Mr. Randy Hawkings reports

CANELSON ANNOUNCES SECOND QUARTER RESULTS AND DECLARES QUARTERLY DIVIDEND

CanElson Drilling Inc. has released the financial results for the second quarter compared with a year earlier and declared a second quarter dividend of six cents per share.

Second quarter 2014 summary (compared with a year earlier)

• Services revenue of $61.9-million, up 65 per cent from $37.5-million;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $16.3-million, up 81 per cent from $9.0-million, excluding adjusted EBITDA from the company's equity investment joint venture DCM of $2.7-million (2013: $800,000);
• Income attributable to shareholders of the corporation $5.5-million, up 196 per cent from $1.9-million;
• EPS (diluted) of six cents, up 200 per cent from two cents;
• Weighted average diluted shares outstanding 93.9 million, up 20 per cent from 78.3 million;
• Declared second quarter dividend of six cents per share, same as the prior year;
• Canadian utilization of 36 per cent was up 177 per cent year over year, and exceeded the industry average by 1.38 times;
• United States utilization of 75 per cent down 5 per cent year over year, as a result of three drilling rig recertifications and adverse weather conditions in North Dakota.

Six months ended 2014 summary (compared with a year earlier)

• Services revenue of $159.0-million, up 45 per cent from $109.8-million;
• Adjusted EBITDA $48.1-million, up 32 per cent from $36.5-million (excludes adjusted EBITDA from the company's equity investment joint venture DCM of $5.6-million (2013: $1.0-million));
• Income attributable to shareholders of the corporation of $20.6-million, up 36 per cent from $15.2-million;
• EPS (diluted) of 22 cents, up 10 per cent from 20 cents;
• Weighted average diluted shares outstanding of 93.8 million, up 21 per cent from 77.7 million;
• Canadian utilization of 57 per cent up 33 per cent year over year, and exceeded the industry average by 1.33 times;
• U.S. utilization of 79 per cent down 4 per cent year over year, as a result of reduced activity in the second quarter (see above).

Second quarter Canadian utilization (spud to rig release days) of 36 per cent was 1.38 times above the industry average utilization level of 25 per cent and 2.32 times above the company's second quarter 2013 utilization level of 13 per cent. The company credits its modern drilling fleet and its continued focus on working with its partners to find operating efficiencies as significant contributors to its outperformance in this operating region. In the U.S., utilization of 75 per cent was down 5 per cent year over year, primarily as a result of three drilling rig recertifications and adverse weather conditions in North Dakota where wet conditions limited the company's ability to move from well to well. In Mexico, DCM continued to generate strong results, despite redeploying one drilling rig and one service rig in the quarter, driven by the operating efficiencies gained under the company's performance contracts.

For the first six months ended June 30, 2014, Canadian utilization (spud to rig release days) was 57 per cent, 1.33 times above the average industry utilization level of 43 per cent. Management is encouraged by current activity levels, with 75 per cent of the company's drilling rig fleet currently working at the time of this press release, compared with 61 per cent in 2013 and with the remaining idle rigs expected to start mid-third quarter. Furthermore, 93 per cent of the Canadian drilling rig fleet is committed through the winter drilling season and 43 per cent of the fleet is under long-term contract at the time of this press release.

U.S. utilization of 79 per cent was down 4 per cent year over year, due to the aforementioned three drilling rig recertifications and adverse weather conditions in North Dakota. At the time of this press release 100 per cent of the U.S. drilling rig fleet is working and committed to customers, with 37 per cent under long-term contract. In Mexico, DCM has generated more EBITDA in the first six months of the year than it did in all of 2013, despite significant downtime for one drilling rig and one service rig which were idle awaiting mobilization to the Miquetla basin. DCM expects more clarity on the timing of resumption of drilling in the Ebano block in fourth quarter. Therefore, the corporation expects the remaining drilling operations to consist of one drilling rig operating in the Miquetla block during third quarter.

