Pason Systems Inc. reports second quarter loss



    
    Stock Exchange: TSX
    Symbol: PSI
    

    CALGARY, Aug. 4 /CNW/ - Pason Systems Inc. ("Pason" or "the Company")
today announced its results for the six-month period ended June 30, 2009.

    
    Performance Data

    -------------------------------------------------------------------------
                       Three Months Ended June 30,  Six Months Ended June 30,
    -------------------------------------------------------------------------
                             2009     2008  Change      2009     2008  Change
    -------------------------------------------------------------------------
    (000s, except per share    ($)      ($)    (%)        ($)      ($)    (%)
     data) (unaudited)

    Revenue                22,251   54,180    (59)    76,426  127,433    (40)
    EBITDA(1)                 994   23,496    (96)    24,770   66,770    (63)
      As a % of revenue       4.5     43.4    (90)      32.4     52.4    (38)
      Per share - basic      0.01     0.29    (97)      0.30     0.82    (63)
      Per share - diluted    0.01     0.28    (96)      0.30     0.82    (63)
    Funds flow from
     operations(1)          3,058   20,867    (85)    21,743   55,774    (61)
      Per share - basic      0.04     0.26    (85)      0.27     0.69    (61)
      Per share - diluted    0.04     0.25    (84)      0.27     0.68    (60)
    (Loss) Earnings        (8,706)   6,459      -     (3,790)  27,325      -
      Per share - basic     (0.11)    0.08      -      (0.05)    0.34      -
      Per share - diluted   (0.11)    0.08      -      (0.05)    0.33      -
    Capital expenditures    2,755   14,056    (80)     8,466   26,660    (68)
    Working capital       157,218  121,851     29    157,218  121,851     29
    Total assets          392,754  346,963     13    392,754  346,963     13
    Shareholders' equity  336,915  312,037      8    336,915  312,037      8
    Common shares
     outstanding (No.)
      Basic                81,473   81,597      -     81,466   81,016      1
      Diluted              81,473   82,967     (2)    81,466   81,859      -
    Shares outstanding
     end of period         81,475   81,937     (1)    81,475   81,937     (1)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) EBITDA is defined as earnings before interest expense, income taxes,
        stock-based compensation expense and depreciation and amortization
        expense. Funds flow from operations is defined as earnings adjusted
        for depreciation and amortization expense, stock-based compensation
        expense, future income taxes and other non-cash items impacting
        operations as presented in the Consolidated Statements of Cash Flows.
        These definitions are not recognized measures under Canadian
        generally accepted accounting principles, and accordingly, may not be
        comparable to measures used by other companies.
    

