Marcel Kessler - President and Chief Executive Officer Jon Faber - Chief Financial Officer

Ian Gillies - FirstEnergy Capital Corp. Jon Morrison - CIBC World Markets Elias Foscolos - Industrial Alliance Securities Inc.

Thank you. Good morning, everyone and welcome to Pason’s first quarter 2016 conference call.

With me here in Calgary is Jon Faber, our Chief Financial Officer. I’ll start with a high level overview of first quarter performance and our outlook.

Jon Faber will dive into details of our financial and operational performance. And we will then take any questions.

Pason’s performance during the first quarter was solid in the context of our industry. However, demand for drilling services and technology worldwide was dismal for the period.

Pason’s revenue for the quarter was down 54% from the previous year. A further steep reduction in drilling activity was the main driver of the decline.

Drilling industry activity decreased 61% in the United States and 56% in Canada. Drilling activity in North America is now at the lowest point since the 1940’s.

Activity in international markets has also declined considerably. The Company incurred a net loss of $10.9 million for the period.

This includes restructuring charge related to staff reductions and office consolidations. Over the last 12 months, the Pason workforce has been reduced by 350 people, or 38% of the total.

Total annual run-rate expenses have been reduced by over $60 million since the first half of 2015. Adjusted EBITDA for the quarter was $8.8 million and free cash flow was $4.9 million.

On March 31, 2016, our cash position stood at $176 million. There is no debt on our balance sheet and we are maintaining our quarterly dividend at $0.17 per share.

I am turning briefly to our outlook. As you know the industry is in the deepest crisis in generations.

Despite the recent recovery in oil prices we expect conditions to worsen for Pason in the next few quarters. Drilling activity may be further reduced in all geographies.

Pressure on pricing and product usage continued as operators seek further cost reductions from service companies. It is possible that we will lose market share in this environment as some competitors are currently offering extremely low pricing.

Also, successful commercialization of new products and services is very challenging at the current time. However, our medium-term outlook is more optimistic.

We do operate in a highly cyclical industry and the current slump will not continue forever. The re-balancing of the oil markets is accelerating as the steep E&P capital expenditure reductions are finally starting to have an impact.

The oversupply situation could be over in early 2017 and solid growth may return to the industry in 2018. We believe that North American land drilling will be quickest to respond.

For the remainder of 2016, we aim to strike the optimal balance between cost control and investments in future growth to be well-positioned to maximize returns in the industry’s eventual upturn. Our objective is to continue to generate positive free cash flow before the dividend and excluding restructuring costs, while holding on to our position as the service provider of choice for key operator and drilling contractor customers.

We plan to continue to allocate resources for R&D and IT and we intend to spend up to $30 million in capital expenditures in 2016. We are focusing our development efforts on products and services that create significant and visible value, either by saving costs or by increasing revenues, for our customers.

We will continue to build on our strong market position and reputation, and seek opportunities where we can take advantage of our significant strengths. We thank all our customers, partners, shareholders, and employees for their continued support during these challenging times.

I am now turning the call over to Jon Faber for a more detailed look at the financials.

Thank you, Marcel. Consolidated first quarter revenue of $45.8 million was down 54% year-over-year from $99.4 million in the first quarter of 2015 and down 23% sequentially from the fourth quarter of 2015.

Significant declines in drilling activity in each of our major operating regions was the primary driver of the revenue declines. EBITDA for the first quarter was negative $350,000 down $44.5 million from EBITDA of $44.1 million in the first quarter of 2015 and down $21.1 million sequentially from fourth quarter 2015 EBITDA of $20.7 million.

Adjusted EBITDA of $8.8 million for the quarter was down 79% from $41.7 million in the first quarter of 2015 and down 57% sequentially from $20.2 million in the fourth quarter. I would refer you to the summary of quarterly results in our MD&A for reconciliation of EBITDA to adjusted EBITDA.

During the quarter, the Company booked restructuring charges totaling $10.9 million, of this amount $6.1 million related to staff related costs while $4.8 million related to non-cash charges related to the lease obligations and leasehold improvements written-off associated with the decision to consolidate our Golden, Colorado office to Houston, Texas, which we expect to complete in the third quarter of 2016. The majority of our restructuring efforts were enacted late in the first quarter as such few of the run rate effect of these changes are reflected in the first quarter results and much of the savings will begin to be realized in the second quarter of 2016.

Depreciation and amortization expense in the first quarter of $16.4 million compared to $21.7 million in the first quarter of 2015 and $19.8 million in the fourth quarter of 2015. The Company recorded a net loss of $10.9 million for the first quarter of 2016 driven largely by restructuring charges incurred during the period as the Company took further action to adjust its cost base to reflect our expectations of the continued challenging operating environment in the short to medium term.

