Total Energy Services Inc.

Daniel Halyk - President and Chief Executive Officer Yulia Gorbach - Vice President, Finance and Chief Financial Officer

Scott Treadwell - TD Securities John Bereznicki - Canaccord Genuity Jon Morrison - CIBC World Markets John Gibson - AltaCorp Capital

Thank you. Good afternoon and welcome to Total Energy Services Inc.’

s first quarter 2015 conference call. Present with me this afternoon is Yulia Gorbach, our Vice President, Finance and Chief Financial Officer.

We will review with you Total’s financial and operating highlights for the three months ended March 31, 2015. We will then provide an outlook for our business and open up the phone lines for questions.

I will now turn the call over to Yulia.

Thank you, Dan. During the course of this conference call, information may be provided containing forward-looking information concerning Total’s projected operating results, anticipated capital expenditure trends and projected drilling activity in the oil and gas industry.

Actual events or results may differ materially from those reflected in Total’s forward-looking statements due to a number of risks, uncertainties and other factors affecting Total’s business and the oil and gas service industry in general. These risks, uncertainties and other factors are described under the heading Risk Factors and elsewhere in Total’s most recently filed annual information form and other documents filed with Canadian Provincial Securities Authorities that are available to the public at www.sedar.com.

Our discussions during this conference call are qualified with reference to the notes to the financial highlights contained in the new releases issued earlier today. Unless otherwise indicated, all financial information in this conference call is presented in Canadian dollars.

The results for the three months ended March 31, 2015 reflects challenging industry conditions due to a substantial decline in oil prices that began in late 2014, which in turn resulted in lower industry activity levels. For the first quarter of 2015 compared to the first quarter of 2014, revenues decreased 20% to $92.5 million compared to $115.1 million.

The revenues are broken down as follows. In Contract Drilling Services, the revenue reported from Chinook Drilling, decreased by 76% for the three months ended March 31, 2015 to $5.2 million compared to $21.7 million for the same period in 2014.

Chinook had 263 operating days on spud-to-release basis during the three months ended March 31, 2015, with a fleet of 18 rigs. This is compared to 1,015 operating days for the three months ended March 31, 2014 with a fleet of 16 rigs.

The sudden and unexpected substantial reduction by a significant customer with winter drilling program disproportionately impacted drilling rig utilization due to Chinook’s customer concentration going into the first quarter of 2015. Revenue per operating day decreased by 7% for the three months ended March 31, 2015 compared to the first quarter of 2014.

This was primarily due to decrease in day rate pricing. The Contract Drilling Services division generated EBITDA of $1.7 million for the three months ended March 31, 2015 as compared to $9.2 million for the comparable period in 2014.

The divisional EBITDA margin for the first quarter of 2015 was 32% as compared to 42% for the first quarter of 2014. Decreased pricing and lower average utilization were primarily responsible for the year-over-year decreased EBITDA margins.

In Rentals and Transportation Services, the revenue reported from total Rentals and Transportation Services division, Total oilfields rentals decreased by 23% for the three months ended March 31, 2015 to $29.9 million compared to $38.6 million for the same period in 2014. Average utilization of rental assets was 38% for the three months ended March 31, 2015 as compared to 51% for the same period in 2014.

Despite significant pressure on pricing, revenue per utilized rental piece during the first quarter of 2015 increased by 2% as compared to the first quarter of 2014 due primarily to the equipment mix operating and the larger heavy trucks fleet relative to the size of the rental equipment fleet. This division exited the first quarter of 2015 with approximately 10,000 pieces of rental equipment and 119 heavy trucks as compared to 9,900 pieces of rental equipment and 109 heavy trucks at March 31, 2014.

Divisional EBITDA for the first quarter of 2015 was $10.5 million as compared to $16.8 million for the comparable period in 2014. The EBITDA margin in the division was 35% for the three months ended March 31, 2015 as compared to 43% for the first quarter of 2014.

This decrease in EBITDA margin resulted primarily from decreased pricing as well as lower equipment utilization given their relatively high fixed cost structure within this business division. In Compression and Process Services, the revenue reported from Total Energy Compression and Process Services division increased 5% for the three months ended March 31, 2015 to $57.4 million as compared to $54.7 million for the same period in 2014.

The revenue increase from the prior year comparable period was due primarily to increased fabrication sales arising from continued customer demand. This division exited first quarter of 2015 with the fabrication sales backlog of approximately $86.6 million as compared to $49 million as at March 31, 2014.

Excluded from the fabrication sales backlog are compression units being built for the rental contract. Horsepower of compression on rent was approximately 38,400 at March 31, 2015 as compared to 51,400 horsepower at March 31, 2014 and 45,000 horsepower at December 31, 2014.

