UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2009

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

KEY ENERGY SERVICES, INC.

(Exact name of registrant as specified in its charter)

Maryland (State or other jurisdiction of incorporation or organization)		04-2648081 (I.R.S. Employer Identification No.)

(Address of principal executive offices) (Zip Code)

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ     No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o     No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o     No þ

     As of July 31, 2009, the number of outstanding shares of common stock of the registrant was 124,046,273.

 

 

KEY ENERGY SERVICES, INC.

QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended June 30, 2009

				Page
Part I—Financial Information					4
Item 1.		Financial Statements			4
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			40
Item 4.		Controls and Procedures			40
Part II—Other Information					42
Item 1.		Legal Proceedings			42
Item 1A.		Risk Factors			42
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			42
Item 3.		Defaults Upon Senior Securities			42
Item 4.		Submission of Matters to a Vote of Security Holders			43
Item 5.		Other Information			43
Item 6.		Exhibits			43
EX-10.2
EX-10.3
EX-31.1
EX-31.2
EX-32

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     In addition to statements of historical fact, this report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature or that relate to future events and conditions are, or may be deemed to be, forward-looking statements. These “forward-looking statements” are based on our current expectations, estimates and projections about Key Energy Services, Inc. and its subsidiaries, our industry and management’s beliefs and assumptions concerning future events and financial trends affecting our financial condition and results of operations. In some cases, you can identify these statements by terminology such as “may,” “will,” “predicts,” “projects,” “potential” or “continue” or the negative of such terms and other comparable terminology. These statements are only predictions and are subject to substantial risks and uncertainties. In evaluating those statements, you should carefully consider the information above as well as the risks outlined in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the year ended December 31, 2008, in our Quarterly Report on Form 10-Q for the period ended March 31, 2009, in our recent Current Reports on Form 8-K and in our other filings with the Securities and Exchange Commission. Actual performance or results may differ materially and adversely.

     We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date of this report except as required by law. All of our written and oral forward-looking statements are expressly qualified by these cautionary statements and any other cautionary statements that may accompany such forward-looking statements.

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Key Energy Services, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)

						December 31,
		June 30, 2009				2008
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	79,639			$	92,691
Accounts receivable, net of allowance for doubtful accounts of $14,132 and $11,468, respectively			197,181				377,353
Inventories			31,619				34,756
Prepaid expenses			9,327				15,513
Deferred tax assets			25,581				26,623
Income taxes receivable			21,218				4,848
Other current assets			7,676				7,338
Total current assets			372,241				559,122
Property and equipment, gross			1,907,114				1,858,307
Accumulated depreciation			(871,144	)			(806,624	)
Property and equipment, net			1,035,970				1,051,683
Goodwill			321,338				320,992
Other intangible assets, net			35,928				42,345
Deferred financing costs, net			9,509				10,489
Notes and accounts receivable — related parties			437				336
Equity method investments			23,323				24,220
Other assets			7,166				7,736
TOTAL ASSETS		$	1,805,912			$	2,016,923
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	21,942			$	46,185
Accrued liabilities			140,460				197,116
Accrued interest			3,682				4,368
Current portion of capital lease obligations			8,597				9,386
Current portion of notes payable — related parties, net of discount			14,383				14,318
Current portion of long-term debt			2,023				2,000
Total current liabilities			191,087				273,373
Capital lease obligations, less current portion			10,461				13,763
Notes payable — related parties, less current portion			6,000				6,000
Long-term debt, less current portion			512,812				613,828
Workers’ compensation, vehicular, health and other insurance liabilities			36,952				43,151
Deferred tax liabilities			188,203				188,581
Other non-current accrued liabilities			17,336				17,495
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.10 par value; 200,000,000 shares authorized, 124,046,273 and 121,305,289 shares issued and outstanding, respectively			12,405				12,131
Additional paid-in capital			605,956				601,872
Accumulated other comprehensive loss			(51,010	)			(46,550	)
Retained earnings			275,710				293,279
Total stockholders’ equity attributable to common stockholders			843,061				860,732
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,805,912			$	2,016,923

See the accompanying notes which are an integral part of these condensed consolidated financial statements.

Key Energy Services, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

		Three Months Ended June 30,								Six Months Ended June 30,
		2009				2008				2009				2008
REVENUES		$	241,458			$	502,003			$	573,447			$	958,402
COSTS AND EXPENSES:
Direct operating expenses			173,853				322,488				401,080				604,129
Depreciation and amortization expense			43,191				42,271				87,947				82,247
General and administrative expenses			45,395				58,249				94,101				125,981
Interest expense, net of amounts capitalized			10,181				10,079				19,829				20,119
Gain on disposal of assets, net			(1,350	)			(360	)			(661	)			(626	)
Interest income			(169	)			(182	)			(417	)			(690	)
Other income, net			(512	)			(1,789	)			(430	)			(912	)
Total costs and expenses, net			270,589				430,756				601,449				830,248
(Loss) income before taxes and noncontrolling interest			(29,131	)			71,247				(28,002	)			128,154
Income tax benefit (expense)			10,658				(27,446	)			10,433				(49,903	)
Net (Loss) Income			(18,473	)			43,801				(17,569	)			78,251
Noncontrolling interest			—				211				—				245
(LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS		$	(18,473	)		$	44,012			$	(17,569	)		$	78,496
(Loss) earnings per share attributable to common stockholders:
Basic		$	(0.15	)		$	0.35			$	(0.15	)		$	0.62
Diluted		$	(0.15	)		$	0.35			$	(0.15	)		$	0.61
Weighted average shares outstanding:
Basic			120,963				124,448				120,815				126,207
Diluted			120,963				126,521				120,815				127,914

See the accompanying notes which are an integral part of these condensed consolidated financial statements.

Key Energy Services, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)

		Three Months Ended June 30,								Six Months Ended June 30,
		2009				2008				2009				2008
Net (Loss) Income		$	(18,473	)		$	43,801			$	(17,569	)		$	78,251
Other comprehensive (loss) income, net of tax:
Foreign currency translation gain (loss), net of tax of $(515), $0, $(44) and $0, respectively			764				2,776				(4,490	)			2,228
Deferred gain from available for sale investments, net of tax of $0, $0, $0 and $0, respectively			—				7				30				—
Total other comprehensive gain (loss), net of tax			764				2,783				(4,460	)			2,228
Comprehensive (loss) income, net of tax			(17,709	)			46,584				(22,029	)			80,479
Comprehensive loss attributable to noncontrolling interest			—				187				—				246
Comprehensive (loss) income attributable to common stockholders		$	(17,709	)		$	46,771			$	(22,029	)		$	80,725

See the accompanying notes which are an integral part of these condensed consolidated financial statements.

