Craig Neiboer - Chief Financial Officer

Steve Kammermayer - Clarus Securities Jason Sawatzky - AltaCorp Capital Kevin Lo - FirstEnergy Capital Mark Rogers - Gagnon Securities

Good morning, ladies and gentlemen. Welcome to the Canadian Energy Services & Technology Corp. conference call and webcast with respect to the recently-announced second quarter results. Presenting for the Company today will be Mr. Tom Simons, President and Chief Executive Officer, and Mr. Craig Neiboer, Chief Financial Officer. Please be advised this call is being recorded. A question and answer session will follow the end of the presentation. I would now like to turn the conference call over to Mr. Craig Neiboer, Chief Financial Officer of Canadian Energy Services & Technology Corp. Please go ahead, Mr. Neiboer.

Good morning, everyone, and thanks for attending the call. We’re having a little bit of a technical difficulty this morning. I guess that’s part of being kind of rookies at this conference call process. So far we haven’t been able to get Tom Simons into the call, so I will begin the call and hopefully Tom will be able to join us along the way. So just before we start I’d like to note that in our commentary today there will be forward-looking financial information and that actual results may differ materially from the expected results due to various risk factors and assumptions. These are summarized in our AIF dated March 28, 2013, in our Q3 MD&A, and in our Q2 press release. In addition, certain financial measures that we will refer to today are not recognized under current general accepted accounting policies and for a description and definition of these please see our second quarter MD&A. So to begin I guess I will review some of the financial highlights of the quarter. These were all in the press release and the MD&A released yesterday. CES, we generated gross revenue of $130.7 million during the second quarter of 2013 compared to $104.1 million for the three months ended June 30, 2012. This is an increase of $26.5 million or 25 percent on a year-over-year basis. In Canada, despite wet weather conditions that persisted throughout Q2 which extended what is our traditional spring break-up period or slow period, which negatively affected our activity levels in the quarter, despite this revenue generated in Canada for the three months ended June 30, 2013 increased slightly by $0.2 million or 1 percent from the $31.5 million to $31.7 million for the quarter. In the United States, revenue generated for the three months ended June 30, 2013 was $99 million as compared to the second quarter of 2012 with revenue of $72.7 million, representing an increase of $26.3 million or 36 percent on a year-over-year basis. The year-over-year increase is primarily the result of the acquisition of JACAM, which was completed on March 1, 2013, for which obviously there were no comparable associated revenues in the previous year, combined with revenues from new work added in the Rockies region, increased work in the Eagle Ford, and in the Mid-Continent region as a result of the December 2012 acquisition of Mega Fluids. This of course has been partially offset by reduced activities in the northeast United States in the Marcellus shale region, which is a dry gas drilling region. EBITDAC for the three months ended June 30, 2013 was $17.2 million as compared to $12.8 million for the three months ended June 30, 2012, representing an increase of $4.4 million or 34 percent. Based on the financial results achieved in Q2 2013 and our outlook for the remainder of 2013, we have reaffirmed our expected 2013 guidance, which was last updated in July 2013 post the Venture Mud acquisition, CES’ expected range of consolidated gross revenue for 2013 will be approximately $609 million to $649 million and expected consolidated EBITDAC will be approximately $101 million to $111 million. CES’ balance sheet remains strong and its financial flexibility has been greatly enhanced with the successful placement in April of 2013 of 225 million of senior notes and the raising recently of the $35 million prospective equity offering. Both of those offerings, I will highlight, were well over-subscribed multiple times. In addition, today we are drawn approximately $35 million on our available $150 million senior lending operating facility, so we have lots of dry powder in the gun. In addition, with results of yesterday in light of our Q2 results and our guidance, which reflects a strong second half for 2013, we have also raised our dividend by half a cent to $0.06 per month. This cash dividend will be paid on September 13th to the shareholders of record at the close of business on August 30th. This is the seventh dividend increase we have implemented since converting to a corporate structure on January 1, 2010 and it has resulted in a triple of our dividend per share since that time on a pre-split adjusted basis. This highlights the power of our free cash flow business model to generate increased per-share returns to our investors. From a payout ratio perspective based on our 2013 guidance, the 2013 payout ratio will land somewhere around 60 percent for the year. From an operational perspective, during Q2 we made significant strides towards building out our vision of becoming the leading provider of technically-advanced consumable chemical solutions throughout the full life-cycle of the oil field. The JACAM acquisition, which was completed on March 1, 2013, we have begun to integrate JACAM with the overall business. JACAM products have been introduced into Canada on both the drilling fluids side and through PureChem with early returns and early significant results for customers. In the U.S., initial steps have been undertaken to support AES, which is our U.S. drilling fluids business operations with JACAM Manufactured Materials and to expand JACAM onto the established AES platform. In addition to the integration initiatives and the financial contribution JACAM made in Q2, we have seen a shift in activity in the U.S. to new work in the Eagle Ford, the addition of significant work in the Mississippi lime as the result of the Mega Fluids acquisition, and a pickup of activity in other parts of the U.S. business. The recently-announced Venture Mud acquisition, which was completed just after the close of Q2, with its operations focused in the Permian basin in West Texas, has really effectively filled the last remaining hole that we saw on the map in the U.S. operations. We now see this as a huge opportunity to put products from both what we’ve developed at AES on the drilling side and what we have got through the JACAM portfolio of products into one of the busiest basins in the United States, which is the Permian. And we’ve already seen a pickup of activity in that region since acquisition from a drilling perspective and we are undertaking steps right now to put ourselves in a position to start putting production and specialty chemicals into that market from the JACAM suite of products. Currently activity levels in Canada have rebounded significantly from Q2 with more than double the rigs operating for ourselves since Q2 we’re at 110 drilling rigs operating in Canada today, in the United States we’re at 140 drilling rigs operating in the United States today. That represents a rough 8 percent market share in the United States today and probably pretty consistent to high 20s, 28, maybe 29 percent in Canada. Obviously for us operationally the JACAM integration is a major initiative, it’s taking significant effort, but we see very good early returns. July’s activity levels for JACAM have been the highest in their history from both a revenue and EBITDA perspective. We are very bullish on what we have in the suite of products, we’re very bullish on what we have in the tools in the toolbox to take on the North American chemical space in the oilfield, so we’re very excited. At this stage, that’s the end of the sort of formal presentation portion. I’d turn it over to questions.