    President's Message

    Operations Review

    As predicted during the first quarter conference call, the second quarter
turned out to be extremely depressed with Pason recording the worst financial
results in its history. The only positive take from the quarter was that in
what is likely to be the worst of the current worldwide slump in drilling;
Pason still recorded positive cash flow from operations. We do not expect
future quarters to repeat the drilling lows which reached approximately 75
rigs in Canada and 750 rigs in the U.S. Revenue fell 59% to $22.3 million and
cash flow dropped dramatically by 85% to $3.1 million compared with the second
quarter of 2008 when drilling activity was still robust in the United States.
Net earnings fell from a gain of $6.5 million in the prior year to a loss of
$8.7 million in this year's second quarter.
    The bulk of Pason's earnings reversal occurred in the United States where
segment profit swung by $20.3 million from a profit of $16.8 million in 2008
to a loss of $3.5 million this year. Our revenue per industry day was $165
compared to $219 last year. A decline of 50% in U.S. drilling days generated
intense price pressure. We responded with price reductions but still
maintained the top prices in the industry, which resulted in some market share
setback with the percentage of rigs with Pason equipment dropping from 58% in
the prior year to 50% in the current year. The combined effect of lower rig
activity and lesser prices was to reduce our revenue by 64% from the prior
year. We did trim our field technician staff by a third but since we view our
field service infrastructure as one of our strongest assets, we were reluctant
to make more serious cuts to the field technician base. Finally a significant,
non-cash contributor to our U.S. loss was depreciation, which actually
increased year over year despite the plunge in activity. Our depreciation is
time based, not usage based, and the capital equipment delivered in 2008
contributed to an increased base for depreciation this year. Clearly our
earnings in future periods will benefit from a greatly reduced depreciation
base. The rapid drop in drilling activity left us with too much geological
services management overhead pushing geological margin down by $1.0 million to
barely breakeven. We have responded by integrating geological services and
unmanned instrumentation rentals under the same regional field managers. This
has reduced our management overhead and should actually generate greater
operational and marketing synergies going forward.
    Canadian segment results were also a loss but did not worsen as severely
as in the United States. A drop of 47% in Canadian industry drilling days and
the need for us to reduce prices by 12% contributed to a 56% decline in
segment revenue and a loss of $4.8 million which worsened from the loss of
$2.1 million recorded last year. Revenue per industry day declined to $652
versus $800 last year which was mainly attributable to the price decrease, but
comparisons in a quarter with an average daily active rig count of just 91
rigs may not be particularly meaningful. We reduced our operating costs in the
Canadian business unit by $4.1 million or 47% but still not nearly enough to
offset the decline in drilling activity. Our new products - remote directional
drilling facilitation and drilling optimization earned some revenue but were
unable to make a meaningful contribution. Customers have expressed
appreciation for these products and have urged us to stay the course despite
the absence of sales. The customers either have no rigs working to apply the
new products or the manned element they were previously motivated to replace
has fallen by 50% in cost, robbing them of some of their urgency and
motivation to change.
    International revenue increased slightly to $2.4 million from $2.3
million last year despite activity declines in Argentina, Peru and Colombia.
Somewhat offsetting these declines was strong growth in Mexico where our rig
count has doubled year over year to about 70 active rigs. Earnings in this
business unit have been muted by much higher depreciation charges and shipping
costs as we move equipment to Mexico. However, this is the lone bright
opportunity in the western hemisphere and we look to significant revenue gains
continuing into next year. Subsequent to the year end, efforts in marketing in
the Middle East made several years ago began to provide results and 5 EDR
systems were shipped to our newly established Middle East partner.
    As we have done in past industry periods of low activity, we have made
substantial changes and improvements to our organizational structure thus far
in 2009. In addition to the integration of geology and instrumentation rentals
in the U.S., we have also streamlined our operational management reporting,
dramatically expanded the experience and skills of the managers in charge of
our R&D department and have started towards much improved inventory and
billing control. While the results are clearly not obvious now, we feel we
have a company that will come out of the drilling slump with much greater
operational skills than we had previously.

    Outlook

    We remain convinced that natural gas demand will rise as the worldwide
recession ends and gas deliveries will fall as the near absence of gas
drilling causes production declines. However, the resulting reduction in gas
storage levels and improvement in gas pricing will not occur until well into
2010 so there is little likelihood of meaningful earnings improvements for
oilfield service companies in the near term. However, somewhat ironically as
our earnings potential has been diminished, our cash balances have continued
to rise ending the quarter at a new record of $154 million. We believe this
cash not only assures the viability of the Company, it also provides
opportunities for new investments. Uncertain of when the market bottom would
occur, we have been conservatively reluctant to invest some of this cash in
new revenue generating ideas but now, with greater clarity on the market, we
would expect to be more active in seeking opportune investments going forward.

    
    On behalf of the Board of Directors,

    (Signed)
    Jim Hill
    President & Chief Executive Officer

    August 4, 2009
    

    Second Quarter Conference Call

    Pason will be conducting a conference call for interested analysts,
brokers, investors and media representatives to review its second quarter
results at 9:00 a.m. (Calgary time) on Wednesday, August 5, 2009. The
conference call dial-in number is 1-800-732-0232. Seven-day replay:
1-877-289-8525 and enter 21309352 followed by the number sign.
    Pason Systems Inc. is the world's largest provider of rental oilfield
instrumentation systems that are designed and manufactured for use on
land-based drilling and service rigs. Pason offers a tightly integrated
package of complex services, including data acquisition, wellsite reporting
software, remote communications and Internet information management tools.
    Pason's common shares trade on the Toronto Stock Exchange under the
symbol PSI. Additional information on Pason, including the Interim Report to
Shareholders which includes the Management Discussion and Analysis for the
period ended June 30, 2009, is available on SEDAR at www.sedar.com or visit
the Company's website at www.pason.com.

    Certain information regarding the Company contained herein may constitute
forward-looking statements under applicable securities laws. Such statements
are subject to known or unknown risks and uncertainties that may cause actual
results to differ materially from those anticipated or implied in the
forward-looking statements.

