Xtreme Drilling : 2016 Financial and Operating Results

Xtreme is pleased to announce that it has signed a two-year term contract on the first 850XE upgrade which is scheduled for delivery to Oklahoma in the third quarter of 2017. This level of commitment in the current rig market is validation of the 850XE rig design and value to the customer. The second and third 850XE upgrades are scheduled for delivery in October and December of 2017, respectively. Extensive conversations with potential customers are currently in process and Xtreme anticipates having both additional 850XE rigs contracted in the coming months. In addition, the Company recently contracted it's seventh optimized XDR 500 rig and anticipates it going to work in mid-April.

The 850XE design is Xtreme's next step in drilling innovation and technology. The proprietary design was developed specifically for today's major resource plays and is expected to be the most efficient and fastest moving "super spec" rig in the North American land market. The 850XE will be equipped with an 1,800hp AC electric drawworks, 850,000 pound capacity mast, proprietary X-pad optimizer walking system, a 7,500psi mud system with three pumps, integrated equipment monitoring and other proprietary design features. It will have a rated depth capacity in excess of 27,500 feet with 5 inch drill pipe and the ability to stand all of the drill pipe in the mast.

2016 Highlights

• Effective June 22, 2016, the Company completed the previously announced sale of substantially all of the coil services ("XSR") assets to Schlumberger Technology Corporation and Schlumberger Middle East, (collectively, "Schlumberger") for $205.0 million. The results of operations, including gain on disposal of the XSR assets, and cash flows for the XSR segment have been presented as "discontinued operations" in the financial statements, accompanying tables, and MD&A. Drilling services ("XDR") are presented as continuing operations in the financial statements, accompanying tables, and MD&A.

• The Company's USD-revenue and expenses are impacted by the exchange rate between the US dollar ("USD") and Canadian dollar ("CAD"). For the twelve months ended December 31, 2016 and 2015, the average exchange rate used to convert the USD-denominated revenues and expenses to CAD increased 4% from $1.33/$1 USD compared to $1.28/$1 USD, respectively. This had a direct impact on reported revenue and expenses during the period.

• As a result of the sale, the Company received $205.0 million in cash which was used to pay off the balance of the outstanding debt of $78.0 million USD ($100.7 million CAD) and transaction related costs of $7.7 million. The Company recognized a gain of $46.6 million on the sale of the XSR assets, net of related taxes. The sale provided significant working capital for Xtreme during 2016 and the Company finished with approximately $115.2 million in cash and cash equivalents at the end of the period.

• For the three and twelve months ended December 31, 2016, the Company recorded revenue related to drilling services ("XDR") of $9.9 million and $42.0 million, respectively, a decrease from the three and twelve months ended December 31, 2015, of $23.4 million and $131.2 million, respectively (decreases of 58% and 70%, respectively). Operating results in 2016 were negatively impacted by the decrease in drilling activity and lower day rates due to market conditions.

• During 2016 drilling services recognized $0.5 million in termination revenue, a decrease of $10.1 million compared to 2015. Termination revenue is recognized when an amount is agreed upon by both parties, collection is probable and the Company does not have any further services to render to earn such revenue.

• Adjusted EBITDA from continuing operations was ($0.1) million and ($6.3) million for the three and twelve months ended December 31, 2016, a decrease from $0.7 million and $19.3 million from the respective 2015 periods. Adjusted EBITDA excludes termination revenue of nil and $1.4 million for the fourth quarters of 2016 and 2015, respectively, and $0.5 million and $10.6 million for the years 2016 and 2015, respectively. For 2016, adjusted EBITDA for both continuing and discontinued operations was $8.1 million as compared to $50.6 million in 2015.

• Operating cash from continuing operations, as reported in the Consolidated Statement of Cash Flows, was ($7.8) million for 2016 compared to $39.5 million in 2015. Operating cash from discontinued operations was $9.2 million for 2016 compared to $22.2 million in 2015.