On a per share basis, the net loss equated to $0.13 per share compared to net income of $0.17 per share in the first quarter of 2015 and a net loss of $0.01 per share in the fourth quarter of 2015. Stock-based compensation of $962,000 in the first quarter compared to a recovery of $1.8 million in the prior year period and an expense of $2.8 million in the fourth quarter of 2015.

As a reminder prior to the amendment of the stock option plan ratified by shareholders at the last AGM in May 2015. The Company accounted for its stock-based compensation related to options on a mark-to-market basis.

As such, the historical period expense was significantly impacted by the movements in the Company's share price during the period. I will begin with a review of the segmented results with our U.S.

business unit. First quarter revenue for the U.S.

business unit of $23.6 million represented a 59% year-over-year decrease from $57.5 million in the first quarter of 2015 and decreased 32% sequentially from $34.7 million in the fourth quarter of 2015. The revenue decline was consistent with the 61% year-over-year decrease in industry activity from the first quarter of 2015 and the effects of continued pricing pressures experienced in the services sector.

Quarterly operating income of $1.6 million was down $21.2 million from operating income of $22.8 million in the first quarter of 2015 and decreased $9.5 million sequentially from $11.1 million in the fourth quarter of 2015. The Canadian business unit posted first quarter revenue of $15.8 million down 46% year-over-year from $29.4 million in the prior year period and down 4% sequentially from fourth quarter 2015 revenue of $16.4 million.

Industry activity decreased 56% in the quarter as compared to the first quarter of 2015. The Canadian business unit posted an operating income of $2.9 million in the first quarter compared to $10.2 million a year ago and down $976,000 sequentially from $1.9 million in the fourth quarter of 2015.

Our third segment is our international business unit. International revenue for the first quarter of $6.4 million was 49% lower than $12.5 million in the comparative period of 2015 and 27% lower sequentially compared to fourth quarter 2015 revenue of $8.7 million.

Decreased activity in each of our major international markets and a significant devaluation of the Argentinean peso in December 2015 contributed to decrease in the revenue for the quarter. The international business unit had an operating loss of $1.2 million in the quarter compared to operating income of $1.5 million in the first quarter of 2015 and an operating loss of $705,000 in the fourth quarter of 2015.

Finally, I’ll briefly review capital expenditures in the balance sheet. Capital expenditures of $6.6 million in the first quarter of 2016 was down 72% $23.5 million in the prior year period and essentially flat sequentially as compared to fourth quarter 2015 capital expenditures of $6.5 million.

We expect to spend up to $30 million on capital expenditures including capitalized R&D and IT investments in 2016. At March 31, we had positive working capital of $215 million.

Our cash balance at March 31, stood at $176 million down from $196 million at the end of 2015. While the Company realized $4.9 million in free cash flow during the quarter, our cash balance declined as we paid $14.3 million in dividends to shareholders in the quarter and saw a negative $10.2 million translation effect to our cash balance related to the strengthening of the Canadian dollar at the end of the first quarter.

There is no debt on the balance sheet and we are maintaining our quarterly dividend at $0.17 per share. And at this point, we'll be happy to take any questions.

Good morning, guys.

Good morning, Ian.

Are you able to talk a little bit about the run rate cost savings and how you think they're going to be allocated across the various I guess cost volumes whether would be G&A or R&D and cost of goods sold?

Obviously from the perspective of the people cost we’ve talked in the past about relatively sort of the employee base being a third to third to third between field, corporate and R&D and overall the restructuring charges would have incurred over the last 12 months would be fairly reflective of that splits.

All the other thing we control we say here so I highlighted an overall run rate OpEx cost saving of about $60 million to $65 million since the first half of 2015. About half of those would be baked in to date; the upper half of another $30 million to $35 million would have not been reflected in the Q1 numbers.

But we can’t give you the breakdown by line at this point.

No, Marcel that splits very helpful and [indiscernible] you are helpful too. So that's good.

From a pricing standpoint you noticed – you guys noted that it's getting incrementally competitive in the U.S. so are you able to just expand on that a little bit about what you’re seeing and maybe if there are specific regions that are more challenging than others?

I don't think we see much of a difference by region. In the U.S.

specifically much of the drilling activity is really now focused on the Southern U.S. so primarily Texas and Oklahoma, many other regions have obviously declined significantly over the last 12 months.

In terms of the behavior as you know we have always been the premium priced offering that hasn't changed. Our competitors have always offered a somewhat lower cost offering I think what we have seen here more recently just in some cases extremely low pricing off 50% or below our price points.

Okay. I guess just a little further on the pricing.

How much do you think it was down in the U.S. quarter-over-quarter and how much you think its down from the peak at this point?

So we actually decided going into this call for competitive reasons that we are not going to disclose our pricing approach or concessions anymore.

Okay. Well, I'll leave it there guys.