    
    Consolidated Balance Sheets

    -------------------------------------------------------------------------
    As at                                                    June   December
                                                               30,        31,
                                                             2009       2008
    -------------------------------------------------------------------------
    (000s) (unaudited)                                         ($)        ($)

    Assets
    Current
      Cash and cash equivalents                           154,135    100,610
      Accounts receivable                                  27,543     78,568
      Prepaid expenses                                      1,183      2,023
      Income taxes recoverable                              3,720     12,539
      Future income tax assets                              9,683      9,153
    -------------------------------------------------------------------------
                                                          196,264    202,893
    Investment                                              2,660      2,802
    Capital assets                                        178,097    207,342
    Deferred development costs                             10,176      8,979
    Future income tax asset                                 5,557      5,000
    -------------------------------------------------------------------------
                                                          392,754    427,016
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities
    Current
      Accounts payable and accrued liabilities             28,063     38,123
      Current portion of stock-based
       compensation liability                               1,206      2,656
      Dividend payable                                      9,777      9,777
    -------------------------------------------------------------------------
                                                           39,046     50,556
    Stock-based compensation liability                        905      1,475
    Future income tax liabilities                          15,888     20,396
    -------------------------------------------------------------------------
                                                           55,839     72,427
    -------------------------------------------------------------------------
    Shareholders' Equity  (Note 2)
    Share capital                                          71,720     71,517
    Contributed surplus                                    12,598      8,834
    Accumulated other comprehensive (loss) income          (5,624)     2,450
    Retained earnings                                     258,221    271,788
    -------------------------------------------------------------------------
                                                          336,915    354,589
    -------------------------------------------------------------------------
                                                          392,754    427,016
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements.


    Consolidated Statements of Operations and Retained Earnings

    -------------------------------------------------------------------------
                                    Three Months Ended      Six Months Ended
                                               June 30,              June 30,
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------
    (000s, except per share data)        ($)        ($)        ($)        ($)
     (unaudited)
    Revenue
      Equipment rentals              20,736     50,555     72,632    120,595
      Geological services             1,437      3,363      3,480      6,283
      Interest                           78        262        314        555
    -------------------------------------------------------------------------
                                     22,251     54,180     76,426    127,433
    -------------------------------------------------------------------------
    Expenses
      Rental services                13,346     21,640     35,348     42,006
      Geological services             1,352      2,279      3,351      4,449
      Manufacturing and
       distribution                     106      1,341        184      2,117
      Research and development        3,081      3,459      6,414      6,952
      Corporate services              1,345      1,511      3,014      2,905
      Local administration              949      1,462      2,463      3,140
      Stock-based compensation        1,624      1,336      2,002      2,672
      Interest                            -         61          1        171
      Depreciation and amortization  14,346     12,789     30,437     25,673
    -------------------------------------------------------------------------
                                     36,149     45,878     83,214     90,085
    -------------------------------------------------------------------------
    (Loss) earnings before the
     under noted items              (13,898)     8,302     (6,788)    37,348
    Other expenses (income)           1,078     (1,008)       882       (906)
    -------------------------------------------------------------------------
    (Loss) earnings before income
     taxes                          (14,976)     9,310     (7,670)    38,254
    -------------------------------------------------------------------------
    Income taxes
      Current                        (2,813)     2,568      1,606     10,825
      Future                         (3,457)       283     (5,486)       104
    -------------------------------------------------------------------------
                                     (6,270)     2,851     (3,880)    10,929
    -------------------------------------------------------------------------
    (Loss) earnings                  (8,706)     6,459     (3,790)    27,325
    Retained earnings, beginning
     of period                      276,704    259,465    271,788    238,599
    -------------------------------------------------------------------------
    Dividends (Note 6)               (9,777)    (8,187)    (9,777)    (8,187)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Retained earnings, end of
     period                         258,221    257,737    258,221    257,737
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (Loss) earnings per share
      Basic                           (0.11)      0.08      (0.05)      0.34
      Diluted                         (0.11)      0.08      (0.05)      0.33
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements.



