Introduction And Investment
Themes
Effective February 20, we are initiating coverage of the Canadian oilfield services
sector and launching coverage of: Calfrac Well Services (CFW-SO), CCS Income
Trust (CCR.UN–SP), Enerflex Systems Income Fund (EFX.UN–SP), Ensign Energy
Services (ESI–SP), Precision Drilling Trust (PD.UN–SP), , Trican Well Service
(TCW–SO) and Trinidad Energy Services Income Trust (TDG.UN–SO). The four
income trusts and three common share companies cover the spectrum of the
sector, are leaders in their respective business lines and all have proven track
records for growth and creating value throughout the cycles of the industry.
Following two successive years of setting and re-setting operating, financial and
equity performance records, the Canadian oilfield services sector took pause in
2006. While the first half of 2006 was one of the strongest periods on record,
concerns over natural gas storage levels and the resulting lower natural gas
prices reduced activity levels and forced producers to revisit capital spending
plans. Despite activity improving somewhat with the onset of the winter drilling
season, current equity valuations and oilfield industry fundamentals signal that a
cyclical downturn is under way.
While the word “downturn” revives memories of the hardship suffered by
services companies and investors alike during the extended slowdown in field
level activity in 1998/1999 and 2001/2002, we believe the current downturn will
prove to be shorter and less severe. This belief is based on the continued
tightening of the supply/demand equation in North American oil and natural gas.
More specifically, producers are progressively challenged to maintain and grow
existing production while at the same time demand continues to increase.
Unfortunately, near-term activity and cycle forecasting is as much a weather call
as an analysis of the underlying fundamentals. While Mother Nature, through the
severity of the current winter, will ultimately determine the length of the current
activity slowdown, we believe it is a matter of when as opposed to if excess
natural gas storage levels will be depleted, the North American natural gas
equation will be reset and robust activity levels will resume.
Despite the caution in our near-term outlook for the sector, we believe the
longer-term outlook for the sector is bullish. In our view, four dominant themes
will drive performance of the oilfield services sector over the coming years and,
in turn, form the basis for our thesis of the sector:
Conventional production in the Western Canadian Sedimentary Basin
(WCSB) continues to decline at an accelerating pace. Reserve and
production additions are smaller, have higher decline rates and require
significantly more services work (re-completions/workovers, stimulation,
compression).
Unconventional gas and resource plays represent the future for WCSB
production. High commodity prices combined with improved exploitation
technology and declining conventional reserves have fuelled the increasing
development of unconventional resources [tight gas, shale gas and coalbed
methane (CBM)]. By their very nature, unconventional resources are difficult to
extract, expensive to produce and service intensive. The development of these
resources presents a tremendous opportunity for the services industry. Not only
will producers be required to drill more wells to economically develop
unconventional resources, but each well will require significantly more services
work in order to produce and continue producing.

