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.