    Consolidated Statements of Comprehensive (Loss) Income

    -------------------------------------------------------------------------
                                    Three Months Ended      Six Months Ended
                                               June 30,              June 30,
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------
    (000s) (unaudited)                   ($)        ($)        ($)        ($)
    (Loss) earnings                  (8,706)     6,459     (3,790)    27,325
    Other comprehensive (loss)
     income, net of tax
      Reclassification of gain on
       available-for-sale
       investment to
       earnings                           -       (850)         -          -

      Foreign currency translation
       adjustment                   (12,945)    (1,989)    (8,074)     5,159
    -------------------------------------------------------------------------
    Total comprehensive (loss)
     income                         (21,651)     3,620    (11,864)    32,484
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements.



    Consolidated Statements of Accumulated Other Comprehensive Income (Loss)

    -------------------------------------------------------------------------
                                    Three Months Ended      Six Months Ended
                                               June 30,              June 30,
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------
    (000s) (unaudited)                   ($)        ($)        ($)        ($)
    Accumulated other comprehensive
     income (loss), beginning of
     period                           7,321    (21,712)     2,450    (29,710)
    Other comprehensive (loss)
     income, net of tax
      Reclassification of gain on
       available-for-sale
       investment to
       earnings                           -       (850)         -          -

      Foreign currency translation
       adjustment                   (12,945)    (1,989)    (8,074)     5,159
    -------------------------------------------------------------------------
    Accumulated other
     comprehensive
     loss, end of
     period                          (5,624)   (24,551)    (5,624)   (24,551)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements.




    Consolidated Statements of Cash Flows

    -------------------------------------------------------------------------
                                    Three Months Ended      Six Months Ended
                                               June 30,              June 30,
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------
    (000s) (unaudited)                   ($)        ($)        ($)        ($)
    Cash flows related to the
     following activities:
    Operating
      (Loss) earnings                (8,706)     6,459     (3,790)    27,325
      Adjustments for non-cash
       items:
        Depreciation and
         amortization                14,346     12,789     30,437     25,673
        Stock-based compensation        822      1,336        502      2,672
        Future income taxes          (3,457)       283     (5,486)       104
        Unrealized foreign exchange
         loss                            53          -         80          -
    -------------------------------------------------------------------------
                                      3,058     20,867     21,743     55,774
      Changes in non-cash working
       capital                       26,735     20,521     57,745     19,726
    -------------------------------------------------------------------------
                                     29,793     41,388     79,488     75,500
    -------------------------------------------------------------------------
    Financing
      Issue of common shares under
       the stock option plan             60      8,677        165     14,351
      Purchase of stock options         (55)         -       (218)         -
      Payment of dividends                -          -     (9,777)    (6,822)
    -------------------------------------------------------------------------
                                          5      8,677     (9,830)     7,529
    -------------------------------------------------------------------------
    Investing
      Additions to capital assets    (2,001)   (13,443)    (6,855)   (25,566)
      Deferred development costs,
       net of  investment tax
       credits received                (754)      (613)    (1,611)    (1,094)
      Proceeds on disposal of
       capital assets                   251         61        375        182
      Proceeds on sale of investment      -      4,003          -      4,003
      Changes in non-cash working
       capital                       (3,157)    (2,039)    (5,223)    (4,073)
    -------------------------------------------------------------------------
                                     (5,661)   (12,031)   (13,314)   (26,548)
    -------------------------------------------------------------------------
    Effect of exchange rate changes
     on cash                         (3,475)      (323)    (2,819)     1,049
    -------------------------------------------------------------------------
    Net increase in cash and cash
     equivalents                     20,662     37,711     53,525     57,530
    Cash and cash equivalents,
     beginning of period            133,473     42,978    100,610     23,159
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                  154,135     80,689    154,135     80,689
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Represented by:
      Cash and short-term
       investments                  144,358     72,502    144,358     72,502
      Cash held in trust (Note 6)     9,777      8,187      9,777      8,187
    -------------------------------------------------------------------------
      Cash and cash equivalents     154,135     80,689    154,135     80,689
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements.


    Notes to Interim Consolidated Financial Statements

    Six Months Ended June 30, 2009 and 2008

    (000s, except per share data) (unaudited)

    1.  Significant Accounting Policies

    These interim consolidated financial statements have been prepared in
    accordance with the same accounting policies and methods of computation
    as those outlined in the annual audited financial statements. These
    interim consolidated financial statements do not include all disclosures
    normally provided in annual financial statements and should be read in
    conjunction with the Company's audited annual financial statements for
    the year ended December 31, 2008.

