31207949.2

COURT FILE NUMBER 1601-04111 COURT OF QUEEN'S BENCH OF ALBERTA JUDICIAL CENTRE CALGARY PLAINTIFF ALBERTA TREASURY BRANCHES DEFENDANT MILLENNIUM STIMULATION SERVICES LTD. APPLICANT KPMG INC., IN ITS CAPACITY AS COURT-APPOINTED

RECEIVER AND MANAGER OF MILLENNIUM STIMULATION SERVICES LTD.

DOCUMENT SECOND REPORT TO THE COURT SUBMITTED BY

KPMG INC., IN ITS CAPACITY AS COURT-APPOINTED RECEIVER AND MANAGER OF MILLENNIUM STIMULATION SERVICES LTD. DATED APRIL 13, 2017

ADDRESS FOR SERVICE AND KPMG INC. CONTACT INFORMATION OF 3100, 205 – 5 Ave. S.W. PARTY FILING THIS DOCUMENT Calgary, AB T2P 4B9 Attn: Neil Honess/Ryan Adlington Telephone: 403-691-8014/403-691-8504

Facsimile: 403-691-8008 Email: neilhoness@kpmg.ca

radlington@kpmg.ca MCCARTHY TÉTRAULT LLP Suite 4000, 421-7th Avenue SW Attn: Sean Collins/Walker MacLeod Telephone: 403-260-3531/403-260-3710 Facsimile: 403-260-3501 Email: scollins@mccarthy.ca

wmacleod@mccarthy.ca

31207949.2

Table of Contents Page

1.  INTRODUCTION AND PURPOSE OF REPORT ......................................................................... 2 

2.  THE RECEIVER’S ACTIVITIES SINCE THE FIRST REPORT .................................................. 5 

3.  SASKATCHEWAN PROPERTIES ................................................................................................ 7 

4.  ANALYSIS OF PRIORITY CLAIMS ............................................................................................. 9 

5.  RECEIPTS AND DISBURSEMENTS .......................................................................................... 10 

6.  RECOMMENDATIONS ............................................................................................................... 12 

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Listing of Appendices

Appendix “A” - Receivership Order dated March 24, 2016

Appendix “B” - Sales and Vesting Approval Order dated June 6, 2016

Appendix “C” - Title search Estevan Yard as of April 4, 2017

Appendix “D” - Interim Statement of Receipts and Disbursements from March 24, 2016 to March 31, 2017

Appendix “E” - Receivership Professional Fees from March 24, 2016 to March 31, 2017

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1. INTRODUCTION AND PURPOSE OF REPORT

Introduction

1. Millennium Stimulation Services Ltd. (“Millennium” or the “Company”) is a private oilfield

services company. The Company’s principal assets include pressure pumping equipment, and

patented waterless energized natural gas stimulation process fracturing technology (“ENG”). All

assets are located in Alberta and Saskatchewan.

2. The Company’s primary secured lender is Alberta Treasury Branches (“ATB”) who has advanced

funds of approximately $17.15 million (plus interest and fees) to Millennium. These amounts were

borrowed by Millennium pursuant to the amended facility agreements between ATB and

Millennium dated September 1, 2015 and January 8, 2016 (the “Facility Agreements”).

3. As a result of the sharp reduction in oil prices and the associated reduction in hydraulic fracturing

(“Fracking”) the Company experienced significant cash flow difficulties and was unable to make

loan payments due or successfully restructure its financing arrangement with ATB. Accordingly,

the Company is and remains in default of the Facility Agreement.

4. On March 11, 2016, ATB issued a demand for payment and notice of intention to enforce security

(the “ATB Notice”) pursuant to Section 244 of the Bankruptcy and Insolvency Act (“BIA”).

5. Shortly after the ATB Notice, ATB commenced an application to appoint KPMG Inc. (“KPMG”)

as receiver and manager of Millennium (the “Receiver”) pursuant to section 243 of the BIA and

section 13(2) of the Judicature Act, RSA 2000, c J-2 to, inter alia, take possession of and exercise

control over the assets of the Company (including the shares of the Company) and any and all

proceeds, receipts and disbursements arising out of or from the assets (the “Property”).

6. On March 24, 2016, the Court of Queen’s Bench of Alberta (“Court”) issued an order appointing

KPMG as the Receiver over all of the Property and undertakings of Millennium (the “Order”). A

copy of the Order is attached hereto as Appendix “A”.

