cost savings to its customers. This new business line contributed to the record revenue levels achieved by the United States division in 2008 as a greater proportion of wells are now being drilled on a directional basis, particularly in the resource plays of the Rocky Mountain region where the Company remained the most active driller in 2008.

The Company will continue to expand its fleet of ADRs based in the United States. Albeit reduced from original plans, the Company is constructing six additional ADRs for this market. The first of these was deployed in the fourth quarter of 2008. The addition of this equipment under long-term contracts will provide further stability to the Company’s operations and financial results during volatile market conditions and will offset the decommissioning of two conventional drilling rigs in 2008. The United States division will also add two well servicing rigs in the first quarter of 2009.

International Oilfield Services 2008 2007 Change % change Conventional drilling/workover rigs Opening balance 49 47 Transfer – 2 Decommission/Disposal (7) – Ending balance 42 49 (7) (14) Drilling operating days 9,918 9,291 627 7 Drilling rig utilization % 59.9 52.6 7.3 14

Demand for oilfield services in the international arena is more heavily influenced by crude oil prices compared with the predominantly natural gas focus of North America. Despite the dramatic decline in commodity prices in the fourth quarter of 2008, average crude oil prices increased significantly in 2008 compared with 2007 and supported high exploration and development activity levels in the international market for most of the year. West Texas Intermediate (“WTI”) crude oil averaged US$99.65 per barrel in 2008, an increase of 38 percent over an average price of US$72.31 per barrel during 2007. Owing to this crude oil driven demand, the Company recorded 9,918 drilling operating days in its international division in 2008, an increase of 627 days or seven percent over 2007.

A reality of operating in the international oilfield services market is that relocating equipment is often a long, complex and costly process. The Company has established field offices around the globe to partially mitigate this challenge and to facilitate the relocation of equipment to areas of higher demand. During the fourth quarter of 2007 and the first quarter of 2008, the Company undertook several relocation projects, including the transfer of two ADRs from Canada to Australia and the deployment of one drilling rig to the Middle East. The international oilfield services division also constructed two drilling rigs, deploying one to the Middle East and one to Africa in the first quarter of 2008. The rewards of these projects were realized throughout the remainder of 2008 as the relocated equipment delivered positive financial results and contributed to the 33 percent revenue growth achieved by the international division in 2008 compared with 2007. Partially offsetting improved financial contributions from this relocated equipment, two drilling rigs previously operating in Asia completed their contracts in 2008 and are being bid for future contracts. The drilling rig deployed to the Middle East in the fourth quarter of 2007 completed its contract in the fourth quarter of 2008 and is being marketed to other jurisdictions.

The international division closed 2008 with a total of 42 marketed drilling and work-over rigs. During the year, the Company removed a total of seven drilling rigs from its international equipment fleet. The decommissioning of rigs on a periodic basis ensures the Company can maintain its equipment in the most cost-effective manner. In most cases, the serviceable components from the

34 Ensign Energy Services Inc. 2008 Annual Report MANAGEMENT’S DISCUSSION AND ANALYSIS

decommissioned equipment have been redeployed to other rigs. The international fleet will be expanded in 2009 by six state-of-the- art ADRs. Six new ADRs were under construction or being transported as of December 31, 2008. Five of these new ADRs will be deployed to Oman and the remaining ADR™ to Gabon in the first half of 2009.

DEPRECIATION ($ thousands) 2008 2007 Change % change Depreciation 125,809 92,636 33,173 36

Depreciation expense for the year ended December 31, 2008 increased 36 percent to $125.8 million, compared with $92.6 million in the prior year. The increase is due to the introduction of higher valued equipment to the drilling rig fleet, an increase in consolidated operating activity levels on a year-over-year basis, as well as the recording of additional depreciation in 2008.

Additional depreciation of $6.8 million was recognized on coiled tubing units following a review of the carrying value of this equipment performed in the fourth quarter of 2008. With respect to two decommissioned drilling rigs in Indonesia, the Company recorded additional depreciation of $4.5 million in light of current market conditions and the estimated cost involved to reactivate or relocate this equipment.

Several changes in accounting estimates in 2008 impact the comparability of depreciation on a year-over-year basis. Effective January 1, 2008, the Company reduced the estimated useful life of oil sands coring rigs and coiled tubing units, thereby accelerating the depreciation of this equipment. In addition, effective July 1, 2008, the Company began applying a depreciation charge for drilling and well servicing rigs that have not operated within the last 12 months based on the revised estimated useful life of such equipment.

GENERAL AND ADMINISTRATIVE EXPENSE ($ thousands) 2008 2007 Change % change General and administrative 62,573 55,089 7,484 14 % of revenue 3.7% 3.5%

General and administrative expense totaled $62.6 million for the year ended December 31, 2008, an increase of 14 percent over the prior year. As a percentage of revenue, general and administrative expense was 3.7 percent in 2008 and 3.5 percent in 2007. The increase in general and administrative expense was incurred primarily in support of the Company’s growth initiatives in the United States and international divisions.

STOCK-BASED COMPENSATION EXPENSE ($ thousands) 2008 2007 Change % change Stock-based compensation 1,188 (7,383) 8,571 (116)

Stock-based compensation expense arises from the intrinsic value accounting associated with the Company’s stock option plan, whereby the liability associated with stock-based compensation is adjusted for the effect of granting and vesting of employee stock options and changes in the underlying price of the Company’s common shares. For the year ended December 31, 2008, stock-based compensation was an expense of $1.2 million, compared with a recovery of $7.4 million for the year ended December 31, 2007. The closing price of the Company’s common shares was $13.22 at December 31, 2008, compared with $15.25 at December 31, 2007 and $18.39 at December 31, 2006. Although the closing price of the Company’s common shares had declined at December 31, 2008 compared with December 31, 2007, an expense was incurred in 2008 due to stock option exercises that occurred at higher prices throughout the year. In 2008, the price of the Company’s common shares reached a high of $24.85.

Ensign Energy Services Inc. 2008 Annual Report 35 MANAGEMENT’S DISCUSSION AND ANALYSIS

INTEREST EXPENSE ($ thousands) 2008 2007 Change % change Interest 7,006 5,249 1,757 33

Interest expense is incurred on the utilized balance of the Company’s operating lines of credit and the promissory note payable. The variance in interest expense on a period-over-period basis is due to an increase in the average balance outstanding on the Company’s operating lines of credit and the issuance of a $20.0 million promissory note payable in the third quarter of 2008, offset by declining interest rates in 2008. Interest is incurred on the Company’s global revolving credit facility at prime interest rates or bankers’ acceptance rates/LIBOR plus 0.75 percent and at prime interest rates or bankers’ acceptance rates/LIBOR plus 0.85 percent on the Canadian facility. The promissory note payable bears interest at five percent per annum.

INCOME TAXES ($ thousands) 2008 2007 Change % change Current income tax 74,887 142,846 (67,959) (48) Future income tax 28,273 (14,935) 43,208 (289) 103,160 127,911 (24,751) (19) Effective income tax rate (%) 28.4% 33.9%

The effective income tax rate was 28.4 percent for year ended December 31, 2008 compared with 33.9 percent for the year ended December 31, 2007. The decline in effective income tax rate in 2008 compared with 2007 is largely due to additional deductions available to the Company’s United States subsidiaries, namely a domestic production deduction available to companies engaged in qualified activities. Final regulations issued in 2008 confirmed that the drilling of crude oil and natural gas wells performed by the Company was a qualified activity and that the Company was therefore entitled to an additional income tax deduction. This deduction was claimed for the year ended December 31, 2008. As well, income tax returns for the years 2005 through 2007 were amended and refiled in order to claim the deduction for those periods. The benefit of these deductions has been reflected as a reduction in current income tax expense in the year ended December 31, 2008.

The decrease in the Company’s effective income tax rate on a year-to-date basis is also due to ongoing income tax rate reductions in Canada. Income tax rate reductions previously announced by the federal government will phase in income tax rate reductions each year until 2012 at which point the federal corporate income tax rate in Canada will reduce to 15 percent from its current level of 19.5 percent.

Current income tax expense for the year ended December 31, 2007 included $3.8 million related to Omani tax assessments. The Company’s Oman operating entity had been appealing income tax assessments received for the 1994, 1995 and 1996 financial years on the basis that they were without merit under Omani law. The Company’s appeal was dismissed during the year ended December 31, 2007. Excluding the impact of the Omani tax assessments, the effective income tax rate would have been 32.9 percent for the year ended December 31, 2007.

36 Ensign Energy Services Inc. 2008 Annual Report MANAGEMENT’S DISCUSSION AND ANALYSIS

FINANCIAL POSITION The following table outlines significant changes in the Company’s consolidated balance sheet from December 31, 2007 to December 31, 2008:

($ thousands) Change Explanation Cash and cash equivalents 93,965 See consolidated statements of cash flows. Accounts receivable 58,765 Increase due to an increase in revenue generated by the United States and international oilfield services divisions in the fourth quarter of 2008 compared with the fourth quarter of 2007. Inventory and other (28,928) Decrease due to the reclassification of drill pipe inventory to property and equipment as a result of a revision in the estimated useful life effective January 1, 2008. Property and equipment 319,801 Increase due to the acquisition of 12 specialty drilling rigs in the second quarter of 2008, the new-build construction program, ongoing capital expenditures, the reclassification of drill pipe inventory and changes in foreign exchange rates, offset by depreciation in the year. Accounts payable and accrued liabilities 58,489 Increase due to new-build construction activities. Operating lines of credit 51,474 Increase in support of drilling and well servicing rig construction activities. Promissory note payable 20,000 Increase due to the issuance of a promissory note payable in conjunction with the acquisition of 12 specialty drilling rigs during the third quarter of 2008. Stock-based compensation (8,138) Decrease due to a decline in the price of the Company’s common shares and the exercise of employee stock options in the year. Income taxes payable (30,115) Decrease due to income tax installments made during the year, net of the current income tax provision for the year. Dividends payable 393 Increase due to a three-percent increase in the dividend rate in the fourth quarter of 2008 and a slight increase in the number of outstanding common shares compared with the fourth quarter of 2007. Future income taxes 44,555 Increase due to the current year future income tax provision and changes in foreign exchange rates in the year. Shareholders’ equity 306,945 Increase due to the aggregate impact of net income for the year, increase in capital stock due to exercises of employee stock options, impact of foreign exchange rate fluctuations on the net assets of foreign self-sustaining subsidiaries, less dividends declared in the year.

FUNDS FROM OPERATIONS AND WORKING CAPITAL ($ thousands) 2008 2007 Change % change Funds from operations 406,775 296,048 110,727 37 Funds from operations per share $2.66 $1.94 $0.72 37 Working capital 107,024 60,272 46,752 78

During the year ended December 31, 2008, the Company generated funds from operations of $406.8 million ($2.66 per common share), an increase of 37 percent over the prior year. The increase is attributable to improved levels of cash flows generated by the Company’s United States and international oilfield services divisions in 2008 compared with 2007. The significant factors that may impact the Company’s ability to generate funds from operations in future periods are outlined in the “Risks and Uncertainties” section of this MD&A.

Ensign Energy Services Inc. 2008 Annual Report 37 MANAGEMENT’S DISCUSSION AND ANALYSIS

Despite the market challenges experienced in 2008, the Company exited the year with a strong balance sheet with working capital of $107.0 million and minimal long-term debt. Cash and cash equivalents totaled $95.9 million as at December 31, 2008, an increase of $94.0 million from the cash and cash equivalents balance as at December 31, 2007. The Company’s strong cash position and existing credit facilities are expected to adequately support its future operations and capital expansion initiatives. Existing credit facilities provide for total borrowings of $250 million, of which $64.3 million was available as at December 31, 2008.

The Company’s solid balance sheet and significant cash build up during 2008 are the result of actions taken to ensure that sufficient liquidity is maintained during these periods of extreme market turbulence:

• In the third quarter of 2008, the Company prudently reviewed and amended its new-build program, scaling back its new-build construction plans from 27 drilling rigs and nine well servicing rigs to 12 drilling rigs and seven well servicing rigs. This initiative alone will conserve approximately $200 million of cash otherwise allocated to such construction projects.

• The Company enforces its highly variable cost structure. As utilization levels decline, seasonal personnel, comprised largely of field employees, are released.

• During the second quarter of 2008, the Company proactively restructured its operating credit facilities to better support its global operations and international growth initiatives. This action enabled the Company to leverage its overall global borrowing capacity to lock in financing at favorable rates. The new operating credit facilities also provide the Company with greater flexibility in managing its financing needs across geographic segments.

• The Company implemented a hiring freeze in August 2008 and a salary freeze for administrative staff took effect January 2009.

• In December 2008, the Company further tightened its control over expenditures, reducing field spending authorization limits. In February 2009, an additional review of open AFEs (authority for expenditures) was performed, suspending several routine projects pending further analysis and approval.

• Throughout 2008, the Company reviewed the performance of its drilling rig fleet around the world. Those drilling rigs needing significant maintenance or refurbishment to continue operating in a safe and efficient manner were removed from the marketed rig fleet. A total of 21 drilling and coring rigs, eight coiled tubing units and two well servicing rigs were decommissioned or disposed of in 2008. The Company will capture future cost savings as it retained serviceable components from the decommissioned rigs to support future operations.

• The Company progressed with the implementation of a comprehensive asset management system. The new system will provide greater inventory control and provide more robust control over purchasing and procurement activities. As well, the system will provide reduced repair and maintenance costs through improved management of preventive maintenance systems. The Company also focused on its supply chain management initiative in 2008 to leverage its purchasing power and realize cost savings on its global purchasing.

The Company’s balance sheet remained strong throughout 2008 and its practice of fiscal restraint and responsibility only added to this strength. The actions noted above will help to ensure the Company remains strong throughout any prolonged downturn in the economic cycle and position it to take advantage of growth opportunities that may arise.