    Significant Accounting Changes

        a. Beginning in the first quarter of 2009, the Company adopted the
           new Section 3064 "Goodwill and Intangible Assets" standard issued
           by the Canadian Institute of Chartered Accountants ("CICA"). The
           new standard establishes guidelines for the recognition,
           measurement, presentation and disclosure of research and
           development ("R&D") costs. This resulted in no significant impact
           on the Company's financial statements.

    Future Changes in Accounting Policies

        a. The CICA issued Section 1601 "Consolidated Financial Statements".
           This new section will be applicable to financial statements
           relating to the Company's interim and fiscal year beginning on or
           after January 1, 2011. Early adoption is permitted. This section
           establishes standards for the preparation of consolidated
           financial statements. The Company has not yet determined the
           impact of the adoption of this new Section on the Consolidated
           Financial Statements.

        b. Canada's Accounting Standards Board ratified a plan that will
           result in Canadian generally accepted accounting principles
           ("GAAP") being converged with International Financial Reporting
           Standards ("IFRS") by 2011. Management has completed its initial
           assessment phase and highlighted areas where its current Canadian
           accounting practices differ form IFRS. Measurement of the impact
           on the Company's consolidated financial statements is ongoing.

    2.  Share Capital

    Authorized

    Unlimited number of common shares
    Unlimited number of preferred shares, issuable in series

    Issued

    Common shares
    ------------------------------------------------------------------------
                                                           Shares     Amount
    ------------------------------------------------------------------------
                                                             (No.)        ($)
    Balance, December 31, 2008                             81,456     71,517
      Exercise of stock options                                19        165
      Contributed surplus adjustment on exercise of stock
       options                                                  -         38
    ------------------------------------------------------------------------
    Balance, June 30, 2009                                 81,475     71,720
    ------------------------------------------------------------------------
    ------------------------------------------------------------------------


    The basic and diluted weighted average number of common shares
    outstanding for the first six months of 2009 was 81,466.

    Stock Option Plan

    At June 30, 2009, 5,416 stock options were outstanding for common shares
    at exercise prices ranging from $7.76 to $17.75 per share, expiring
    between 2009 and 2014 as follows:


    -------------------------------------------------------------------------
                                          2009                   2008
    -------------------------------------------------------------------------
                                              Weighted              Weighted
                                               Average               Average
                                      Share   Exercise      Share   Exercise
                                    Options      Price    Options      Price
    -------------------------------------------------------------------------
                                       (No.)        ($)      (No.)        ($)
    Outstanding, beginning of period  6,753      12.88      6,908      11.91
      Granted                            50      12.31          6      16.39
      Exercised                         (67)      8.20     (1,591)      9.02
      Forfeited                      (1,320)     14.13       (240)     13.97
    -------------------------------------------------------------------------
    Outstanding, end of period        5,416      12.62      5,083      12.73
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Exercisable, end of period        1,509      13.63      1,794      11.76
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Available for grant, end of
     period                           2,732                 3,111
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    All options are issued at market price and vest over three years. The
    following table summarizes the life of options issued:


    -------------------------------------------------------------------------
    Date of Issuance                                                   Years
    -------------------------------------------------------------------------

    Prior to November 2004                                              5.00
    November 2004 through October 2006                                  3.17
    November 2006 through October 2008                                  3.50
    November 2008 and thereafter                                        5.00


    The following table summarizes information about stock options
    outstanding at June 30, 2009:


    -------------------------------------------------------------------------

                              Options Outstanding       Options Exercisable
    -------------------------------------------------------------------------
                                   Weighted
                                    Average
                                  Remaining   Weighted              Weighted
                                    Contra-    Average               Average
             Range of     Options     ctual   Exercise Exercisable  Exercise
      Exercise Prices Outstanding      Life      Price    (Vested)     Price
    -------------------------------------------------------------------------
                   ($)      (No.)    (Years)        ($)      (No.)        ($)
         7.76 - 11.79        103       0.23       7.86        103       7.86
        11.80 - 12.00      2,303       4.41      11.80          -      11.80
        12.01 - 13.00      1,850       1.99      12.18        610      12.18
        13.01 - 17.75      1,160       0.78      15.38        796      15.48
    -------------------------------------------------------------------------
                           5,416       2.73      12.62      1,509      13.63
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    The total number of options outstanding must not exceed 10% of the total
    common shares outstanding.