Table of Contents
Introduction and Investment Themes ........................................................ 4
Near-term Market Outlook ....................................................................... 5
Fourth-quarter and 2006 Overview ........................................................... 5
Rig Activity....................................................................................... 5
Well Completions .............................................................................. 6
Well Licenses .................................................................................... 7
Current Activity Levels ............................................................................ 8
Industry Forecasts .................................................................................. 9
The North American Macro Picture .......................................................... 12
U.S. Basins: A Proxy For The WCSB ........................................................ 17
Coalbed Methane ............................................................................ 19
Shale Gas....................................................................................... 19
Tight Gas ....................................................................................... 21
Summary ....................................................................................... 21
Growth Of Unconventional Gas And Resource Plays In The WCSB ............... 22
CBM .............................................................................................. 22
Tight Gas ....................................................................................... 25
Summary ....................................................................................... 26
Dominance Of Modern, Efficient, Fit-for-purpose Equipment ....................... 27
Revisiting The “Cycle” ........................................................................... 28
Scenario Analysis.................................................................................. 32
The Demise Of The Services Trust? ......................................................... 33
Diversified Services Trusts................................................................ 34
Ability To Grow – Looking At Trusts Under Coverage............................ 34
Conclusion...................................................................................... 36
Sector Valuation and Performance .......................................................... 36
Conclusion ........................................................................................... 39

Table of Exhibits
Exhibit 1. WCSB Drilling Rig Utilization..................................................... 6
Exhibit 2. WCSB Well Completions........................................................... 6
Exhibit 3. WCSB Well Licenses ................................................................ 7
Exhibit 4. WCSB Active Rig Count............................................................ 8
Exhibit 5. WCSB Rig Utilization................................................................ 8
Exhibit 6. WCSB Producer Economics ....................................................... 9
Exhibit 7. Active Producer WCSB Capital Spending (2004–2007E) ($ 000).. 10
Exhibit 8. WCSB Oilfield Services Operations and Forecasts ...................... 11
Exhibit 9. U.S. Natural Gas Production and Decline Rate........................... 12
Exhibit 10. WCSB Natural Gas Production By Completion Year..................... 13
Exhibit 11. U.S. and Canada Natural Gas Wells Drilled and Production ......... 14
Exhibit 12. U.S. and Canada Natural Gas Wells Drilled and Reserves Per Well14
Exhibit 13. WCSB Natural Gas Production Per Producing Well...................... 15
Exhibit 14. Chesapeake Energy Decline Rates........................................... 16
Exhibit 15. U.S. Oil Production and Rig Count ........................................... 17
Exhibit 16. U.S. Natural Gas Production and Gas Rig Count ........................ 17
Exhibit 17. Resource Triangle ................................................................. 18
Exhibit 18. Largest U.S. Producing Natural Gas Fields ................................ 18
Exhibit 19. U.S. CBM Growth .................................................................. 19
Exhibit 20. Barnett Shale Fracturing Job .................................................. 20
Exhibit 21. Barnett Shale Rig Count......................................................... 20
Exhibit 22. U.S. Tight Gas Basins ............................................................ 21
Exhibit 23. Alberta CBM Formations......................................................... 22
Exhibit 24. Alberta CBM Resource Potential .............................................. 23
Exhibit 25. CBM Economics .................................................................... 23
Exhibit 26. CBM Production Growth (U.S. And Canada) .............................. 24
Exhibit 27. CBM Well Cost ...................................................................... 24
Exhibit 28. Cutbank Ridge Economics ...................................................... 25
Exhibit 29. Tight Gas Well Costs ............................................................. 26
Exhibit 30. Fit-for-purpose Rig Features................................................... 27
Exhibit 31. WCSB Drilling Rig Contract Positions ....................................... 28
Exhibit 32. Contractor Utilization vs. Industry ........................................... 28
Exhibit 33. WCSB Average Rig Count ...................................................... 29
Exhibit 34. WCSB Natural Gas Field Receipts ............................................ 30
Exhibit 35. Producer Revenue and Capital Spending .................................. 31
Exhibit 36. WCSB Fleet Growth................................................................ 31
Exhibit 37. U.S. Lower 48 Natural Gas Storage ......................................... 32
Exhibit 38. WCSB Industry Scenario Analysis ............................................ 33
Exhibit 39. Trust Leverage and Payout Ratios ........................................... 34
Exhibit 40. Trust Growth Allowances ........................................................ 35
Exhibit 41. Trust Historical Issued Units Growth ........................................ 35
Exhibit 42. Oilfield Services Index Vs. WCSB Capital Spending .................... 36
Exhibit 43. Ratio Of WCSB Capital Spending To Oilfield Services Index ........ 37
Exhibit 44. Rig Count Vs. Oilfield Services Index........................................ 37
Exhibit 45. Tax Shield For Services Trusts................................................. 38
Exhibit 46. Canadian Oilfield Services Common Share Comparables ............. 44
Exhibit 47. Canadian Oilfield Services Income Trust Comparables ................ 45