Liquidity and Capital Resources
The Corporation had $17.6 million in cash at September 30, 2005 compared to debt of $10.9
million, resulting in cash, net of debt, of $6.7 million. At September 30, 2004, the Corporation
had debt of $65.2 million and cash of $56.0 million resulting in net debt of $9.2 million. In
October 2004, the Corporation repaid in full its US$46.5 million Senior Notes. Management believes
that existing cash and available credit facilities, together with expected operating cash flows,
will be sufficient to fund the Corporations planned operating cash requirements and capital
expenditures for 2005. The Corporation has a capital expenditure forecast for full year 2005 of
approximately $21 million, of which the largest component is targeted for casing running equipment.
Financial Instruments and Contractual Commitments
In August 2005, the Corporation agreed to the sale of its four CASING DRILLING®
rigs and related assets to Turnkey E&P Inc., a privately held Canadian company for gross proceeds
of approximately US$35 million and warrants to purchase
approximately 5% of Turnkey E&P Inc.. Completion of the sale, which is conditional on the purchaser
obtaining financing, will be on or before December 22, 2005.
In November 2005, TESCO Corporation agreed to sell its investment in Drillers Technology Corp.
(DTC) to Saxon Energy Services, Inc. (Saxon) for the tender offer price of $1.85 per share. If
Saxons offer is successful, the Corporations 5,400,000 DTC shares will result in proceeds to the
Corporation of approximately $10 million. The acquisition by Saxon of DTC is subject to certain
conditions which must be fulfilled by both parties pursuant to the terms of the acquisition
agreement.
On November 2, 2005, the Corporation purchased the assets of Tong Specialty and
Cheyenne Services for approximately US$50 million. Tong Specialty is based in Lafayette, Louisiana
and Cheyenne Services is based in Houston, Texas. Both companies provide a broad offering of
tubular running and related services offshore in the US Gulf of Mexico and onshore in Texas and
Louisiana. These companies supply equipment and personnel for the installation of tubing and
casing, including power tongs, pick-up/lay-down units, torque monitoring services, connection
testing services and power swivels for new well construction in work-over and re-entry operations.
Additionally, Cheyenne Services is a leader in the installation service of deep water smart well
completion equipment using its proprietary technology.
These businesses will be combined with the Corporations existing tubular services operations in
the US and will provide immediate expansion opportunities for the Corporations proprietary casing
running service delivered with its Casing Drive System (CDS) technology. Tong Specialtys and
Cheyenne Services base locations, corresponding service delivery capacity and client portfolios
will provide the Corporation with significant additional market access, and generate CDS
deployment opportunities, allowing mainstream accessibility to the safety and efficiency of the
CDS tool.
The combined purchase price of these two all-cash acquisitions totals approximately US$50 million.
In connection with these transactions and subsequent to September 30, 2005, the Corporation has
retired all outstanding debt, cancelled its existing credit facilities and has entered into a new
US$100 million credit facility with JPMorgan Chase, N.A. to fund these acquisitions, finance
potential future acquisitions, and provide working capital support.
Outlook
The Corporation remains focused on its strategy to grow the company through the expansion of
Casing Services and continued commitment to its core Top Drive business. TESCO continues to
evaluate potential acquisitions that would help leverage its proprietary technology.
4
TESCO CORPORATION
2005 THIRD QUARTER REPORT