7. Further background to the receivership, including a summary of assets and primary liabilities, as

was previously provided in the Receiver’s first report dated May 30, 2016 (the “First Report”).

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8. The Receiver developed a sales process (the “SP”) detailed in the First Report. The results of the

SP can be found in the Receiver’s first supplemental confidential report to the Court dated May 30,

2016 (the “First Supplemental Confidential Report”).

9. A sale approval and vesting order (the “Sale Approval and Vesting Order”) with respect to the

Company’s hydraulic fracturing units, ENG pumping unit, coiled tubing unit and intellectual

property successfully sold through the SP (together, the “Fracturing Equipment and IP”),

attached as Appendix “B”, was granted by the Court on June 6, 2016. Subsequently, the sales of

these assets were closed.

10. For further background information on Millennium and these receivership proceedings please refer

to the Receiver’s website www.kpmg.ca/millennium.

11. In preparing this report, the Receiver has been provided with, and has relied upon, unaudited and

other financial information, books and records (collectively, the “Information”) prepared by the

Company and/or their representatives, and discussions with the Company’s management and/or

representatives. The Receiver has reviewed the Information for reasonableness, internal

consistency and use in the context in which it was provided and in consideration of the nature of

evidence provided to this Honourable Court. However, the Receiver has not audited or otherwise

attempted to verify the accuracy or completeness of the Information in a manner that would wholly

or partially comply with Canadian Auditing Standards (“CAS”) pursuant to the Chartered

Professional Accountants Canada Handbook and, accordingly, the Receiver expresses no opinion

or other form of assurance contemplated under the CAS in respect of the Information.

12. The information contained in this report is not intended to be relied upon by any prospective

purchaser or investor in any transaction with the Receiver.

13. Defined terms not defined herein have the same meaning as defined in the First Report and First

Supplemental Confidential Report.

14. All references to monetary amounts in this report are in Canadian dollars unless otherwise

specified.

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Purpose of the Receiver’s Second Report

15. This is the Receiver’s second report (the “Second Report”) and is filed to provide this Honourable

Court with:

a) An update on the actions of the Receiver since the date of receivership;

b) A request to approve the proposed distribution of priority claims to other parties;

c) The interim statement of receipts and disbursements for the receivership period March 24,

2016 to March 31, 2017;

d) The Receiver’s fees and disbursements for the period from May 21, 2016 to March 31,

2017 and the Receiver’s legal counsel’s fees and disbursements for the period from May

1, 2016 to March 31, 2017;

e) Sealing the supplemental, confidential report (the “Second Supplemental Confidential

Report”); and

f) The Receiver’s recommendations.

16. The Second Supplemental Confidential Report has been prepared by the Receiver which details the

sales process undertaken in respect of the Company’s office, warehouse and land in Estevan,

Saskatchewan and the proposed transaction pursuant to that process and the Receiver’s

recommendations in connection thereto.

Page | 5

2. THE RECEIVER’S ACTIVITIES SINCE THE FIRST REPORT

The Medicine Hat Premises

17. At the date of the receivership, Millennium had certain assets located in two leased locations in

Medicine Hat (the “Medicine Hat Premises”).

18. Subsequent to the completion of the SP, the Receiver vacated the Medicine Hat Premises on

September 16, 2016. The Receiver performed the following before vacating the Medicine Hat

Premises:

a) Removed and disposed of various chemical totes;

b) Removed all necessary records and forwarded the files to a third-party external document

storage; and

c) Paid all rent and related expenses due from the date of filing to the date the Receiver

vacated the Medicine Hat Premises.

Sand Facility

19. Millennium owns a sand storage facility that is located on leased property in Estevan, Saskatchewan

(the “Sand Facility”). The Sand Facility is a special use, purpose-built facility to upload silica sand

from an adjacent rail car siding.

Estevan Yard

20. Millennium is the registered owner of an eight acre site with office and warehouse facilities located

in an industrial area in Estevan, Saskatchewan, legally described as Lot 1 Block D Plan No

102046564 (the “Estevan Yard”).

21. Attached as Appendix “C” is a copy of the title search for the Estevan Yard as of April 4, 2017.

Insurance

22. The Receiver did not renew certain insurance coverages as the sale of the Fracturing Equipment

and IP was completed in August 2016.