Thank you. (Operator Instructions) The first question is from Steve Kammermayer with Clarus Securities. Your line is now open, please go ahead. Steve Kammermayer - Clarus Securities: Hi, Craig. Just going back to the Venture Mud acquisition, I think when you originally acquired it you were on 38 rigs there, just wondering if you can give us an update on that. And then are there any customers that Venture was working for or that you’ve been working for that maybe venture wasn’t that are willing to try you out there in the Permian?

Well, we’ve already exceeded 40 rig count in the Permian and we see part of our guidance of that number going up to towards the end of the year, in for several more rigs by the end of the year. I don’t think we want to describe customer opportunities on a conference call like this given the competitive nature of the industry. We were looking, as we told the market, at the Permian basin from either an acquisition perspective or an organic growth perspective, because we had opportunities with our current customer base to move into the Permian on an organic basis. So you’ll see that unfold over the next six months to a year for us with some of the customers we have elsewhere in the United States, but I would not, at this stage, want to name those customers on a conference call. Steve Kammermayer - Clarus Securities: Sure. And then maybe just on the JACAM I guess, selling into that, you mentioned you were looking to do that soon. Is that something we could see picking up in the fourth quarter or would we expect that more maybe in 2014?

What we have on the ground in the Permian is a great team of people led by Mike and Sharon Gilbert who are focused at the drill bit, so obviously there’ll be a little bit of latency to put in place a team on the ground off of that platform that can be focused on production and specialty chemicals. So it’s likely more of a 2014 activity from a revenue and earnings perspective, but obviously operationally we’re moving in that direction immediately. Steve Kammermayer - Clarus Securities: Perfect. And then maybe just quickly one more. With, um, you know you’re starting to sell the JACAM product up here in Canada, can you give us an update on the throughput capacity, I guess, utilization, what that facility is running at now and maybe where you see that going possibly—

Yeah, I mean it’s early days for bring those products into Canada from a volume perspective. What we’ve seen is some of the products that JACAM, unique, patented products that JACAM has developed, in particular, just to highlight I guess, the largest growing area for them has been the U.S. Bakken. There are a lot of analogous technologies being brought across to the Canadian Bakken, which is also PureChem’s strongest area of operations since it’s located in southeast Saskatchewan. So, an example, we have a patented corrosion inhibitive product that JACAM has developed called SuperCorr, which has been a big game changer for them on the U.S. side of the Bakken, because the Bakken crude is so highly corrosive. We brought that into the Canadian market and had, you know, excellent, excellent performance for a number of customers in southeast Saskatchewan, extending the life of tubes and rods and down-hole conditions, which extends production life between times where wells have to be repaired. So we’ve seen significant traction in those products, as an example, in the markets in Canada, and I know our guys across Western Canada are approaching customers with some of these products and getting traction. So as those technologies are introduced to Canada obviously they’ll be more of a pull-through to the facility in JACAM and Sterling, but at this stage we haven’t, call it, significantly changed the throughput capacity at Sterling, so we still have significant upside on that. Steve Kammermayer - Clarus Securities: Perfect. Great, that’s all I had. Thanks a lot.

