MANAGEMENT’S DISCUSSION AND ANALYSIS Drilling Rig Technology Labour Capital Overbuild in Contract Drilling Industry Environmental and Other Regulations AKITA operates. Consequently, the financial affairs of the Company are managed in a conservative fashion,  including maintaining a conservative balance sheet. Major capital expenditures are typically tied to long-term  contracts to minimize the amount of capital that is at risk for a timely recovery. Complex drilling programs for the exploration and development of remaining conventional and unconventional  crude oil and natural gas reserves in North America demand high performance drilling rigs. The ability of contract  drilling companies to meet this demand will depend upon continuous improvement of existing technology,  such as move systems, control systems, automation, drive systems, mud systems and top drives designed  to improve drilling efficiency. AKITA’s ability to deliver equipment and services that are more efficient than  those of its competitors is important to its continued success. There is no assurance that competitors will not  achieve technological improvements that are more advantageous, timely or cost efficient than improvements  developed by AKITA. AKITA has not sought or obtained patent or similar protection in respect of any drilling rigs, equipment or  technology it has developed independently. In the future, AKITA may seek patents or other similar protections  in respect of particular equipment and technology, however, there are no assurances that AKITA will be  successful in such efforts. Competitors may also develop similar equipment and technology to that of AKITA  thereby adversely affecting AKITA’s competitive advantage. Additionally, there can be no assurance that certain  equipment or technology developed by AKITA may not be subject to future patent infringement claims or other  similar matters which could result in litigation, the requirement to pay licensing fees or other results that could  have a material adverse effect on the business, results of operations and financial condition of AKITA. The contract drilling industry is dependent upon attracting, developing and maintaining a skilled and safe  workforce. During periods of peak activity levels, AKITA may be faced with a lack of personnel to operate  AKITA’s equipment. AKITA is also faced with the challenge of retaining its most experienced employees during  periods of low utilization. The Company’s financial results depend, at least in part, upon its ability to attract,  develop and maintain a skilled work force, while maintaining a cost structure that varies with activity levels. A number of AKITA’s key customers evaluate the ability of contract drilling companies to provide and maintain  a high standard of safe operations prior to selecting a drilling contractor for the provision of drilling services. AKITA’s financial success is related to its ability to continue to meet those expectations. Drilling rigs have a long life span and there is a significant lag between the time when a decision to build a rig  is made and when construction is completed: these two factors contribute to the supply of rigs in the industry  not always aligning with the demand for drilling rigs. High demand typically spurs greater capital expenditures  by drilling contractors which may, in turn exceed demand in future periods. A potential capital overbuild could  lead to a general reduction in rates in the industry as a whole, which could have a material adverse effect on  AKITA’s business, financial condition, results of operations and cash flows.  AKITA’s operations are subject to numerous laws, regulations and guidelines governing the management,  transportation and disposal of hazardous substances and other waste materials and otherwise relating to  the protection of the environment and health and safety. These laws, regulations and guidelines include  those relating to spills, releases, emissions and discharges of hazardous substances or other waste materials  into the environment, requiring removal or remediation of pollutants or contaminants and imposing civil and  criminal penalties for violations. Some of the laws, regulations and guidelines that apply to AKITA’s operations  25 AKITA DRILLING LTD.  ANNUAL REPORT