Page | 6

23. The Receiver worked with the insurers and brokers to extend property and commercial general

liability insurance coverages until May 31, 2017 and October 16, 2017, respectively.

Environmental Assessment

24. The Receiver has engaged commercial agents to market and sell both the Sand Facility and the

Estevan Yard (together, the “Saskatchewan Properties”) as detailed below.

25. In June 2016 the Receiver engaged Pinchin West Ltd. (“PWL”) to perform a Phase I Environmental

Site Assessment (the “Phase I ESA Report”) for the Saskatchewan Properties.

26. At the Estevan Yard, an issue with stained soil and the former aboveground waste oil storage tank

(the “Stain”) was the only issue identified. In the Phase I ESA Report PWL recommended that the

Stain was remediated. No items were identified at the Sand Facility. PWL advised that no further

subsurface investigation work or a Phase II Environmental Site Assessment was required for the

Saskatchewan Properties.

27. Accordingly in September 2016 the Receiver engaged PWL to remediate the Stain. In October

2016, PWL reported that the remedial activities had successfully removed the effected soil.

28. Upon request, the Receiver provided the Phase I ESA Report to parties interested in either of the

Saskatchewan Properties.

Asset Maintenance

29. The Receiver hired a former employee of Millennium, residing in Estevan, as a consultant to

undertake periodic inspections of the Saskatchewan Properties. Additionally, repairs and

maintenance, including the repair of a burnt out beacon and the emptying of a sump tank were

carried out at the Sand Facility.

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3. SASKATCHEWAN PROPERTIES

Sand Facility

30. The Receiver listed the Sand Facility with CBRE Limited (“CBRE”) at $4.9 million in June 2016.

31. CBRE focussed its marketing efforts on primarily oil and gas companies in the surrounding area.

To date, 14 parties have expressed interest. Site plans and the Phase I ESA Report were provided

to four of these parties and one site visit has been conducted.

32. CBRE advised that interest in the Sand Facility is limited due to its highly specialized nature, which

is very dependent on the local economic conditions. The Sand Facility is designed to supply sand

to companies that perform Fracking locally. Low commodity prices have significantly reduced the

level of Fracking activity in the area.

33. The Receiver continues to market the Sand Facility.

Estevan Yard

34. In May 2016 the Receiver listed the Estevan Yard with CIR Commercial Realty Inc. o/a Colliers

International (“Colliers”) at $3.355 million.

35. The Receiver was advised that Colliers undertook the following marketing activities:

a) Contacting other local commercial agents;

b) Distributing sales brochures to approximately 80 commercial agents and 40

prospective clients; and

c) Advertising on the Colliers website.

36. Site plans and the Phase I ESA Report were provided to various interested parties upon request.

37. Ten interested parties viewed the Estevan Yard.

38. On or about September 15, 2016, an offer that was considerably below the listing price of $3.355

million was submitted. The Receiver rejected the offer and requested an offer to be closer to the

listing price. No offer was re-submitted.

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39. Colliers advised that interest in the Estevan Yard was initially limited in 2016 principally due to:

a) The depressed commodity prices’ impact on the local oil and gas activities; and

b) A surplus of similar properties in the local market.

40. Accordingly, in December 2016 the Receiver in discussions with ATB and Colliers reduced the

listing price to $2.95 million.

41. In mid-February 2017, two offers were submitted to the Receiver. The Receiver counter-offered to

the parties with a deadline to submit revised offers on March 10, 2017. A draft asset purchase

agreement (the “APA”) was provided to the parties at this time.

42. Subsequently, the parties submitted an amended APA that included revised offers and certain

conditions that were unacceptable to the Receiver.

43. On March 13, 2017, the Receiver requested that all these conditions be waived and for the parties

to re-submit a final offer and APA by 5pm (MST) on March 15, 2017.

44. Final APAs were received from the parties which waived all the conditions as requested.

45. Subsequent to the marketing process and negotiations with the parties, an offer was accepted by

the Receiver.

46. The Receiver has provided further detailed information on the marketing process and the accepted

bid in the Second Supplemental Confidential Report. The Receiver is of the view that the marketing

of the Estevan Yard was fair, reasonable and transparent and provided the highest and best value

for the Estevan Property in the circumstances.