During the first quarter of 2015, approximately 6,400 horsepower of rental units were returned. The compression rental fleet experienced an average utilization of 77% based on fleet horsepower during the first quarter of 2015 as compared to 91% for the same period in 2014.

Divisional EBITDA for the first quarter of 2015 was $10.7 million as compared to $11.6 million for the comparable period in 2014. The 25% decrease in compression horsepower on lease at March 31, 2015 compared to March 31, 2014 was a significant season for lower divisional EBITDA as compression rentals revenue usually generate higher EBITDA margin than fabrication sales.

The EBITDA margin in this division was 19% for the three months ended March 31, 2015, as compared to 21% for the first quarter of 2014. Again, a reduction in compression equipment on rent was the primary reason for the lower EBITDA margin.

On a consolidated basis, EBITDA decreased 39% to $21.9 million in the first quarter of 2015 with $0.71 per share on a diluted basis from $35.7 million in the first quarter of 2014 or $1.02 per share on a diluted basis. Cash flow decreased 77% to $8 million in the first quarter of 2015 or $0.26 per share diluted from $34 million in the first quarter of 2014 or $0.98 per share diluted.

During the first quarter of 2015, $12.7 million of income taxes relating to 2014 taxable income were paid as Total was not required to make income tax installments during 2014. Aiding back 2014 taxes paid during the first quarter of 2015, cash flow for the first quarter of 2015 would have been approximately $20.7 million, a 39% decrease from the first quarter of 2014, which is generally in line with overall year-over-year performance.

Net income decreased 56% to $9.2 million, or $0.30 per share diluted for the first quarter of 2015 compared to $21 million, or $0.63 per share diluted for the first quarter of 2014. Net income for the first quarter was negatively impacted by an unrealized loss in marketable securities that reduced net income by $1 million, or $0.03 per share.

On the balance sheet, comparing March 31, 2015 to December 31, 2014, total assets decreased 1% to $587.4 million as compared to $595.9 million at December 31, 2014. The company’s financial condition remains strong with the positive working capital balance of $19.2 million.

Even after reclassifying the current liability, $66.9 million relating to the convertible debentures that will be redeemed on May 19, 2015. Total Energy continues to have no bank debt as of March 31, 2015.

Given the reclassification of convertible debentures to current liabilities, the long-term debt to long-term debt plus equity ratio was nominal at March 31, 2015. Shareholders’ equity increased 2% to $389.4 million at March 31, 2015 as compared to $382.1 million at December 31, 2014.

Thank you, Yulia. Total Energy’s results for the first quarter of 2015 reflect challenging industry conditions in the North American energy services industry.

The reduction in industry activity that began in the first quarter has continued into the second quarter and we expect 2015 will be a difficult year for our industry. Beginning in the first quarter, we have taken appropriate action to right size our capacity and improve our operating efficiencies in each of our business divisions without compromising our ability to conduct operations in a safe and efficient manner.

We will continue to manage our operating cost structures future industry conditions warrant. During the first quarter, our Contract Drilling Services division experienced a downside of relatively high customer concentration.

That said, we are pleased with the ability of this division to remain profitable at such low equipment utilization levels. Efforts have been made to reduce our operating costs, so that our Contract Drilling Services division is able to profitably compete in the currently highly competitive market and we believe we can do so.

However, as is the case in all of our businesses, we will not pursue work at a loss simply to put equipment to work. The industry slowdown was also felt in our Rental and Transportation Services division.

While first quarter equipment utilization was down 25% from 2014, EBITDA margins contracted by only 19%, due to cost management within this division. Revenue per utilized rental piece actually increased slightly during the first quarter of 2015 compared to 2014 as a result of the mix of equipment working and a larger heavy truck fleet relative to the size of the rental equipment fleet.

During the first quarter, this division completed the purchase of a private oilfield transportation company based in Casper, Wyoming. This acquisition added 10 units to our heavy truck fleet and provided a small, but well established market presence in the U.S.

Rocky Mountain region as well as a number of required federal and state operating licenses that will facilitate future growth in the United States. Our Compression and Process Services division continues to perform well, although it is certainly not immune from the industry downturn.

The impact of the industry downturn was felt during the first quarter with the return of several compression rental units as producers responded to lower commodity prices by curtailing or shutting in production. A number of the rental units returned were NOMADs, our large horsepower mobile compression packages.

As the proven cost effective ability to move these units allowed customers to quickly adjust their field compression capacity to their immediate production requirements. Ironically, while the mobility of the NOMAD negatively impacted first quarter compression rental fleet utilization, the same mobility clearly demonstrates the flexibility and cost effectiveness of our patented technology that we fully expect will continue to drive solid demand for the NOMAD.