INVESTING ACTIVITIES ($ thousands) 2008 2007 Change % change Net purchase of property and equipment (274,323) (271,984) (2,339) 1 Net change in non-cash working capital 35,285 (54,168) 89,453 (165) Cash used in investing activities (239,038) (326,152) 87,114 (27)

38 Ensign Energy Services Inc. 2008 Annual Report MANAGEMENT’S DISCUSSION AND ANALYSIS

During the year ended December 31, 2008, net purchases of property and equipment totaled $274.3 million, which is comparable to $272.0 million in 2007. Additional details regarding the new-build program are provided in the “New Builds” section of this MD&A.

In addition to ongoing equipment upgrade initiatives and the 2008 new-build program, other major capital additions during 2008 included:

• The acquisition of 12 specialty drilling rigs and related equipment in Canada in the third quarter of 2008.

• Completion of two drilling rig construction projects for the Middle East and Africa in the first quarter of 2008.

• Construction of two well servicing rigs in Canada in the first quarter of 2008.

• Construction of three well servicing rigs in the United States, one in each of the second, third and fourth quarters of 2008.

FINANCING ACTIVITIES ($ thousands) 2008 2007 Change % change Net increase in operating lines of credit 51,474 47,980 3,494 7 Issue of capital stock 1,014 5,141 (4,127) (80) Dividends (50,905) (49,214) (1,691) 3 Net change in non-cash working capital 393 468 (75) (16) Cash provided by financing activities 1,976 4,375 (2,399) (55)

During the year ended December 31, 2008, the Company restructured its operating credit facilities to better support its global operations and international growth initiatives. Effective June 26, 2008, the Company’s available operating lines of credit consist of a $200-million global revolving credit facility (the “Global Facility”) and a $50-million Canadian based revolving credit facility (the “Canadian Facility”). The Global Facility is available to the Company and any of its wholly owned subsidiaries, and may be drawn in Canadian, United States or Australian dollars, up to the equivalent value of $200 million Canadian dollars. The amount available under the Canadian Facility is $50 million or the equivalent United States dollars. The utilized balance of the operating lines of credit increased during the year ended December 31, 2008 to finance the Company’s new-build program.

During the year ended December 31, 2008, the Company declared dividends of $0.3325 per common share, an increase of three percent over dividends of $0.3225 per common share declared in 2007. Subsequent to December 31, 2008, the Company declared a dividend for the first quarter of 2009. A quarterly dividend of approximately $13.0 million, being $0.085 per common share, was declared for payment on April 2, 2009, to all shareholders of record as of March 25, 2009. All dividends paid by the Company subsequent to January 1, 2006 qualify as an eligible dividend, as defined by subsection 89(1) of the Canadian Income Tax Act. Other financing activities during the year ended December 31, 2008 include the receipt of $1.0 million on the exercise of employee stock options.

During the third quarter of 2008, the Company issued a promissory note payable in the amount of $20.0 million in connection with the purchase of specialty drilling rigs and related equipment from Terracore Specialty Drilling Ltd. The promissory note is unsecured, bears interest at five percent per annum (payable quarterly) and is payable in full on July 16, 2011.

CONTRACTUAL OBLIGATIONS In the normal course of business, the Company enters into various commitments that will have an impact on future operations. These commitments relate primarily to operating lines of credit and office leases.

A summary of the Company’s total contractual obligations as of December 31, 2008, is as follows:

($ thousands) Total Less than 1 year 1-3 years 4-5 years After 5 years Operating lines of credit 169,443 169,443 – – – Office leases 8,880 3,870 3,210 842 958 Total 178,323 173,313 3,210 842 958

Ensign Energy Services Inc. 2008 Annual Report 39 MANAGEMENT’S DISCUSSION AND ANALYSIS

FINANCIAL INSTRUMENTS

Credit Risk The Company is subject to credit risk on accounts receivable balances, which at December 31, 2008 totaled $360.5 million, an increase of $58.8 million over accounts receivable of $301.7 million as at December 31, 2007.

The global economic downturn, tightening of the credit markets and the sharp reduction in commodity prices in the fourth quarter of 2008 and to date in the first quarter of 2009, heightens credit risk for the Company as its customers may experience reduced cash flows and reduced access to credit. The Company manages this risk through dedicated credit resources, ongoing monitoring and follow up of balances owing, well liens, and tightening or restriction of credit terms as required. During the fourth quarter of 2008, the Company increased its allowance for doubtful accounts by $0.7 million to provide for balances which, in management’s best estimate, it deemed uncollectible as at December 31, 2008. The allowance for doubtful accounts is an estimate requiring judgment which may differ materially from actual results.

NEW BUILDS As previously disclosed, the Company is expanding its global fleet of state-of-the-art ADR™ drilling rigs. As of March 16, 2009, three ADRs have been delivered and nine remain under construction pursuant to the Company’s world-wide rig construction program, which consists of 12 ADRs and seven well servicing rigs, a decline of 15 drilling rigs and two well servicing rigs from initial plans.

Following the unprecedented events impacting the global economy in the latter half of 2008 and the sharp decline in crude oil and natural gas prices, the Company prudently reviewed and amended its drilling rig construction program, suspending 17 drilling and well servicing rig construction projects. The reduction in the Company’s capital expansion plans is one of several actions taken to maintain a strong balance sheet during volatile market conditions and further bolster the Company’s liquidity. The reduction in the new-build program alone will conserve approximately $200 million of cash.

All remaining drilling rig construction projects are supported by term contracts and are proceeding as planned. Of the 12 ADRs included in the latest construction program, two are ADR™-250 models, two are ADR™-300 models, four are ADR™-350 models and four are ADR™-500 models. Upon completion of this new-build program, the Company will have a total of 60 ADRs in its fleet. The well servicing rig new-build program consists of four well servicing rigs for the Canadian market and three well servicing rigs for the United States market. The Company has no plans to build additional rigs upon completion of the current new-build program.

The new-build delivery schedule, by geographic area, is as follows:

Actual Forecast Q4 2008 Q1 2009 Q2 2009 Q3 2009 Total ADRs United States 1 1 1 3 6 International – 2 4 – 6 Total 1 3 5 3 12 Well Servicing Rigs Canada – 1 2 1 4 United States 1 2 – – 3 Total 1 3 2 1 7

40 Ensign Energy Services Inc. 2008 Annual Report MANAGEMENT’S DISCUSSION AND ANALYSIS

SUMMARY QUARTERLY RESULTS 2008 ($ thousands, except per share data) Q4 Q3 Q2 Q1 Revenue 460,435 435,186 337,774 472,184 EBITDA 113,347 121,785 90,935 171,055 EBITDA per share Basic $0.74 $0.80 $0.59 $1.12 Diluted $0.74 $0.79 $0.59 $1.11 Adjusted net income 67,805 61,025 39,238 92,661 Adjusted net income per share Basic $0.44 $0.40 $0.26 $0.61 Diluted $0.44 $0.39 $0.25 $0.60 Net income 73,830 72,071 32,262 81,796 Net income per share Basic $0.48 $0.47 $0.21 $0.53 Diluted $0.48 $0.47 $0.21 $0.53 Funds from operations 109,558 90,450 82,526 124,241 Funds from operations per share Basic $0.72 $0.59 $0.54 $0.81 Diluted $0.71 $0.58 $0.53 $0.80

2007 Q4 Q3 Q2 Q1 Revenue 388,261 383,316 296,539 509,485 EBITDA 108,554 103,519 70,686 185,419 EBITDA per share Basic $0.71 $0.68 $0.46 $1.22 Diluted $0.70 $0.67 $0.45 $1.19 Adjusted net income 62,739 50,157 26,010 106,060 Adjusted net income per share Basic $0.41 $0.33 $0.17 $0.70 Diluted $0.41 $0.32 $0.17 $0.68 Net income 72,561 49,748 25,135 102,321 Net income per share Basic $0.48 $0.33 $0.16 $0.67 Diluted $0.47 $0.32 $0.16 $0.66 Funds from operations 85,305 53,257 39,879 117,607 Funds from operations per share Basic $0.56 $0.35 $0.26 $0.77 Diluted $0.55 $0.34 $0.26 $0.76

The seasonal operating environment in Canada impacts the Company’s quarterly results. Financial and operating results for the Company’s Canadian oilfield services division are generally strongest during the first and fourth quarters when the Company’s

Ensign Energy Services Inc. 2008 Annual Report 41 MANAGEMENT’S DISCUSSION AND ANALYSIS

customers conduct the majority of their drilling programs. Utilization rates typically decline during the second quarter as spring break- up weather conditions hinder mobility of the Company’s equipment. As the Company expands its operations in the United States and internationally, the seasonal effects on results of operating in Canada will be mitigated.

The comparability of the Company’s financial results on a quarter-over-quarter basis is impacted by the accounting for the Company’s stock option plan, which can fluctuate significantly from quarter to quarter based on the price of the Company’s common shares. Management utilizes EBITDA and adjusted net income to assess results from the Company’s principal business activities prior to the impact of stock-based compensation.

An assessment or comparison of the Company’s quarterly results at any given time requires consideration of crude oil and natural gas commodity prices. Commodity prices ultimately drive the level of exploration and development activities carried out by the Company’s customers and the resultant demand for the oilfield services provided by the Company. Generally speaking, North American markets have greater exposure to natural gas prices while the international market is more heavily weighted to crude oil projects.

The variability noted in the Company’s quarterly results for 2008 and 2007 reflect the underlying volatility in commodity prices. Financial results in 2007 were generally depressed in comparison to the prior year due to weakness in natural gas prices and the Canadian market. The financial results for first quarter of 2008 were negatively impacted by these same influences. The second and third quarters of 2008 saw seasonally adjusted improvements in financial results as both natural gas and crude oil commodity prices supported a recovery in demand and operating activity levels. The fourth quarter of 2008 experienced a quick reversal of fortune as plummeting global energy demand resulted in sharp declines in natural gas and crude oil prices. Financial results for the fourth quarter of 2008 were also negatively impacted by additional depreciation of $11.3 million, recorded following a review of the carrying value of property and equipment .

FOURTH QUARTER ANALYSIS Three months ended December 31 ($ thousands, except per share data and operating information) 2008 2007 Change % change Revenue 460,435 388,261 72,174 19 EBITDA 113,347 108,554 4,793 4 EBITDA per share Basic $0.74 $0.71 $0.03 4 Diluted $0.74 $0.70 $0.04 6 Adjusted net income 67,805 62,739 5,065 8 Adjusted net income per share Basic $0.44 $0.41 $0.03 7 Diluted $0.44 $0.41 $0.03 7 Net income 73,830 72,561 1,269 2 Net income per share Basic $0.48 $0.48 – – Diluted $0.48 $0.47 $0.01 2 Funds from operations 109,558 85,305 24,253 28 Funds from operations per share Basic $0.72 $0.56 $0.16 29 Diluted $0.71 $0.55 $0.16 29 Weighted average shares – basic (000s) 153,129 152,703 426 – Weighted average shares – diluted (000s) 153,552 154,018 (466) –

42 Ensign Energy Services Inc. 2008 Annual Report MANAGEMENT’S DISCUSSION AND ANALYSIS

Three months ended December 31 ($ thousands, except per share data and operating information) 2008 2007 Change % change Drilling Number of marketed rigs Canada Conventional 163 160 3 2 Oil sands coring / coal bed methane 28 31 (3) (10) United States 75 76 (1) (1) International 42 49 (7) (14) Operating days Canada 6,072 5,938 134 2 United States 4,670 4,839 (169) (3) International 2,497 2,362 135 6 Drilling rig utilization rate (%) Canada 33.8 33.8–– United States 67.7 70.1 (2.4) (3) International 64.6 52.4 12.2 23 Well servicing Number of marketed rigs/units Canada 108 116 (8) (7) United States 17 14 3 21 Operating hours Canada 31,138 38,414 (7,276) (19) United States 9,333 7,073 2,260 32 Well servicing rig utilization rate (%) Canada 31.3 36.2 (4.9) (13) United States 59.7 59.1 0.6 1

Following the ups and downs of the first three quarters of 2008, the oilfield services industry, along with the wider economy, faced even greater volatility in the fourth quarter of 2008 as the global economic and financial crisis took hold. Global demand for energy declined sharply during this period and crude oil and natural gas commodity prices declined accordingly, as much as 50 percent from the average price of the previous quarter. WTI crude oil prices averaged US$58.73 per barrel in the fourth quarter of 2008, compared with an average price of US$117.98 per barrel in the third quarter of 2008. NYMEX natural gas prices also fell steadily in the fourth quarter, averaging US$6.94/mmbtu, compared with an average price of US$10.24/mmbtu in the third quarter of 2008. As reduced commodity prices began to have a negative impact on the cash flows of the Company’s customers, demand for the oilfield services provided by the Company declined and additional pricing pressure was evident under such highly competitive conditions.

Despite the sharp deterioration in market fundamentals in the fourth quarter of 2008, the Company delivered solid financial results. Revenue and EBITDA for the fourth quarter of 2008 exceeded the fourth quarter of 2007 by 19 percent and four percent, respectively, largely driven by growth in the Company’s United States and international oilfield services divisions. A greater proportion of contracts in these markets are long term and as a result operating activity levels did not decline as sharply as commodity price declines might otherwise suggest.

While the Company’s Canadian drilling operations realized a slight increase in drilling operating days in the fourth quarter of 2008 compared with the fourth quarter of 2007, the increase is largely a reflection of weaker market conditions in the fourth quarter of 2007 (when drilling operating days declined 13 percent from the fourth quarter of 2006). Drilling operating days in the fourth quarter of

Ensign Energy Services Inc. 2008 Annual Report 43 MANAGEMENT’S DISCUSSION AND ANALYSIS

2008, a quarter that typically experiences an uptick in activity heading into the winter drilling season, declined 20 percent compared with the third quarter of 2008. A large portion of drilling work in Canada is performed on a spot basis, allowing the Company’s customers to quickly react to declining cash flows by cutting their drilling programs. Further compounding the impact of the global economic crisis and deteriorating commodity prices, customers put several projects on hold in anticipation of an unwelcome change in royalty structure in the Province of Alberta that took effect January 1, 2009. The Company’s Canadian well servicing division was hit particularly hard as a result of the slowdown in demand in the fourth quarter of 2008, and experienced a 19 percent decline in well servicing hours quarter-over-quarter.

