President's Message

In the four years since our initial public offering, the contract drilling industry in western Canada has faced a number of challenges, including the unprecedented global credit crisis in 2008. While these global issues are beyond our control, the reality is that we must remain nimble and adapt to the changes in the business environment in order to remain competitive in a cyclical industry.

Stoneham is an operationally-engineered, service-focused organization, and we pride ourselves on providing quality, performance, and value to our clients. We believe that by remaining focused on our core values and beliefs, with an unwavering commitment to safety, efficiency, and customer service, we will continue to deliver quality and value through the cyclical highs and lows. By employing this disciplined approach, we have consistently achieved operating results that have surpassed the industry average.

Efficient Rig Fleet

The average age of our rig fleet is four years. We have incorporated many design innovations that improve the operating performance of our rigs, including the ability to move in fewer loads and rig-up for drilling operations in a shorter period of time. This agility, which affords our clients greater operational flexibility and cost savings, demonstrates Stoneham's ability to deliver one of the most modern, efficient fleets in the industry. Our superior operational performance means our rigs are in high demand. We will continue to stimulate innovation and implement technological advancements to further improve our operating efficiencies. Our strategic move into the United States complements our Canadian operations and enhances operational stability, especially in times of weakened commodity prices and during the traditionally slow second quarter when spring break-up inhibits drilling activity in much of western Canada.

Industry Outlook

The current recessionary environment has reduced global demand for energy causing commodity prices to decline significantly. With the prospect of lower cash flows and restricted access to both capital markets and credit, most exploration and production (E&P) companies have announced plans to reduce their drilling programs in 2009.

As a result, we expect a significant decline in industry rig utilization in the near term. The economic uncertainty prompted us to suspend distributions to unitholders in March to allow us to appropriately manage and maintain flexibility with our balance sheet through this period.

The world is dependent on energy, especially oil and natural gas, to provide the goods and services to which consumers have become accustomed, and energy will be required to build infrastructure and fuel economic growth in developing countries. We anticipate that prices will recover at some point in the future, thereby increasing the demand for our services.

Stoneham's Competitive Niche

As conventional oil and gas reserves are produced, remaining reserves require more costly and longer-reach drilling in increasingly remote locations. Substantial potential exists at depths of 2,000 to 5,500 metres and numerous E&P companies are currently pursuing active drilling programs targeting large oil and natural gas reserves at these depths. Stoneham's rigs are designed to meet today's challenges of directional and horizontal drilling. The robust capabilities of our drilling rigs position us as a contractor of choice in the medium-deep drilling segment of the market. Customers are able to take advantage of lower operating costs and operating flexibility due to the versatility of our rigs.

Experienced Team

Experience and good governance add value and enhance our operational performance. Our management and directors bring a long-term perspective to operations and strategic decision making that reflects sound business judgement and years of industry experience. Collectively, management and directors own approximately 25% of Stoneham's units, which clearly aligns our interests with the interests of our unitholders.

With strong customer relationships, an experienced management team, a scalable operational platform and a highly efficient rig fleet, we believe that Stoneham is well positioned to both weather the downturn and benefit from the expected future growth of oil and gas exploration in North America over the longer term. Going forward, we will continue to focus on our core business, honing our ability to understand each of our client's specific needs and then respond with innovative, practical, and cost-effective solutions.

Bruce W. Jones
President and Chief Executive Officer
March 25, 2009