    All stock options granted to employees and directors were accounted for
    using the fair value method estimated on the date of grant using the
    Black-Scholes option pricing model. This method was in effect until the
    shareholders approved adjustments to the stock option plan on October 23,
    2008. As of this date, stock options have been accounted for using a
    combination of both the fair value and intrinsic value methods.

    Contributed Surplus

    Amounts recorded to contributed surplus are as follows:

    -------------------------------------------------------------------------
    Six Months Ended June 30,                                2009       2008
    -------------------------------------------------------------------------
                                                               ($)        ($)
    Balance, beginning of period                            8,834     10,323
      Stock-based compensation expense                      1,706      2,672
      Stock options exercised                                 (38)    (2,682)
        Intrinsic value adjustment                          2,096          -
    -------------------------------------------------------------------------
    Balance, end of period                                 12,598     10,313
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Restricted Share Unit ("RSU") Plan

    In November of 2008, the Company introduced an RSU program for employees
    and directors. At June 30, 2009, 576 RSUs were outstanding. All RSUs
    vest over three years and will result in a cash payment to holders based
    upon the corresponding future market value of the Company's common
    shares. Stock-based compensation expense arising from the RSU plan is
    recorded in the Consolidated Statements of Operations and the
    corresponding liability is recorded in the Consolidated Balance Sheets.

    Stock-based Compensation Expense and Liability

    Stock-based compensation expense can be summarized as follows:

    -------------------------------------------------------------------------
                                    Three Months Ended      Six Months Ended
                                               June 30,              June 30,
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------
                                         ($)        ($)        ($)        ($)

    Stock options                       822      1,336        502      2,672
    RSUs                                802          -      1,500          -
    -------------------------------------------------------------------------
    Stock-based compensation expense  1,624      1,336      2,002      2,672
    -------------------------------------------------------------------------

    Stock-based compensation liability can be summarized as follows:

    -------------------------------------------------------------------------
    As at June 30,                                           2009       2008
    -------------------------------------------------------------------------
                                                               ($)        ($)

    Stock options                                             156          -
    RSUs                                                    1,050          -
    -------------------------------------------------------------------------
    Current portion of stock-based compensation liability   1,206          -
    -------------------------------------------------------------------------

    Stock options                                               -          -
    RSUs                                                      905          -
    -------------------------------------------------------------------------
    Long-term portion of stock-based compensation liability   905          -
    -------------------------------------------------------------------------
    Total stock-based compensation liability                2,111          -
    -------------------------------------------------------------------------

    Purchase of Common Shares

    On March 20, 2009, the Company received regulatory approval to renew its
    normal course issuer bid program. The Company did not purchase any shares
    during the second quarter of either 2009 or 2008. The Company is
    authorized to purchase and cancel up to 4,000 common shares before the
    bid terminates on March 23, 2010. The daily purchase limit is 40 common
    shares.

    3.  Financial Instruments and Risk Management

    Financial Instruments

    The carrying amounts for all of the Company's financial instruments
    approximate their fair values due to the short-term nature of these
    items.

    Industry and Seasonality Risk

    The major area of uncertainty for the Company is that the demand for its
    services is directly related to the strength of its customers' capital
    expenditure programs. The level of capital programs is strongly affected
    by the level and stability of commodity prices, which can be extremely
    difficult to predict and beyond the control of the Company and its
    customers. During periods of uncertainty, oil and gas companies tend to
    bias their capital decisions on conservative outlooks for commodity
    prices.

    In addition to the cyclical nature of its business, the Company is also
    subject to risks and uncertainties associated with weather and
    seasonality. The Company continues to react to unfavourable weather
    conditions and spring breakup, which limit well access in Canada, through
    diversification into geographic regions such as the United States and
    internationally where these factors are less likely to influence
    activity.

    Credit Risk

    Credit risk refers to the possibility that a customer will fail to meet
    its contractual obligations. Credit risk arises from the Company's
    accounts receivable balances which are predominantly with customers who
    explore for and develop oil and natural gas reserves in Canada and the
    United States. The Company has a process in place which assesses the
    credit worthiness of its customers as well as monitoring the age and
    balances outstanding on an ongoing basis. In addition, the Company's
    services are a minor component when looking at the overall cost of
    drilling a well, reducing credit risk accordingly.