In previous years, short-term concerns over natural gas commodity prices did not materially impact demand for United States drilling services as exploration and production companies in that region tended to take a longer term view and focused on developing long- life resource plays. However, in the fourth quarter of 2008, the Company began to note a decline in demand as its customers reacted to lower expectations for natural gas and crude oil prices, reduced levels of cash flows and limited access to credit. For the first time in 2008, the Company’s United States oilfield services division experienced a decline in quarterly equipment utilization levels compared with the prior year, realizing 67.7 percent utilization in the fourth quarter of 2008 compared with 70.1 percent utilization in the fourth quarter of 2007. That said, a high proportion of the new equipment introduced into the Company’s Rocky Mountain and California core markets in recent years is secured by long-term contracts, partially shielding the Company from the impact of an overall decline in exploration and development activities in these areas. All of the new ADRs being constructed for the United States market, one of which was commissioned in the fourth quarter of 2008, are secured by long-term contracts, which will provide increased stability to the financial contributions generated by the United States oilfield services division in 2009. Financial contributions generated by the United States oilfield services division in the fourth quarter of 2008, as presented in Canadian dollars, benefited from the strengthening of the United States dollar relative to the Canadian dollar during this period. The United States/Canadian dollar exchange rate closed 2008 at 1.2180, compared with 0.9913 at December 31, 2007.

The Company’s international oilfield services division delivered meaningful quarter-over-quarter revenue growth in the fourth quarter of 2008. Revenue for this segment totaled $98.5 million, a 50 percent increase over 2007. The largest revenue growth was achieved by the Company’s operations in Australia, Oman and Libya, owing to the additional equipment deployed to or constructed for these markets late in 2007 and early 2008. The Company’s Latin American operations also delivered significant revenue growth in the fourth quarter of 2008 compared with the fourth quarter of 2007.

During the fourth quarter of 2008, the Company assessed the carrying value of its equipment fleet. Two of the Company’s drilling rigs in Indonesia were previously being bid for future work in that country or for redeployment to other jurisdictions. However, following the significant decline in commodity prices in the fourth quarter of 2008 and the reduced outlook for global drilling activity going into 2009, the Company is evaluating an offer to sell this equipment. As a result, additional depreciation of $4.5 million related to this equipment was recorded in the fourth quarter of 2008. In addition, the Company recorded additional depreciation of $6.8 million in the Canadian oilfield services segment based on an assessment of the value of the Company’s coiled tubing units.

The comparability of net income and adjusted net income on a quarter-over-quarter basis is also impacted by several revisions to accounting estimates that were made in 2008. Depreciation expense in the fourth quarter of 2008 reflects revisions to the estimated useful lives of several classes of equipment that were applied on a prospective basis in 2008, with the effect of increasing depreciation expense. Effective January 1, 2008, the Company revised downward the estimated useful life of oil sands coring rigs and coiled tubing units. Effective July 1, 2008, the Company began applying a depreciation charge for drilling and well servicing rigs that have not operated within the last 12 months based on the revised estimated useful life of such equipment.

44 Ensign Energy Services Inc. 2008 Annual Report MANAGEMENT’S DISCUSSION AND ANALYSIS

OUTSTANDING SHARE DATA The following common shares and stock options were outstanding as of March 16, 2009:

Number Amount ($ thousands) Common shares 153,135,006 $169,485

Outstanding Exercisable Stock options 10,456,962 4,040,362

OUTLOOK It is still unclear precisely how bad the economic downturn will become and how long it will persist. What is clear is that the recent sharp decline in commodity prices, both for crude oil and natural gas, combined with the tightening of credit availability, indicates that our customers will not have the same level of cash flows directed to oilfield services expenditures as we have seen in the past, at least for the short term. However, out of crisis comes opportunity. With a strong balance sheet, the Company is well positioned to navigate through the current market turmoil and take advantage of the opportunities that will present themselves in the inevitable recovery. We are well positioned to act on any opportunistic growth opportunities that meet our strict criteria.

Up until December 2008, we were expecting a reasonably strong 2008/09 winter drilling season in Canada, at least better than the utilization that we experienced in the winter of 2007/08. However, as 2008 came to a close, the impact and extent of the deteriorating market conditions in Canada made it clear that activity levels this winter would be worse than last winter. The Canadian oilfield services sector as a whole continues to have an oversupply of equipment. Reduced levels of demand for oilfield services due to unfavorable crude oil and natural gas commodity prices and reduced levels of financing available to the exploration and production companies has resulted in poor year-over-year utilization levels and reduced margins for our services. The outlook after the winter drilling season is worse. Our customers are not committing to oilfield services expenditures as they have reduced expenditure levels to strengthen their balance sheets and wait until commodity prices improve the economics of their projects. Although there may be some resource plays that somewhat buck the trend, generally speaking we expect activity levels and margins in the second and third quarters of 2009 to be down significantly compared with 2008. As is our practice, we will price to maintain our market share.

The outlook for our United States operations is not much better as our customers react to lower crude oil and natural gas commodity prices. We have already seen activity levels fall meaningfully in our key markets of California and the Rocky Mountain region. As with Canada, we do not expect any significant recovery until commodity prices recover along with supply and demand fundamentals for crude oil and natural gas. That said, following completion of our new-build program in 2009, we will have 34 drilling rigs committed under term contracts in key resource plays in the United States. At this time, we expect these contracts to continue and provide a modicum of protection from the deteriorating conditions in the industry. We will need to see a recovery in natural gas fundamentals before the North American situation improves.

The long term nature of contracts and operations in the international market tends to make this segment of our business less volatile relative to our North American operations. However, the international division is not immune from the impact of falling crude oil and natural gas commodity prices or deteriorating global economic conditions. We have recently noticed delays in awarding new work that has been bid, as well as delays in requesting bids for new projects. Further, national oil companies struggle with balancing their internal cash needs to sustain their operations with the demands for cash from their government owners to sustain social programs in their home countries. Counteracting these negative factors will be the contributions from six new technically-advanced drilling rigs we are building for the international market. All of these new ADRs will be operational by the middle of 2009 and will provide a meaningful addition to the contributions from our growing international division.

While the current outlook for 2009 is filled with concern and pessimism, we think there may be some interesting growth opportunities available to the Company. Additionally, we will continue to expand the technical capabilities of our drilling fleet through our

Ensign Energy Services Inc. 2008 Annual Report 45 MANAGEMENT’S DISCUSSION AND ANALYSIS

new-build program. Our ADR™ drilling technology will continue to broaden its reach around the world as we roll out 12 new ADRs in the United States, the Middle East and Africa. Once these are fully deployed, we will have 60 ADRs in our global fleet, operating in Canada, the United States, Australia, Oman and Gabon.

CRITICAL ACCOUNTING ESTIMATES This MD&A is based on the Company’s consolidated financial statements that have been prepared in accordance with GAAP. The Company’s significant accounting policies are described in note 2 to the consolidated financial statements. The preparation of the consolidated financial statements requires that certain estimates and judgments be made in regard to the reported amount of revenues and expenses and the carrying values of assets and liabilities. These estimates are based on historical experience and management’s judgment. Anticipating future events involves uncertainty and consequently the estimates used by management in the preparation of the consolidated financial statements may change as future events unfold, additional experience is acquired, or the environment in which the Company operates changes.

The accounting estimates considered to have the greatest impact on the Company’s consolidated financial results are as follows:

Depreciation Depreciation of the Company’s property and equipment incorporates estimates of useful lives and residual values. These estimates may change as more experience is obtained or as general market conditions change, both of which could impact the operation of the Company’s property and equipment.

Long-lived Assets The carrying value of the Company’s property and equipment is periodically reviewed for impairment or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. This requires the Company to forecast future cash flows to be derived from the utilization of these assets based on assumptions about future operating conditions. These assumptions may change as more experience is obtained or as general market conditions change.

Valuation of Accounts Receivable The Company is subject to credit risk on accounts receivable balances and assesses the recoverability of accounts receivable balances on an ongoing basis. The Company establishes an allowance for doubtful accounts when accounts receivable balances are deemed impaired and uncollectible. Assessing accounts receivable balances for impairment involves significant judgment and uncertainty, including estimates of future events. Changes in circumstances underlying these estimates may result in adjustments to the allowance for doubtful accounts in future periods.

Taxation The Company follows the liability method of accounting for income taxes. Under this method, income tax liabilities and assets are recognized for the estimated tax consequences attributable to differences between the amounts reported in the consolidated financial statements and their respective tax bases. The Company establishes valuation allowances to offset future income tax assets when utilization of such tax assets is uncertain. Assessing the realization of future income tax assets includes consideration of tax planning arrangements and estimates of future taxable income. Changes in circumstances and assumptions underlying these considerations may require changes to the valuation allowances recorded to date.

CHANGE IN ACCOUNTING ESTIMATES Effective January 1, 2008, the Company revised the estimated useful life of drill pipe to 1,500 operating days, to be depreciated on a unit-of-production basis. The change in estimated useful life reflects the Company’s recent experience with respect to the period over which future benefits are derived from drill pipe and the impact improved technologies have had on extending the useful lives of these assets.

46 Ensign Energy Services Inc. 2008 Annual Report MANAGEMENT’S DISCUSSION AND ANALYSIS

Effective January 1, 2008, the Company revised the estimated useful life of oil sands coring rigs from 3,650 operating days to 1,000 operating days. The oil sands coring rigs will continue to be depreciated on a unit-of-production basis with a 20 percent residual value. Further, the Company revised the estimated useful life of coiled tubing units from 24,000 operating hours to five years, to be depreciated on a straight-line basis.

Effective July 1, 2008, the Company began applying a deprecation charge for crude oil and natural gas drilling and well servicing rigs that are not currently operating based on the revised estimated useful life of such equipment.

These changes in accounting estimates have been applied on a prospective basis and did not have a significant effect on consolidated net income for the year ended December 31, 2008. It is impracticable to estimate the effect of these changes in accounting estimates on future periods as such estimates would depend on a forecast of future operating activity levels.

ADOPTION OF NEW ACCOUNTING STANDARDS

Capital Disclosures Effective January 1, 2008, the Company adopted the Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 1535 “Capital Disclosures”. The new section requires an entity to disclose information about its capital and how it is managed. The Company’s capital management strategy is outlined in note 10 to the consolidated financial statements.

Financial Instruments Effective January 1, 2008, the Company adopted CICA Handbook Section 3862 “Financial Instruments – Disclosures” and Section 3863 “Financial Instruments - Presentation”, which replace Section 3861 “Financial Instruments – Disclosure and Presentation”. The new sections revise and enhance financial instruments disclosure requirements and place increased emphasis on disclosures about the nature and extent of risks arising from financial instruments and how the Company manages those risks.

Inventories Effective January 1, 2008, the Company adopted CICA Handbook Section 3031 “Inventories”, which requires inventory to be valued on a ’first in, first out’ or weighted average basis. The new standard also requires fixed and variable production overheads that are incurred in converting materials into finished goods to be allocated to the cost of inventory on a systematic basis. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

RECENT ACCOUNTING PRONOUNCEMENTS The CICA Accounting Standards Board confirmed in February 2008 that International Financial Reporting Standards (“IFRS”) will replace GAAP in 2011 for profit-oriented Canadian publicly accountable enterprises.

As the Company will be required to report its results in accordance with IFRS starting in 2011, the Company is assessing the potential impacts of this changeover and developing its plan accordingly. When finalized, its IFRS transition plan will include project structure and governance, resourcing and training, and an analysis of key differences between IFRS and GAAP.

As part of its IFRS transition plan, the Company has engaged external consultants to complete a preliminary diagnostic assessment of potential issues arising from the transition to IFRS and to identify accounting policy changes and transition decisions. As at March 16, 2009, this review is in progress. Key issues identified to date surround the area of property and equipment. In connection with the implementation of a new asset management system that is underway, the Company is assessing changes that may be required to its information technology and data systems to meet the requirements of IFRS.

As the Company completes its diagnostic review and progresses to the policy design and implementation stages of its plan, it will provide increased clarity into the anticipated consequences of accounting policy changes that will occur upon transition to IFRS.

Ensign Energy Services Inc. 2008 Annual Report 47 MANAGEMENT’S DISCUSSION AND ANALYSIS

DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER FINANCIAL REPORTING The Company’s management, including the President and Chief Operating Officer and Executive Vice President Finance and Chief Financial Officer, has reviewed and evaluated the design and operating effectiveness of both the Company’s disclosure procedures and controls and the Company’s internal controls over financial reporting (as defined in National Instrument 52-109 issued by the Canadian securities regulators) as of December 31, 2008.

Management has concluded that, as of December 31, 2008, the disclosure procedures and controls were effective to provide reasonable assurance that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities to allow timely decisions regarding required disclosure.

Management has also concluded that, as of December 31, 2008, the Company’s internal controls over financial reporting were effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

There have been no changes in the Company’s internal controls over financial reporting during the year that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

RISKS AND UNCERTAINTIES

Crude Oil and Natural Gas Prices The most significant factors affecting the business of the Company are crude oil and natural gas commodity prices. Commodity price levels affect the capital programs of energy exploration and production companies, as the price they receive for the crude oil and natural gas they produce has a direct impact on the cash flow available to them and subsequent demand for oilfield services provided by the Company. Crude oil and natural gas prices have been volatile in recent years, and may continue to be so as weather conditions, government regulation, political and economic environments, pipeline capacity, storage levels and other factors outside of the Company’s control continue to influence commodity prices. Demand for the Company’s services in the future will continue to be influenced by commodity prices and the resultant impact on the cash flow of its customers, and may not be reflective of historical activity levels.

Access to Credit Facilities and Debt Capital Markets The Company and its customers require reasonable access to credit facilities and debt capital markets as an important source of liquidity. Global economic events, outside of the control of the Company or its customers, may restrict or reduce the access to credit facilities and debt capital markets. Tightening credit markets may reduce the funds available to the Company’s customers for paying accounts receivable balances and may also result in reduced levels of demand for the Company’s services. Additionally, the Company relies on access to credit facilities, along with its reserves of cash and cash flow from operating activities, to meet its obligations and finance operating activities. The Company believes it has adequate bank credit facilities to provide liquidity.