You bet. Thanks, Steve.

Thank you. The next question is from Jason Sawatzky with AltaCorp Capital. Your line is now open, please go ahead. Jason Sawatzky - AltaCorp Capital: Good morning, Craig.

Hey, Jason. Jason Sawatzky - AltaCorp Capital: So, yeah, just a couple questions, first on JACAM obviously, you know, very strong quarter revenue, you know, if we back that out my calculation well north of $30 million in the quarter. Is that outperformance, is that due to you guys just taking the sales expertise from the drilling fluids and applying that to JACAM or is there anything else that’s really contributing to the record revenue in July and the really strong Q2 revenue?

Yeah, I would—we’d all probably like to pat ourselves on the back and say we’ve made the difference. I mean it’s early days. We bought a business that was on a trajectory going up, and that trajectory has continued. We see the integration and the synergies going forward being greater than what we’ve achieved to date in that business unit. We have been going through a process of many discussions on opportunities, so I just mentioned the ones in southeast Saskatchewan and bringing products across, so we’re early days on that stuff, Jason. The performance out of JACAM has been great but it’s really on the guys at JACAM that have achieved that to date, and we will see, I think in our minds, even better performance as we go forward and get truly integrated. Jason Sawatzky - AltaCorp Capital: Okay. And then you talked about obviously SuperCorr being taken into the Saskatchewan Bakken, just wondering if there are any specific products, whether it’s SuperCorr or some other ones, that you’re looking to take into or you’ve already taken into the Duvernay and the Montney sort of around this LNG build-out towards the end of the year, are there any specific products that are going to be used in those types of wells?

Well, we have some corrosion inhibitive products and some lubrication products that we’ve brought through on the drilling side and we’ve seen some great results of those early as well for customers. Jason Sawatzky - AltaCorp Capital: Okay, great. And then turning just to the drilling fluids side in Canada, just wanted to get your take. I know Q2 is a tough quarter to gauge market share given that it’s, you know, it’s spring break-up, but you guys were at 28 percent in Q2, I think Secura(sp.), just with their results there, they said Marquis(sp.) Alliance was up at 34 percent market share in Canada. That was a pretty big jump for them. Just any thoughts on that or do you feel you guys are losing some market share to some competitors or, you know, do you think you’re sort of holding steady on that?

Our viewpoint is that we are going to gain market share year over year for the rest of the year based on what we see in the market. The acquisition of the Tervita(sp.) Mud business provided us with some more feet on the street here in Calgary. Those guys didn’t get on board until late last year, obviously kind of too late to make a big impact on the winter drilling season last year, but those guys have been a big shot in the arm for us here, and we’ve developed some new products, one of them called Enerclear(sp.), which has been a great product showing great results in highly consolidated or dense drilling operations in places like the Duvernay. We’ve got into some shops that we weren’t in previously through that product, so we see a lot of upside coming into this winter drilling season for us. I mean year over year in Q2 I think your comment is very valid, that it’s a tough one to gauge overall market share because it’s not really the true indicator of what’s going on in Canada. If the numbers that you described are correct the difference between us and Secura over Q2 would have been ten rigs. So, I mean I don’t know if that’s the game-changer for anybody. Jason Sawatzky - AltaCorp Capital: Right. Okay, that’s great. Thanks, Craig.

Thank you. The next question is from Kevin Lo with FirstEnergy. Please go ahead. Kevin Lo - FirstEnergy Capital: Good morning, Craig.

Hey, Kevin. Kevin Lo - FirstEnergy Capital: Wondering if you could kind of talk about the margins or low, you know, obviously quite decent on the gross side, um, and you’re talking about JACAM dragging that up a little bit. So as we get through break-up and into Q3 would margins kind of stay at—do you think margins or going to stay at these levels or kind of come down a little bit more towards the traditional drill mud kind of margins?