    Payment terms with customers are 30 days from invoice date however
    industry practice can extend these terms. As at June 30, 2009, the
    Company had $3,920 in accounts receivable balances greater than 90 days
    past due and had recorded an allowance for doubtful accounts of $2,362.
    The balance of the Company's allowance for doubtful accounts did not
    significantly change during the first six months of 2009.

    Foreign exchange risk

    The Company operates internationally and is primarily exposed to exchange
    risk relative to the U.S. dollar.

    The Canadian operations are exposed to currency risk on U.S. denominated
    financial assets and liabilities with fluctuations in the rate recognized
    as foreign exchange gains or losses in the Consolidated Statements of
    Operations.

    The Company's self-sustaining international subsidiaries expose the
    Company to exchange rate risk on the translation of its financial assets
    and liabilities to Canadian dollars for consolidation purposes.
    Adjustments arising when translating these subsidiaries into Canadian
    dollars are reflected in the Consolidated Statements of Comprehensive
    Income as unrealized foreign currency translation adjustments.

    The Company has not hedged either one of these risks.

    For the first half of 2009, had the Canadian dollar weakened or
    strengthened by 1% against the U.S. dollar, with all other variables held
    constant, earnings and other comprehensive income would have been
    impacted as follows:

    -------------------------------------------------------------------------
                                              Six Months Ended June 30, 2009
    -------------------------------------------------------------------------
                                                                      Impact
                                                                    to Other
                                                                     Compre-
                                                        Impact to    hensive
                                                         Earnings     Income
    -------------------------------------------------------------------------
                                                               ($)        ($)
    1% decrease in value of Canadian dollar                   (16)     1,618
    1% increase in value of Canadian dollar                    16     (1,618)
    -------------------------------------------------------------------------

    Interest rate risk

    The Company is exposed to changes in interest rates with respect to its
    credit facility. Management believes this risk to be minor given the
    small amounts drawn periodically on the facility.

    4.  Sale of Investment

    On April 8, 2008, the Company sold its investment in a privately held
    company and realized a gain of $1.0 million.

    5.  Contingencies

    Since late 2003, the Company has defended its position in patent
    infringement lawsuits in Canada and the United States regarding the
    Company's automatic driller. In the U.S. case in 2004, the trial court
    refused to grant the requested injunction to prevent the Company from
    renting its automatic driller. In 2006, the Federal Circuit Appeals Court
    ruled that the trial court had misconstrued the language of one of the
    claims in the patent at issue and remanded the case to the trial court to
    hold a full trial on the merits of the claim of infringement and the
    Company's defences, including that the patent in question is invalid and
    that there is no infringement. Trial on the U.S. lawsuit concluded on
    November 6, 2008. The jury determined Pason's automatic driller infringed
    three claims of the patent at issue, denied the Company's claim that the
    patent was invalid, and awarded damages in the amount of US$14,300. The
    Company accrued this amount in the 2008 consolidated financial
    statements. On April 30, 2009, the trial judge denied Pason's motion to
    reverse the jury verdict and the alternative motion for a new trial,
    approved the jury's damages award of US$14,300, plus interest and court
    costs, and certified the matter for appeal. The judge denied the
    plaintiff's request for enhanced damages based on willful infringement
    and refused the plaintiff's motion for a permanent injunction that would
    have prevented the rental of Pason's automatic driller in the United
    States. Pason has filed an appeal with the Federal Circuit Appeals Court
    and posted a bond suspending any enforcement of the verdict while the
    appeal is pending. The plaintiff has cross-appealed. Pason does not
    anticipate a final determination on the appeal until some time in 2010.

    In the Canadian case, which is not likely to come to a trial until 2010
    at the earliest, management's assessment of the outcome continues to be
    that the asserted claims of the patent are not valid, and/or the Company
    does not infringe on any valid claims, and as a result, the Canadian
    litigation is not expected to have a significant adverse impact on the
    Company's financial position or operations. The outcome of the U.S. case
    does not bind a Canadian Court. Accordingly, no amount has been accrued
    for any potential loss under the Canadian case in the consolidated
    financial statements at June 30, 2009.

    The Company is involved in other legal actions and potential claims in
    the normal course of business. In the opinion of management, the
    aggregate amount of any potential liability is not expected to have a
    material adverse impact on the Company's financial position or results.