Foreign Operations The Company provides oilfield services throughout much of North America and internationally in a number of onshore drilling areas. The Canadian and United States regulatory regimes are stable and, in general, supportive of energy industry activity. Internationally, the Company’s operations are subject to regulations in various jurisdictions and support of the oil and natural gas industry can vary in these jurisdictions. In general, the Company negotiates long-term service contracts for drilling services in international areas and these contracts usually include early termination clauses and other clauses for the Company’s protection.

Foreign Exchange Exposure The Company’s consolidated financial statements are presented in Canadian dollars. Operations in countries outside of Canada result in foreign exchange risk to the Company. The principal foreign exchange risk relates to the conversion of United States-dollar and

48 Ensign Energy Services Inc. 2008 Annual Report MANAGEMENT’S DISCUSSION AND ANALYSIS

Australian-dollar denominated activity to Canadian dollars. The Canada/United States dollar exchange rate at December 31, 2008, was 1.2180, compared with 0.9913 at December 31, 2007. The Canada/Australian dollar exchange rate at December 31, 2008, was 0.8550, compared with 0.8670 at December 31, 2007. The Company’s United States and international operations are considered self- sustaining for foreign currency translation purposes. Fluctuations in future exchange rates will impact the Canadian dollar equivalent of the results reported by foreign subsidiaries.

Changes in Laws and Regulations The Company and its customers are subject to numerous laws and regulations governing its operations and the exploration and development of crude oil and natural gas, including environmental regulations. Existing and expected environmental legislation and regulations may increase the costs associated with providing oilfield services, as the Company may be required to incur additional operating costs or capital expenditures in order to comply with any new regulations. The costs of complying with increased environmental and other regulatory changes in the future, such as royalty regime changes, may also have an adverse effect on the cash flows of the Company’s customers and may dampen demand for oilfield services provided by the Company.

Seasonality The Company’s Canadian oilfield services operations are impacted by weather conditions that hinder the Company’s ability to move heavy equipment. The timing and duration of spring break-up, during which time the Company is prohibited from moving heavy equipment on secondary roads, restricts movement of equipment in and out of certain areas, thereby negatively impacting equipment utilization levels. Further, the Company’s activities in certain areas in northern Canada are restricted to winter months when the ground is frozen solid enough to support the Company’s equipment. This seasonality is reflected in the Company’s operating results, as rig utilization is normally at its lowest during the second and third quarters of the year. The Company continues to mitigate the impact of Canadian weather conditions through expansion into markets not subject to the same seasonality and by working with customers in planning the timing of their drilling programs.

Workforce The Company’s operations are dependent on attracting, developing and maintaining a skilled workforce. During periods of peak activity levels, the Company may be faced with a lack of personnel to operate its equipment. The Company is also faced with the challenge of retaining its most experienced employees during periods of low utilization, while maintaining a cost structure that varies with activity levels. To mitigate these risks, the Company has developed an employee recruitment and training program, and continues to focus on creating a work environment that is safe for its employees.

Operating Risks and Insurance The Company’s operations are subject to risks inherent in the oilfield services industry. The Company carries insurance to cover the risk to its equipment and people, and each year the Company reviews the level of insurance for adequacy. Although the Company believes its level of insurance coverage to be adequate, there can be no assurance that the level of insurance carried by the Company will be sufficient to cover all potential liabilities.

Ensign Energy Services Inc. 2008 Annual Report 49 OPERATING DIVISIONS SUMMARY

Fleet Size

DIVISION GEOGRAPHIC COVERAGE 2008 2007

Ensign Drilling Partnership

Ensign Canadian Drilling Central and northern Alberta/northeast British Columbia 82 89

Champion Drilling Southern Alberta and southwest Saskatchewan 41 41

Big Sky Drilling Southeast Saskatchewan and western Manitoba 21 23

Encore Coring & Drilling Western Canada and the Yukon Territory 47 38

Rockwell Servicing Partnership Western Canada – well servicing rigs/coiled tubing units 108 116

Enhanced Petroleum Services Partnership

Enhanced Drill Systems Western Canada – underbalanced drilling units 18 18

Opsco Energy Industries Ltd. Western Canada

Wireline units 39 38

Production testing units 48 49

Ensign United States Drilling Inc. United States Rocky Mountain region 55 57

Ensign United States Drilling (California) Inc. California and Nevada 20 19

Opsco Energy Industries (USA) Ltd. United States Rocky Mountain region

Production testing units 19 14

Ensign Well Services Inc. 1 United States Rocky Mountain and California regions – well servicing rigs 17 14

Ensign Energy Services International Limited Australia, New Zealand, Southeast Asia, Africa,

Argentina, the Middle East 33 39

Ensign de Venezuela C.A. Venezuela – drilling and workover rigs 9 10

1 Statistics include information related to four well servicing rigs owned and operated by Ensign United States Drilling (California) Inc.

In addition to the divisions noted above, the Company has three equipment rental divisions (Chandel Equipment Rentals, Rocky Mountain Oilfield Rentals and West Coast Oilfield Rentals) and two manufacturing facilities (Opsco Energy Industries Ltd. and Hi-Calibre Industries Ltd.).

50 Ensign Energy Services Inc. 2008 Annual Report Wells Drilled Metres Drilled Operating Days/Hours Utilization (%)

2008 2007 2008 2007 2008 2007 2008 2007

964 1,447 1,529,988 2,038,611 12,330 11,920 38.5 36.0

1,577 1,786 1,449,128 1,586,932 6,050 5,509 40.3 36.4

399 384 901,543 718,862 5,061 4,417 65.8 53.2

344 333 234,057 216,174 2,140 2,200 14.0 16.0

n.a. n.a. n.a. n.a. 142,494 168,313 33.7 40.4

n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

1,442 1,457 3,762,910 3,459,756 15,171 14,365 73.7 75.8

843 743 732,485 664,633 4,815 4,745 68.3 69.6

n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

n.a. n.a. n.a. n.a. 37,245 26,494 66.7 61.3

327 304 511,878 473,798 7,611 7,112 57.8 50.7

103 136 212,795 325,742 2,307 2,179 68.2 59.7

Ensign Energy Services Inc. 2008 Annual Report 51 CORPORATE GOVERNANCE

The Company’s Board of Directors exercises overall responsibility for the management and supervision of the affairs of the Company. This includes the appointment of the Company’s President, approval of compensation for senior executives and monitoring of the President’s and management’s performance.

The Board of Directors has established procedures that prescribe the requirements governing the approval of transactions carried out in the course of the Company’s operations, the delegation of authority and the execution of documents on behalf of the Company.

The Board of Directors reviews and approves the Company’s annual operating budget, ensuring market conditions, as well as strategic thinking, is properly reflected in the short-term goals of each of the Company’s operating divisions.

The Board of Directors is currently composed of nine directors. Mr. N. Murray Edwards, Mr. Selby Porter and Mr. Robert H. Geddes, Ensign’s Chairman, Vice Chairman, and President and Chief Operating Officer respectively, are the only Board members who are also members of the Company’s management. The Board of Directors annually appoints members to Board committees in the following three areas: Audit, Corporate Governance and Nominations, and Compensation. All of these committees are comprised entirely of independent directors.

AUDIT COMMITTEE The Audit Committee reviews, reports and provides recommendations to the Board of Directors on the annual and interim consolidated financial statements and on the integrity of the financial reporting of the Company. In addition, the adequacy of the Company’s processes for identifying and managing financial risk, the adequacy of the Company’s internal control system, and the appointment, terms of engagement, provision of non-audit services and proposed fees of the Company’s independent external auditor are also areas in which this committee reviews, reports and provides recommendations to the Board of Directors.

CORPORATE GOVERNANCE AND NOMINATIONS COMMITTEE The Corporate Governance and Nominations Committee is responsible for reviewing, reporting and providing recommendations for improvement to the Board of Directors with respect to all aspects of corporate governance. The Corporate Governance and Nominations Committee, on a periodic basis, assesses the effectiveness of the Board of Directors as a whole, the committees of the Board and the contributions of individual members. This committee also identifies and recommends to the Board individuals qualified to become Directors of the Company.

COMPENSATION COMMITTEE The Compensation Committee reviews and approves compensation of the Company’s senior management. In addition, this committee is responsible for reviewing succession plans and the compensation policy for all other employees. This committee also has the authority to grant stock options to employees (other than grants to senior officers and “insiders”, which are approved by the Board of Directors) pursuant the Company’s Stock Option Plan.

Additional details regarding the Company’s corporate governance may be found in the “Statement of Corporate Governance Practices” included in the Information Circular for the Company’s upcoming Annual and Special Meeting of Shareholders to be held on May 20, 2009.

52 Ensign Energy Services Inc. 2008 Annual Report MANAGEMENT’S REPORT

The consolidated financial statements and other information contained in the annual report are the responsibility of the management of the Company. The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles consistently applied, using management’s best estimates and judgements, where appropriate.

Preparation of financial statements is an integral part of management’s broader responsibilities for the ongoing operations of the Company. Management maintains a system of internal accounting controls to ensure that properly approved transactions are accurately recorded on a timely basis and result in reliable financial statements. The Company’s external auditors are appointed by the shareholders. They independently perform the necessary tests of the Company’s accounting records and procedures to enable them to express an opinion as to the fairness of the consolidated financial statements, in conformity with Canadian generally accepted accounting principles.

The Audit Committee, which is comprised of independent Directors, meets with management and the Company’s external auditors to review the consolidated financial statements and reports on them to the Board of Directors. The consolidated financial statements have been approved by the Board of Directors.

Robert H. Geddes Glenn Dagenais President and Chief Operating Officer Executive Vice President Finance and Chief Financial Officer

March 12, 2009

AUDITORS’ REPORT

To the Shareholders of Ensign Energy Services Inc.

We have audited the consolidated balance sheets of Ensign Energy Services Inc. as at December 31, 2008 and 2007 and the consolidated statements of income and retained earnings, cash flows, comprehensive income and accumulated other comprehensive loss for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2008 and 2007 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.

Chartered Accountants Calgary, Alberta

March 12, 2009

Ensign Energy Services Inc. 2008 Annual Report 53 CONSOLIDATED BALANCE SHEETS

As at December 31, 2008 and 2007 (in thousands of Canadian dollars) 2008 2007

ASSETS Current assets Cash and cash equivalents $ 95,905 $ 1,940 Accounts receivable 360,486 301,721 Inventory and other 60,824 89,752 Future income taxes (note 6) 1,040 2,367 518,255 395,780 Property and equipment (note 3) 1,710,581 1,390,780 $ 2,228,836 $ 1,786,560

LIABILITIES Current liabilities Accounts payable and accrued liabilities $ 236,084 $ 177,595 Operating lines of credit (note 4) 169,443 117,969 Current portion of stock-based compensation 3,538 8,056 Income taxes payable (10,850) 19,265 Dividends payable 13,016 12,623 411,231 335,508 Promissory note payable (note 5) 20,000 – Stock-based compensation 1,103 4,723 Future income taxes (note 6) 245,351 202,123 677,685 542,354

SHAREHOLDERS’ EQUITY Capital stock (note 7) 169,485 167,599 Accumulated other comprehensive loss (1,583) (97,588) Retained earnings 1,383,249 1,174,195 1,551,151 1,244,206 Contingencies and commitments (note 12) $ 2,228,836 $ 1,786,560

See accompanying notes to the consolidated financial statements.

Approved by the Board of Directors

N. Murray Edwards, Director Robert H. Geddes, Director

54 Ensign Energy Services Inc. 2008 Annual Report CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

For the years ended December 31, 2008 and 2007 (in thousands of Canadian dollars – except per share data) 2008 2007

Revenue Oilfield services $ 1,705,579 $ 1,577,601

Expenses Oilfield services 1,145,884 1,054,334 Depreciation (note 3) 125,809 92,636 General and administrative 62,573 55,089 Stock-based compensation 1,188 (7,383) Interest Promissory note 461 – Other 6,545 5,249 1,342,460 1,199,925

Income before income taxes 363,119 377,676

Income taxes (note 6) Current 74,887 142,846 Future 28,273 (14,935) 103,160 127,911

Net income for the year 259,959 249,765

Retained earnings – beginning of year 1,174,195 973,644 Dividends (note 7) (50,905) (49,214) Retained earnings – end of year $ 1,383,249 $ 1,174,195

Net income per share (note 7) Basic $ 1.70 $ 1.64 Diluted $ 1.68 $ 1.62

See accompanying notes to the consolidated financial statements.

Ensign Energy Services Inc. 2008 Annual Report 55 CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31, 2008 and 2007 (in thousands of Canadian dollars) 2008 2007

Cash provided by (used in)

Operating activities Net income for the year $ 259,959 $ 249,765 Items not affecting cash: Depreciation 125,809 92,636 Stock-based compensation, net of cash paid (7,266) (31,418) Future income taxes 28,273 (14,935) Cash provided by operating activities before the change in non-cash working capital 406,775 296,048 Net change in non-cash working capital (note 9) (75,748) 13,099 331,027 309,147

Investing activities Net purchase of property and equipment (274,323) (271,984) Net change in non-cash working capital (note 9) 35,285 (54,168) (239,038) (326,152)

Financing activities Net increase in operating lines of credit 51,474 47,980 Issue of capital stock 1,014 5,141 Dividends (note 7) (50,905) (49,214) Net change in non-cash working capital (note 9) 393 468 1,976 4,375

Net increase (decrease) in cash and cash equivalents during the year 93,965 (12,630)

Cash and cash equivalents – beginning of year 1,940 14,570

Cash and cash equivalents – end of year $ 95,905 $ 1,940

Supplemental information Interest paid $ 7,464 $ 5,683 Income taxes paid $ 105,002 $ 170,364

See accompanying notes to the consolidated financial statements.

56 Ensign Energy Services Inc. 2008 Annual Report CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the years ended December 31, 2008 and 2007 (in thousands of Canadian dollars) 2008 2007

Net income for the year $ 259,959 $ 249,765 Other comprehensive income (loss) Foreign currency translation adjustment 96,005 (77,425) Comprehensive income for the year $ 355,964 $ 172,340

See accompanying notes to the consolidated financial statements.

CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS

For the years ended December 31, 2008 and 2007 (in thousands of Canadian dollars) 2008 2007

Accumulated other comprehensive loss – beginning of year $ (97,588) $ (20,163) Foreign currency translation adjustment 96,005 (77,425) Accumulated other comprehensive loss – end of year $ (1,583) $ (97,588)

See accompanying notes to the consolidated financial statements.

Ensign Energy Services Inc. 2008 Annual Report 57 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2008 and 2007 (in thousands of Canadian dollars – except share and per share data)

1. BASIS OF CONSOLIDATION AND NATURE OF BUSINESS The accompanying consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”), and include the accounts of Ensign Energy Services Inc. and its subsidiaries and partnerships (the “Company”), substantially all of which are wholly-owned. The Company carries on the business of providing oilfield services to the crude oil and natural gas industry in Canada, the United States and internationally.

2. SIGNIFICANT ACCOUNTING POLICIES (a) Cash and cash equivalents Cash and cash equivalents consists of cash and short-term investments with maturities of three months or less.

(b) Inventory Inventory, comprised of spare rig parts and equipment, is recorded at the lower of cost and net realizable value. Cost is determined on a specific item basis.

(c) Property and equipment Property and equipment is recorded at cost. Costs associated with equipment upgrades that result in increased capabilities or performance enhancements of property and equipment are capitalized. Costs incurred to repair or maintain property and equipment are expensed as incurred.

Depreciation is based on the estimated useful lives of the assets as follows:

Rigs and equipment Drilling rigs and related equipment 3,650 operating days Unit-of-production (20% residual) Well servicing rigs 24,000 operating hours Unit-of-production (20% residual) Oil sands coring rigs 1,000 operating days Unit-of-production (20% residual) Coiled tubing units 5 years Straight-line (20% residual) Heavy oilfield service equipment 15 years Straight-line (20% residual) Drill pipe 1,500 operating days Unit-of-production Buildings 20 years Straight-line Automotive equipment 3 years Straight-line (15% residual) Office furniture and shop equipment 5 years Straight-line

When our drilling and well servicing rigs are inactive for a period of 12 months or more, a depreciation charge is provided using the straight-line method over an estimated useful life of 10 years with a 20 percent residual value.

Property and equipment is reviewed for impairment when events or changes in circumstances indicate that its carrying value may not be recoverable. The Company’s operations and business environment are routinely monitored, and judgment and assessments are made to determine if an event has occurred that indicates possible impairment. If the total of undiscounted future cash flows or assessed fair value is less than the carrying value of the asset, an impairment loss is measured as the excess of the carrying amount of property and equipment over its discounted future cash flows or fair value. Fair value is the amount at which an item could be bought or sold in a current transaction between willing parties, and is normally estimated by calculating the present value of expected future cash flows related to the asset or by relying on a fair value assessment.

(d) Revenue recognition Oilfield services revenue is recognized as services are rendered and when collectibility is reasonably assured. Losses are provided for in full when first determined.

(e) Foreign currency translation Financial statements of the Company’s self-sustaining United States and international subsidiaries are translated to Canadian dollars using the exchange rate in effect at the balance sheet date for all assets and liabilities, and at average rates of exchange during the year for revenues and expenses. Gains or losses resulting from these translation adjustments are included in accumulated other comprehensive income in shareholders’ equity.

Transactions denominated in foreign currencies are translated into Canadian dollars using the exchange rate prevailing at the date of

58 Ensign Energy Services Inc. 2008 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

transaction. Monetary assets and liabilities denominated in foreign currencies are translated to Canadian dollars using the rate of exchange in effect at the balance sheet date whereas non-monetary assets and liabilities are translated at the rate of exchange in effect on the date of the transaction. Exchange gains and losses resulting from translation are included in the statement of income in the period that they arise.

(f) Income taxes The Company follows the liability method of accounting for income taxes. Under this method, income tax liabilities and assets are recognized for the estimated tax consequences attributable to differences between the amounts reported in the consolidated financial statements and their respective tax bases, using substantively enacted income tax rates. The effect of a change in income tax rates on future income tax liabilities and assets is recognized in income in the period in which the change is substantively enacted.

(g) Stock-based compensation The Company has an employee stock option plan that provides all option holders the right to elect to receive either common shares or a direct cash payment in exchange for the options exercised. The stock-based compensation plan is accounted for using the intrinsic value method. Under this method, the Company accrues a liability for stock options based on the excess of the market price of the Company’s common shares over the exercise price net of an estimated forfeiture rate. The accrued liability is adjusted for the effect of grants and exercises of stock options, as well as the effect of changes in the underlying price of the Company’s common shares through charges or credits to stock-based compensation expense. Any consideration received on the exercise of stock options for common shares is credited to capital stock.

The Company also has stock savings and stock bonus plans for employees, as well as a program whereby a portion of the retainer paid to Directors is in the form of Company stock. Contributions to these plans are recorded as compensation expense in the period in which the compensation is earned. In all cases, any stock acquired for such plans is purchased in the open market.

(h) Measurement uncertainty Preparation of the Company’s consolidated financial statements in accordance with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting years presented. Significant estimates and assumptions used in the preparation of the consolidated financial statements include, but are not limited to: estimated useful life and carrying value of property and equipment; allowance for doubtful accounts; and, the estimated timing of temporary difference reversals in the calculation of future income taxes and the realization of future income tax assets. Actual results could differ from these estimates.

(i) Change in accounting policies Capital disclosures Effective January 1, 2008, the Company adopted the Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 1535 “Capital Disclosures”. The new section requires an entity to disclose information about its capital and how it is managed.

Financial instruments Effective January 1, 2008, the Company adopted CICA Handbook Section 3862 “Financial Instruments – Disclosures” and Section 3863 “Financial Instruments - Presentation”, which replaced Section 3861 “Financial Instruments – Disclosure and Presentation”. The new sections revise and enhance financial instruments disclosure requirements and place increased emphasis on disclosures about the nature and extent of risks arising from financial instruments and how the Company manages those risks.

The Company has designated its financial instruments as follows:

• Cash and cash equivalents are classified as “held for trading” and any period change in fair value is recorded through net income;

• Accounts receivable are classified as “loans and receivables”. After their initial fair value measurement, they are measured at amortized cost using the effective interest rate method. For the Company, the measured amount generally corresponds to historical cost; and

• Accounts payable and accrued liabilities, operating lines of credit, dividends payable and promissory note payable are classified as “other financial liabilities”. After their initial fair value measurement, they are measured at amortized cost using the effective interest rate method. For the Company, the measured amount generally corresponds to historical cost.

Inventories Effective January 1, 2008, the Company adopted CICA Handbook Section 3031 “Inventories”, which requires inventory to be valued on a ’first in, first out’ or weighted average basis. The new standard also requires fixed and variable production overheads that are incurred

Ensign Energy Services Inc. 2008 Annual Report 59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

in converting materials into finished goods to be allocated to the cost of inventory on a systematic basis. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

(j) Change in accounting estimates The following changes in accounting estimates have been applied on a prospective basis and did not have a significant effect on consolidated net income for the year ended December 31, 2008. It is impracticable to estimate the effect of these changes in accounting estimates on future periods as such an estimate would depend on a forecast of future operating activity levels.

Drill pipe Effective January 1, 2008 the Company revised the estimated useful life of drill pipe to 1,500 operating days, to be depreciated on a unit-of-production basis. The change in estimated useful life reflects the Company’s recent experience with respect to the period over which future benefits are derived from drill pipe and the impact improved technologies have had on extending the useful lives of these assets. As a result of this change in accounting estimate, drill pipe of $39,000 previously classified as inventory and other on the consolidated balance sheet has been reclassified to property and equipment on the basis that its estimated useful life of 1,500 operating days extends beyond the current year.

Oil sands coring rigs Effective January 1, 2008 the Company revised the estimated useful life of oil sands coring rigs from 3,650 operating days to 1,000 operating days. The oil sands coring rigs will continue to be depreciated on a unit-of-production basis with a 20 percent residual value.

Coiled tubing units Effective January 1, 2008, the Company revised the estimated useful life of coiled tubing units from 24,000 operating hours to five years, to be depreciated on a straight-line basis with a 20 percent residual value.

Drilling and well servicing rigs Effective July 1, 2008, the Company began applying a straight-line depreciation charge for crude oil and natural gas drilling and well servicing rigs that have not operated within the last 12 months based on the revised estimated useful life of 10 years of such equipment.

(k) Recent accounting pronouncements The CICA Accounting Standards Board confirmed in February 2008 that International Financial Reporting Standards ("IFRS") will replace Canadian GAAP in 2011 for profit-oriented Canadian publicly accountable enterprises.

As the Company will be required to report its results in accordance with IFRS starting in 2011, the Company is assessing the potential impacts of this changeover and developing its plan accordingly. When finalized, its IFRS transition plan will include project structure and governance, resourcing and training, and an analysis of key differences between IFRS and GAAP.

As part of its IFRS transition plan, the Company has engaged external consultants to complete a preliminary diagnostic assessment of potential issues arising from the transition to IFRS and to identify accounting policy changes and transition decisions. Key issues identified to date surround the area of property and equipment. In connection with the implementation of a new asset management system that is underway, the Company is assessing changes that may be required to its information technology and data systems to meet the requirements of IFRS.

3. PROPERTY AND EQUIPMENT Accumulated Net Book Cost Depreciation Value 2008 Rigs and related equipment $ 2,189,281 $ 534,404 $ 1,654,877 Automotive and other equipment 59,031 32,620 26,411 Land and buildings 36,186 6,893 29,293 $ 2,284,498 $ 573,917 $ 1,710,581

2007 Rigs and related equipment $ 1,774,126 $ 432,645 $ 1,341,481 Automotive and other equipment 51,125 25,553 25,572 Land and buildings 29,209 5,482 23,727 $ 1,854,460 $ 463,680 $ 1,390,780

60 Ensign Energy Services Inc. 2008 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Property and equipment includes equipment under construction of $155,483 (2007 – $51,097) that has not yet been subject to depreciation.

As a result of an assessment of property and equipment undertaken in consideration of current market conditions, the Company recognized an additional depreciation charge in the year ended December 31, 2008. The additional depreciation charge of $11,290, of which $6,749, $4,491 and $50 relates to the Canadian, international and United States geographic segments, respectively, has been reflected as an increase in depreciation expense in the year ended December 31, 2008.

4. OPERATING LINES OF CREDIT The utilized balances of the Company’s operating lines of credit as at December 31, 2008 and 2007 are as follows: 2008 2007 Global Facility Prime interest rates or bankers’ acceptance rates/LIBOR plus 0.75% (Denominated in AUD$52,100 and USD$102,000) $ 169,443 $– Canadian Facility Prime interest rate or bankers’ acceptance rate/LIBOR plus 0.85% – – Canada Bank prime interest rate or bankers’ acceptance rate/LIBOR plus 0.85% – 56,102 Australia Bank bill swap rate plus 0.575% – 42,793 United States Bank prime interest rate or LIBOR plus 0.85% – 19,074 $ 169,443 $ 117,969

During the year ended December 31, 2008, the Company restructured its operating credit facilities to better support its global operations. Effective June 26, 2008, the Company’s available operating lines of credit consist of a $200,000 global revolving credit facility (the “Global Facility”) and a $50,000 Canadian based revolving credit facility (the “Canadian Facility”).

The Global Facility is available to the Company and any of its wholly owned subsidiaries and may be drawn in Canadian, United States or Australian dollars, up to the equivalent value of $200,000 Canadian dollars. Interest is incurred on the utilized balance of the Global Facility at prime interest rates or bankers’ acceptance rates/LIBOR plus 0.75%. The Global Facility is unsecured.

The amount available under the Global Facility is reduced by any outstanding letters of credit or bank guarantees. At December 31, 2008, the Company had $9,105 outstanding in letters of credit and $7,212 outstanding in bank guarantees.

The amount available under the Canadian Facility is $50,000 or the equivalent United States dollars. Interest is incurred on the utilized balance of the Canadian Facility at prime interest rates or bankers’ acceptance rates/LIBOR plus 0.85%. The Canadian Facility is unsecured.

At December 31, 2007, the Company had Canadian, Australian and United States operating lines of credit. At December 31, 2007, the amount available under the Canadian dollar operating line was $185,000. Collateral for the Canadian dollar operating line of credit consisted of a demand debenture.

At December 31, 2007, the Company’s Australian-based operating line of credit had a combined limit of $57,655 (AUD$66,500). A portion of the Australian-based operating line of credit could be drawn in United States dollar-denominated advances, up to USD$38,000, provided the total amount outstanding did not exceed the combined limit of AUD$66,500. The amount available under the Australian dollar operating line of credit was reduced by the balance of outstanding bank guarantees, not to exceed AUD$10,000. The Company had outstanding bank guarantees in the amount of $3,201 (AUD$3,692) at December 31, 2007. The Australian dollar operating line of credit was unsecured.

At December 31, 2007, the amount available under the United States dollar operating line of credit was $49,565 (USD$50,000). The amount available under the United States dollar operating line of credit was reduced by the balance of outstanding letters of credit, not to exceed USD$10,000. The Company had issued letters of credit in the amount of $6,731 (USD$6,790) at December 31, 2007. The United States dollar operating line of credit was secured by a perfected first-priority lien on, and security interest in, all of the assets of certain of the Company’s United States subsidiaries.

5. PROMISSORY NOTE PAYABLE In connection with the purchase of specialty drilling rigs and related equipment from Terracore Specialty Drilling Ltd. (“Terracore”) on July 17, 2008, the Company issued a promissory note to Terracore in the amount of $20,000. The promissory note has a term of three years and shall be payable in full on July 16, 2011. Interest on the promissory note is equal to five percent per annum and will be paid in 12 consecutive quarterly instalments. The Company may prepay the principal sum and interest in whole, or in part, without penalty. The promissory note is unsecured.