Key Energy Services, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

		Six Months Ended June 30,
		2009				2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income attributable to common stockholders		$	(17,569	)		$	78,496
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Noncontrolling interest			—				(245	)
Depreciation and amortization expense			87,947				82,247
Bad debt expense			2,674				1,444
Accretion of asset retirement obligations			280				320
Loss (income) from equity method investments			436				(1,027	)
Amortization of deferred financing costs and discount			1,044				1,066
Deferred income tax expense			643				886
Capitalized interest			(2,444	)			(3,174	)
Gain on disposal of assets, net			(661	)			(360	)
Loss on sale of available for sale investments, net			30				—
Share-based compensation			3,295				7,217
Excess tax benefits from share-based compensation			—				(1,695	)
Changes in working capital:
Accounts receivable			177,321				(44,369	)
Other current assets			8,086				(1,014	)
Accounts payable, accrued interest and accrued expenses			(105,098	)			42,258
Share-based compensation liability awards			(21	)			384
Other assets and liabilities			1,336				(350	)
Net cash provided by operating activities			157,299				162,084
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures			(67,409	)			(71,371	)
Proceeds from sale of fixed assets			3,818				2,512
Acquisitions, net of cash acquired of $0 and $2,017			—				(61,619	)
Acquisition of intangible assets			—				(1,086	)
Dividend from equity-method investments			199				—
Proceeds from sale of short-term investments			—				268
Net cash used in investing activities			(63,392	)			(131,296	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt			(1,026	)			—
Repayments of capital lease obligations			(6,107	)			(5,936	)
Borrowings on revolving credit facility			—				85,000
Repayments on revolving credit facility			(100,000	)			(35,000	)
Repurchases of common stock			(113	)			(95,879	)
Proceeds from exercise of stock options			1,177				5,972
Proceeds paid for deferred financing costs			—				(314	)
Excess tax benefits from share-based compensation			—				1,695
Net cash used in financing activities			(106,069	)			(44,462	)
Effect of changes in exchange rates on cash			(890	)			630
Net decrease in cash and cash equivalents			(13,052	)			(13,044	)
Cash and cash equivalents, beginning of period			92,691				58,503
Cash and cash equivalents, end of period		$	79,639			$	45,459

See the accompanying notes which are an integral part of these condensed consolidated financial statements.

Key Energy Services, Inc., and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

NOTE 1. GENERAL

     Key Energy Services, Inc., its wholly-owned subsidiaries and its controlled subsidiaries (collectively, “Key,” the “Company,” “we,” “us,” “its,” and “our”) provide a complete range of services to major oil companies, foreign national oil companies and independent oil and natural gas production companies, including rig-based services, fluid management services, pressure pumping services, fishing services, rental services, and cased-hole electric wireline services. We operate in most major oil and natural gas producing regions of the United States as well as internationally in Argentina and Mexico. We also own a technology development company based in Canada and have equity interests in oilfield service companies in Canada and the Russian Federation.

     The accompanying unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). The condensed December 31, 2008 balance sheet was prepared from audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. Certain information relating to the Company’s organization and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in this Quarterly Report on Form 10-Q. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

     The unaudited condensed consolidated financial statements contained in this report include all normal and recurring material adjustments that, in the opinion of management, are necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods presented herein. The results of operations for the three and six month periods ended June 30, 2009 are not necessarily indicative of the results expected for the full year or any other interim period, due to fluctuations in demand for our services, timing of maintenance and other expenditures, and other factors.

     We have evaluated events occurring after the balance sheet date included in this Quarterly Report on Form 10-Q for possible disclosure as a subsequent event. Management monitored for subsequent events through August 6, 2009 as this was the date that these financial statements were available to be issued. No subsequent events that required disclosure were identified.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

     The preparation of these condensed consolidated financial statements requires us to develop estimates and to make assumptions that affect our financial position, results of operations and cash flows. These estimates also impact the nature and extent of our disclosure, if any, of our commitments and contingencies. Among other things, we use estimates to (i) analyze assets for possible impairment, (ii) determine depreciable lives for our assets, (iii) assess future tax exposure and realization of deferred tax assets, (iv) determine amounts to accrue for contingencies, (v) value tangible and intangible assets and (vi) assess workers’ compensation, vehicular liability, self-insured risk accruals and other insurance reserves. Our actual results may differ materially from these estimates. We believe that our estimates are reasonable. There have been no material changes in our evaluation of the accounting estimates or underlying assumptions to the significant accounting policies and estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008.

New Accounting Standards Adopted in this Report

     FSP 157-4. In April 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) Statement of Financial Accounting Standards (“SFAS”)157-4, Determining the Fair Value of a Financial Asset When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP 157-4”). FSP 157-4 clarified the application of SFAS No. 157, Fair Value Measurements (“SFAS 157”) by providing additional guidance for estimating fair value in accordance with SFAS 157, when the volume and level of activity for an asset or liability have significantly decreased. FSP 157-4 also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, and the adoption of this standard did not have a material impact on our financial position, results of operations or cash flows.

     FSP 115-2. In April 2009, the FASB issued FSP 115-2, Recognition and Presentation of Other-Than-Temporary Impairments (“FSP 115-2”), which amends the other-than-temporary impairment guidance in GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. FSP 115-2 does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FSP 115-2 is effective for interim and annual reporting periods ending after June 15, 2009, and the adoption of this standard did not have a material impact on our financial position, results of operations or cash flows.

     FSP 107-1. In April 2009, the FASB issued FSP SFAS 107-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP 107-1”), which amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about the fair value of financial instruments for interim reporting periods of publicly traded companies, as well as in annual financial statements. FSP 107-1 also amends Accounting Principles Board (“APB”) Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information for interim reporting periods. FSP 107-1 is effective for interim reporting periods ending after June 15, 2009, and the adoption of this standard did not have a material impact on our financial position, results of operations or cash flows.

     SFAS 165. In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS 165”). SFAS 165 establishes general standards of accounting for and disclosing of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. SFAS 165 does not significantly change the types of subsequent events that an entity reports, but it requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. SFAS 165 is effective for interim or annual reporting requirements ending after June 15, 2009. The adoption of this standard did not have a material impact on our financial position, results of operations or cash flows.

Accounting Standards Not Yet Adopted in this Report

     SFAS 166. In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140 (“SFAS 166”). SFAS 166 amends the application and disclosure requirements of SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities — a Replacement of FASB Statement 125 (“SFAS 140”) and removes the concept of a “qualifying special purpose entity” from SFAS 140 and removes the exception from applying FASB Interpretation (“FIN”) No. 46(R), Consolidation of Variable Interest Entities — an Interpretation of ARB No. 51 (“FIN 46(R)”) to qualifying special purpose entities. SFAS 166 is effective for the first annual reporting period that begins after November 15, 2009, and early adoption is not permitted. The Company does not believe that the adoption of this standard will have a material impact on its financial position, results of operations or cash flows.