47. The Receiver will seek a sealing order in connection with the Second Supplemental Confidential

Report, as disclosure of the information contained in the Second Supplemental Confidential Report

would cause irreparable prejudice to creditors and other stakeholders. In the event that the

transactions contemplated therein do not close, the assets would be subject to further marketing and

the Receiver’s ability to obtain the highest and best price would be severely compromised due to

the purchase price information being in the public domain. As such, the Receiver seeks a limited

sealing order in connection with the Second Supplemental Confidential Report.

Page | 9

4. ANALYSIS OF PRIORITY CLAIMS

48. As described in the First Report, ATB’s security was reviewed by the Receiver’s legal counsel and

the Receiver was advised that ATB has a valid security interest in the right, title and interest of

Millennium in its real and personal property, subject to certain standard assumptions and

qualifications.

Other Priority Claims

49. The confirmed priority claims received are summarized below. The Receiver has reviewed and

concluded these all rank in priority to ATB (“Other Priority Claims”):

50. Accordingly the Receiver proposes to distribute up to $71,807 to the creditors listed above (the

“Proposed Distribution”).

51. The Receiver is to make an interim distribution to ATB subject to the approval of the sale and

vesting order as described in the Second Supplemental Confidential Report.

Summary of Other Priority Claims

Creditor

Amount (in CAD $)

Notes

Employment and Social Development Canada 37,848 Eligible wages pursuant to "WEPPA"

Canada Revenue Agency 28,600 Re-assessed GST

Alberta Workers' Compensation Board 5,359 Oustanding premiums

Total 71,807

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5. RECEIPTS AND DISBURSEMENTS

52. The Receiver’s disbursements during the receivership have primarily related to the preservation of

Millennium’s Property and include costs such as site security, insurance, rent and asset

maintenance.

53. Below is a summary of receipts and disbursements from March 24, 2016 to March 31, 2017 (the

“R&D”). The complete interim statement of receipts and disbursements is attached as Appendix

“D”:

54. The R&D reflects disbursements of $8.9 million. The Receiver highlights the following:

a) Interim distribution of approximately $7.25 million representing repayments to the secured

creditor as authorized in the Sale Approval and Vesting Order;

b) Distribution of $365,100 to Jim Peplinski Leasing Inc. (“JP”) for various motor vehicles

that were secured by JP. These motor vehicles were included in the SP as detailed in the

First Report and the First Supplemental Confidential Report;

c) The Receiver’s fees and disbursements of $180,200 plus GST for the period up to May 20,

2016 as authorized in the Sale Approval and Vesting Order; and

d) The Receiver’s legal counsel’s fees and disbursements of $18,700 plus GST for the period

up to April 30, 2016 as authorized in the Sale Approval and Vesting Order.

Interim Statement of Receipts and Disbursements - March 24, 2016 - March 31, 2017

Amount

Total Cash Receipts 10,762,505

Cash Disbursements

Payment to secured creditor 7,250,000

GST remitted 432,605

Operating costs 409,576

Equipment leases - Jim Peplinski Leasing Inc. pay out 365,101

Professional fees 198,006

Repayment of receiver certificate 150,000

GST paid on disbursements 45,370

Commission re auction 11,629

Miscellaneous other costs 7,656

Total Cash Disbursements 8,869,943

Excess Receipts Over Disbursements 1,892,562

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55. The Receiver and its legal counsel have billed and/or accrued fees of $272,737 and $80,868 from

May 1, 2016 to March 31, 2017. These fees, in addition to the professional fees already paid, are

collectively referred to as the “Receivership Professional Fees”. A list of invoices are attached as

Appendix “E”.

Accordingly the Receiver seeks approval of the Receivership Professional Fees. Copies of the

invoices described therein, including detailed time analysis, will be made available to the Court at

the April 24, 2017 hearing upon request.

Summary of Professional Fees

Period May 21, 2016 - March 31, 2017

in CAD $ Period Total

KPMG Inc.