The corporation was able to generate strong three- and six-month utilization rates relative to the comparative periods and increased revenue and adjusted EBITDA despite a decrease in adjusted EBITDA margin percentage. The year-over-year reduction in adjusted EBITDA margin percentage was primarily the result of: lower average base revenue rates in Canada, the increase in the strength of the U.S. dollar compared with the Canadian dollar, inflation increases in direct expenses primarily related to labour costs, and an increase in drilling times for footage wells in Texas, mainly due to regulatory changes dictating an extra casing string in each new well, which introduces a higher revenue level per well, but requires more days that typically produce lower margins than footage performance rates. Earnings per share increased by 10 per cent primarily due to strong second quarter activity levels, partially offset by an increase in the number of shares outstanding as a result of the equity financings in 2013.

"We have reasons to be optimistic across all of our operating geographies, and believe our track record of working with our customers to find efficiencies resulting in reduced well costs will result in continued opportunities for growth," stated Randy Hawkings, president and chief executive officer of CanElson.

Outlook

Drilling services

During the first six months of 2014, CanElson generated higher consolidated activity levels than the comparative period, due to relatively strong seasonal activity in Canada and growth in the drilling rig fleet. The company believes its strategy being measurably more efficient in order to reduce well costs for its customers has uniquely positioned CanElson to sustain relatively strong profitably during the full drilling industry cycle. Specifically, rising horizontal well costs and the inherent instability of commodity prices has created an opportunity in the contract drilling market to gain market share through demonstrated efficiency in the drilling process and cost saving programs. This reduction in drilling costs does not necessarily correspond to a lower revenue rate for the drilling contractor. It instead focuses on the contractor's ability to minimize non-productive time, to maximize performance while drilling, and to flexibly integrate related equipment, services and contract types into the drilling solution.

CanElson's growth opportunities historically have been sourced through existing customers and referrals, rather than through a competitive bid process, which the company credits to its performance combined with its ability to identify cost saving opportunities. The company currently has clear customer interest for new build drilling rigs across several operating geographies, and has the financial flexibility to pursue meaningful growth. Going forward, the company will continue to pursue a disciplined growth strategy, which contemplates obtaining contracts which meet its investment criteria, and which does not exceed its ability to maintain the quality and performance that its customers have grown to expect.

The company's primary challenge continues to be sourcing skilled personnel to crew its growing drilling rig fleet. To this end, the company's goal is to be an employer of choice, which includes a continued focus on safety, an employee stock participation program, and a platform for growth that fosters career advancement opportunities. As a result, the company continues to invest in personnel and customer relationships that allow it to assist in the drilling optimization process.

Canada

During the second quarter of 2014, base drilling rig rate pricing levels remained flat in contrast to typical historical rate declines for the drilling industry during the second quarter. The relative strength in 2014 second quarter pricing combined with continued strong demand for drilling rigs capable of efficiently drilling horizontal wells could result in a positive Canadian pricing environment through the upcoming winter drilling season.

United States -- Texas

CanElson has 25 per cent of its rig fleet focused on oil-directed drilling in the Permian basin in Texas. The company's success to date in this area has largely been the result of its operating efficiencies, coupled with performance-based contract options that deliver reduced customer well costs. The shift to horizontal drilling in the Permian basin has allowed CanElson to further differentiate itself with the tele-double service offering. Over the last 18 months, the number of the company's rigs drilling horizontal wells has expanded to five from one. CanElson expects to see further expansion in the Permian basin of both horizontal and vertical drilling. The company believes the continued strong activity levels in the Permian basin support its expectation to achieve utilization levels in 2014 consistent with 2013.

United States -- North Dakota

In the second quarter, CanElson redeployed one additional drilling rig from Alberta to North Dakota to assist an existing customer. The company believes that growth in this area is due to its record of operating efficiency and resulting reduced drilling times.

Mexico

The rate of wells drilled in the Ebano block by DCM significantly outpaced the budgeted number of wells and the associated production from these wells exceeded the regional infrastructure capacity to handle this production. As a result, the company's customer released the DCM drilling rig operating in the Ebano block subsequent to the end of the second quarter. DCM expects more clarity on the timing of resumption of drilling in the Ebano block in fourth quarter. The corporation expects drilling operations for one drilling rig to commence in the Miquetla block during third quarter.

Going forward the company believes that its historical performance and alignment with an experienced and strong local partner (Grupo Diavaz, with 40 years of experience serving Pemex) position DCM to expand its range of services if Mexico's current energy sector reform results in increased demand for drilling rigs.

