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Rating Action:

Moody's upgrades Precision Drilling's CFR to Ba1; rates new notes Ba2

05 Nov 2010

Approximately US$600 million of debt affected

New York, November 05, 2010 -- Moody's Investors Service upgraded Precision Drilling Corporation's (Precision) Corporate Family Rating (CFR) and Probability of Default Rating (PDR) to Ba1 from Ba2 and assigned a Ba2 rating to its proposed US$550 million senior unsecured notes. Moody's also raised Precision's Speculative Grade Liquidity (SGL) rating to SGL-2 from SGL-3, indicating good liquidity. The proceeds of the new notes will be used to repay amounts outstanding under existing credit facilities and for general corporate purposes. The rating outlook is stable.

Upgrades:

..Issuer: Precision Drilling Corporation

....Probability of Default Rating, Upgraded to Ba1 from Ba2

....Speculative Grade Liquidity Rating, Upgraded to SGL-2 from SGL-3

....Corporate Family Rating, Upgraded to Ba1 from Ba2

Assignments:

..Issuer: Precision Drilling Corporation

....Senior Unsecured Regular Bond/Debenture, Assigned a range of 72 - LGD5 to Ba2

RATINGS RATIONALE

"The upgrade in CFR reflects Precision's anticipated favorable operating performance in the currently strong market for its high performance directional drilling rigs, significant debt reduction since acquiring Grey Wolf in late 2008 and our expectation that debt will not increase materially from current levels," said Moody's analyst, Terry Marshall. "The upgrade also considers the company's contract rig position, coupled with its program of conducting new-builds only when contracts for these rigs are in hand."

Precision's Ba1 Corporate Family Rating reflects its favorable market position and broad geographic footprint in the major North American land drilling markets, a high quality rig fleet, low leverage, and history of conservative fiscal management. The rating also considers the company's solid operating margins, the capacity to generate free cash flow, and longstanding customer relationships that reduce cash flow volatility. Precision's servicing and manufacturing businesses, while small, also add some diversity to the revenue mix. The rating is restrained by concentration in one general major market, North America, the inherent cyclicality of contract land drilling, and the weak fundamentals of the natural gas industry.

Precision's SGL-2 liquidity rating reflects good liquidity. We expect that in 2011 internal cash flow and cash on hand will cover interest payments, cash taxes, capital expenditures, and working capital requirements. Pro forma for the notes offering, Precision will have approximately C$155 million of cash and US$625 million of availability under its US$650 million revolving credit facility after accounting for US $25 million of letters of credit. Precision should be comfortably in compliance with its financial covenants in 2011. Alternative sources of liquidity are limited principally to the sale of existing assets, which are largely encumbered.

The stable outlook reflects Precision's contracted rig position, our expectation that its rig utilization will remain favorable through at least 2011 and the company's favorable leverage. A positive rating action is unlikely in the next 12-18 months. However, the outlook could be changed to positive if the company settles its contingent tax liability in a manner that does not increase leverage from current levels, and the outlook for North American gas drilling activity stabilizes. We would also look for a greater proportion of contracted rigs and broader presence outside of North America or diversity in line of service for any positive rating action. A negative rating action is unlikely in 2011. Longer term, negative pressures may result if leverage increases considerably from today's levels in combination with a prolonged downturn in the North American onshore drilling market. More specifically, the rating could be lowered if debt to EBITDA appears unsustainable below 3.0x.

The principal methodologies used in this rating were Global Oilfield Services Rating Methodology published in December 2009, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

Precision Drilling Corporation is a Calgary, Alberta-based corporation engaged in onshore drilling and providing well completion and production services to upstream oil and gas companies in North America.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

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Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Toronto
Terry Marshall
VP - Senior Credit Officer
Corporate Finance Group
Moody's Canada Inc.
(416) 214-1635

New York
Steven Wood
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.

Moody's upgrades Precision Drilling's CFR to Ba1; rates new notes Ba2
No Related Data.
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