Our expectation is that the future of our business isn’t focused on margin per se but we obviously are focused on margin every day in this business. We think we have a huge growth opportunity to grow top line, which will grow EBITDA. From a margin perspective though, the strategy of acquiring JACAM besides being into the spaces that JACAM is both geographically and within the spectrum of the oilfield was to make ourselves more vertically integrated, and so by default if you control the manufacturing process, which we do now at JACAM back to the reaction level of the chemistry, you know, obviously we should be able to affect the margin of the products that we deliver to end customers more effectively than if we were buying from third parties or wholesalers. So our viewpoint is over time as the mix of the business changes from being predominately drilling to other parts of the oilfield we should see a margin improvement, because everything in the production and specialty chemical business is a specialty chemical, so it’s not commoditized, whereas in the drilling business some of the products we deliver to customers are commoditized products like base oil or barite. And then, in addition, as we improve the integration of our business vertically to develop the products ourselves, we should see some margin pickup where we have, you know, eliminated a middle man that that product was being bought from. So our expectation, Kevin, is that margin over time will likely creep up, not creep down, so that’s our expectation. Kevin Lo - FirstEnergy Capital: Great. And in the U.S. you’re talking about, ah, in the MD&A that in the Marcellus obviously drilling was weak, and then Eagle Ford was good; can you talk about some of the other basins, like, for instance, Rockies or—

Yeah, for sure. So Mid-Continent with Mega Fluids, the rig count is creeping up there. You know, those jobs are smaller than, say, the other basins, so they’re not as impactful, but we’re making good progress there. We’ve got a great team of people in Edmond, Oklahoma doing a great job in that region. The Eagle Ford has been creeping up. Obviously we’ve disclosed that COG(sp.) is our largest customer and we do all their Eagle Ford work. They’ve been having great results operationally through our AES assistance that we’ve given them in the Eagle Ford with great products and services. We really see the Eagle Ford and the Permian being our two fastest-growing regions in the U.S. going forward. We think that also will get accelerated once we get our barite grinding facility completed at the end of this year, as barite is still a component of the drilling fluid mix in the United States that is, you know, well everywhere, but in the United States in particular, which becomes something that is a very price-sensitive product, and with having a grinding capacity right in Texas and a better cost of goods we should be able to gain market share through that tool as that comes on at the end of this year. So those are the two places we see the most growth. The Rockies, we’ve been making strides, not so much in North Dakota but in some of the other oil plays in and around there. The North Dakota market is extremely competitive and price competitive. It’s why it was kind of the last place besides the Permian that we had entered into the United States in any significant way. So that’s been moving up slowly. We think we’ve bottomed in the Marcellus. Our guys there are talking about adding rigs now between now and the end of the year whereas over the last sort of 18 months the news out of the northeast has been down, down, down. So that’s kind of the, I guess, summary of the different areas. Kevin Lo - FirstEnergy Capital: No, that’s perfect. Thanks for the update.

Thank you. (Operator Instructions) The next question is from Mark Rogers with Gagnon Securities. Please go ahead. Mark Rogers - Gagnon Securities: Hi, Craig.

Hey, Mark. Mark Rogers - Gagnon Securities: How are you?

I’m great. How are you? Mark Rogers - Gagnon Securities: Good. So I had a question: Do you guys have any exposure today to the Tuscaloosa Marine Shale?

You know, this is the disadvantage sometimes of being the CFO on this call. I mean that’s a question I can’t answer. I’d have to get back to you on that. I don’t know the answer to that. Mark Rogers - Gagnon Securities: No problem. And are you guys putting together any products or solutions that could help preserve the drill bit integrity in some of these plays? I’m talking to a few operators that just came back from a conference and some of these new plays are interesting but they’re ripping through bits faster than they ever could.

Mark, I’m going to apologize again. Once again, being the CFO, that’s a technical question that I’m just not capable of answering at this stage. Mark Rogers - Gagnon Securities: I’ll follow up with you (inaudible). No problem

Sure. Mark Rogers - Gagnon Securities: Good quarter.

All right, sorry about that. Mark Rogers - Gagnon Securities: No problem. Thank you.

Thank you. (Operator Instructions) There are no further questions registered on the telephone lines at this time. I would now like to turn the meeting back over to Mr. Neiboer.

Thanks, everyone, for attending the call. We’re pretty excited about the things we’ve put in the toolkit over the last sort of eight months with respect to the acquisitions we’ve made, the huge strides we’ve got in vertical integration of our business, the things we’ve done to broaden the spectrum of our business across the oilfield chemistry space. We really think that we’ve got a big opportunity going forward. We’ve reaffirmed ourselves with the guidance, we’ve reaffirmed that I think with our dividend increase, and we’re pretty excited about how things look going forward to us. So thanks very much for attending the call.

Thank you. The conference call has now ended. Please disconnect your lines at this time. We thank you for your participation.