     SFAS 167. In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS 167”). SFAS 167 amends the scope of FIN 46(R) to include entities previously considered qualifying special-purpose entities by FIN 46(R), as the concept of a qualifying special-purpose entity was eliminated in SFAS 166. This standard is to be effective for the first annual reporting period that begins after November 15, 2009, and early adoption is not permitted. The Company does not believe that the adoption of this standard will have a material impact on its financial position, results of operations or cash flows.

     SFAS 168. In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162 (“SFAS 168”). Upon its adoption, the FASB Accounting Standards Codification (the “Codification”) will become the source of authoritative GAAP recognized by the FASB to be applied to nongovernmental entities. On the effective date of SFAS 168, the Codification will supersede all then-existing non-SEC accounting and reporting standards. Following SFAS 168, the FASB will not issue new accounting standards in the form of FASB Statements, FASB Staff Positions, or Emerging Issues Task Force abstracts. SFAS 168 will also modify the existing hierarchy of GAAP to include only two levels — authoritative and non-authoritative. SFAS 168 will be effective for financial statements issued for interim and annual periods ending after September 15, 2009, and early adoption is not permitted. The Company does not believe that the adoption of this standard will have a material impact on its financial position, results of operations or cash flows.

NOTE 3. ACQUISITIONS

     From time to time, the Company acquires businesses or assets that are consistent with its long-term growth strategy. Results of operations for acquisitions are included in the Company’s financial statements beginning on the date of acquisition. Acquisitions prior to January 1, 2009 are accounted for using the purchase method of accounting and the purchase price is allocated to the net assets acquired and liabilities assumed based upon their estimated fair values at the date

of acquisition. The purchase price allocations related to acquisitions made after June 30, 2008 are based on preliminary information and are subject to change when final fair value determinations are made for the assets acquired and liabilities assumed. Acquisitions made after January 1, 2009 are accounted for using the acquisition method pursuant to SFAS 141(R). Final valuations of assets and liabilities are obtained and recorded as soon as practicable and within one year after the date of the acquisition. The Company made no acquisitions during the three or six months ended June 30, 2009.

Hydra-Walk, Inc.

     On May 30, 2008, the Company, through a wholly-owned subsidiary, purchased all of the outstanding stock of Hydra-Walk, Inc. (“Hydra-Walk”). Total consideration paid was approximately $10.6 million in cash (including post-closing adjustments) with a performance earn-out potential of up to $2.0 million over two years from the acquisition date, if certain financial and operational performance measures are met. During the three and six months ended June 30, 2009, we recorded an increase to goodwill of $0.1 million and $0.4 million, respectively, related to this earn-out. The Company incurred direct transaction costs of approximately $0.1 million. Hydra-Walk was incorporated into our Production Services segment. The acquisition of Hydra-Walk was accounted for as a business combination and the purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over the fair value of net assets acquired was recorded as goodwill. The valuation was finalized in the second quarter of 2009.

Leader Energy Services, Ltd.

     On July 22, 2008, the Company acquired all of the United States-based assets of Leader Energy Services, Ltd. (“Leader”), a Canadian company. Total consideration paid was approximately $35.3 million in cash. The Company also incurred direct transaction costs of approximately $0.1 million. The purchase price was allocated to the tangible assets acquired. The acquisition of the Leader assets was accounted for as an asset purchase as the assets acquired did not constitute a business and therefore did not result in the establishment of goodwill. The Company did not identify any acquired intangible assets. The Leader assets were incorporated into our Production Services segment.

NOTE 4. OTHER CURRENT AND NON-CURRENT LIABILITIES

     The table below presents comparative detailed information about the Company’s current accrued liabilities at June 30, 2009 and December 31, 2008:

		June 30,				December 31,
		2009				2008
		(in thousands)
Current Accrued Liabilities:
Accrued payroll, taxes and employee benefits		$	43,960			$	67,408
Accrued operating expenditures			26,393				50,833
Income, sales, use and other taxes			34,282				41,003
Self-insurance reserves			24,091				25,724
Unsettled legal claims			3,385				4,550
Phantom share liability			813				902
Other			7,536				6,696
Total		$	140,460			$	197,116

     The table below presents comparative detailed information about the Company’s other non-current accrued liabilities at June 30, 2009 and December 31, 2008:

		June 30,				December 31,
		2009				2008
		(in thousands)
Non-Current Accrued Liabilities:
Asset retirement obligations		$	9,542			$	9,348
Environmental liabilities			2,728				3,004
Accrued rent			2,332				2,497
Accrued income taxes			1,359				1,359
Phantom share liability			546				478
Other			829				809
Total		$	17,336			$	17,495

NOTE 5. GOODWILL AND OTHER INTANGIBLE ASSETS

     The changes in the carrying amount of goodwill for the six months ended June 30, 2009 are as follows:

		Well Servicing				Production Services				Total
		(in thousands)
December 31, 2008		$	317,490			$	3,502			$	320,992
Purchase price allocation and other adjustments, net			(156	)			375				219
Impact of foreign currency translation			(73	)			200				127
June 30, 2009		$	317,261			$	4,077			$	321,338

     The components of our other intangible assets are as follows:

						December 31,
		June 30, 2009				2008
		(in thousands)
Noncompete agreements:
Gross carrying value		$	14,295			$	16,309
Accumulated amortization			(4,549	)			(4,699	)
Net carrying value		$	9,746			$	11,610
Patents, trademarks and tradename:
Gross carrying value		$	3,558			$	4,391
Accumulated amortization			(2,587	)			(3,114	)
Net carrying value		$	971			$	1,277
Customer relationships:
Gross carrying value		$	39,225			$	39,225
Accumulated amortization			(16,416	)			(12,359	)
Net carrying value		$	22,809			$	26,866
Customer backlog:
Gross carrying value		$	658			$	622
Accumulated amortization			(301	)			(207	)
Net carrying value		$	357			$	415
Developed technology:
Gross carrying value		$	4,036			$	3,598
Accumulated amortization			(1,991	)			(1,421	)
Net carrying value		$	2,045			$	2,177

     Certain of our intangible assets are denominated in currencies other than U.S. dollars and, as such, the values of these assets are subject to fluctuations associated with changes in exchange rates. Amortization expense for our intangible assets was $3.4 million and $4.3 million for the three months ended June 30, 2009 and 2008, respectively. Amortization expense for our intangible assets was $6.8 million and $8.1 million for the six months ended June 30, 2009 and 2008, respectively.

NOTE 6. EQUITY METHOD INVESTMENTS

IROC Energy Services Corp.

     As of June 30, 2009 and December 31, 2008 we owned approximately 8.7 million shares of IROC Energy Services Corp. (“IROC”), an Alberta-based oilfield services company. This represented approximately 19.7% of IROC’s outstanding common stock on June 30, 2009 and December 31, 2008.