Ensign Energy Services Inc. 2008 Annual Report 61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

6. INCOME TAXES The temporary differences comprising the net future income tax liability as at December 31, 2008 and 2007 are as follows:

2008 2007 Property and equipment $ 233,837 $ 179,838 Partnership timing differences 28,442 39,636 Stock-based compensation (1,392) (3,755) Non-capital losses (11,384) (11,994) Other (9,325) (5,763) Capital losses – (783) Net future income tax liability before valuation allowance 240,178 197,179 Valuation allowance related to non-capital losses 4,133 2,577 Net future income tax liability $ 244,311 $ 199,756

Future income tax liability $ 245,351 $ 202,123 Future income tax asset (1,040) (2,367) Net future income tax liability $ 244,311 $ 199,756

A significant portion of the Company’s taxable income in Canada is generated by partnerships. Income taxes are incurred on the partnerships’ taxable income in the year following their inclusion in the Company’s consolidated net income.

At December 31, 2008, the Company had non-capital losses of $37,952 (2007 – $39,981), of which $37,929 has no expiry. The remaining $23 of non-capital losses expires at various times between 2010 and 2026.

The provision for income taxes is different from the expected provision for income taxes using combined Canadian federal and provincial income tax rates for the following reasons:

2008 2007 Income before income taxes $ 363,119 $ 377,676 Income tax rate 30.2% 33.14% Expected income tax expense 109,662 125,162 Increase (decrease) resulting from: Higher effective income tax on foreign operations 7,282 12,588 Rate reduction on future income taxes (5,929) (16,427) Domestic production deduction (5,010) – Non-deductible stock-based compensation 273 2,709 Non-deductible expenses 251 1,681 Other (3,369) (1,585) Prior period Oman tax assessments – 3,783 $ 103,160 $ 127,911 Effective income tax rate 28.4% 33.9%

The domestic production deduction, an income tax deduction available to companies engaged in qualified activities, relates to the Company’s United States subsidiaries. Additional guidance issued by the tax authorities in 2008 confirmed that the drilling of crude oil and natural gas wells performed by the Company was a qualified activity and that the Company was therefore entitled to an additional income tax deduction. As a result, income tax returns for the years 2005 through 2007 were amended and refiled. The benefit of this deduction has been reflected as a reduction in current income tax expense in the year ended December 31, 2008.

The Company’s Oman operating entity had previously received income tax assessments for the 1994, 1995 and 1996 financial years. The Company was appealing these assessments on the basis that they were without merit under Omani law and had not previously recognized income tax expense associated with these assessments. The Company’s appeal was dismissed during the year ended December 31, 2007. Current income tax expense for the year ended December 31, 2007 includes $3,783 related to this matter.

62 Ensign Energy Services Inc. 2008 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In 2007, the federal and provincial governments of Canada substantively enacted various reductions to corporate income tax rates. The Government of Canada introduced income tax rate reductions to be implemented over five years that will decrease the federal corporate income tax rate from 21 percent to 15 percent. The federal corporate surtax was eliminated in 2008. The Government of Saskatchewan introduced income tax rate reductions to be implemented over two years that will decrease the provincial corporate income tax rate from 14 percent to 12 percent. The Government of Manitoba introduced a tax rate reduction effective July 1, 2008 that will decrease the provincial corporate income tax rate from 14 percent to 13 percent. The application of these rate reductions on opening income tax balances has been reflected as a reduction in future income tax expense in the period of substantive enactment.

7. CAPITAL STOCK (a) Authorized Unlimited common shares Unlimited preferred shares, issuable in series

(b) Outstanding 2008 2007 Number of Number of Common Shares Amount Common Shares Amount Balance – beginning of year 153,041,378 $ 167,599 152,267,928 $ 154,838 Issued under employee stock option plan 93,628 1,886 773,450 12,761 Balance – end of year 153,135,006 $ 169,485 153,041,378 $ 167,599

(c) Options The Company may grant options to its employees for up to 13,089,196 (2007 – 13,182,824) common shares. The options’ exercise price equals the market price of the Company’s common shares on the date of grant. Stock options granted vest evenly over a period of five years. A summary of the Company’s stock option plan as at December 31, 2008 and 2007, and the changes for the years then ended, is presented below: 2008 2007 Weighted Weighted Number of Average Number of Average Options Exercise Price Options Exercise Price Outstanding – beginning of year 9,655,450 $ 16.55 11,112,100 $ 13.16 Granted 2,421,500 21.54 2,637,500 19.69 Exercised for common shares (93,628) (10.83) (773,450) (6.65) Exercised for cash (988,860) (11.31) (2,403,300) (7.32) Forfeited (548,500) (19.61) (917,400) (17.05) Outstanding – end of year 10,445,962 $ 18.09 9,655,450 $ 16.55 Exercisable at December 31 3,538,562 $ 15.37 2,725,250 $ 13.34

Average Vesting Weighted Weighted Remaining Average Options Average Exercise Price Options Outstanding (in years) Exercise Price Exercisable Exercise Price $8.75 to $11.05 2,015,162 0.29 $ 10.50 1,440,562 $ 10.49 $13.50 to $18.85 1,884,700 1.06 14.13 822,400 13.79 $19.88 to $23.33 6,546,100 2.09 21.57 1,275,600 21.91 10,445,962 1.56 $ 18.09 3,538,562 $ 15.37

(d) Common share dividends During the year ended December 31, 2008, the Company declared dividends of $50,905 (2007 – $49,214), being $0.3325 per common share (2007 - $0.3225 per common share).

Ensign Energy Services Inc. 2008 Annual Report 63 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(e) Net income per share Net income per share is calculated by dividing net income by the weighted average number of common shares outstanding during the year. Diluted net income per share is calculated using the treasury stock method, which assumes that all outstanding stock options are exercised, if dilutive, and the assumed proceeds are used to purchase the Company’s common shares at the average market price during the year.

The weighted average number of common shares outstanding for the years ended December 31, 2008 and 2007 are as follows: 2008 2007 Weighted average number of common shares outstanding – basic 153,094,863 152,517,446 Weighted average number of common shares outstanding – diluted 154,408,234 154,306,152

Stock options of 6,662,100 (2007 – 4,798,000) were excluded from the calculation of diluted weighted average number of common shares outstanding as the options’ exercise price was greater than the average market price of the common shares for the year.

8. SEGMENTED INFORMATION The Company operates in three geographic areas within one industry segment. Oilfield services are provided in Canada, the United States and internationally. The amounts related to each geographic area are as follows: Canada United States International Total 2008 Revenue $ 742,968 $ 635,465 $ 327,146 $ 1,705,579 Property and equipment, net $ 833,921 $ 511,816 $ 364,844 $ 1,710,581 Capital expenditures, net $ 73,456 $ 83,596 $ 117,271 $ 274,323 Depreciation $ 61,887 $ 31,475 $ 32,447 $ 125,809 2007 Revenue $ 777,228 $ 555,072 $ 245,301 $ 1,577,601 Property and equipment, net $ 739,951 $ 362,712 $ 288,117 $ 1,390,780 Capital expenditures, net $ 12,080 $ 189,870 $ 70,034 $ 271,984 Depreciation $ 49,910 $ 22,265 $ 20,461 $ 92,636

Revenues are attributed to geographical areas based on the location the services are rendered.

During the year ended December 31, 2008, the Company earned revenue of $291,896 (2007 – $276,642) from a single customer. Revenues from this customer are reported within the Canada and United States geographic areas.

9. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION 2008 2007 Net change in non-cash working capital Accounts receivable $ (58,765) $ 63,354 Inventory and other (10,072) (12,524) Accounts payable and accrued liabilities 58,489 (64,381) Income taxes payable (30,115) (27,518) Dividends payable 393 468 $ (40,070) $ (40,601) Relating to Operating activities $ (75,748) $ 13,099 Investing activities 35,285 (54,168) Financing activities 393 468 $ ( 40,070) $ (40,601)

64 Ensign Energy Services Inc. 2008 Annual Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

10. CAPITAL MANAGEMENT STRATEGY The Company’s objectives when managing capital are to exercise financial discipline, and to deliver positive returns and stable dividend streams to its shareholders. The Company’s capital management strategy remained unchanged during the year ended December 31, 2008; however, the Company continues to be cognizant of the challenges associated with operating in a cyclical, commodity-based industry and may make future adjustments to its capital management strategy in light of changing economic conditions.

The Company considers its capital structure to include shareholders’ equity and operating lines of credit. In order to maintain or adjust its capital structure, the Company may from time to time adjust its capital spending or dividend policy to manage the level of its short- term borrowings, or may revise the terms of its operating lines of credit to support future growth initiatives. During the year ended December 31, 2008, the Company revised the terms of its operating lines of credit as described in note 4. As at December 31, 2008, the utilized balance of the operating lines of credit totaled $169,443 and shareholders’ equity totaled $1,551,151.

The Company is subject to externally imposed capital requirements associated with its operating lines of credit, including financial covenants that incorporate shareholders’ equity and level of indebtedness. The Company monitors its compliance with these requirements on an ongoing basis and projects future operating cash flows, capital expenditure levels and dividend payments to assess how these activities may impact compliance in future periods. As at December 31, 2008, the Company is in compliance with these requirements.

11. FINANCIAL INSTRUMENTS Fair value The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, operating lines of credit and dividends payable approximate fair value due to the short-term nature of these instruments. The carrying value of the promissory note payable approximates fair value as its interest terms approximate a market rate of interest.

Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Credit risk arises principally from the Company’s accounts receivable balances owing from customers operating primarily in the oil and natural gas industry in Canada, the United States and internationally. The carrying amount of accounts receivable represents the maximum credit exposure as at December 31, 2008.

The Company assesses the credit worthiness of its customers on an ongoing basis and establishes credit limits for each customer based on external credit reports, internal analysis and historical experience with the customer. Credit limits are approved by senior management and are reviewed on a regular basis or when changing economic circumstances dictate. The global economic downturn, tightening of the credit markets and the sharp reduction in commodity prices in the fourth quarter of 2008 heightens credit risk for the Company as its customers may experience reduced cash flows and reduced access to credit. The Company manages this increased risk through dedicated credit resources, ongoing monitoring and follow up of balances owing, well liens, and tightening or restriction of credit terms as required. The Company also monitors the amount and age of accounts receivable balances on an ongoing basis. During the year ended December 31, 2008, the Company increased its allowance for doubtful accounts to a total of $1,143 to provide for balances which, in management’s best estimate, are deemed uncollectible as at December 31, 2008. The allowance for doubtful accounts is an estimate requiring judgment and may differ materially from actual results.

Liquidity risk Liquidity risk is the risk that the Company will not be able to meets its financial obligations as they are due. The Company manages liquidity by forecasting cash flows on an annual basis and secures sufficient credit facilities to meet financing requirements that exceed anticipated internally generated funds. As at December 31, 2008, the remaining contractual maturities of accounts payable and accrued liabilities, operating lines of credit and dividends payable are less than one year. As at December 31, 2008, the remaining contractual maturity of the promissory note payable is less than three years.

In light of deteriorating global economic conditions in the latter half of 2008, the Company took several steps to further strengthen its balance sheet and to ensure sufficient liquidity is maintained during uncertain times. The Company proactively restructured its operating credit facilities to better support its global operations in the second quarter of 2008. The Company also reviewed and amended its capital expenditure plans in the third and fourth quarters of 2008, significantly scaling back expenditures from initial plans.

Ensign Energy Services Inc. 2008 Annual Report 65 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Company’s net income or the value of its financial instruments.

Interest rate risk The Company is exposed to interest rate risk with respect to its operating lines of credit that bear interest at floating market rates. For the year ended December 31, 2008, if interest rates applicable to its operating lines of credit had been one percent higher or lower, with all other variables held constant, net income would have been $1,029 higher or lower.

Foreign currency exchange rate risk The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the United States dollar and the Australian dollar. The principal foreign exchange risk relates to the conversion of the Company’s self-sustaining subsidiaries from their functional currencies to Canadian dollars. At December 31, 2008, had the Canadian dollar weakened or strengthened by $0.01 against the United States dollar, with all other variables held constant, the Company’s other comprehensive income would have been approximately $4,946 higher or lower. As at December 31, 2008, had the Canadian dollar weakened or strengthened by $0.01 against the Australian dollar, with all other variables held constant, the Company’s other comprehensive income would have been approximately $2,761 higher or lower. The Company is also exposed to foreign currency exchange rate risk related to its net United States dollar denominated debt held within its Australian subsidiary. A $0.01 change in the United States to Australian dollar exchange rate would have resulted in a change in net income of approximately $240 at at December 31, 2008.

The above sensitivities are limited to the impact of changes in the specified variable applied to the items noted above and do not represent the impact of a change in the variable on the operating results of the Company taken as a whole.

12. CONTINGENCIES AND COMMITMENTS The Company has provided insurance bonds to a government customs agency in Argentina in respect of the temporary importation of equipment into that country. At December 31, 2008, the guarantees amounted to $12,087 (2007 - $12,865).