Total Energy’s experienced and dedicated staff and balance sheet strength provide our company with tremendous operational stability. Despite the challenges facing our industry, existing and potential customers can be confident that each and every one of our business divisions is well positioned to provide them with quality equipment and excellent service without compromising safety or efficiency and that we will be around to stand behind our products and services.

Finally, I would like to encourage our shareholders and other interested persons to attend our Annual Shareholders Meeting that is scheduled for 10.00 AM on Thursday, May 21 at the Calgary Petroleum Club. I would now like to open up the phone lines for any questions.

Thanks. Good afternoon guys.

I wanted to start – it’s half a comment, maybe half a question. Dan, were you guys surprised that the ability of the drilling segment to generate profit at that low level of utilization, especially when as you said the shift in utilization was really unplanned and you likely went in kind of girded for a much busier winter?

Well, certainly Scott, we were caught off-guard, I think a lot of people were. We have some fairly obvious customer concentration anyone looking at the right locator to figure that out.

The other thing is the Cardium area. If you look at year-to-date spud-to-release activity has been one of the hardest areas and that’s where a lot of our rigs were.

So certainly, we got on the cost side pretty quickly. We would like to think we are reasonably efficient at the best of times, but when you go down to 17% utilization, you certainly can find a few more efficiencies.

So I am not surprised, but I am pleased to tell operationally our division pulled the horns in, got their cost under control. I think the significance of that is on a go-forward basis, we know that we can compete within reason in the spot market pretty much in 90%-95% of what’s being drilled in Western Canada.

Obviously, we are not going to compete in situations where, for whatever reasons pricing is something that’s not sustainable, but that will be our decision, not the banks.

Right. Okay.

Second one for me, with the – I don’t know if we call it the reorganization on the balance sheet side gives you some either stability or some line of sight to fund some acquisitions if you want. Well, I am just wondering what the M&A landscape is like albeit it’s probably working capital release time, so it may not be worse days for some of these guys, but at what point do you think you would really hit the squeal point for some of these potential acquisitions or potentially have you already hit it?

I think we are letting things seize in a little bit more, Scott. First of all, you are going to see the working capital positions of various participants convert receivables to cash, that’s happening.

We see it with our own situation. We are in a very strong cash position right now.

That said, if you are not making any money, you are not realizing margin, you got too much debt. You know where that cash is going to go.

Secondly, I think given the recent Alberta election, we want to see – we are taking a cautious approach, unless until we see some certainty on the direction that the new provincial government is going to go. We are going to take a fairly cautious approach on any significant M&A activity, that’s Alberta-centric.

That said, we are becoming a more international company, notably in the U.S. So, I expect, I will probably spend a little more time outside of Alberta, but I think generally within the North American market, we need things to season probably over the next three to six months, that seasoning process will start to ripen.

Okay, that’s great. That’s all I have got.

I appreciate the color guys. I will turn it back.

Thanks.

Hi, good afternoon everybody.

Hi, John.

Just wondering if you could quickly update us on your capital spending plans here, I apologize I didn’t see it in the press release.

They haven’t changed. I think our preliminary budget was what was it, Yulia?

16 point some, including five of carry-forwards. So, we obviously spent $1.1 million on the acquisition in Q1.

We have no changes. Most of our capital budget is discretionary, including our compression rental, fleet additions.

So, we are not going to deploy capital in any areas unless it makes sense for us. But for the first three months, John, we spent $6.5 million roughly on PP&E, $1.2 million, pardon me, on the acquisition of the business.

So, the $6.5 million, the majority of that would have been clean up from 2014, so, low changes and frankly, low material – no commitments really at all at this point.

Okay, appreciate the color. And then just secondly, wondering if you could just give us a sense of what you are seeing in the compression business so far in Q2, both in terms of backlog and the rental side of the business?

I think guys the industry is more cautious for sure. Obviously, there is a significant infrastructure deficit that hasn’t gone away.

But given I think a combination of the commodity price decline, combined with frankly some political uncertainty right now, people are I would say the bid activity is reasonably strong. People are not in a hurry to pull triggers.

The flipside is triggers are being pulled, but definitely, there is a more cautious approach out there on deficit, no question about that. But again, solid backlog, we continue to seek efficiencies to be able to compete effectively and pretty happy with how that division’s managing their cost structure and ultimately able to compete effectively without working for nothing.

Got it. All my other questions have been answered, so thanks for the color.

Thanks, John.

Afternoon all.

Hi, Jon.

Dan, can you give a little color on how utilization was able to hold up as well as it did within Rentals and Transportation segment?

