President's Message

Looking back over the five years since Stoneham's initial public offering, and noting the many changes and challenges that have faced the contract drilling industry during this period, it is gratifying to say that Stoneham has remained steadfast in its commitment to safety, efficiency, and customer service. 

Through the cyclical highs and lows, we have delivered quality and value by remaining focused on our core values and beliefs. This disciplined approach has allowed us to consistently achieve operating results that have surpassed the industry average.

Operationally Engineered, Service Focused

Stoneham has an operationally engineered and customer focused culture. Operational performance and client satisfaction are important objectives throughout our organization. With skilled employees and one of the most modern, efficient fleets in the industry, we have built strong relationships with blue chip clients by delivering consistent quality, performance, and value. These attributes provide a solid foundation for stakeholder returns and employee satisfaction and are vital for Stoneham's future success.

With the completion of our rig construction program in 2008, we have 19 drilling rigs in our fleet. The average age of our rigs is five years, with approximately 37% of the fleet built within the last three years. Our rigs incorporate many design  innovations, including common sense technology that enables our rigs to move in fewer loads and rig-up for drilling operations in a shorter period of time. This agility affords our clients greater operational flexibility and cost savings. Our superior
operational performance means our rigs remain in high demand.

We will continue to stimulate innovation and implement technological advancements to further improve our operating efficiencies and ensure that Stoneham remains an industry leader in safety, operational performance, and rig utilization. 

Stoneham's Competitive Niche

Stoneham's rigs employ the latest practical technologies enabling us to compete effectively in a broad range of the total drilling market, in all economic environments. Our rigs are versatile and well suited for resource play, horizontal, directional, pad drilling, critical sour, and underbalanced drilling, as well as re-entry work.

Our competitive niche is in the medium to deep segment of the market, which has accounted for the majority of our business since inception. In 2009, Stoneham ranked fourth for deep drilling in Canada (based on average metres drilled per well as reported by JuneWarren-Nickle's Energy Group). In the continental United States, Stoneham ranked as the second deepest driller by average footage drilled for the year ended June 30, 2009 (as reported by Rigs and Drilling, a rig data publication).

With robust capabilities, our rigs are designed to meet the challenges of deeper drilling, and we are well positioned to compete for work in the Montney, Bakken, and Cardium resource plays, which dictate the use of long-reach horizontal drilling and multi-zone fracturing.

Experienced Team

Experience and good governance help to sustain 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.

Industry Outlook

Supply and demand factors continue to weigh on natural gas fundamentals, creating the potential for continued downward price pressure. While we remain cautious in the near term, there is reason to be optimistic.

Crude oil prices appear to have stabilized and natural gas prices have improved moderately. Customer capital expenditure budgets are generally higher than they were in 2009, and industry drilling activity to date in 2010 has been stronger than last year. The recently announced changes to Alberta's royalty framework are also viewed as positive for the overall competitiveness of the conventional oil and gas industry in the province. In addition, the increasing use of long-reach horizontal wells and pad drilling dovetails with Stoneham's rig capabilities and operational strengths.

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 benefit from the expected future growth of oil and gas exploration in North America. 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 24, 2010