The Company has commitments for office leases, with future minimum payments over the next five years as follows:

2009 $ 3,870 2010 2,414 2011 796 2012 496 2013 and thereafter 1,304

13. PRIOR YEAR AMOUNTS Certain prior year amounts have been reclassified to conform to the current year’s presentation.

66 Ensign Energy Services Inc. 2008 Annual Report ADDITIONAL INFORMATION

THE COMPANY Ensign Energy Services Inc. was incorporated on March 31, 1987 pursuant to the provisions of the Business Corporations Act (Alberta). Pursuant to a prospectus, on December 15, 1987, the Company became a reporting issuer in the Province of Alberta. Subsidiaries and Partnerships The following table sets forth the principal operating subsidiaries of the Company, the percentage of shares owned, directly or indirectly, by the Company and the jurisdiction of incorporation or continuance of the subsidiaries as of December 31, 2008. Jurisdiction of Incorporation Percentage of shares beneficially Name of Subsidiary or Continuance owned or controlled by the Company Arctic Ensign Drilling Ltd. Northwest Territories 49% Artisan Corporation Alberta 100% Badge Services Inc. Alberta 100% Continuous Tubing Inc. Alberta 100% Ensign de Venezuela C.A. Venezuela 100% Ensign Drilling Inc. Alberta 100% Ensign Energy Services International Limited Australia 100% Ensign International Energy Services Inc. Nevada 100% Ensign United States Drilling Inc. Colorado 100% Ensign United States Drilling (California) Inc. California 100% Ensign Well Services Inc. Colorado 100% Gwich’in Ensign Oilfield Services Inc. Northwest Territories 49% Hi-Calibre Industries Ltd. Alberta 100% Leyen Oil Well Servicing Ltd. Saskatchewan 100% Oilfield Supply Inc. Nevada 100% Opsco Energy Industries Ltd. Alberta 100% Opsco Energy Industries (USA) Ltd. Montana 100% Rockwell Servicing Inc. Alberta 100%

In addition to our subsidiaries noted above, we also have three partnerships within our corporate structure: (1) Ensign Drilling Partnership –- Ensign Drilling Inc. and Artisan Corporation own 100% of Ensign Drilling Partnership, a partnership formed under the laws of the Province of Alberta for the purpose of carrying on our Canadian crude oil and natural gas well drilling operations; (2) Rockwell Servicing Partnership – Ensign Energy Services Inc., Leyen Oil Well Servicing Ltd., Rockwell Servicing Inc., Badge Services Inc. and Continuous Tubing Inc. own 100% of Rockwell Servicing Partnership, formed under the laws of the Province of Alberta for the purpose of carrying on our Canadian well servicing operations; and (3) Enhanced Petroleum Services Partnership – Ensign Drilling Inc. and Opsco Energy Industries Ltd. own 100% of Enhanced Petroleum Services Partnership, a partnership formed under the laws of the Province of Alberta for the purpose of carrying on our underbalanced drilling and oilfield equipment rentals businesses. Recent Acquisitions

January 2004 Acquired in Canada and the United States: 23 specialty coring/drilling rigs from Layne Christensen Canada Limited. October 2004 Acquired in Canada: 11 camps and associated catering assets from Slave Lake Rentals & Contracting Ltd. January 2005 Acquired internationally: Servicios Petroleros Flint, C.A. and Flintco del Ecuador C.A., which operated 11 drilling rigs and one workover rig in Venezuela and two workover rigs in Ecuador, from Flint South America, Inc. April 2005 Acquired internationally: three drilling rigs in Libya. October 2005 Acquired in Canada: three coring/mineral rigs from Midnight Sun Drilling Co. Ltd. November 2005 Acquired in the United States: Action Oil Field Services, Inc. which operated eight well servicing rigs in Colorado, from Petro-Canada Resources (USA) Inc. July 2008 Acquired in Canada: 12 specialty drilling rigs from Terracore Specialty Drilling Ltd.

Ensign Energy Services Inc. 2008 Annual Report 67 10 YEAR FINANCIAL INFORMATION

($ thousands, except share, per share data and ratios) 2008 2007 2006 2005 Revenue 1,705,579 1,577,601 1,807,230 1,520,724 Gross margin 559,695 523,267 646,017 489,312 Gross margin % of revenue 32.8% 33.2% 35.7% 32.2% Depreciation 125,809 92,636 80,921 74,917 Net income 259,959 249,765 341,284 169,665 Net income per share

Basic $1.70 $1.64 $2.25 $1.12 Diluted $1.68 $1.62 $2.18 $1.09 Funds from operations 406,775 296,048 420,173 337,186 Funds from operations per share

Basic $2.66 $1.94 $2.77 $2.23 Diluted $2.63 $1.92 $2.69 $2.16 Net capital expenditures – excluding acquisitions 274,323 271,984 325,483 247,696 Working capital (deficit) 107,024 60,272 63,162 (11,878) Long-term debt, net of current portion 20,000 –– – Shareholders’ equity 1,551,151 1,244,206 1,107,605 771,902 Return on average shareholders’ equity 18.6% 21.2% 36.3% 23.9% Long-term debt to equity 0.01:1 n.a. n.a. n.a Weighted average common shares outstanding – basic 153,094,863 152,517,446 151,774,629 151,202,388 Closing share price, December 31 $13.22 $15.25 $18.39 $23.46

All per share data and the weighted average common shares outstanding have been restated to reflect the 3-for-1 stock split effective May 2001 and the 2-for-1 stock split effective May 2006.

SHARE TRADING SUMMARY

For the Three Months Ended High ($) Low ($) Close ($) Volume Value ($) 2008 March 31 20.69 12.01 20.01 29,771,256 492,776,016 June 30 23.29 19.44 22.22 36,823,168 800,711,001 September 30 24.85 16.05 16.68 47,300,514 990,976,909 December 31 18.01 10.62 13.22 35,160,372 466,956,416 149,055,310 2,751,420,342

68 Ensign Energy Services Inc. 2008 Annual Report 2004 2003 2002 2001 2000 1999 1,059,494 928,960 651,768 767,669 672,041 372,322 282,806 245,082 153,443 221,319 186,017 98,240 26.7% 26.4% 23.6% 28.8% 27.7% 26.4% 50,956 44,209 39,170 29,184 26,525 22,733 118,849 99,030 51,743 100,828 86,999 29,837

$0.79 $0.66 $0.35 $0.69 $0.60 $0.21 $0.77 $0.65 $0.35 $0.67 $0.59 $0.21 188,723 173,390 100,064 132,087 105,903 62,526

$1.25 $1.16 $0.68 $0.90 $0.73 $0.44 $1.23 $1.13 $0.67 $0.88 $0.71 $0.43 138,091 101,504 63,060 71,033 45,826 45,380 14,209 (13,309) (33,598) 76,560 51,817 37,755 – – 7,689 – 14,938 29,805 649,740 563,659 475,476 432,059 338,654 257,168 19.6% 19.1% 11.4% 26.1% 29.2% 11.5% n.a. n.a. 0.02:1 n.a. 0.04:1 0.12:1 150,793,628 150,009,718 148,394,304 147,346,804 145,639,716 142,502,574 $12.55 $10.30 $8.33 $6.68 $9.25 $5.59

For the Three Months Ended High ($) Low ($) Close ($) Volume Value ($) 2007 March 31 20.02 17.26 19.35 26,404,313 493,233,028 June 30 23.49 18.15 19.00 38,739,332 787,478,405 September 30 20.28 17.50 18.78 21,128,178 403,250,862 December 31 18.92 13.92 15.25 28,885,457 466,414,519 Total 115,157,280 2,150,376,814

Ensign Energy Services Inc. 2008 Annual Report 69 OPERATING MANAGEMENT

CORPORATE Larry Gates Dave Green Bryan Toth Technical Sales Representative Drilling Superintendent Senior Vice President Canadian Well Alex Halat Gerald Huber Services Technical Sales Representative Drilling Superintendent Randy Mutch Aaron Nosky Glen Nielsen Director of Information Technology Technical Sales Representative Safety Coordinator Cathy Robinson Tino Pollock ENSIGN CANADIAN DRILLING Senior Director Global Human Resources Technical Sales Representative Roch Currier Roxane Demers Jeff Mitton General Manager Rockies Director Global Training Technical Sales Representative Dale Leitner John Batiuk Cindy Hames Operations Manager Director Supply Chain Management Director – Global Strategic Management – Manfred Behnke Siew-Peng Weldon Field Resources Drilling Superintendent Manager Taxation Sandi Berube Ed Mattie Dana Birch Field Human Resources Manager Drilling Superintendent Manager International Tax Donna Decoteau Mark Hagen Kimberley Reid Team Lead, Field Resources Drilling Superintendent Compliance Manager Walter Hopf Curtis Duk Dave Fyhn Drillers Training Manager Drilling Superintendent Manager Administration Hank VanDrunen Kirby Prosavich Shelley Hutchinson Maintenance Manager Drilling Superintendent Manager Credit Donna Conley Michael L’Hirondelle Trevor Russell Chief Accountant Tubular Manager Divisional Controller BIG SKY DRILLING Dennis Steinhubl Kim Do Brian Chicoine Field Safety Coordinator Assistant Controller General Manager Jan Badin ENGINEERING, PROCUREMENT Rick Mann Safety Manager AND CONSTRUCTION (EPC) Operations Manager Peter Ens Wayne Kipp Wade Benson Equipment Manager Senior Vice President EPC Drilling Superintendent ENCORE CORING & DRILLING Paul Meade-Clift Derek Smith Vice President EPC Drilling Superintendent Tom Connors Vice President and General Manager Bruce Freebairn Brad Meyer General Manager Capital Projects Drilling Superintendent Scott Haggart Operations Manager Ron Pettapiece Guy Poirier ADR Product Manager Safety Coordinator Glenn Thiessen Project Manager, Oil Sands Arnet Pachal Manager Procurement Strategies CHAMPION DRILLING Frank Beaton Darryl Maser Drilling Superintendent CANADIAN DRILLING General Manager Tom Gross Bob Zanusso Matt Schmitz Drilling Superintendent Vice President Canadian Drilling Operations Manager Wilf Swan Rick Simonton Paul Fitton Drilling Superintendent Vice President Sales and Marketing Drilling Superintendent Darren Tobler Frank Pimiskern Todd Fritz Drilling Superintendent Sales Manager Drilling Superintendent

70 Ensign Energy Services Inc. 2008 Annual Report OPERATING MANAGEMENT

ARTISAN TRUCKING Estevan Station ENHANCED PETROLEUM David Surridge Patrick Renauld SERVICES General Manager Field Superintendent Jack Houston Vice President Bob Klarer Grande Prairie Station Station Manager, Nisku Randy Fasick Cameron Ball General Manager, Enhanced Drill Systems Station Manager ROCKWELL SERVICING Chad Mitchell Don House Lyle Aubin Operations Manager, Enhanced Drill Field Superintendent Vice President and General Manager Systems Brett Taylor William Kidd Chris Klovan Field Sales Representative Northwest Area Manager General Manager, Chandel Equipment Doug Callbeck Lloydminster Station Rentals Southeast Area Manager Roger Snider Jason Darrow Gary Bennett Station Manager Sales Manager, Chandel Equipment Rentals Sales and Marketing Director Miles Kosteriva Wilson Borchers Sven Gebhardt Field Superintendent Station Manager, Chandel Equipment Sales Manager Jason Pollom Rentals – Red Deer Daryl Sutherland Field Superintendent Fred Slobodian Technical Sales Representative Darwin Dean Station Manager, Chandel Equipment Rentals – Whitecourt Scott Whitten Senior Sales Representative Technical Sales Representative Kevin Lauritsen Red Deer Station Station Manager, Chandel Equipment Jason Finley R.J.Toth Rentals – Oxbow Technical Sales Representative Station Manager Donna Gleasure Tony Sorensen Abe Shihinski Chief Accountant Senior Field Safety Coordinator Field Superintendent Diane Massey Ian Meredith HI-CALIBRE INDUSTRIES LTD. Chief Accountant Field Sales Representative Jim Clow Ardmore Station General Manager OPSCO ENERGY INDUSTRIES LTD. Kevin Rudell UNITED STATES OILFIELD Station Manager Bob Dear Vice President and General Manager SERVICES Tony Janz Tom Schledwitz Craig Delaney Field Superintendent Senior Vice President United States Wireline Manager Richard Nobert Operations Randy Reschke Field Superintendent Jim McCathron Production Testing Manager Ron Wooldridge Vice President, Operations Ron Gallant Field Superintendent Will Matthews Assistant Manager Production Testing Vice President, Marketing Brooks Station Don Kleisinger Steve Hunt Vern Dornian Assistant Manager Wireline Station Manager Controller Richard Klymok Tuss Erickson Kris Vopni Sales Manager Field Superintendent Director Health, Safety and Environment and Gordie Rock Human Resources Wayne Lawson Sales Representative Senior Sales Representative Terry Wadding Dave Moore United States HSE Field Manager Sales Representative Edmonton Station Evelyn Pottenger Doug Somers Jim Bucek Manager, Human Resources Field Superintendent Safety Coordinator Greg Burton Chris Smith Sales Representative Chief Accountant

Ensign Energy Services Inc. 2008 Annual Report 71 OPERATING MANAGEMENT

ENSIGN UNITED STATES Kerry Fladeland David Kerr DRILLING INC. Drilling Superintendent Manager, Human Resources John Stoddard Brian Watts Don Bell Manager, Directional Support Services Drilling Superintendent Area Manager – New Zealand Don Johnson Jimmy Chon Dean Hills Area Manager Chief Accountant Area Manager – Oman Larry Swisher Ed Milne ENSIGN WELL SERVICES INC. Area Manager Area Manager – Thailand Bill Roper Hugh Giberson Hayden Harper Manager, Well Services Area Manager Area Manager – Western Australia Guy Hass Don Erickson Quentin Robson District Manager Area Manager Area Manager – Libya Dan Schandel Don Molen Adam Watts Financial Accountant Drilling Manager Manager, Coal Seam Methane and Well Bob Heil OPSCO ENERGY INDUSTRIES Servicing Division, Australia Drilling Manager (USA) LTD. Charlie Brown Tim Henrich Chad Brown Drilling Superintendent – Gabon Drilling Manager General Manager Andrew Dolman Steve Grimes Ken McTavish Financial Controller Drilling Manager Technical Field Sales Representative LATIN AMERICA Perry Jundt INTERNATIONAL OILFIELD Ricardo Lopez Olaciregui Drilling Superintendent SERVICES Area Manager – Argentina Ken Keiser Gene Gaz Paul Thompson Drilling Manager Vice President of International Oilfield Area Manager – Venezuela K.L. Tipps Services – Australasia/Middle East/Africa Mauricio Correa Drilling Manager Mike Nuss Business Development Ryan Hessler Vice President of International Oilfield Shaun Doupe Drilling Engineer Services – Latin America Operations Manager – Venezuela Brandon Lorenz John Bushell Eduardo Carbia Drilling Engineer Vice President, International Marketing Operations Manager – Argentina Tuss Erickson III Tony Belgrove Luis Bonsembiante Drilling Engineer International Manager, Procurement and Controller Jarrod Chapman Supply Operations Engineer Bill Brentzell INFORMATION TECHNOLOGY Pete Flatten Commercial Manager Kirk Schroter Manager, Health, Safety and Environment Manager – Business Systems AUSTRALASIA/MIDDLE Mel Curtis EAST/AFRICA Brad Sears Equipment Manager Manager – Project Office Doug Lane Jake Bicking Operations Manager – Australia Ron Tolton Accounting Manager Manager – Infrastructure Gerry West Rob Tse ENSIGN UNITED STATES Operations Manager – Southeast Asia, New Manager – Information Services DRILLING (CALIFORNIA) INC. Zealand and Africa Matt Rohret Geoff Pickford Area Manager Operations Manager – Middle East Larry Lorenz Matt Hutchins Operations Manager Manager, Supply Jamie Jackopin David Grant Drilling Manager Manager, Health, Safety and Environment