Thanks.

Realistically, you only pulled back half of what industry was and was it just a function of geographic positioning or did you ultimately pick up some customers in the quarter?

If you replay our Q4 conference call, I said we are going to buy some market share back and we are doing that.

That’s my follow-up. So, your pricing strategy is a little bit different this time around for ultimately…

Fairly. We are throwing some punches now, but within reason.

So, what is throwing some punches mean to Dan?

Working cheaper, working harder for less money.

How much do you feel pricing has contracted from, call it, 2014 year end within the rentals platform?

It really depends on the line of equipment in the area, but we are seeing pricing in some product lines in certain areas that I haven’t seen in 18 years.

So, it’s fair to say that some things are 50% plus off?

Brutal, brutal, which is not sustainable, in some cases, we don’t participate, but what it tells me is the next three to six months will be a very interesting period for rental and transportation companies.

Are those comments true to the transportation side as much as the rental side?

Absolutely.

Okay.

The good thing about trucks is they go down quicker.

Within Chinook, do you believe you can backfill some of that unique customer exposure in the back half or ultimately you would see…?

Yes. We are working hard to do that.

Again, there is only 80 rigs working today within the context of the market, but our guys are loyal to customers. We don’t market rigs when they are working for someone.

Obviously, customers have changes in plans and we work with them. And we are now looking for more customers.

But again, it’s a tight market out there, so within reason. But step number one was to get our cost structure as tight and efficient as possible.

So step two is we can pass those savings onto our customers and be competitive. At some point though, if things are so tight, you kind of wonder why even bother drilling a well, but I think the recent oil price uptick might be helping on a few fronts, but I am not going to call a bottom to oil, that’s never been our way-in.

I would defer that you guys first on that Jon, but we are going to compete hard and look to broaden our customer base over time, you bet.

Based on your conversations with sales guys, are you expecting day rates to contract further from in the back half of the year from Q1 or you believe would largely stabilize?

We are pretty much there. We are not – we have no more room on our end.

So I am not going to – I can’t comment on what other people are going to do, but day rates unless we can find some material ways to reduce costs, we are up to bottom.

Are you going to be marketing all the rigs in the back half of the year in Chinook?

We are marketing them all right, now.

Just to follow on John’s question on the Compression and Process side, was all of their reduction that you saw in the backlog in the quarter, actually processed with the facilities, or was there any contract cancellation in the quarter?

We have had one contract cancellation, but we are just negotiating the buyout on that. We have not recorded any revenue for that, so it’s not included in the P&L.

And it’s fair to say that the...?

Not material.

It’s fair to say the $85 millionish that’s remaining in the backlog today, you believe that’s largely going to be honored and most of that should be processed in the coming quarters?

Yes, yes absolutely.

Can you just expand on the U.S. acquisition and what the driver to go there was and whether it was just price opportunity reaching and ultimately how you came across the deal?

Well, we pursued it because we want to make money, the return on our capital. But it was identified by our people that we are operating in that area largely through being pulled down.

They are kind of a little bit how we got pulled into North Dakota and one of our senior employees there identified the opportunity and hand it off to corporate, and we are very happy. We have got a great company there, long-standing operation, been in business for 35 years and very good people.

And I think the partnership between us and them is solid. And we are excited to use that as a significant base to grow.

So hopefully, we can do a few more of those. I would call them singles, you can either hit four of those or one homerun, but a few singles is certainly on our radar screen.

Are you expecting to redeploy any material assets from Canada down there before the year end?

Yes.

On both the trucking and rental side?

I am not going to comment specifically, but certainly expanding our presence down there offers the opportunity to relocate under utilized assets. I am not going to comment specifically on what we are doing there though.

Last one just for me, on the M&A said can you give and an a sense of how much deal flow has increased or marketed opportunity to increase across your desk relative to what you normally see in a normalized market call it?

Up, varies three or six months…

Sorry.

Up significantly, we are seeing a lot of deals pitched to us both directly from potential vendors and through brokers and agents.

So it’s fair to say twofold plus?

This is as high as I have ever seen in the last 5 years.

Appreciate the color.

No problem. Thank you.

Hey, guys. This is John for Dana.

Just had one quick question on the M&A front, wondering if you look at any sort of international acquisitions outside of North America, specifically in the compression side of things?

Never say never. Our focus right now is on North America, John.

Okay.

But we are seeing stuff from all over the place, so you never say never, but definitely the focus is on North America.

Okay, great. That’s all I have.

Thanks.

No problem.

There are no further questions. I would like to thank everyone for participating in our conference call and we look forward to either seeing you at our Annual General Meeting or speaking with you after our second quarter.

Thank you and have a good afternoon.