    6.  Common Share Dividend

    During the second quarter of 2009, the Company declared a dividend of
    $9,777 (2008 - $8,187) or $0.12 per common share (2008 - $0.10). The
    Company has transferred these funds to the transfer agent to be held in
    trust until the dividend payment is made on July 2, 2009.

    7.  Segmented Information

    The Company operates in three geographic segments within one industry
    segment. Rental services are provided in Canada, the United States and
    internationally (Latin America and Australia). The amounts related to
    each segment are as follows:

    -------------------------------------------------------------------------
                                                United     Inter-
                                     Canada     States   national      Total
    -------------------------------------------------------------------------
                                         ($)        ($)        ($)        ($)

    Three Months Ended June 30, 2009
    Revenue                           5,706     14,187      2,358     22,251
    Operating costs                   4,566     10,400        681     15,647
    Depreciation and amortization     5,940      7,291      1,115     14,346
    -------------------------------------------------------------------------
    Segment operating (loss) profit  (4,800)    (3,504)       562     (7,742)
    ---------------------------------------------------------------
    ---------------------------------------------------------------
    Research and development                                           3,081
    Stock-based compensation                                           1,624
    Corporate services                                                 1,345
    Manufacturing and distribution                                       106
    Other expenses                                                     1,078
    Income taxes                                                      (6,270)
                                                                   ----------
    Loss                                                              (8,706)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital expenditures                607        446      1,702      2,755
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Three Months Ended June 30, 2008
    Revenue                          12,936     38,992      2,252     54,180
    Operating costs                   8,629     16,396        356     25,381
    Depreciation and amortization     6,432      5,777        580     12,789
    -------------------------------------------------------------------------
    Segment operating (loss) profit  (2,125)    16,819      1,316     16,010
    ---------------------------------------------------------------
    ---------------------------------------------------------------
    Research and development                                           3,459
    Stock-based compensation                                           1,336
    Corporate services                                                 1,511
    Manufacturing and distribution                                     1,341
    Interest                                                              61
    Other income                                                      (1,008)
    Income taxes                                                       2,851
                                                                   ----------
    Earnings                                                           6,459
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital expenditures             (1,348)    13,825      1,579     14,056
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                United     Inter-
                                     Canada     States   national      Total
    -------------------------------------------------------------------------
                                         ($)        ($)        ($)        ($)

    Six Months Ended June 30, 2009
    Revenue                          28,040     43,477      4,909     76,426
    Operating costs                  11,973     26,852      2,337     41,162
    Depreciation and amortization    11,861     16,500      2,076     30,437
    -------------------------------------------------------------------------
    Segment operating profit          4,206        125        496      4,827
    ---------------------------------------------------------------
    ---------------------------------------------------------------
    Research and development                                           6,414
    Stock-based compensation                                           2,002
    Corporate services                                                 3,014
    Manufacturing and distribution                                       184
    Interest                                                               1
    Other expenses                                                       882
    Income taxes                                                      (3,880)
                                                                   ----------
    Loss                                                              (3,790)
                                                                   ----------
                                                                   ----------
    Total assets                    192,073    180,287     20,394    392,754
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital expenditures              1,412      3,026      4,028      8,466
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Six Months Ended June 30, 2008
    Revenue                          49,386     73,869      4,178    127,433
    Operating costs                  17,465     31,534        596     49,595
    Depreciation and amortization    12,917     11,624      1,132     25,673
    -------------------------------------------------------------------------
    Segment operating profit         19,004     30,711      2,450     52,165
    ---------------------------------------------------------------
    ---------------------------------------------------------------
    Research and development                                           6,952
    Stock-based compensation                                           2,672
    Corporate services                                                 2,905
    Manufacturing and distribution                                     2,117
    Interest                                                             171
    Other income                                                        (906)
    Income taxes                                                      10,929
                                                                   ----------
    Earnings                                                          27,325
                                                                   ----------
    Total assets                    151,906    180,308     14,749    346,963
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital expenditures              1,315     23,087      2,258     26,660
    





For further information:

For further information: Pason Systems Inc., Jim Hill, President and
CEO, Phone: (403) 301-3401, Fax: (403) 301-3499, E-mail: jim.hill@pason.com;
Jim Glasspoole, Chief Financial Officer, Phone: (403) 692-3840, Fax: (403)
301-3411, E-mail: jim.glasspoole@pason.com


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