     The carrying value of our investment in IROC totaled $4.0 million and $3.7 million as of June 30, 2009 and December 31, 2008, respectively. We recorded $0.1 million and $1.0 million of equity income related to our investment in IROC for the quarters ended June 30, 2009 and 2008, respectively, and $0.3 million and $1.0 million for the six months ended June 30, 2009 and 2008, respectively. During the second quarter of 2009, IROC declared a dividend which was paid to us in June, reducing the value of our investment by approximately $0.2 million. Additionally, during the six months ended June 30, 2009, the value of our investment in IROC increased by approximately $0.2 million due to changes in exchange rates between the U.S. and Canadian dollar.

Geostream Services Group

     On October 31, 2008, we acquired a 26% interest in OOO Geostream Services Group (“Geostream”) for $17.4 million. We incurred direct transaction costs of approximately $1.9 million associated with the transaction.

     The carrying value of our investment in Geostream totaled $18.1 million and $18.9 million as of June 30, 2009 and

December 31, 2008, respectively. The fair value of the amount we have invested in Geostream is in excess of the underlying book value of our investment. We recognized approximately $0.1 million and $0.7 of net loss associated with our investment in Geostream for the three and six months ended June 30, 2009, respectively. Additionally, the value of our investment in Geostream decreased by approximately $0.1 million during the six months ended June 30, 2009 due to changes in exchange rates between the U.S. Dollar and the Euro.

     Under the Geostream agreement, as amended, we are required to purchase an additional 24% of Geostream no later than September 1, 2009 for approximately €11.3 million (which at June 30, 2009 was equivalent to approximately $15.9 million). The final terms of the additional investment, including the specific structure and form of the purchase consideration are being finalized among the parties and will be disclosed after the closing of the second investment. In addition, following the purchase of the additional 24%, the Company will have majority representation on Geostream’s board of directors and a controlling interest. We will be required to consolidate Geostream’s financial results subsequent to the purchase of the additional 24%. For a period not to exceed six years subsequent to October 31, 2008, we have the option to increase our ownership percentage of Geostream to 100%. However, if we have not acquired 100% of Geostream on or before the end of the six-year period, we will be required to arrange an initial public offering for those shares.

     In September 2007, we completed the acquisition of Advanced Measurements, Inc. (“AMI”), a privately-held Canadian company focused on oilfield technology. AMI owns a portion of another Canadian company, Advanced Flow Technologies, Inc. (“AFTI”). As of June 30, 2009, this ownership percentage was 48.63%, and we account for this interest using the equity method. We recorded losses of approximately $0.1 million and less than $0.1 million associated with our investment in AFTI for the three and six months ended June 30, 2009, respectively. The carrying value of our investment in AFTI totaled approximately $1.2 million and $1.2 million as of June 30, 2009 and December 31, 2008, respectively. Additionally, during the six months ended June 30, 2009 the value of our investment in AFTI increased by approximately $0.1 million due to changes in exchange rates between the U.S. and Canadian dollar.

     As of June 30, 2009 and December 31, 2008, the components of our long-term debt were as follows:

						December 31,
		June 30, 2009				2008
		(in thousands)
8.375% Senior Notes due 2014		$	425,000			$	425,000
Senior Secured Credit Facility revolving loans due 2012			87,812				187,813
Other long-term indebtedness			2,023				3,015
Notes payable — related parties, net of discount of $117 and $182, respectively			20,383				20,318
Capital lease obligations			19,058				23,149
		$	554,276			$	659,295
Less current portion			(25,003	)			(25,704	)
Total long-term debt and capital lease obligations, net of discount		$	529,273			$	633,591

     On November 29, 2007, the Company issued $425.0 million aggregate principal amount of 8.375% Senior Notes due 2014 (the “Senior Notes”), under an Indenture, dated as of November 29, 2007, among us, the guarantors party thereto and The Bank of New York Trust Company, N.A., as trustee. The Senior Notes were priced at 100% of their face value to yield 8.375%. Net proceeds, after deducting initial purchasers’ fees and offering expenses, were approximately $416.1 million. We used approximately $394.9 million of the net proceeds to retire then-existing term loans, including accrued and unpaid interest, with the balance used for general corporate purposes.

     The Senior Notes are general unsecured senior obligations of the Company. Accordingly, they rank effectively subordinate to all of our existing and future secured indebtedness. The Senior Notes are or will be jointly and severally guaranteed on a senior unsecured basis by certain of our existing and future domestic subsidiaries. Interest on the Senior Notes is payable on June 1 and December 1 of each year. The Senior Notes mature on December 1, 2014.

Senior Secured Credit Facility

     The Company maintains a revolving credit agreement with a syndicate of banks of which Bank of America Securities LLC and Wells Fargo Bank, N.A. are the Administrative Agents (“Senior Secured Credit Facility”). The Senior Secured Credit Facility consists of a revolving credit facility, letter of credit sub-facility and swing line facility of up to an aggregate principal amount of $400.0 million, all of which will mature no later than November 29, 2012. There were borrowings of $87.8 million and letters of credit of $53.6 million outstanding under the Senior Secured Credit Facility at June 30, 2009. The weighted average interest rate on the outstanding borrowings of the Senior Secured Credit Facility was 2.06% at June 30, 2009. The Senior Secured Credit Facility requires the Company to maintain a consolidated interest coverage ratio of at least 3.0 to 1.0, maintain a consolidated leverage ratio of not more than 3.5 to 1.0, and to not exceed capital expenditures of $250.0 million in any fiscal year. The Company was in compliance with these covenants at June 30, 2009.

     As of June 30, 2009, the Company had approximately $230.3 million available under its Senior Secured Credit Facility. This availability does not include approximately $28.3 million of unfunded commitments by Lehman Commercial Paper, Inc., a former member of the syndicate that has declared bankruptcy. Under the terms of the Senior Secured Credit Facility, committed letters of credit count against the Company’s borrowing capacity. All obligations under the Senior Secured Credit Facility are guaranteed by most of our subsidiaries and are secured by most of our assets, including our accounts receivable, inventory and equipment.

Seller Financing Arrangement in Moncla Purchase

     In connection with our acquisition of Moncla Well Service, Inc. and related entities (collectively, “Moncla”) on October 25, 2007, the Company entered into two promissory notes with the sellers. The first is an unsecured note in the amount of $12.5 million, which is due and payable in lump-sum, together with accrued interest, on October 25, 2009. The second unsecured note in the amount of $10.0 million is payable in annual installments of $2.0 million, plus accrued interest, on each anniversary date through October 2012. Each of the notes bears interest at the Federal Funds Rate, adjusted annually on the anniversary of the closing date. As of June 30, 2009, the interest rate on these notes was 1.5%.

NOTE 8. INCOME TAXES

     The Company’s effective tax rate for the three months ended June 30, 2009 and 2008 was 36.6% and 38.5%, respectively. The Company’s effective tax rate for the six months ended June 30, 2009 and 2008 was 37.3% and 38.9%, respectively. The primary difference between the statutory rate of 35% and our effective tax rate relates to state and foreign taxes.