72 Ensign Energy Services Inc. 2008 Annual Report CORPORATE AND FIELD OFFICES

CANADIAN OPERATIONS

ARTISAN TRUCKING Grande Prairie Office ENGINEERING, PROCUREMENT a division of Ensign Drilling Partnership 14420 – 95 Street & CONSTRUCTION (EPC) 2000 – 5th Street Grande Prairie, AB T8V 7V6 a division of Ensign Drilling Partnership Nisku, AB T9E 7X3 Telephone: (780) 518-4907 2000 – 5th Street Telephone: (780) 955-5834 Facsimile: (780) 357-9329 Nisku, AB T9E 7X3 Facsimile: (780) 780-2414 Edson Office Telephone: (780) 955-8808 Toll Free: 1-866-539-8284 #14, 53304 Facsimile: (780) 955-7208 Brooks Office RR-170 Mizera subdivision ENSIGN CANADIAN DRILLING 1 Tree Road, Box 190 Edson, AB a division of Ensign Drilling Partnership Brooks, AB T1R 1B9 Telephone: (780) 723-1593 1000, 400 – 5th Avenue SW Telephone: (780) 793-6517 Facsimile: (780) 778-6184 Calgary, AB T2P 0L6 Facsimile: (780) 362-0320 Oxbow Office Telephone: (403) 262-1361 BIG SKY DRILLING 865 Prospect Avenue Facsimile: (403) 262-8215 a division of Ensign Drilling Partnership Hwy 18 East, Box 1079 Nisku Office #1 Highway 18 Oxbow, SA S0C 2B0 2000 – 5th Street Oxbow, SK S0C 2B0 Telephone : (306) 483-2515 Nisku, AB T9E 7X3 Telephone: (306) 483-5132 Facsimile: (306) 483-2815 Telephone: (780) 955-8808 Facsimile: (306) 483-2937 Toll Free: 1-866-533-6335 Facsimile: (780) 955-7208 Toll Free: 1-866-533-6335 ENCORE CORING & DRILLING Grande Prairie Office CHAMPION DRILLING a division of Ensign Drilling Partnership 1401 – 97th Avenue a division of Ensign Drilling Partnership 1345 Highfield Crescent SE Grande Prairie, AB T8V 7B6 1 Tree Road Calgary, AB T2G 5N2 Telephone: (780) 532-5810 P.O. Box 1090 Telephone: (403) 287-0123 Facsimile: (780) 532-2802 Facsimile: (403) 243-6158 Brooks, AB T1R 1B9 HI-CALIBRE INDUSTRIES LTD. Telephone: (403) 362-4400 Toll Free: 1-877-445-2963 Toll Free Fax: 1-888-443-5446 Box 1264 Facsimile: (403) 793-8686 Brooks, AB T1R 1C1 Toll Free: 1-888-362-4499 ENHANCED PETROLEUM Telephone: (403) 501-0102 CHANDEL EQUIPMENT RENTALS SERVICES PARTNERSHIP Facsimile: (403) 501-0191 a division of Enhanced Petroleum 1000, 400 – 5th Ave SW Calgary, AB T2P 0L6 OPSCO ENERGY INDUSTRIES LTD. Services Partnership 285175 Kleysen Way 1000, 400 – 5th Ave SW Telephone: (403) 260-5416 Facsimile: (403) 264-9376 Rocky View, AB T1X 0K1 Calgary, AB T2P 0L6 Telephone: (403) 272-2206 Telephone: (403) 260-5416 ENHANCED DRILL SYSTEMS Facsimile: (403) 272-6414 Facsimile: (403) 264-9376 a division of Enhanced Petroleum Red Deer Office Services Partnership ROCKWELL SERVICING Blindman Industrial Park 1000, 400 – 5th Ave SW PARTNERSHIP 5398 – 39139 Hwy. 2A Calgary, AB T2P 0L6 1000, 400 – 5th Ave SW Red Deer, AB T4S 2B3 Telephone: (403) 260-5416 Calgary, AB T2P 0L6 Telephone: (403) 314-1637 Facsimile: (403) 264-9376 Telephone: (403) 265-6361 Facsimile: (403) 262-0026 Facsimile: (403) 346-3099 Red Deer Office Toll Free: 1-877-677-6500 Blindman Industrial Park Ardmore Office Whitecourt Office 5398 – 39139 Hwy. 2A R.R. 440, Hwy 28 Box 355 5907 – 45th Avenue Red Deer, AB T4S 2B3 Ardmore, AB T0A 0B0 Whitecourt, AB T7S 1P2 Telephone: (403) 314-1564 Telephone: (780) 826-6464 Telephone: (780) 778-6101 Facsimile: (403) 346-3099 Facsimile: (780) 826-4305 Facsimile: (780) 778-6184 Toll Free: 1-877-677-6500 Brooks Office Toll Free: 1-877-478-6101 Box 697 Brooks, AB T0J 0J0 Telephone: (403) 362-3346 Facsimile: (403) 362-6069

Ensign Energy Services Inc. 2008 Annual Report 73 UNITED STATES OPERATIONS

Estevan Office ENSIGN UNITED STATES ENSIGN WELL SERVICES INC. Box 549 DRILLING INC. Suite 777, 1700 Broadway Estevan, SK S4A 2A5 Suite 777, 1700 Broadway Denver, CO 80290 USA Telephone: (306) 634-5522 Denver, CO 80290 USA Telephone: (303) 292-1206 Facsimile: (306) 634-3238 Telephone: (303) 292-1206 Facsimile: (303) 292-5843 Grande Prairie Office Facsimile: (303) 292-5843 LaSalle Office 14011 – 97th Avenue Toll Free: 1-866-866-8739 24020 WCR 46 Grande Prairie, AB T8V 7B6 Toll Free Fax: 1-800-886-3898 LaSalle, CO 80645 USA Telephone: (780) 539-6736 Casper Yard Telephone: (303) 659-3109 Facsimile: (780) 539-1993 Mailing: Box 69 Mills Telephone: (970) 284-6006 Lloydminster Office Casper, WY 82644 USA Facsimile: (303) 659-6842 Physical Address: 6302 – 53rd Avenue JONAH TRUCKING Lloydminster, AB T9V 2E2 2100 Seven Mile Road Casper, WY 82604 USA a division of Ensign United States Telephone: (780) 875-5278 Drilling Inc. Facsimile: (780) 875-6402 Telephone: (307) 234-2299 or 3563 Facsimile: (307) 234-2226 22 Wilkens Peak Dr. Nisku Office PO Box 9 2105 - 8th Street Greeley Yard Rock Springs, WY 82901 USA Nisku, AB T9E 7Z1 Mailing: PO Box 336757 Telephone: (307) 362-1937 Telephone: (780) 955-7066 Greeley, CO 80634 USA Facsimile: (307) 705-1175 Facsimile: (780) 955-7811 Physical Address: Telephone: (307) 705-1667 1150 N. 25th Avenue Red Deer Office Greeley, CO 80631 USA OPSCO ENERGY INDUSTRIES 4212-39139, Hwy 2A Telephone: (970) 378-1562 (USA) LTD. Red Deer, AB T4S 2A8 Facsimile: (970) 378-7179 P.O. Box 1563 Telephone: (403) 346-6175 Pinedale, WY 82941 USA Williston Yard Facsimile: (403) 343-6061 Telephone: (307) 367-3862 Mailing: PO Box 846 Facsimile: (307) 367-3864 Williston, ND 58802 USA Physical Address: 5075 – 141st Street N. Williston, ND 58801 USA Telephone: (701) 572-0131 Facsimile: (701) 572-0447 Message Center: (701) 774-0331

ENSIGN UNITED STATES DRILLING (CALIFORNIA) INC. 7001 Charity Avenue Bakersfield, CA 93308 USA Telephone: (661) 589-0111 Toll Free: 1-800-443-5925 Facsimile: (661) 589-0283 Woodland Office 13975 County Road 97 Woodland, CA 95695 USA Telephone: (530) 668-1295 Facsimile: (530) 668-1254 Well Services Yard 17750 State Highway 113 Robbins, CA 95676 USA Telephone: 530-738-4028 Facsimile: 530-738-4139

74 Ensign Energy Services Inc. 2008 Annual Report INTERNATIONAL OPERATIONS

ENSIGN ENERGY INTERNATIONAL Libya Office ENSIGN INTERNATIONAL SERVICES LIMITED Tajoura ENERGY SERVICES INC. (Eastern Hemisphere Division) Bir Elousta Milad (Latin America Division) PO Box 30555 Adelaide Office 15333 JFK BLVD., Ste. 210 Tripoli GSPLAJ 15 – 17 Westport Road Houston, TX 77032 USA Telephone: 011 218 21 369 3212 Elizabeth West Telephone: (281) 227-7618 Facsimile: 011 218 21 369 2663 Adelaide, SA 5113 Facsimile: (281) 227-7312 Australia New Zealand Office ENSIGN DE VENEZUELA C.A. Telephone: 61-8-8255-3011 Lot 50 De Havilland Drive Av. España Ensign Nro. S/N Facsimile: 61-8-8252-0272 Bell Block Sector Pueblo Nuevo New Plymouth, New Zealand Leederville Office El Tigre, Edo. Anzoategui Telephone: 011 64 6 755 1261 Suite 3F/661 Newcastle Street Venezuela, S.A. 6050 Facsimile: 011 64 6 755 1865 Leederville, WA 6007 Telephone: 011 58-283-500-5000 Telephone: 011 08 9227 9422 Oman Office Facsimile: 011 58-283-500-5004 Facsimile: 011 08 9227 9455 PO Box 137 Postal Code 134 ENSIGN ARGENTINA S.A. Toowoomba Office Cerrito 836 Piso 9 J. A’Shati 461 Greenwattle Street C1010AAR Ciudad Autónoma Sultanate of Oman Toowoomba, QLD 4350 de Buenos Aires Telephone: 011 968 2457 1886 Telephone: 011 61 7 4699 1888 Argentina, S.A. Facsimile: 011 968 2457 1840 Facsimile: 011 61 7 4699 1800 Telephone: 011 54-11-4816-0067 Gabon Office OILFIELD SUPPLY PTY LTD. Facsimile: 011 54-11-4816-5388 BP 305 Gamba 15333 JFK Boulevard, Suite 250 Neuquen Office Gabon Houston, TX 77032 USA Parque Industrial Neuquen Telephone: 011 241 558481 Telephone: (281) 227-6700 Manzana 3 – Lotes 16,17,23 y 24 Facsimile: 011 241 558044 Facsimile: (281) 227-6720 Neuquen Capital Argentina, S.A. 8300 Telephone: 011 54-299-448-7048 Facsimile: 011 54-299-442-4122 Message Center: (701) 774-0331

Ensign Energy Services Inc. 2008 Annual Report 75 DIRECTORS

N. Murray Edwards Robert H. Geddes James B. Howe 1,3 Len Kangas 2 Selby Porter President, Edco President and COO, President, Bragg Creek Independent Businessman Vice Chairman, Financial Holdings Ltd. Ensign Energy Services Inc. Financial Consultants Ltd. Ensign Energy Services Inc. Board member since Board member since Board member since Board member since June 1990 Board member since October 1989 March 2007 June 1987 June 1994

John Schroeder 1,3 Kenneth J. Skirka 2 Gail Surkan 2,3 Barth Whitham 1 Committee Members Vice President Finance, Independent Independent President and CEO, 1 Audit Parkland Income Fund. Businessman Businesswoman Enduring Resources LLC 2 Corporate Governance and Nominations Board member since Board member since Board member since Board member 3 Compensation June 1990 May 2003 March 2006 since March 2007

76 Ensign Energy Services Inc. 2008 Annual Report CORPORATE INFORMATION

CORPORATE MANAGEMENT HEAD OFFICE NOTICE OF ANNUAL AND N. Murray Edwards 1000, 400 – 5th Avenue S.W. SPECIAL MEETING Chairman Calgary, AB T2P 0L6 Ensign Energy Services Inc.’s Annual Telephone: (403) 262-1361 and Special Meeting of Shareholders Selby Porter Facsimile: (403) 262-8215 will be held on May 20, 2009, at Vice Chairman Email: [email protected] 3:00pm MT at the Calgary Petroleum Robert H. Geddes Website: www.ensignenergy.com Club, 319 – 5th Avenue S.W., Calgary, President and Alberta. All shareholders are invited Chief Operating Officer BANKERS to attend, but if unable, we request HSBC Bank Canada Ed Kautz the form of proxy be signed and Royal Bank of Canada Executive Vice President returned. United States and International AUDITORS Operations PricewaterhouseCoopers LLP Glenn Dagenais LEGAL COUNSEL Executive Vice President Burnet, Duckworth & Palmer LLP Finance and Chief Financial Officer STOCK EXCHANGE LISTING Bruce Moyes Toronto Stock Exchange Vice President Finance Symbol: ESI

Rob Wilman TRANSFER AGENT Vice President Health, Computershare Trust Company Safety and Environment of Canada Leigh Kelln Corporate Controller

Suzanne Davies In-house Legal Counsel and Associate Corporate Secretary

Writing: Fraser Communications Inc. Design and Production: Melnyk Cary & Associates Ltd. Printed in Canada by Unicom Graphics 1000, 400 – 5th Avenue S.W. Calgary, AB T2P 0L6 Telephone: (403) 262-1361 Facsimile: (403) 262-8215 Email: [email protected] Website: www.ensignenergy.com