Rig assembly

Based on existing customer contracts and those being finalized, CanElson's 2014 investment and deployment of new rig builds are expected to be as follows:

• Rig No. 44 (tele-double): delivered in January, 2014, under a long-term contract;
• Rig No. 45 (tele-double): delivered in April, 2014, under a long-term contract;
• Rig No. 46 (tele-double): expected to commence operations in August under a long-term contract;
• Rig No. 103 (AC triple): expected to be delivered in fourth quarter 2014 with contract pending;
• Rig No. 49 (AC tele-double): expected to be delivered in fourth quarter 2014 with contract pending;
• Rig No. 104 (AC triple): expected to be delivered in first quarter 2015 with contract pending.

CanGas Solutions Inc.

For 2014 the company expects to continue investing in its fleet of truck-hauled CNG delivery trailers and compressors. For more information about the company's investment plan see the capital availability and capital program below.

Capital availability and capital program

CanElson has approximately $83-million of available capacity on existing credit facilities to finance a portion of the 2014 capital program and take advantage of strategic opportunities. Funds flow continues to be strong and fully supports the company's current quarterly dividend rate of six cents per share as well as a majority of the expected 2014 capital investment program, with the remaining amount being financed through existing credit facilities.

                         2014 CAPITAL PROGRAM -- DRILLING SERVICES
                                   (In millions)
                           Spare
                       equipment
                        facility
Capital                      and   Upgrades and
expenditures            overhead    maintenance   Expansion       CanGas     Total

Capital
expenditures for
the six months
ended June 30,
2014                        $2.2          $15.3       $35.3         $2.1     $54.9
Anticipated cost to
complete 2014
capital
expenditures                 4.1           13.4        36.5          0.2      54.2
Total expected 2014
capital
expenditures                 6.3           28.7        71.8          2.3     109.1
Previously
anticipated 2014
capital
expenditures                 6.2           25.9        68.6          2.3     103.0
Variance from
previously
anticipated 2014
capital
expenditures                 0.1            2.8         3.2            -       6.1

Two thousand fourteen expansion capital is for the completion of additional new drilling rig builds (see rig assembly in the outlook). Year to date, CanElson has spent $54.9-million, including $1.0-million in capitalized interest. Total expected capital expenditures for 2014 have increased by $6.1-million to $109.1-million, primarily due to additional components on selected new drilling rigs and various other critical maintenance items and rig equipment upgrades.

Primary corporate objectives

CanElson's primary objective is to maintain and strengthen its above industry average utilization by consistently providing operational excellence and drilling efficiencies to its customers. With this focus, the company's aim is to be well positioned to secure customer commitments and capitalize on new opportunities. Subject to securing suitable customer commitments, the company intends to carry out the following activities to further enhance its competitive positioning:

• Continue to expand standard tele-double fleet;
• Expand further into the AC triple drilling rig market;
• Expand service offering in Mexico;
• Continue to form innovative long-term business relationships;
• Continue growth through strategic acquisitions;
• Provide customers with lower overall well costs.

Dividend

On July 30, 2014, the board of directors approved a quarterly dividend of six cents per share to be paid on Aug. 29, 2014, to shareholders of record at the close of business on Aug. 20, 2014. The ex dividend date is Aug. 18, 2014.

                               FINANCIAL SUMMARY
   (In thousands of dollars, except per share amounts and rig operating days)

                           For the three months ended      For the six months ended
                                             June 30,                      June 30,
                                  2014           2013           2014           2013

Services revenue               $61,904        $37,499       $159,043       $109,776
Adjusted EBITDA                 16,316          9,036         48,077         36,491
Share of profit
unconsolidated joint
venture                            596            476          2,249            514
Net income
attributable to
shareholders of the
corporation                      5,536          1,870         20,638         15,205
Net income per share
Basic                             0.06           0.02           0.22           0.20
Diluted                           0.06           0.02           0.22           0.20
Cash dividends per
share                             0.06           0.06           0.12           0.12
Funds flow                      17,460          9,840         48,185         36,691
Gross margin                    22,600         13,579         61,083         45,976

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