     As of June 30, 2009 and December 31, 2008, we had approximately $5.1 million and $5.6 million, respectively, of unrecognized tax benefits, net of federal tax benefit, which, if recognized, would impact our effective tax rate. We recognized tax benefits of $0.7 million and zero due to statute expirations for the six months ended June 30, 2009 and June 30, 2008, respectively. We are subject to U.S. Federal Income Tax as well as income taxes in multiple state and foreign jurisdictions. We have substantially concluded all U.S. federal and state tax matters through the year ended December 31, 2004.

     We record expense and penalties related to unrecognized tax benefits as income tax expense. We have accrued a liability of approximately $1.7 million and $2.1 million for the payment of interest and penalties as of June 30, 2009 and December 31, 2008, respectively. We believe that it is reasonably possible that approximately $2.1 million of our currently remaining unrecognized tax positions, each of which are individually insignificant, may be recognized in the next twelve months as a result of a lapse of statute of limitations. No release of our deferred tax asset valuation allowance was made during the three or six months ended June 30, 2009.

NOTE 9. COMMITMENTS AND CONTINGENCIES

Litigation

     Various suits and claims arising in the ordinary course of business are pending against us. Due in part to the locations where we conduct business in the continental United States, we are often subject to jury verdicts and arbitration hearings that result in outcomes in favor of the plaintiffs. We continually assess our contingent liabilities, including potential litigation liabilities, as well as the adequacy of our accruals and our need for the disclosure of these items. In accordance with SFAS No. 5, Accounting for Contingencies, we establish a provision for a contingent liability when it is probable that a liability has been incurred and the amount is reasonably estimable. As of June 30, 2009, the aggregate amount of our provisions for losses related to litigation that are deemed probable and reasonably estimable is approximately $3.4 million. We do not believe that the disposition of any of these matters will result in an additional loss materially in excess of the amounts that we have already recorded. During the second quarter of 2009, we recorded a net decease in our reserves of $1.2 million related to the settlement of ongoing legal matters and the continued refinement of liabilities recognized for litigation deemed probable and estimable.

Gonzales Matter

     In September 2005, a class action lawsuit, Gonzales v. Key Energy Services, Inc., was filed in Ventura County, California, Superior Court, alleging that Key did not pay its hourly employees for travel time between the yard and the wellhead and that certain employees were denied meal and rest periods. On September 17, 2008, we reached an agreement in principle, subject to court approval, to settle all claims related to this matter for $1.2 million. Final approval of this settlement was reached in the second quarter of 2009. We recorded a liability for this lawsuit in 2005, and the resolution of this matter resulted in a recovery of a portion of the amount that we had previously accrued.

Litigation with Former Officers and Employees

     We were named in a lawsuit by our former general counsel, Jack D. Loftis, Jr., filed in the U.S. District Court, District of New Jersey on April 21, 2006, in which he alleges a “whistle-blower” claim under the Sarbanes-Oxley Act, breach of contract, breach of duties of good faith and fair dealing, breach of fiduciary duty and wrongful termination. On August 17, 2007, the Company filed counterclaims against Mr. Loftis alleging attorney malpractice, breach of contract and breach of fiduciary duties. In its counterclaims, the Company seeks repayment of all severance paid to Mr. Loftis to date (approximately $0.8 million) plus benefits paid during the period July 8, 2004 to September 21, 2004, and damages relating to the allegations of malpractice and breach of fiduciary duties. The case was transferred to and is now pending in the U.S. District Court for the Eastern District of Pennsylvania and is currently set for trial in the first quarter of 2010. We recorded a liability for this matter in the fourth quarter of 2008 and do not believe that the conclusion of this matter will have a material impact on our financial position, results of operations or cash flows.

     On October 17, 2006, Jane John, the ex-wife of our former chief executive officer, Francis John, filed a complaint in Bucks County, Pennsylvania against her ex-husband and the Company. Ms. John alleges breach of marital agreement, breach of options agreements, civil conspiracy and fraud. She alleges that Mr. John and the Company defrauded her with regard to Mr. John’s compensation, as well as in the disclosures of marital property. By virtue of assignments, Ms. John held 375,000 stock options which expired unexercised during a period in which the Company was not current in its financial statements, when such options could not be exercised. In resolving a separate lawsuit between the Company and Mr. John, Mr. John agreed to indemnify the Company with respect to damages attributable to any and all of Ms. John’s claims, other than damages attributable to any alleged breach of Ms. John’s stock option agreements, for which the Company agreed to indemnify Mr. John. Discovery in the case remains ongoing, and there is currently not a trial setting. We initially recorded a liability for this matter for the third quarter of 2008, and do not believe that the ultimate conclusion of this matter will have a material impact on our financial position, results of operations or cash flows.

     On January 11, 2008, our former chief operating officer, James Byerlotzer, filed a lawsuit in the 55^th District Court, Harris County, Texas, alleging breach of contract based on his inability to exercise his stock options during the period that the Company was not current in its SEC filings and the Company’s failure to grant him shares of restricted stock to which he alleged he was entitled. During the second quarter of 2009, we reached a settlement with Mr. Byerlotzer regarding this matter. We had not previously recorded a liability for this matter and, during the second quarter of 2009, we recorded a charge for this settlement.

     On September 3, 2006, our former controller and former assistant controller filed a joint complaint against the Company in the 133^rd District Court, Harris County, Texas, alleging constructive termination and breach of contract. We have not recorded a liability for this matter and do not believe that the ultimate conclusion of this matter will have a material impact on our financial position, results of operations or cash flows.

Self-Insurance Reserves

     We maintain reserves for workers’ compensation and vehicle liability on our balance sheet based on our judgment and estimates using an actuarial method based on claims incurred. We estimate general liability claims on a case-by-case basis. We maintain insurance policies for workers’ compensation, vehicle liability and general liability claims. These insurance policies carry self-insured retention limits or deductibles on a per occurrence basis. The retention limits or deductibles are accounted for in our accrual process for all workers’ compensation, vehicular liability and general liability claims. As of June 30, 2009 and December 31, 2008, we have recorded $61.0 million and $68.9 million, respectively, of self-insurance reserves related to workers’ compensation, health insurance, vehicular liabilities and general liability claims. Partially offsetting these liabilities, we had approximately $8.4 million and $10.8 million of insurance receivables as of June

30, 2009 and December 31, 2008 respectively. We feel that the liabilities we have recorded are appropriate based on the known facts and circumstances and do not expect further losses materially in excess of the amounts already accrued for existing claims.

Environmental Remediation Liabilities

     For environmental reserve matters, including remediation efforts for current locations and those relating to previously disposed properties, we record liabilities when our remediation efforts are probable and the costs to conduct such remediation efforts can be reasonably estimated. While our litigation reserves reflect the application of our insurance coverage, our environmental reserves do not reflect management’s assessment of the insurance coverage that may apply to the matters at issue. As of June 30, 2009 and December 31, 2008, we have recorded approximately $2.7 million and $3.0 million, respectively, for our environmental remediation liabilities. We feel that the liabilities we have recorded are appropriate based on the known facts and circumstances and do not expect further losses materially in excess of the amounts already accrued.