And I will turn it back over. Thanks very much.

Thank you, Ian.

Good morning all.

Good morning, Jon.

Hi, Jon.

Marcel in regards to your comments about potentially losing market share in the coming period. Is that based on your tracking of market share over the last few months?

What customers are signaling that they're ultimately going to take a lower priced option? Or just a high level expectation that if you hold pricing firm.

It's logical that you'll lose some customers here and there?

I think it's more the latter I don't think we have any specifics and I don't think there's specific customers that as I indicated that ever going to switch or anything like that. I think its more fact that we are not really unable to give the extreme discounts that some of our competitors have been willing to go.

Do you believe the stickiness of the product has changed in the last three to six months versus what it's been over the last call it decade?

I don't know whether the stickiness has changed fundamentally but the rig counts are still low that just losing a few rigs can move the needle materially on market share here.

Okay. Jon just a follow on Ian’s question are the cost reductions that you made at the table end of the quarter astronomically different than what you previously message in your Q4 results are we should be thinking about all your comments from last quarter kind of holding on a go forward basis?

So the [dollars that] referenced in the Q4 is fairly consistent with what we would have seen with reductions late in the quarter. I think in a couple of areas we're probably able to find a little bit more savings through some of our purchase costs, we talked about the purchase cost in the employee side.

I think we're able to find a bit more in the purchase cost side, but fairly consistent with what we talked about in the first quarter call.

Okay. Maybe it's my imagination, but I can't help it notice you guys are referencing non-oil and gas revenue more in the quarterly releases.

Is that a function of pace on growing its footprint in that market share or just being more relevant with the fall off in oil and gas?

It's probably more a nature of just how small the rig count is, particularly in the Canadian market there would be a very small number of rig that would do some things not directly oil and gas related and that becomes a bigger percentage of the mix as you sort of get to these very, very, very low rig counts in the oil and gas space. It's not really a shift of direction it's just a shrinking of the oil and gas drilling specifically.

Jon, do you have an idea of what you – what we should be thinking about you spending on R&D all in this year including both expensed and capitalized items?

I think if you look at what we spend in 2015 type of environment, you would expect that sort of on a year-over-year basis, we should be down somewhere in the order of 15% to 20%.

Okay. Last one just from me.

I'm wondering if you can give a little bit more color on the rationale to hold the dividend at this stage. I realized that you guys have lots of capacity keeping your cash on the balance sheet, but is there any consideration to the fact that that will decline in full 2016 and perhaps 2017 based on what you're paying out and what the mindset is on maintaining a cash balance as high as you guys have traditionally have in the past?

So you're right. Obviously, Jon the current dividend level is not sustainable in the long- term if the activity levels and the operating environment does not improve.

So it is a question of time as to when we will have to reduce. Now I think in the short-term, we have more cash than we need, so it doesn't really affect our ability to operate and have sufficient funds to fund the upturn and the required working capital injection at that point.

And secondly, we have a number of large, very loyal longstanding shareholders on the institutional side especially who very much value the dividend.

Okay. Is it fair to assume that the M&A opportunities that you guys are reviewing wouldn’t be of the scale or size that it would force you to ultimately have to make a choice one versus the other.

I think I wouldn't say that. I think the opportunities kind of come in a large range or sizes.

I think at the upper end of the range I think the cash balance will not be sufficient to fund the acquisition anyway, so I think we'd have to look at alternatives there on the low end, yes, clearly there is – we can do small tuck-ins, there are no restrictions around that.

Okay. I appreciate the color.

I’ll turn it back guys.

Thanks Jon.

Good morning.

Good morning, Elias.

One question towards you Jon and one for Marcel. Jon, could you give some color approximately on the percentage of cash on the balance sheet that's in U.S.

dollars versus Canadian dollars?

We typically held the vast majority of the cash in U.S. dollars, so that number sort of fluctuates, but I would say it’s generally anywhere from call it 70% to 85% that would be U.S.

dollars.

Okay. Thanks.

Marcel talking about the pricing pressure I didn't really see that in the Q1 numbers, is that sort of late Q1 or into Q2 type phenomenon that you're seeing, if you could add some color on that?

So obviously there is not a single line item or number in here that would reflect pricing pressure. If you look at the development in revenue per [EGR day] the declines year-over-year has been modest, it's a combination of three things though.

It is pricing pressure on existing line item, it is either stripping or cannibalization of existing products, but it's also the introduction of some new products and new revenue generation around that, but there was a little bit of that so you have three effects factoring into that number and we don't break those out separately.

Okay. That's it from me.

Thank you very much for the color on both those questions.

Thanks, Elias. End of Q&A

Well thank you very much everybody. Have a nice day.

Thanks very much. We will look forward to seeing some of you this afternoon at our AGM at the Pason office at 3.30.