CanElson Announces Contract for New $8 Million Bi-Fuel Drilling Rig and Provides Update for Canadian and US Operations

Marketwired

CALGARY, ALBERTA--(Marketwire - Sept. 10, 2012) - CanElson Drilling Inc. ("CanElson" or the "Company") (CDI.TO) today announced a long-term contract for a new $8 million bi-fuel (natural gas and diesel) drilling rig and provided an update for its Canadian and US operations in July and August 2012.

President and CEO Randy Hawkings stated "Given our modern fleet of deep capacity drilling rigs and our growing bi-fuel capability on our drilling rigs we expect to continue outperforming the industry and contracting new build rigs as we move forward."

Bi-Fuel Rig Details

The new CanElson bi-fuel drilling rig will have three diesel engines capable of operating on a combination of natural gas and diesel fuel or on diesel fuel only, in the event that natural gas is either unavailable or becomes uneconomic. In bi-fuel mode, natural gas displaces a significant amount of the diesel fuel that would otherwise be consumed. CanElson expects that the displacement of diesel fuel will result in significant fuel cost savings for bi-fuel drilling rigs.

The new bi-fuel drilling rig will be the second new rig with bi-fuel capacity to be assembled by CanElson at its facility in Nisku, Alberta. The first new build bi-fuel rig (Rig #32 in CanElson's fleet) was delivered last month. The new rig (Rig #34) is scheduled for delivery in December 2012. For each of the new bi-fuel rigs, CanElson's wholly owned subsidiary, CanGas Solutions Inc. ("CanGas") is investing approximately $0.2 million for bi-fuel capability. This $0.2 million bi-fuel investment is incremental to the $7.8 million it costs for a diesel fuel drilling rig (excluding top drive). CanElson's investment in each of its two new bi-fuel rigs is underpinned by long term committed contracts. CanElson will arrange to truck compressed natural gas ("CNG") to the bi-fuel rigs using trailers owned by CanGas.

Other New Rigs

As previously disclosed, CanElson is also assembling two additional rigs (Rig #33 and Rig #35), both for delivery to West Texas under long term contracts with producers there. Rig #33 is scheduled for delivery in October 2012 and Rig #35 is scheduled for delivery in January 2013.

Beyond that, CanElson has ordered long lead items for another new rig (Rig #36). Pending a signed contract, construction of Rig #36 is possible in Q1, 2013. CanElson continues to require committed contracts prior to full assembly of additional rigs.

Capital Program Update

CanElson's capital program will be financed out of cash flow and existing debt facilities with financial capability for additional growth and maintaining dividend payments. The table below provides a capital program update.

Spares, Upgrades

Growth CanGas and Maintenance

Capital Program Capital Capital Capital Total

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H1 12 Actual $23.4 $0.6 $7.1 $31.1

H2 12 previously announced 25.8 19.6 12.6 58.0

Expanded capital program (1) 9.0 - - 9.0

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Total announced program 58.2 20.2 19.7 98.1

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(1) Budget for Rig #34, included in expanded capital program, includes bi-fuel capability and top drive

Third Quarter Canadian and US Operational Update

CanElson is also providing an update for operations in Canada and the US during the first two months of the third quarter of 2012. For CanElson, combined Canadian and US activity levels in July and August 2012 totalled 1,308 operating days, down 7% from 1,399 operating days in the same period a year earlier. Of the total, Canadian activity levels were 706 operating days, down 20% from 878 operating days a year earlier, and US activity levels were 602 operating days, up 16% from 521 operating days a year earlier.

CanElson's operating day performance relative to the industry is positive. As of September 7, 2012 Nickle's Rig Locator reports an approximate 29% decline in Canadian drilling activity levels year over year and Smithbits reports an approximate 5% decline in US drilling activity year over year. This would suggest that the Company has been gaining market share in a declining market.

Expressed in terms of capacity utilization, for July and August 2012 the Canadian level was equivalent to approximately 54%, compared with 78% a year earlier, while the US level was approximately 76%, compared with 84% a year earlier.

As of the date of this news release, 18 of CanElson's 22 Canadian rigs were either drilling or moving to location. In the US 12 of CanElson's 13 rigs were either drilling or moving to a new location. CanElson expects that its Canadian and U.S. fleets will be fully active by the third week of September.

Mexican Operations

As disclosed in the second quarter 2012 Management Discussion and Analysis, CanElson expects its customer in Mexico will move to a production sharing contract in the second half of 2012, which may result in a minor and temporary lull in activity but should provide an opportunity to expand the service offering and increase exposure to performance-related contract terms in 2013 and beyond.

About CanElson

CanElson operates contract drilling rigs in Canada, the US and Mexico for oil and natural gas exploration and development companies. CanElson also assembles new drilling rigs at a facility in Nisku, Alberta, operates contract oil and gas service rigs in Mexico, and operates a CNG transportation and related services business. CanGas, is a Calgary-based CNG transport company and a North American leader in the development and utilization of containerized natural gas transport. More information on CanElson can be found on its website: www.canelsondrilling.com.

FORWARD-LOOKING INFORMATION

This press release contains certain statements or disclosures relating to CanElson that are based on the expectations of CanElson as well as assumptions made by and information currently available to CanElson which may constitute forward-looking information under applicable securities laws. In particular, statements pertaining to the Company outperforming the industry and continuing to contract new build rigs; an expectation of significant fuel cost savings by displacing diesel with natural gas; scheduled delivery for Rig #34; the expected cost to construct a diesel drilling rig; the expected location and timing of deployment of new rig builds #33 and #35; the expected timing for assembly and deployment of Rig #36; the expected amount of capital expenditures; expectation that 100% of the Canadian and US drilling rig fleet will be active by the third week of September; and the Company's anticipation of its customer in Mexico signing a production sharing contract by 2013, contain forward looking information or achievements that may be expressed or implied by such forward looking information. Many factors could cause the performance or achievement by CanElson to be materially different from any future results, performance or achievements that may be expressed or implied by such forward looking information. CanElson's Annual Information Form and other documents filed with securities regulatory authorities (accessible through the SEDAR website www.sedar.com) describe the risks, material assumptions and other factors that could influence actual results and which are incorporated herein by reference. CanElson disclaims any intention or obligation to publicly update or revise any forward looking information, whether as a result of new information, future events or otherwise, except as may be expressly required by applicable securities laws.

Contact:
Randy Hawkings
CanElson Drilling Inc.
President and CEO
(403) 266-3922

Robert Skilnick
CanElson Drilling Inc.
Chief Financial Officer
(403) 266-3922
www.canelsondrilling.com

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