     We provide performance bonds to provide financial surety assurances for the remediation and maintenance of our saltwater disposal (“SWD”) properties, in order to comply with environmental protection standards. Costs for SWD properties may be mandatory (to comply with applicable laws and regulations), in the future (required to divest or cease operations), or for optimization (to improve operations, but not for safety or regulatory compliance).

NOTE 10. EARNINGS PER SHARE

     We present earnings per share information in accordance with the provisions of SFAS No. 128, Earnings Per Share (“SFAS 128”). Under SFAS 128, basic earnings per common share is determined by dividing net earnings applicable to common stock by the weighted average number of common shares actually outstanding during the period. Diluted earnings per common share is based on the increased number of shares that would be outstanding assuming conversion of potentially dilutive outstanding securities using the treasury stock and “as if converted” methods.

		Three Months Ended June 30,								Six Months Ended June 30,
		2009				2008				2009				2008
		(in thousands, except per share amounts)
Basic EPS Computation:
Numerator
Net (loss) income attributable to common stockholders		$	(18,473	)		$	44,012			$	(17,569	)		$	78,496
Denominator
Weighted average shares outstanding			120,963				124,448				120,815				126,207
Basic (loss) earnings per share		$	(0.15	)		$	0.35			$	(0.15	)		$	0.62
Diluted EPS Computation:
Numerator
Net (loss) income attributable to common stockholders		$	(18,473	)		$	44,012			$	(17,569	)		$	78,496
Denominator
Weighted average shares outstanding			120,963				124,448				120,815				126,207
Stock options			—				877				—				729
Unvested restricted stock			—				401				—				335
Warrants			—				795				—				643
			120,963				126,521				120,815				127,914
Diluted (loss) earnings per share		$	(0.15	)		$	0.35			$	(0.15	)		$	0.61

     The diluted earnings per share calculation for the quarters ended June 30, 2009 and 2008 exclude the potential exercise of 4.3 million and 2.3 million stock options, respectively, because the effects of such exercises on earnings per share in those periods would be anti-dilutive. The diluted earnings per share calculation for the quarters ended June 30, 2009 and 2008 also exclude the potential exercise of 0.5 million and 0.6 million stock appreciation rights (“SARs”), respectively, because the effects of such exercises on earnings per share in those periods would be anti-dilutive. These options and SARs would be anti-dilutive because of our net loss for the 2009 period and because the exercise prices for those awards exceeded the average stock price for the Company during the 2008 period.

     The diluted earnings per share calculation for the six months ended June 30, 2009 and 2008 exclude the potential exercise of 4.6 million and 2.1 million stock options, respectively, because the effects of such exercises on earnings per share in those periods would be anti-dilutive. The diluted earnings per share calculation for the six months ended June 30, 2009 and 2008 also exclude the potential exercises of 0.5 million and 0.6 million SARs, respectively, because the effects of such exercises on earnings per share in those periods would be anti-dilutive. These options and SARs would be anti-dilutive because of our net loss for the 2009 period and because the exercise prices for those awards exceeded the average stock price for the Company during the 2008 period.

     The Company recognized employee share-based compensation expense of $2.6 million and $5.1 million during the three months ended June 30, 2009 and 2008, respectively. The related income tax benefit recognized for employee share-based compensation was $0.9 million and $1.8 million for the three months ended June 30, 2009 and 2008, respectively. The Company recognized employee share-based compensation expense of $2.9 million and $8.8 million during the six months ended June 30, 2009 and 2008, respectively. The related income tax benefit recognized for employee share-based compensation was $1.0 million and $2.8 million for the six months ended June 30, 2009 and 2008, respectively. The Company did not capitalize any share-based compensation during the three or six month periods ended June 30, 2009 and 2008.

     During the three months ended June 30, 2009, we issued approximately 0.2 million shares of restricted common stock to certain of our employees and officers, which vest in equal installments over the next three years. These shares had a weighted average issuance price of $6.31 per share. In addition, the Company issued 143,100 shares of common stock to our outside directors during the three months ended June 30, 2009. These shares vest immediately and we recognized approximately $0.9 million of expense related to these awards. The related income tax benefit recognized for the common stock awards made to our outside directors was approximately $0.3 million for the three and six months ended June 30, 2009.

     The unrecognized compensation cost related to the Company’s outstanding unvested stock options, restricted shares and phantom shares as of June 30, 2009 was $0.1 million, $8.0 million and $1.0 million, respectively, and is expected to be recognized over a weighted average period of 2.0 years, 1.6 years and 1.4 years, respectively.

     In connection with an acquisition in 2008, the former owner of the acquiree became an employee of the Company. At the time of and subsequent to the acquisition, the employee also owns an exploration and production company. Subsequent to the acquisition, the Company continued to provide services to this exploration and production company. The prices charged for these services are at rates that are an average of the prices charged to our other customers in the California market. As of June 30, 2009, our receivables with this company totaled approximately $0.3 million. For the three and six months ended June 30, 2009, revenues from this company totaled approximately $0.6 million and $2.4 million, respectively.

     In October 2007, we added a member to our board of directors who is the Senior Vice President, General Counsel and Chief Administrative Officer of Anadarko Petroleum Corporation (“Anadarko”), which is one of our customers. Sales to Anadarko comprised less than 2% of our total revenues for the three and six months ended June 30, 2009 and 2008, respectively. Transactions with Anadarko for our services are made at market prices.

     On April 3 2009, the Company entered into a Settlement Agreement and Release of Claims with each of Kevin P. Collins and W. Phillip Marcum, two current members of the Company’s board of directors. These agreements relate to a total of 140,000 stock options held by those directors which expired unexercised during the period before the Company became current with its financial statements. Pursuant to these agreements, the Company paid the directors approximately $0.2 million each, and the directors fully released and discharged the Company from any and against all claims they had or could have asserted with respect to their expired stock options.

     The following is a summary of the carrying amounts and estimated fair values of our financial instruments as of June 30, 2009 and December 31, 2008. SFAS 107 defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between two willing parties. No material changes have occurred to the methodologies or assumptions regarding the fair values of our financial instruments from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008. For the six months ended June 30, 2009, we have not elected the fair value option for any of our financial assets or liabilities pursuant to SFAS No. 159, The Fair Value Option for Financial Assets and Liabilities, including an amendment of FASB Statement No. 115. The carrying values of our cash and cash equivalents, accounts payable and accrued liabilities approximate their fair values at the respective balance sheet dates because of the short maturity and highly liquid nature of these instruments and are not included in the table below.