Amount disbursed March 24, 2016 - May 20, 2016 193,758

Amount to be disbursed May 21, 2016 - March 31, 2017 272,737

Subtotal 466,495

McCarthy Tétrault LLP

Amount disbursed March 24, 2016 - April 30, 2016 18,741

Amount to be disbursed May 1, 2016 - March 31, 2017 80,868

Subtotal 99,609

Total amount to be disbursed 353,605

Total Professional Fees 566,104

Appendix A

Receivership Order dated March 24, 2016

Appendix B

Sales and Vesting Approval Order dated June 6, 2016

Appendix C

Title search Estevan Yard as of April 4, 2017

Appendix D

Interim Statement of Receipts and Disbursements from March 24, 2016 to March 31, 2017

Cash Receipts NotesSale of assets 8,699,880.24 Sale of patents 1,216,632.97 GST collected 465,825.31 Advance from secured creditor 150,000.00 Saskatchewan WCB surplus distribution 82,473.38 Tax refund re Enfrac Inc. 55,383.61 Sale of trucks (pre-receivership) 44,435.25 Insurance refund 30,025.00 Miscellaneous refund 1 17,849.58 Total Cash Receipts 10,762,505.34

Cash Disbursements

Payment to secured creditor 7,250,000.00 GST remitted 432,605.44 Equipment leases - Jim Peplinski Leasing Inc. pay out 365,100.86 Occupation rent 194,163.28 Receiver's fee 180,157.50 Repayment of receiver certificate 150,000.00 Utilities 52,738.15 Outside counsulting 48,425.92 GST paid on disbursements 36,362.09 Environment costs 34,050.00 IT services 20,698.02 Insurance 17,894.33 Legal fees 17,848.25 Security 14,775.00 Commission re auction 11,629.31 GST paid on receiver's fees 9,007.88 Repairs and maintenance 7,860.88 Trucking and transport 5,100.00 Storage 4,500.00 Lien payment - Micron Industries Inc. 3,833.47 Loan interest 2,949.06 Travel 2,773.06 Garbage removal and clean up 2,763.47 US Exchange re return of bid deposit 2 2,270.00 Redirection of mail 1,355.55 Miscellaneous other costs 3 1,081.77 Total Cash Disbursements 8,869,943.29

Excess Receipts Over Disbursements 1,892,562.05$

Notes:

1 Includes corporate tax, Co-op membership, Jim Peplinksi lease and Federal Express Canada refunds.2

3 Includes payroll services, bank charges, locksmith and filing fees.

In the Matter of the Receivership ofMillennium Stimulation Services Ltd.

Receiver's Interim Statement of Receipts and Disbursements for the Period March 24, 2016 - March 31, 2017

Combined (CAD)

Exchange rate loss on bid deposits originally received in US dollars, converted to Canadian dollars for deposit then converted back to US dollars for return to the unsuccessful bidders.

Appendix E

Receivership Professional Fees from March 24, 2016 to March 31, 2017

Receivership Professional Fees

Period May 21, 2016 - March 31, 2017

in CAD $ Service PeriodFees and

Disbursements GST Subtotal Total

KPMG Inc.

Amount disbursed

March 24, 2016 - May 20, 2016 184,531.27 9,226.56 193,757.83

Subtotal 193,757.83

Amount to be disbursed

May 21, 2016 - September 30, 2016 142,983.37 7,149.17 150,132.54

October 1, 2016 - December 31, 2016 43,911.90 2,195.60 46,107.50

January 1, 2017 - March 31, 2017 72,854.20 3,642.71 76,496.91

Subtotal 272,736.95

Total KPMG Inc. 466,494.78

McCarthy Tétrault LLP

Amount disbursed

March 24, 2016 - March 31, 2016 1,534.00 76.70 1,610.70

April 1, 2016 - April 30, 2016 16,314.25 815.71 17,129.96

Subtotal 18,740.66

Amount to be disbursed

May 1, 2016 - May 31, 2016 27,215.08 1,358.23 28,573.31

June 1, 2016 - June 30, 2016 18,032.75 901.64 18,934.39

July 1, 2017 - July 31, 2016 6,267.50 313.38 6,580.88

August 1, 2016 - August 31, 2016 5,707.25 282.22 5,989.47

September 1, 2016 - October 31, 2016 5,410.50 270.53 5,681.03

November 1, 2016 - November 30, 2016 872.00 43.60 915.60

December 1, 2016 - December 31, 2016 2,565.50 128.28 2,693.78

Subtotal February 1, 2017 - March 31, 2017 10,952.00 547.61 11,499.61 80,868.07

Total McCarthy Tétrault LLP 99,608.73

Total Amount to be disbursed 353,605.02

Total Professional Fees 566,103.51$