High Arctic Energy Services Corporate History

From its inception as a private company in 1993, the initial focus of High Arctic ("HAES" or the "Corporation") was on underbalanced ("UB") technology, well control and snubbing services in Alberta. In the early to mid 1990s, growth was achieved through development of new equipment primarily used in snubbing and through the acquisition of several smaller companies. The Corporation started with Rig Assist units that allowed the Corporation to provide completion and workover services on shallow gas wells more efficiently by eliminating the need for a conventional workover rig. In 1997 High Arctic introduced the Stand Alone Snubbing System®. The Stand Alone Snubbing System® name was used to describe the ability to operate the snubbing unit independently without the aid of a workover rig.

The Corporation began its international operations through a contract for one Stand Alone Snubbing System® unit in Argentina in 1998 and opened its first international office in Dubai during 2001. HAES initially focused its international efforts on the Middle East and Caspian Sea regions and hired an internationally-based manager to pursue international opportunities that it believed were available for Canadian companies that could supply new, state-of-the-art underbalanced equipment and services.

In 2001, HAES’ largest hydraulic workover rig ("HWR"), the "Banff", was built in Alberta and transported to Dubai where it operated under a two-year call-out contract for a company in Dubai. Also in 2001, the Corporation received its certification from the International Standards Organization under its ISO 9001:2000 Standard. The Corporation saw this certification as an important part of implementing appropriate quality and operating systems to meet the needs of its customers, particularly the international customers. A competency-based training program was implemented as a key requirement of maintaining the ISO certification and in providing properly trained personnel for the business.

In 2003, another HWR, the "Nordegg", was purchased and mobilized to the Caspian Sea to provide workover services on offshore platforms where traditional jack-up rigs had proved unsatisfactory.

As additional equipment and manpower were required to satisfy HAES’ new international customer base, it set up a manufacturing facility in Dubai where another HWR, the "Cadomin", was completed in 2005 for initial use in the Arabian Sea. The Cadomin was designed to be modular in design, affording accessibility to small offshore platforms, and required substantially smaller marine support vessels. Underbalanced Surface Separation Packages, Rotating Flow Control Heads and the first 250K UB Rig were added to the domestic product lines in 2005, expanding HAES’ offerings of underbalanced services.

In July 2005, HAES completed a reorganization into an unincorporated investment trust and made an initial public offering in Canada. Pursuant to the Initial Public Offering, 8,400,000 Trust Units were issues at a price of $10.00 per unit for gross proceeds of $84,000,000. The Trust Units were admitted to trading on the TSX on July 21, 2005 under the ticket symbol "HWO.UN".

The proceeds of the Initial Public Offering, along with the proceeds received under a revolving credit facility, allowed the Corporation to undertake an equipment new build program. The new build program included the acquisition of two more 250K UB Rigs and three RAPAD™ Rigs that were delivered in 2006 and early 2007, the conversion of five Rig Assist units into Foothills Stand Alone units and the purchase of N2 assets. In addition, the Corporation acquired the air drilling assets of Alberta Mobile Air Services 1998 Inc. in September 2005 and purchased two snubbing units from Kamber Well Service Ltd. in February 2006.

Effective February 1, 2007, the Corporation entered into an eighteen month drilling services contract with Oil Search Limited ("OSL") to operate a heli-portable drilling rig in Papua New Guinea. Following the refurbishment, mobilization and commissioning of that rig, designated as Rig 101, it spudded the first well in October 2007. During 2007 the Corporation provided project management services related to the construction of a second heli-portable drilling rig, designated as Rig 103, which was mobilized to Papua New Guinea and spudded its first well on December 31, 2007, under a three year drilling services contract with OSL, the term of which began on December 31, 2007. The heli-portable rigs are leased by the Corporation from OSL under leases with a term that matches the term of the related drilling services contract. The Corporation also provides drilling support equipment, such as camps, rig matting, cranes, forklifts and trucks, on a Day Rate rental basis and drilling support personnel on a Day Rate basis all under a drilling support contract with a term tied to the term of the drilling services contracts.

In August 2007, the Corporation commenced operations in Kuwait under a contract with a 5 year term. At December 31, 2007, the Corporation had two HWR units, the Banff and the Nordegg, deployed in Kuwait. As at December 31, 2008, no operations were active in Kuwait, as the rigs had been called down by the customer.

In June 2007, RAPAD™ Rig 3 was moved into India following completion of a contract in Thailand. The first contact in India was completed in November 2007. In December 2007, another drilling services contract was signed with a Canadian entity and RAPAD™ Rig 3 spudded its first well under that contract in February 2008, on completion of the mobilization to the operating area. The contract was completed in 2008 and the rig demobilized to North America.

In August 2007, RAPAD Rig 2 was mobilized to Tunisia from Canada and commenced operations in Tunisia in October 2007. The contract was completed in 2008 and RAPAD™ Rig 2 was sold in August 2008.

On October 29, 2007, the Corporation entered into the JV Agreement with an affiliate of Schlumberger for the purpose of providing UBD services and MPD services to the global worldwide upstream oil and gas industry. The Optimal Joint Venture was formed effective December 31, 2007, at which time it acquired certain business assets of the Corporation for an aggregate purchase price of US$18.2 million and commenced its business activities on January 1, 2008.

The Optimal Joint Venture is focused on providing UBD and MPD services for integrated projects managed by Schlumberger outside Canada and the United States. Schlumberger is a leading supplier of technology, project management and information solutions to the oil and gas industry. The integrated projects provide the scale required to properly deploy the equipment and demonstrate the benefits of the UBD and MPD techniques. The joint venture allows Schlumberger to participate in the UBD and MPD business and gain preferential access, on commercial terms, to the services offered by the joint venture.

In 2008, High Arctic continued the rapid growth of its business in Papua New Guinea. In March 2008, the Corporation mobilized the Cadomin, a hydraulic workover rig, to Papua New Guinea to perform HWR services under a one year contract with two further one year extension options. The Cadomin began working on its first well in June 2008. The Corporation was awarded a contract for Rig 104, which is a state-of-the-art heli-portable drilling rig similar to Rig 103, which mobilized to Papua New Guinea in the fourth quarter of 2008 and began drilling in December 2008. As at December 31, 2008, High Arctic was operating two drilling rigs, Rig 103 and 104, and the Cadomin (now designated as Rig 102).

During 2008, the Corporation significantly scaled down its operations, primarily in the Middle East region, Tunisia and India. As at December 31, 2008, substantially all of its activities were being carried on in Canada, Papua New Guinea and in the Optimal Pressure Drilling Services Joint Venture.