		June 30, 2009								December 31, 2008
		Carrying Value				Fair Value				Carrying Value				Fair Value
		(in thousands)
Financial assets:
Notes and accounts receivable — related parties		$	437			$	437			$	336			$	336
Financial liabilities:
8.375% Senior Notes		$	425,000			$	377,188			$	425,000			$	282,115
Senior Secured Credit Facility revolving loans			87,812				87,812				187,813				187,813
Notes payable — related parties			20,383				20,383				20,318				20,318

     Notes and accounts receivable — related parties. The amounts reported relate to notes receivable from certain employees of the Company related to relocation loans and retention agreements, as well as our trade accounts receivable with related parties. The carrying values of these instruments approximate their fair values as of the respective balance sheet dates due to their short maturity dates.

     8.375% Senior Notes. The fair value of our Senior Notes is based on quoted market prices as of the respective balance sheet dates. The carrying value for the Senior Notes was $425.0 million as of June 30, 2009 and December 31, 2008, respectively, and the fair value of the Senior Notes was $377.2 million and $282.1 million as of June 30, 2009 and December 31, 2008, respectively.

     Senior Secured Credit Facility revolving loans. Because of their variable interest rates and the underlying security, the fair values of the revolving loans borrowed under our Senior Secured Credit Facility approximate their carrying values as of December 31, 2008. The carrying values and fair values of these loans were approximately $87.8 million and $187.8 million as of June 30, 2009 and December 31, 2008, respectively.

     Notes payable — related parties. The amounts reported relate to a seller financing arrangement that we entered into in connection with an acquisition we made during 2007. The carrying values of these notes approximate their fair values as of the respective balance sheet dates due to their variable interest rates.

NOTE 14. SEGMENT INFORMATION

     The Company revised its reportable business segments effective in the first quarter of 2009. The new operating segments are Well Servicing and Production Services. Financial results as of and for the three and six months ended June 30, 2008 have been restated to reflect the change in operating segments. The Company revised its segments to reflect changes in management’s resource allocation and performance assessment in making decisions regarding the Company. Our rig services and fluid management operations are aggregated within our Well Servicing segment. Our pressure pumping, fishing, rental and cased-hole electric wireline operations, as well as our technology development group in Canada, are now aggregated within our Production Services segment. These changes reflect the Company’s current operating focus in compliance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information (“SFAS 131”). We aggregate services that create our reportable segments in accordance with SFAS 131, and the accounting policies for our segments are the same as those described in “Note 1. Organization and Summary of Significant Accounting Policies” included in our Annual Report on Form 10-K for the year ended December 31, 2008. We evaluate the performance of our operating segments based on revenue and earnings before interest, taxes, depreciation and amortization (“EBITDA”), which is a non-GAAP measure and is not disclosed below. All inter-segment sales pricing is based on current market conditions. Additionally, we have aggregated all of our operating segments that do not meet the aggregation criteria established in SFAS 131 to form a “Functional Support” segment. Functional Support expenses include expenses associated with managing all of our other reportable segments.

     The following is a description of our operating segments:

Well Servicing

Rig Services

     This segment includes the maintenance of existing wells, workover of existing wells, completion of newly drilled wells, drilling of horizontal wells, recompletion of existing wells (re-entering a well to complete the well in a new geologic zone or formation) and plugging and abandonment of wells at the end of their useful lives.

     Workover services are performed to enhance the production of existing wells. Such services include extensions of existing wells to drain new formations either by deepening wellbores to new zones or by drilling horizontal or lateral wellbores to improve reservoir drainage. In less extensive workovers, our rigs are used to seal off depleted zones in existing wellbores and access previously bypassed productive zones.

     Our completion services prepare a newly drilled oil or natural gas well for production. We typically provide a well service rig and may also provide other equipment such as a workover package to assist in the completion process.

Fluid Management Services

     This segment also provides fluid management services, including oilfield transportation and produced-water disposal services. Our oilfield transportation and produced-water disposal services include vacuum truck services, fluid transportation services and disposal services for operators whose oil or natural gas wells produce saltwater and other fluids. In addition, we are a supplier of frac tanks which are used for temporary storage of fluids in conjunction with the fluid hauling operations. Our fluid management services will collect, transport and dispose of the saltwater. These fluids are removed from the well site and transported for disposal in a saltwater disposal (“SWD”) well.

Production Services

     This segment provides multiple services as described below:

Pressure Pumping Services

     We provide well stimulation and cementing services to oil and natural gas producers. Well stimulation services include fracturing, nitrogen, coiled tubing and acidizing services. These services (which may be completion or workover services) are used to enhance the production of oil and natural gas wells from formations which exhibit restricted flow of oil and natural gas. In the fracturing process, we typically pump fluid and sized sand, or proppants, into a well at high pressure in order to fracture the formation and thereby increase the flow of oil and natural gas. With our cementing services, we pump cement into a well between the casing and the wellbore.

Fishing Services

     We provide fishing services to major and independent oil and natural gas production companies in the Gulf Coast, Central and Permian Basin marketplaces, as well as in California. We also provided limited services offshore in the Gulf of Mexico. Fishing services involve recovering lost or stuck equipment in the wellbore utilizing a “fishing tool.”

Rental Services

     We provide rental services to major and independent oil and natural gas production companies in the Gulf Coast, Central and Permian Basin marketplaces, as well as in California. We offer a full line of services and rental equipment designed for use both onshore and offshore for drilling and workover services. Our rental tool inventory consists of drill pipe, tubulars, handling tools (including our patented Hydra-Walk ^® pipe-handling units and services), pressure-control equipment, power swivels and foam air units.

Cased-hole Electric Wireline Services

     We perform activities at various times throughout the life of the well including perforating, completion logging, production logging and casing integrity services. After the wellbore is cased and cemented, we can provide a number of services. Perforating creates the flow path between the reservoir and the wellbore. Production logging can be performed throughout the life of the well to measure temperature, fluid type, flow rate, pressure and other reservoir characteristics. This service helps the operator analyze and monitor well performance and determine when a well may need a workover or further stimulation.

     The following tables set forth our segment information as of and for the three and six month periods ended June 30, 2009 and 2008 (in thousands):

As of and for the three months ended June 30, 2009:

						Production				Functional
		Well Servicing				Services				Support				Eliminations				Total
Revenues from external customers		$	197,945			$	43,513			$	—			$	—			$	241,458
Intersegment revenue			6				975				—				(981	)			—
Operating expenses			182,423				52,383				27,633				—				262,439
Operating income (loss)			15,522				(8,870	)			(27,633	)			—				(20,981	)
Interest expense			(331	)			16				10,496				—				10,181
Income (loss) before income taxes			16,858				(7,935	)			(38,054	)			—				(29,131	)
Total assets			1,255,987				347,567				600,086				(397,728	)			1,805,912
Capital expenditures, excluding acquisitions			8,384				11,038				3,190				—				22,612

As of and for the three months ended June 30, 2008:

						Production				Functional
		Well Servicing				Services				Support				Eliminations				Total
Revenues from external customers		$	370,859			$	131,144			$	—			$	—			$	502,003
Intersegment revenue			—				865				—				(865	)			—
Operating expenses			285,441				103,136				34,431				—				423,008
Operating income (loss)			85,418				28,008				(34,431	)			—				78,995
Interest expense			(591	)			(357	)			11,027				—				10,079
Income (loss) before income taxes			85,795				29,583				(44,131	)			—				71,247
Total assets			1,381,727				446,843				472,741				(363,550	)			1,937,761
Capital expenditures, excluding acquisitions			27,293				12,433				1,270				—				40,996

As of and for the six months ended June 30, 2009:

						Production				Functional
		Well Servicing				Services				Support				Eliminations				Total
Revenues from external customers		$	454,206			$	119,241			$	—			$	—			$	573,447
Intersegment revenue			6				1,955				—				(1,961	)			—
Operating expenses			397,669				131,671				53,788				—				583,128
Operating income (loss)			56,537				(12,430	)			(53,788	)			—				(9,681	)
Interest expense			(887	)			(602	)			21,318				—				19,829
Income (loss) before income taxes			58,272				(11,786	)			(74,488	)			—				(28,002	)
Total assets			1,255,987				347,567				600,086				(397,728	)			1,805,912
Capital expenditures, excluding acquisitions			32,584				28,827				5,998				—				67,409

As of and for the six months ended June 30, 2008:

						Production				Functional
		Well Servicing				Services				Support				Eliminations				Total
Revenues from external customers		$	709,372			$	249,030			$	—			$	—			$	958,402
Intersegment revenue			—				905				—				(905	)			—
Operating expenses			538,499				196,109				77,749				—				812,357
Operating income (loss)			170,873				52,921				(77,749	)			—				146,045
Interest expense			(1,181	)			(862	)			22,162				—				20,119
Income (loss) before income taxes			170,982				55,122				(97,950	)			—				128,154
Total assets			1,381,727				446,843				472,741				(363,550	)			1,937,761
Capital expenditures, excluding acquisitions			52,806				16,120				2,445				—				71,371

     The following tables present information related to our operations on a geographical basis as of and for the three and six month periods ended June 30, 2009 and 2008 (in thousands):

		U.S.				Argentina				Mexico				Canada				Eliminations				Total
As of and for the three months ended June 30, 2009:
Revenue from external customers		$	197,274			$	16,077			$	27,874			$	233			$	—			$	241,458
Long-lived assets			1,436,549				22,804				57,254				7,553				(90,489	)			1,433,671
Capital expenditures, excluding acquisitions			17,321				—				5,278				13				—				22,612
As of and for the three months ended June 30, 2008:
Revenue from external customers		$	460,338			$	29,740			$	9,760			$	2,165			$	—			$	502,003
Long-lived assets			1,419,408				29,551				24,435				7,072				(57,344	)			1,423,122
Capital expenditures, excluding acquisitions			32,987				621				7,262				126				—				40,996
As of and for the six months ended June 30, 2009:
Revenue from external customers		$	482,017			$	35,413			$	55,570			$	447			$	—			$	573,447
Long-lived assets			1,436,549				22,804				57,254				7,553				(90,489	)			1,433,671
Capital expenditures, excluding acquisitions			48,349				1,566				17,481				13				—				67,409
As of and for the six months ended June 30, 2008:
Revenue from external customers		$	880,832			$	56,606			$	15,461			$	5,503			$	—			$	958,402
Long-lived assets			1,419,408				29,551				24,435				7,072				(57,344	)			1,423,122
Capital expenditures, excluding acquisitions			56,515				995				13,735				126				—				71,371

NOTE 15. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

     During the fourth quarter of 2007, we issued the Senior Notes, which are guaranteed by virtually all of our domestic subsidiaries, all of which are wholly-owned. These guarantees are joint and several, full, complete and unconditional. There are no restrictions on the ability of subsidiary guarantors to transfer funds to the parent company.

     As a result of these guarantee arrangements, we are required to present the following condensed consolidating financial information pursuant to SEC Regulation S-X Rule 3-10, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.

CONDENSED CONSOLIDATING BALANCE SHEETS

		June 30, 2009
						Guarantor				Non-Guarantor
		Parent Company				Subsidiaries				Subsidiaries				Eliminations				Consolidated
		(in thousands)
		(unaudited)
Assets:
Current assets		$	45,820			$	244,497			$	81,768			$	156			$	372,241
Property and equipment, net			—				1,011,244				24,726				—				1,035,970
Goodwill			—				316,888				4,450				—				321,338
Deferred financing costs, net			9,509				—				—				—				9,509
Intercompany notes and accounts receivable and investments in subsidiaries			1,908,216				535,204				2,120				(2,445,540	)			—
Other assets			22,095				41,093				3,666				—				66,854
TOTAL ASSETS		$	1,985,640			$	2,148,926			$	116,730			$	(2,445,384	)		$	1,805,912
Liabilities and equity:
Current liabilities		$	9,231			$	154,322			$	27,534			$	—			$	191,087
Capital lease obligations, less current portion			—				10,420				41				—				10,461
Notes payable — related parties, less current portion			—				6,000				—				—				6,000
Long-term debt			512,812				—				—				—				512,812
Intercompany notes and accounts payable			429,094				1,488,738				64,490				(1,982,322	)			—
Deferred tax liabilities			189,834				—				(1,631	)			—				188,203
Other long-term liabilities			1,608				52,570				—				110				54,288
Stockholders’ and members’ equity			843,061				436,876				26,296				(463,172	)			843,061
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,985,640			$	2,148,926			$	116,730			$	(2,445,384	)		$	1,805,912

		December 31, 2008
						Guarantor				Non-Guarantor
		Parent Company				Subsidiaries				Subsidiaries				Eliminations				Consolidated
										(in thousands)
										(unaudited)
Assets:
Current assets		$	29,673			$	440,758			$	88,534			$	157			$	559,122
Property and equipment, net			—				1,025,007				26,676				—				1,051,683
Goodwill			—				316,669				4,323				—				320,992
Deferred financing costs, net			10,489				—				—				—				10,489
Intercompany notes and accounts receivable and investments in subsidiaries			1,917,522				419,554				1,775				(2,338,851	)			—
Other assets			22,597				48,237				3,803				—				74,637
TOTAL ASSETS		$	1,980,281			$	2,250,225			$	125,111			$	(2,338,694	)		$	2,016,923
Liabilities and equity:
Current liabilities		$	13,792			$	231,528			$	28,054			$	(1	)		$	273,373
Capital lease obligations, less current portion			—				13,714				49				—				13,763
Notes payable — related parties, less current portion			—				6,000				—				—				6,000
Long-term debt			612,813				1,015				—				—				613,828
Intercompany notes and accounts payable			305,348				1,624,932				69,204				(1,999,484	)			—
Deferred tax liabilities			187,596				—				985				—				188,581
Other long-term liabilities			—				60,386				260				—				60,646
Stockholders’ and members’ equity			860,732				312,650				26,559				(339,209	)			860,732
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,980,281			$	2,250,225			$	125,111			$	(2,338,694	)		$	2,016,923