• XDR operating days during the three months ended December 31, 2016, decreased from 932 in 2015 to 479 in 2016, or 47%. Operating days for the twelve months ended December 31, 2016, also decreased from 4,458 in 2015 to 1,840 in 2016, or 59%.

• For the fourth quarter of 2016, utilization was 25% on the Company's 21 drilling rig fleet, a decrease from 48% during the fourth quarter of 2015. Utilization has increased for 2 consecutive quarters, from a low of 19% for the second quarter of 2016. For the year, utilization was 24% for 2016, a decrease from 58% in 2015.

• XDR revenue per operating day for the three and twelve months ended December 31, 2016, was

  $20,700 and $22,800, respectively, a decline from $25,100 and $29,400 for the respective prior year periods. The decreases of 18% and 22%, respectively, are due to the reduction in day rates during the period and lower stand-by and termination revenues recognized in 2016. Exclusive of stand-by and termination revenues in 2016 and 2015, revenue per operating day would have been $20,100 and

  $20,500 for the three and twelve months ended December 31, 2016, a decrease from $22,300 and

  $26,400 for the three and twelve months ended December 31, 2015, or 10% and 22%, respectively.

• Operating expenses are tied to operating levels and were $15,800 and $18,600 per operating day for the three and twelve months ended December 31, 2016, respectively, compared to $17,100 and

  $18,700 for the same periods in 2015. The decrease in the cost per operating day was primarily attributable to a decrease in labor-related expenses and other cost containment measures.

• Gross margin as a percentage of revenue was 24% and 19% for the three and twelve months ended December 31, 2016, a decrease from 32% and 37% for the same periods in 2015. The decrease in gross margin as a percentage of revenue is attributable to lower day rates and lower termination revenues earned, offset by lower operating costs.

• General and administrative expenses decreased from $5.3 million for the three months ended December 31, 2015, to $2.5 million for the same period in 2016, or 53%. The decrease is due to a reduction in headcount as well as a decrease in employee salaries and benefits and lower professional fees. General and administrative expenses increased from $18.0 million for 2015 to $18.6 million for 2016 primarily due to employee severance payments made as a result of reductions in force as well as contractual employee payments and other professional fees related to the sale of certain assets of the coil services segment, offset by a reduction in headcount and associated employee salaries and benefits.

• Net loss from drilling operations, or continuing operations, for the fourth quarter of 2016 was $11.1 million, a decrease of 68% from the prior year's quarter. Net loss from continuing operations for the year ended 2016 was $76.7 million, a decrease of 6% from 2015. Included in the net loss from continuing operations for 2016 and 2015 are asset impairment charges on the Company's drilling rig fleet of $11.9 million and $38.5 million, respectively.

• For the years ended 2016 and 2015, the coil services segment, or discontinued operations, had revenues of $38.7 million and $90.2 million, respectively. Net income attributed to discontinued operations for 2016 and 2015 was $55.9 million and $13.7 million, respectively. The increase is due to the gain on sale of the assets, net of taxes, realized, of $46.6 million.

• Capital expenditures for 2016 were $12.5 million, which included $1.4 million for discontinued operations prior to sale. Currently the Company has an approved 2017 capital expenditure budget of between $45.0 and $50.0 million USD, including between $33.0 million USD and $35.0 million USD for the 850XE upgrades.

• At September 30, 2016, the Company reviewed the carrying value of its long-lived assets for indicators of impairment. Due to current market conditions, certain indicators of impairment were identified for both the US and Canadian Drilling cash generating units (CGUs). The significant decrease in the drilling rig industry activity during the period adversely impacted current and expected future business and estimated recoverable amounts of the drilling rigs and related components. As a result of the impairment review, the Company determined that property and equipment in the CGUs was impaired by approximately $10.5 million and $1.4 million, respectively.

• As of the date of this press release, the Company had eight of 21 XDR rigs contracted in Canada, Colorado, North Dakota and Oklahoma. Of the eight rigs contracted, seven of them were the XDR 500 rigs.

(unaudited)